Role-Playing: THQ's Brian Farrell

To say that THQ is currently facing some difficulties would be the understatement of the year. The company's last earnings call was quite telling, as the publisher wouldn't even take any questions from analysts. The stock has barely managed to stay about $1, and bankruptcy may be near.

The challenge of turning around THQ is great, and many wonder if CEO Brian Farrell is up to the task. In this month's edition of Role-Playing, GamesIndustry International put the following question to our guest panel:

"You're THQ CEO Brian Farrell. Your company is standing at the edge of the abyss, as games get pushed back, titles like Darksiders II underperform, and you struggle to maintain any value on Nasdaq. You've stated a need for capital, but there are no guarantees. What hope is there? What do you do next?"

Jon Kimmich, CEO of Software Illuminati, Adjunct Professor at DigiPen Institute of Technology

What hope is there?

There is no hope.  

"There just fundamentally isn't much to work with here when weighted against the debt"

Jon Kimmich

This ship has sailed.  And hit the iceberg.  And Jack has sunk to his watery grave.  

The time to ask this question was in 2007.  The THQ of today possesses little of value, either in IP, brand equity, or intrinsic core competency in its business that might return value as a part of another entity.  If there is anything that the past five years have taught us, it is that publisher (or developer) intrinsic value is no longer determined solely by how many successful IPs it owns, or the brand equity that it has built; but rather equally by how many addressable consumers it has in its network or database that can be monetized and marketed to (or re-marketed to).  

Just as THQ was pivoting to original IP development, the rest of our industry was pivoting to digital distribution amplified by social mechanics and virality, leaving THQ a generation behind.  Reading this year's THQ yearly shareholder report is like stepping out of a time machine back into 2002, not 2012.  The addition of Jason (Jason Rubin, current President of THQ) to the team, while laudable, was way too late.  Had that happened in 2007, when there was still time (and money) to build expertise in creating new IPs, and core-competency in digital distribution, customer development and acquisition (for which, even now, there is no champion within the organization, even if the resources became available), things might be different.  And, we can only speculate on the state of the games currently in development, other than they, "were guaranteed to fall significantly short of their design specs if they were forced to make their announced release schedules" and that a 2 month slip was the "absolute minimum required".  

Unfortunately, what we have now is a company with crushing liabilities, almost no IP it owns, no brand equity, no digital customer marketing infrastructure and no proven ability to repeatedly deliver truly great game experiences that delight a large user base.  There just fundamentally isn't much to work with here when weighted against the debt.  Given this, and the state of the product pipeline, the likelihood of private equity investment seems remote, and bankruptcy appears the most likely outcome.  

Stephen Totilo, editor-in-chief of Kotaku

Let's see. Publishing kids games didn't work. Pushing a drawing tablet didn't work. Making great games like Saint's Row The Third didn't work. UFC didn't work. The WWE is doing a good job making people care less and less about their product. Margaritaville seems to have not been the answer either.

In the next few months, Company of Heroes 2 and Metro Last Light, which both should be good will come out. Just a hunch that that won't help enough either. The last hope after that will likely be the game made by Patrice Desilets, who you'd hope could repeat his Assassin's Creed feat. Good luck.

But the only thing left to do is cross fingers or find someone who wants to buy. And that would be...no name comes to mind. Microsoft? Nah. EA? Doubtful. Disney? Not for Saint's Row. 

Hmm. Maybe there's a chance Mitt Romney would like to be president of THQ. Try that. 

Tom Bramwell, operations director at Eurogamer Network

It's very hard to see a way back for THQ at this point. The latest earnings call transcript is one of the bleakest things I've read in over a decade reporting on games. Continuing to explore strategic alternatives and give Jason Rubin whatever he needs to ship the games on time and at a high quality seems like the best course of action.

Beyond that, there can't be too much room left for pride here - if I'm Brian Farrell and it really is as life-and-death as it sounds, I would look at whatever partnerships and investment deals get anywhere near the negotiating table, and realistically if those involve losing my own job and anyone else on the management team who has put THQ in this position, then so be it.

Scott Steinberg, head of consulting firm TechSavvy

Given THQ's position, I'd look to generate added revenues through the sale of digital or expansion content for existing product, expand software preorder programs, generate capital by deeply discounting current inventory and producing a number of cost-effective bundles or compilation and back catalogue offerings, and cut expenses to the bare minimum. All non-essential programs would be frozen internally, and resources allotted to accelerating the pace at which products for which the most consumer demand exists (e.g. Company of Heroes and South Park) come to market.

"Publishing and marketing functions must be decentralized to bring development studios closer to fans and customers, essentially becoming autonomous publishing entities sharing P&L responsibility with HQ"

Bjorn Larsson

I'd also conduct a full operational assessment, and jettison all initiatives (e.g. outside of digital storefronts, next-gen console development, etc.) that weren't vital to key business activities and strategic innovation. Ultimately, to survive it's vital to a) chop all expenses and slow monthly burn; b) regain access to capital and credit; c) prioritize the release of key new launches, even if this means diverting resources from other ventures to bring them to market and cash in the door faster; d) sell-off all ancillary goods, properties and business units that don't directly plan into the firm's core business line; e) concentrate focus around specific strategic areas and f) spend only on products and programs with the highest potential and those aimed at reinventing the firm to operate leaner, meaner and as a capable next-generation concern.

Bjorn Larsson, CEO and executive producer at Legendo Entertainment

To strengthen working capital and reinstate investor confidence in the short-term talks must be initiated with prospective buyers to sell off the majority of red ocean IP such as Red Faction, Metro 2033 and Homefront. Also consider offloading Company of Heroes together with its developer Relic to the highest bidder in a package deal. In addition, efforts must be made to renew and cement the WWE license within THQ while high cost development projects such as Saint's Row 4 must be prioritized to ensure release ahead of competing titles.

Publishing and marketing functions must be decentralized to bring development studios closer to fans and customers, essentially becoming autonomous publishing entities sharing P&L responsibility with HQ. Core business operations should be revamped to utilize legacy of expertise in licensed IP and brand management to explore new, proprietary games and IP on mobile for younger audiences with the potential to double up as merchandising vehicles (although arguably a red ocean strategy, the sea would be larger and opportunities for future disruption plenty). Sales and retail ops should be retrained to focus on proprietary merchandise and licensing business; opportunities include going at it Skylanders-style, escalating the Darksiders licensing program (the morbid/gothic thematic, although limited in appeal, never gets old).

Steer bulk of development resources towards mobile, desktop and current plus next-generation Xbox, effectively focusing on Apple and Microsoft digital eco-systems while moving away from disc-based media to reduce inventory risk. Opportunities are plenty for new action RPG and sandbox categories as well as aforementioned high-quality brand driven entertainment. Avoid business on any new console platform to emerge out of Japan due to challenging macroeconomics and uncertainty of sales velocity and appeal. Cancel future SKUs for any underperforming console platforms to further reduce inventory risk and focus development efforts on meaningful eco-systems and brands.

To summarize the above while paraphrasing Seth Godin; quit the wrong stuff. Stick with the right stuff. Have the guts to do one or the other.