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THQ: Is this the beginning of the end?
THQ: Is this the beginning of the end?
November 5, 2012 | By Chris Morris

It's starting to look like THQ is entering the end game.

The company beat the forecasts of financial analysts Monday, but tempered that good news with a lot of bad. Earnings guidance was suspended. The guidance for the rest of this fiscal year? Just forget about that, said the company. Big games? Delayed – with the biggest being pushed into the next fiscal year. And the money? Running short.

On the company's quarterly conference call, it added to the misery by refusing to take questions from analysts – citing its efforts to evaluate "strategic and financing alternatives intended to improve THQ’s overall liquidity." Basically, it told the financial world, it doesn't have any answers for the litany of questions investors currently have.

It's sobering news – and while THQ did its best to give it an upbeat spin, even the most hopeful of observers now have to start wondering if what we're seeing is the beginning of a death rattle for what was once the industry's third largest publisher.

Investors have certainly lost faith. After THQ's 10 for 1 reverse stock split on July 9, the company's stock has continued to slide – falling nearly 60 percent at one point. (Shares closed Monday slightly higher at $3.02 per share – and were suspended in after hours trading - but they're likely to fall hard in trading Tuesday.)

As I read the earnings and listened to the truncated earnings call, I thought back to a conversation I had with THQ chairman and CEO Brian Farrell at E3 this year.

"We don't have a lot of room to run, so we've got to execute flawlessly," he said at the time. Obviously, the company hasn't.

Interestingly, Farrell largely stuck to the background in Monday's earnings announcement. He had a quick paragraph stuck to the bottom of the earnings announcement – and bookended the quick call with analysts. But the spotlight was clearly on new president Jason Rubin.

That might have been to start putting a new public face on the company, as investor faith in Farrell has seemingly wavered. But if that was the plan, Rubin's comments were not the sort of thing you'd expect an executive to say in order to build confidence.

In the earnings call, he essentially painted Company of Heroes 2, Metro: Last Light and South Park: The Stick of Truth as being games that weren't shaping up well when he came on board. None, he said, were as good as Darksiders II, the commercially disappointing title that earned a respectable, but not awe-inspiring Metcritic score of 84.

Delaying Company of Heroes 2 and Metro: Last Light by a month or two, though, isn't something that implies substantial changes are being made. If it wasn't obvious before, it's now crystal clear that THQ appears to be putting all of its collective eggs into the South Park basket.

On the upside, the game looked great at E3 in June. On the downside… South Park has a mixed track record in the videogame space. And the TV series is now 16 years old. While its humor is still sharp, it's less cutting-edge than it used to be.

Of course, it's better to delay games when their quality levels aren't up to standards. I'm not arguing otherwise. But THQ's back is certainly against the wall here. And if it's using Rubin as a new frontman to shape a different story to tell investors, he's going to need more.

Again, Farrell said it best in June: "I've been doing this long enough to know that …at the end of the day, the product will drive the stock price," he said.

Overshadowing all of this is the lingering threat that THQ might not have the money to ride out those delays. The company has already drawn $21 million from its line of credit – and its cash reserves are down to $36 million.

It has tapped Centerview Partners to help it raise capital and address the August 2014 due date of its $100 million 5% convertible senior notes. (But as the company acknowledged in its earnings, "there can be no assurance that the evaluation of strategic and financing alternatives will result in a transaction or financing, or that, if completed, said transaction and/or financing will be on attractive terms.")

"Strategic alternatives" is one of those business phrases that usually means the company is shopping itself around for a buyer. So, while it's hoping things will get better, they could get a lot worse – a lot quicker.

Once more, let's harken back to that June conversation:

"We want to show the shareholders that the heavy lifting is done," said Farrell at the time. "The last six months have been an exercise in great pain and suffering. We feel like we're getting there. We've taken a lot of negative things in the press – and frankly a lot of that was deserved. This company has changed. We have strong, new leadership. … It's starting to come together."

We can debate whether that was true at the time. But with today's announcements, it's starting to look like whatever was coming together is starting to fall apart now.

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Beyond Good and Evil
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It's hard not to be angry when I read articles like this. This "problem" has been developing for more than 4 years now and NO ONE wanted to talk about it then - even when the company and it's executives were CLEARLY making bad decisions in an ongoing pattern. This is corporate mismanagement and nothing else - THQ does NOT have to be in this situation. People should be held accountable.

Dan the gaming Guy
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I couldn't have said it better BG&E. I was with the company for a while a couple of years ago, I could not believe what I was seeing/hearing. Money poorly spent chasing CoD and Mmo dreams, blamed failures on the market, and put in place creative policies that fast tracked them to this outcome.

I got the feeling the guilty just didn't know what they were doing. Also many company decisions felt ego based rather than strategic. Shame, I worked with talented developers that were as good as any successful company.

James Yee
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I agree as well. This slide has been a long time in coming and one many of us have commented about before. :|

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Johnathon Swift
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Investors have three modes: 1. Scrambling around each other like carnivorous mice on a whale carcass, deciding whether and how much to buy of the hot, sweet whale meat. 2. Smooth sailing, everything is fine, no need to pay attention. 3. Oh crap the boats on fire abandon ship!

Kevin Fishburne
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1983. Different players.

Nooh Ha
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This is sad. THQ is supposed to be publishing the 2 games I am looking forward to more than any other at the moment: Crytek's Homefront 2 and Relic's CoH 2....

Paul Marzagalli
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The more competition out there, the better for the consumer. If THQ goes under, that's...not great, certainly not for the health of AAA gaming.

On a smaller note, I was disappointed by the comments regarding and delay of South Park. I thought that game was coming along nicely, and was pulling for it to be a big hit. I hope it still is!

Chuong Ngo
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If THQ goes under, do anyone know how many studios will cease to exist?

Beyond Good and Evil
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It's not that simple. THQ "going under" could happen in any number of ways - and some of those avenues don't involve shuttering studios.

Marvin Papin
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I don't know who's taking decision about games but i can't help thinking that a company that sized is not able to make the right choices. Do people at the head play sometimes to video games ?

Michael DeFazio
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THQ I want to believe...

CoH was inspired and I was hoping CoH2 would follow in it's footsteps (rather than the lackluster expansions)

South Park looks like it has legs, (They certainly have that "South Park" look and feel down from what i hear) and Trey and Matt are honestly putting time into trying to make this a legit South Park game...(I see DLC possibilities here as well)

Metro has something unique in a sea of "the same" fps'es... Since FEAR has jumped the shark, I was hoping someone could pick up the reigns and make a legitimately scary single player FPS... I think there message and marketing have been phenomenal for this game.

So here's to Mr. Rubin... tough as it is to honestly assess and communicate that they need more time and money (never an easy conversation) I like his style... don't complain (and wash your hands) after the fact that games ship and don't meet expectations, make the tough call to go... hat in hand and ask for more time and money... I hate the see games I'm looking forward to slip, but if means delivering a quality experience then do it.

...Also, just a thought, but by pushing the games you might be able to bridge between this generation and next generation (i.e. release the games on "this gen" AND next gen simultaneously...when the new consoles come out, (but the existing gen is still going strong) you might get added sales since those who pick up the new console will be "hungry for new content", and those who don't make the leap to next gen can still pick up the games...

Maria Jayne
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I'm gutted Space Marine wasn't more popular, that and the Dawn Of War series were my favourite two releases from THQ in recent years. I hope whatever happens we eventually see more of them, either from Relic or from whoever picks them up.

As for poor decisions, yeah it appears they made a few too many, of course it's easy to see they were poor now that the results are known.

Mathieu MarquisBolduc
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Normally I refrain from commenting about the business of competitors. However as a citizen I was astonished to see this morning that the Government of the Province of Quebec, through the CDP, owns 25% of THQ's outstanding shares.

Benjamin Quintero
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THQ's biggest problem was trying to be unique. If they fell in line with all the other "me to" publishers then they'd be in a better place right now. It's sad to say it but THQ will fail because they tried to be different with their properties. They've always come out every year with slightly off titles that didn't seem to fit the portfolios of publishers like Activision, EA, Ubisoft. Their games were strong middle tier titles and some managed to even reach higher than that, but the mid-tier market is dead. THQ was spending money to serve an audience that was saving their money for the next generic AAA sequel.

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Eric Geer
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I believe their issue is that they are trying to be unique is that they are putting AAA budgets on games that were never and probably will never make AAA profits. It's not that unique is bad...its the way they do business that is bad. If you are doing unique projects..give them unique budgets.

Harlan Sumgui
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No. Licensing, udraw, + the 3 year debacle that was Homefront lead to cash crunch which lead to more conservative choices regarding.

Oh and the hiring of Bilson was a disaster.

Besides, saying THQ was a maker of quality unique games ignores the immense amount of wii crud they made. Probaly a ratio of 10 wii shovelware to 1 decent title.

Zirani Jean-Sylvestre
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I have been following the industry and, arguably, even if you assume that the mid tier AAA market is dead and they failed on making big franchise like EA/Ubisoft, it seems to me that their biggest mistake and the main reason for their disarray is that they have over-invested in U-Draw.

U-Draw seems the typical Investor pushed/High-Executive driven product. They saw the selling figures Nintendo/Harmonix was making by selling their toys and wanted to be a "me too". Somehow, they arrived too late on the market with perhaps the wrong product but that's just my opinion.

Allen Brooks
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I love how Brian Farrell, the same CEO who has been slowly driving THQ into the ground, through the earth and into its liquidy magma core, has the gall to talk about the company's "new leadership."

If THQ was serious about getting their act together they would have fired this guy years ago.

Beyond Good and Evil
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You're absolutely right and the final irony is, now that THQ is this far gone - no one will expend the effort required to oust him because it's over. Might as well let him go down with the ship.

Anthony Giallourakis
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The strong future of this company was set in stone the day they hired Jason Rubin and gave him control over all development, totally. As long as he is in position, THQ's future is brilliant.

Don't be fooled by lame comments from analysts and tired shareholders who rode with the current/former leaders right into the dirt, concentrate of every aspect of what happened in the conference call and do your homework. This is a rare opportunity to watch a real phoenix, something you almost never get to watch at the turn, from both sides. Bet on Jason Rubin every time! Look at his track record.

Beyond Good and Evil
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No. Jason Rubin, brilliant as he may be, will NOT, single handed, remediate 5 years plus of gross mismanagement, tech debt and talent drain. Will not.

If you've ever worked in a game publisher, or studio, which clearly you have not, then you would understand that this kind of cult of personality is a) deeply flawed and b) what leads to the downfall of these publishers. Do you know how many pundits, like yourself, were backing Danny Bilson when he joined the company.

Jason Rubin is too little, too late and I'm sad that's the case but it is the case.

Jonathan Murphy
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Back in 2011 I made 4 bold predictions. EA, THQ, Activision, and Ubisoft would be dead in 5 years, or at the very least no longer on the top 10 for sales.

What will kill THQ? Reliance on licensed games like WWE. Activsion will be milking the cow to death. EA will be their mafia approach of, "Everyone has a price. Until people wise up." Finally Ubisoft with their heavy lean on large outsourced teams, and their war against pirates. I still think of the 4 Ubisoft is in the best position to defy the odds. Remember that companies can burn bridges just as much as individuals.