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What does bankruptcy mean for the future of THQ?
What does bankruptcy mean for the future of THQ? Exclusive
December 19, 2012 | By Chris Morris

December 19, 2012 | By Chris Morris
More: Console/PC, Business/Marketing, Exclusive

There's a certain irony that THQ -- a company whose name is an abbreviation of Toy Head Quarters -- met its fate less than a week before Christmas.

Make no mistake, THQ as we've known it is no more. The name might live on -- and many of the games that were in the pipeline will likely make it to market. But even if that entity eventually proves to be a major force in the video game publishing industry at some point in the future, it won't be THQ that succeeds. It will be its offspring.

Wednesday's bankruptcy filing and subsequent asset sale by the company was a confusing affair, couched in lawyer-speak and vagaries. Here's a quick look at what it means in the short term, and what it could mean in the longer term.

Dealing with big debt

THQ, as a company, has $100 million in debt hanging over it these days. It was out of cash and out of prospects, something the company all but admitted in its last earnings call when it said it was looking to evaluate "strategic and financing alternatives."

With today's Chapter 11 filing, the company is hoping to deal with those obligations. A still unnamed investor, who is working through Clearlake Capital Group, has promised to fund the company's continued development of its games to the tune of $50 million. (And it's important to note that Clearlake isn't the entity buying THQ's assets. They're the corporate equivalent of a middleman.)

Those companies that hold THQ's debt will get 10 cents on the dollar in exchange for forgiving the rest, assuming the bankruptcy court approves the deal. Investors who hold stock in the company? They're screwed -- and likely won't see a penny on their returns, though expect the class action suits to be filed real soon.

The stock will be delisted, probably before the first week of January is over. That's standard operating procedure for NASDAQ once a company files Chapter 11.

What happens after the bankruptcy process is complete, though, is anyone's guess.

Winds of change

"I don't even know we're talking about THQ anymore," says John Taylor of Arcadia Investment Corp. "We're talking about THQ's assets, but what happens to the management structure and the leadership team is certainly open to question."

CEO Brian Farrell and the company's board are certainly at risk. The long struggle of THQ to find its place in a changing environment could lead to his ouster, though Taylor notes Farrell is not entirely to blame for the company's fate.

"They've been hit by some serious winds of change and they had the least to work with [compared to other publishers] in terms of their portfolio," he says.

More layoffs are certainly possible as well, though THQ is a pretty lean operation already. Developer pare-backs seem the least likely, though support staff is likely to be affected.

The $50 million should ensure that titles like South Park: The Stick of Truth, Metro: Last Light (pictured) and the new Saints Row get completed. However, while the bankruptcy filing lists unannounced games from Vigil Games, Turtle Rock, Relic Entertainment and Patrice Desilets, the fate of most of those is less certain.

The performance of South Park and Saints Row really will determine the future of son-of-THQ.

Michael Pachter of Wedbush Securities notes that if both games sell in the 2.5 million-3 million range, the company should be able to survive another year or so with a focus on Desilets' 1666 as the next tentpole.

However, he notes, "if South Park and Saints Row sell 300,000 units, these investors are going to lose their money."

Another unanswerable question revolves around this mystery investor's desire to stay in the video game business.

If the company gets back on its feet, he, she or they may take that opportunity to put it back on the market. Or, quite possibly, they could completely change its mission.

"I think the primary focus is to get games in the pipeline out the door," says Taylor. "What the process is to greenlight new production projects after that, I don't know. My guess is you're going to see [THQ] studios make a big pivot toward free to play and trying to come up with something that's relevant to the new business models out there."

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Scott Burns
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Wasn't the deal for $60 million?

Frank Cifaldi
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Yes, but $10M of that is going straight to the creditors.

Nate Anonymous
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I wonder how much of the THQ bundle was intended to force whomever acquired THQ to finish their stuff in the pipeline (and thus give management a greater chance of holding their jobs)?

The THQ Humble Bundle could never have saved THQ. It sold beyond expectations yet THQ still had to enter into bankruptcy.

What it did do was burn up the value of THQ's back catalog by giving most of the value for as little as a buck. Their excuse would be that it serves as a promotions tool, as Darksiders II was just released and there are expected installments of Saints Row, Metro, and COH. But this promotional value only gets unlocked if the lenders/acquirers pony up enough to finish the games.

So they weed out the would-be acquirers just looking to exploit the back catalog as much as possible and firesale or shutdown the rest of the IP and company.

Kenneth Blaney
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Interesting... so the THQ Bundle is a little like a foreclosed home owner taking all of the copper wiring from his walls on his way out?

Eric McQuiggan
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Nah, 7M in real sales is better then a nebulous future revenue on old titles. It made THQ Worth more in the deal. I mean, it's not like they had to pay all the developers they closed.

Jonathan Murphy
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Too big to fail just means you're too blind to see the writing on the wall. I warned people that Darksiders 2 was their last chance to recover. If it didn't sell extremely well they would enter into a death spiral.

I'll say this again. Stop selling games at $60 plus. Aim for the world market. That means lower prices everyone on the planet can afford. That price point only creates an expectation of AAA games.

Gil Salvado
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I guess, you're right. Darksiders 2 performance on its own didn't ruin the company, but was just the final nail in the coffin.

kevin williams
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>"The president of THQ says that the publisher's filing for bankruptcy protection and a proposed purchase by investment firm Clearlake Capital Group "does not mean the end of the THQ story or the end of the titles you love," in a letter to the community posted by Jason Rubin."

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Nope, its the end. Even if they survive, they will be but an empty shell of thier former glory.

Peter Qumsieh
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It seems to be a fairly good move on their part. Chapter 11 allows them to get rid of the bad and keep the good. It's an effective way to restructure a company and have control over its obligations. THQ is an old company, I'm sure it's hanging on to a lot of dead weight from how it was previous structured. As far as I can tell, this is in line with Jason's plan to restructure the company and rebuild its value.

Gil Salvado
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Well, what a news right before christmas ... this is certainly going to be a very interesting 2013. With THQ off the table and a unlikely new console generation the coming year, I'm really worried about the studios who'd worked for them.

I guess, a quarter to a third of my game libary is from THQ, and most of them belong to my favorites. But just like the end of Sierra, the developers don't have to face the same fate.

TC Weidner
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I'm really looking forward to the South Park Title, I hope it doesnt get rushed out.

Michel Desjardins
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Title is misleading as going under Chapter 11 doesn't mean your did bankruptcy. They will reshuffle/refinance the debt, some people will take some write-off and THQ will get out of Chapter 11, with a new company owner.

Martin Sabom
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Frankly THQ deserves what they get. the upper management had ample opportunities to lower operating costs in a big way and failed to act. Bildon is directly responsible for that.

Kyle DeFoe
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I really really wanted darksiders 3. Not sure that will ever happen now. Love that IP. Maybe it could be turned into a comic or something :P

Glenn Sturgeon
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Ruben was quoted that SR3 had sold 5.5 million copies before the THQ bundle started.
It seems with numbers like that it had to make money.