Was THQ’s demise the result of bad management, bad circumstances or just plain bad luck?
The company that had generated millions from games based on Finding Nemo and WWE, had struggled to transition into a world where kids games and licenced titles were no-longer safe bets.
Certain analysts and industry commentators are already suggesting THQ never stood a chance. In an industry that’s enduring a painful transition away from the triple-A, boxed game model, mid-tier publishers are the ones that will ultimately get squeezed out. THQ is just the first big victim.
Except, not everyone agrees with that view. Including THQ president Jason Rubin, who was parachuted into the company in March 2012 in a last ditch attempt to rescue the ailing publisher.
“I think it is incorrect to attribute THQ's predicament with overall changes in the industry,” he tells MCV. [Rubin, like the rest of THQ’s staff, was left redundant last week as the firm went bankrupt.]
“To be sure, all triple-A publishers have been under pressure, but THQ had every chance to survive had it not made massive mistakes.
“Unfortunately, the mistakes that were made long before I joined, like the incredible losses attached to uDraw, massive wasted capital in the unpublished MMO that was cancelled, sticking with children's and casual titles far after mobile and tablets had killed the business, bad, late, or otherwise inferior titles like Homefront, and a generally haphazard and inefficient approach to deal making, left the company with too much negative hanging on its books.
"THQ had every chance to survive had it not made massive mistakes."
- Jason Rubin, THQ
“THQ had to be restructured to survive, and unfortunately, the restructuring ended up in an asset sale rather than an acquisition. There are certainly things to be said about challenges in the mid-tier triple-A publishing business, but I don't think that conflating it with THQ's experience is helpful.”
The CEO of Koch Media Dr. Klemens Kundratitz, who has just acquired THQ’s Saints Row and Metro IP, feels THQ’s demise may have been avoided if only one of its titles had broken through.
“Each company needs to know where they stand and what they are capable of doing, and also what they are not capable of doing,” he tells MCV.
“It is also quite important with projects of this size that THQ was dealing with, that these projects are being thought through from start to finish early on, and you don’t run into problems of discontinuing development or changing a game concept in the middle of the development.
“Also with every company you need a bit of luck on your side, everything is not always in your control, and they didn’t have that luck recently. If one of their titles had been a breakaway hit, maybe it could have been avoided.”
So was THQ just unlucky? Not according to Rubin.
“I think that luck plays a role in success and failure, but THQ's decisions and execution were the major reason for its failure,” he argues.
“It would be a cop out to say that bad luck was the predominant force. Could Homefront have caught a nerve and sold 10m copies? It's possible I guess, but probably not without better production. And it's hard to attribute a cancelled MMO to bad luck. That was simply a bad decision in a sea of bad decisions.”
Crytek's Button-Brown, THQ's Rubin, Sports Interactive's Jacobson's, Ubisoft's Francois and Koch Media's Kundratitz on THQ's failure and the future of its IP
Rubin’s harsh assessment says that THQ’s failure was its own. But he, like the rest of THQ’s management, believed the company had a future. There was a string of promising products on the way, while established brands were being given more investment and time. In a bid to turnaround Homefront, THQ had given the title to proven and popular FPS studio, Crytek.
So that’s why THQ filed for Chapter 11 Bankruptcy in December. The plan was to sell itself to investment firm Clearlake Capital, clear itself of its debts, and move forward with its new, slimed-down line-up.
“I actually agree with a lot of the stuff Jason Rubin says in regards what went wrong at THQ,” says Crytek’s general manager for games Nick Button-Brown. Crytek ended up buying the rights to Homefront in the auction last week and will complete the sequel itself.
“It just felt the timings didn’t quite work out. Their games were really improving and there was some really top stuff within the portfolio. They had really slimmed down the portfolio. It just felt they couldn’t get through it in time. We got on really well with THQ, we were happy working with them and it’s a little sad they couldn’t finish what they were trying to do.”
Unfortunately for THQ, the creditors were not happy about the prospect of a quick, cheap sale. Clearlake was only offering $60m for the firm, and the creditors and the US Bankruptcy Court felt this was too low. So THQ and its various assets were put up for auction, if the company can be sold off for more piece-by-piece, then THQ would effectively be no more.
"The auction was incredibly dull,” recalls Button-Brown.
“We just didn't know what was going on. The most efficient way to do it was over Skype chat, so there was all of us sitting on Skype waiting for something to happen. It was an auction that took two days. It went so slowly.
"The whole process was really strange. We'd never done the Chapter 11 thing before. The whole thing is designed to maximise the wealth of the creditors. Which is fine when you're selling boxes. But this isn't a boxed industry, it is all about the people. You are trying to quantify creativity. The whole process was a bit messed up.”
"We were surprised EA and Warner did not show up."
- Klemens Kundratitz, Koch Media
After the auction, THQ’s individual assets went for a $72m, significantly higher than the $60m offer, and the publisher was effectively finished.
Yet what was most surprising was who turned up at the auction. Despite initial interest and visiting the Volition studio, both EA and Warner Bros did not take part. In fact, Ubisoft was the only major publisher involved, with small and mid-tier publishers collecting the assets – Koch Media, Crytek, Take-Two and Sega.
“We were actually surprised about EA and Warner not showing,” says Kundratitz.
“What was our advantage is that Sega came in with quite a substantial bid for Relic and Company of Heroes and Take-Two came in with a substantial bid for Evolve, so the total of the piecemeal bids came to a large amount, which made it quite difficult for Clearlake to compete against.
“So we helped each other, if you like, to prevail over Clearlake. Clearlake had the advantage of a lot more due diligence time, they were looking at THQ for many months more, and they had the management support. It didn’t start very promising, but we had some complementary piecemeal bids.”
Far from being a warning about the future of middle-tier publishing, THQ’s collapse has added to those publishers. Take-Two has another new IP to place alongside its impressive line-up. Sega’s niche PC titles have been given a real boost in the acquisition of Relic. Koch Media – which has only recently had its first big global hit in Dead Island – has arguably acquired its biggest brand. And in buying Homefront, Crytek is on its way to becoming a publisher in its own right.
"Middle-tier publishers have come out with some interesting properties and interesting teams."
- Nick Button-Brown, Crytek
“It was a weird set of people in the auction, we were quite surprised by the some of the people that didn’t turn up,” continues Button-Brown.
“It isn’t who we’d have picked out at the start. It’s interesting that the middle-tier publishers have come out with some interesting properties and interesting teams."
THE BATTLE FOR SAINTS ROW
Koch Media winning Saints Row and its developer Volition was a big surprise. Outside of its home turf in Germany, the firm isn’t well-known amongst gamers. 2011’s Dead Island has been by far its most successful title, although it has published a number of niche and territory-specific products around Europe.
Volition and Saints Row was seen as the crown jewels in THQ’s crown. Ubisoft, EA and Warner Bros – three of the biggest names in entertainment – were amongst the names eyeing the company. Koch's only advantage was that it had worked with THQ over the last six months as its Italian and Spanish distributor.
But Koch Media’s bid of £22.3m won through. In fact, it looked like the studio had overpaid, with Ubisoft only offering $5.175m. But Kundratitz explains that wasn’t the case. In fact Koch had been drawn into a bidding war.
“The reports about Ubisoft’s bid and our bid and the big discrepancy is not entirely the true picture,” he says.
“Our opening bid for Volition and Saints Row was $20.5m and we ended up getting it for £22.3m. So we did not succeed with the first bid. There was Clearlake that bid against us in the last round of the process, and they bid quite heavily against us. So it’s quite clear that the price we ended up paying was not inflated as well. The same applied to the Metro bid. We started with $4.5m and ended with $5.8m, so we had a lively bid procedure, and we were the happy winner.”
"We did not succeed with the first bid for Voltion, Saints Row or Metro."
- Klemens Kundratitz, Koch Media
Saints Row is a significant IP for Koch Media. But the studio is arguably the biggest gain, giving the publisher access to talent and technology it didn’t have before.
“We have always been fans of Saints Row,” says Kundratitz.
“We love the over-the-top, shooter-based, sandbox concept. We just felt that the studio has a proven track record. They are famous for their open world tech, very strong studio tech. They are just overall, for a publisher that does not have that many internal studios, an ideal studio to get involved in. When we did the due diligence, we found they had very strong management there. From many angles you are looking at it, from the IP angle, from the management angle, from the tech angle, it all makes sense to us.”
Koch Media found itself in hot water with the press last month following its controversial pre-order bonus for the next Dead Island, which included a mutilated female torso sculpture. The publisher regrets the bonus, but in many ways it shows that Koch – and its publishing label Deep Silver – could be well suited to Saints Row, which has itself attracted its own controversy.
“We place no value for being controversial,” explains Kundratitz. “Sometimes you can’t avoid it and sometimes if a brand is an extraordinary brand and has its specialities, then we don’t shy away from communicating those. We are certainly not known for holding back. And we will follow that through with Saints Row.”
The other part of Koch Media’s bid saw it pick up Metro, a game that is already finished.
“Metro has a gamer audience that we know quite well,” says Kundratiz.
“In the past we have published Stalker, and Stalker and Metro has many commonalities. And it was obviously not such a difficult decision with a game more or less finished and to be launched straight away.”
RELIC AND MONTREAL
The rest of the bids were less surprising. Sega just about beat Bethesda to claim Relic for $26.6m. Relic is responsible for the Dawn of War and Company of Heroes (pictured) strategy titles, which ties in nicely with Sega’s Creative Assembly and Sports Interactive PC developers. In fact, Sega has recently acquired the Warhammer licence, while Relic had developed titles based on Warhammer 40,000. As a result, Sega is tipped to acquire the 40,000 licence, too.
Miles Jacobson, the head of Relic’s new sister studio Sports Interactive, was delighted by Sega’s move. “Us and Creative Assembly work closely together, and we knowledge share and we tech share between the studios,” he says.
“But it’s not forced upon us. Nobody tells me to use a Creative Assembly engine. But if Creative Assembly or ourselves wanted to use some of the code from the other studios, we know that it is there and that we can do.
“It’s great that it’s not just us on the PC side, we have Creative Assembly there and now we have Relic for well, which for me is a phenomenal signing for Sega. They are a great studio and fit in very nicely with what CA and us have been doing. It’s nice to see a publisher that is still prepared to give more niche titles a home. Football Manager is not going to get to FIFA numbers, it is a niche game, Creative Assembly is not going to get to Call of Duty numbers with Total War, because they are making niche strategy games. But with both titles it is a very large niche. And the Company of Heroes series fits in very nicely to that.”
"It's nice to see Sega is still prepared to give niche titles a home."
- Miles Jacobson, Sports Interactive
Meanwhile Ubisoft’s acquisition of THQ Montreal for $2.5m also made sense. Ubisoft already has a presence in the city, while it already knows many of the staff, including creative director Patrice Désilets.
"We know Montreal well and we know a lot of the people there,” says Ubisoft’s director of IP development Tommy Francois.
“We know what the people at that studio can bring to the company, we have immense respect for the THQ Montreal team, so I think that's the main driver.”
Ubisoft also made a bid for Volition, but Francois for one is pleased the firm only has to focus on integrating one new development outfit.
"Acquiring a studio is much more difficult than it looks on paper. It's like a wedding. You need to know that other person. You need to meet halfway to create a third entity together: there's you, there's your wife and then there's you and your wife. To do that well is going to require a lot of time and effort from both Ubisoft and THQ Montreal, and you can't do that on so many different fronts.
"Of course when you look at Volition and how they do open world games, people may have said 'Hey, Ubisoft must be interested in those guys', but you can't do fifteen things right – you have to focus on one. We at Ubisoft try to make sure we maintain the culture of the studios we work with, like RedLynx which we acquired a while ago and attracting the Trackmania guys. We don't want to just buy brands and people, we want to buy cultures, to buy a way things are made.”
ON THE HOMEFRONT
Whereas Ubisoft, Koch Media, Sega and Take-Two had splashed out big bucks for its new toys. Crytek spent a cool $500k for acquiring the rights to Homefront.
Nick Button-Brown feels the studio has snapped up a bargain in acquiring the brand. But he says it wasn’t all about the brand name, rather it was about the game they had been building over the last two years.
“It's much bigger than Call of Duty," he jokes.
"It's a game that was commercially successful rather than critically successful. We did not buy it because it is a slam-dunk brand that everyone around the world knows and will get 10m sales on the name alone. We bought it because we put two years into development, we thought we had a really high quality game, and we liked the setting and the story, it's really quite cool. That world gives you so much flexibility. The things we are delivering in Homefront 2 are great. This IP we think gives us a chance to make a really interesting game.
"The last milestone that we delivered in December just before THQ entered Chapter 11 was really good."
"Homefront is in our control now. It's a bit frightening."
- Nick Button-Brown, Crytek
Crytek has been vocal in the past about becoming a free-to-play developer. And that its remaining boxed products, including Ryse for Microsoft and Crysis 3, will be its last. Now that Homefront is owned internally, does that mean the next game in that series won’t be coming to retail?
"We are not going to change the scope of the game. It has a really well thought-through single player and a really well-balanced multiplayer. Maybe we might enhance it in different ways. It is in our control now, it's a bit frightening. Now we can't blame anyone else.”
NO ONE WANTED VIGIL… ALMOST
THQ’s publishing business was not sold, leaving 300 people unemployed. Nor was THQ’s old brands, like Red Faction and De Blob, although these were brands that even THQ had given up on.
Meanwhile, licences like WWE have returned to their owners. 2K is rumoured to be in for the wrestling licence.
But the biggest asset not acquired was Vigil and the Darksiders licence. The two Darksiders games have been critically well received, but although the first game was a small commercial success, its sequel (pictured below) underperformed. And as a result no-one came in.
“We had a brief look at them, but we decided it was not our taste,” says Kundratitz.
“They are working on some interesting stuff, they certainly have a lot of talented people down there, but with these things you have to set your priorities. I am surprised that no-one in the end came forward with a bid for them. But there was only limited appetite as it turned out.”
Ubisoft’s Francois said: "We're super sad that they didn't find anyone to buy Darksiders. I actually have friends that worked over at Vigil and I'm like 'shit'. I wish we could do something as a company, but we have to make choices and THQ Montreal seemed like the right one.”
"I was effectively begging potential buyers to look at Vigil."
- Jason Rubin, THQ
But it takes a developer to see the value in development talent. And although it didn’t acquire Vigil, Crytek did the next best thing and set up its own studio in Vigil’s hometown of Austin and picked up many of its staff. A deal that Jason Rubin.
“They are a really good team, and we didn’t understand when no one picked them up,” says Button-Brown.
“It’s a good team that have worked together for a while, and we wanted to help them like we helped Free Radical and turned them into Crytek UK. It’s all about people, nothing else is that important. If you have good people working on good product, then you get a great game. That’s why the ex-Vigil staff make up the core of Crytek Austin.”
THQ’s Rubin adds: “I am extremely pleased that Crytek saw the talent in the core team at Vigil. As I have said elsewhere, I consider it a failure on my part that I was not able to save the whole team.
“I made many calls to potential buyers, effectively begging them to take a look at Vigil during the process, but there were no takers. As I have also said before, I think that is a result of timing, and confusion over Darksiders’ quality and sales rather than an indication of the value of the team. When Crytek asked casually about Vigil after the auction I was incredibly happy to be able to put them in contact with Vigil. I am very happy for [studio boss] Dave Adams and the team and wish them the best.”
THE NEXT STEP
And that’s that for THQ. In the end 350 games industry personnel are now without work, 40 of which can be found in the UK. But companies have already contacted MCV expressing interest in speaking to these people.
It’s a sad end to a publisher that has played a significant role in the development of the games industry over 24 years.
But rather than these studios and IPs getting lost within big, global publishing giants like Activision or EA, they’ve largely found homes in smaller, mid-table firms, who will treasure their new acquisitions as their flagship products.
“It’s obviously sad to see in such a process that so many jobs are lost, and many, very good people, after years of putting effort and dedication into a company, then suddenly they come to a hard stop. It is a sad moment for our industry,” concludes Kundratitz.
“Hopefully the IPs the staff at THQ worked so hard on can continue, and, in our case, we certainly hope those IPs will have a bright future under our direction. So indirectly their hard work will have paid off.”