The collapse of THQ: The full story

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that were made long before I joined, like the incredible losses attached to uDraw, massive wasted capital in the unpublished MMO that was cancelled, sticking with children’s and casual titles far after mobile and tablets had killed the business, bad, late, or otherwise inferior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

THE AUCTION
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,