THQ Inc.: Analyst unsure of future for Volition, 'Saints Row' [The News-Gazette, Champaign-Urbana, Ill.]
(News-Gazette (Champaign-Urbana, IL) Via Acquire Media NewsEdge) Jan. 21--CHAMPAIGN _ An analyst who covers the video game industry said Volition's "Saints Row" franchise will probably attract interest when Volition's parent company auctions off its assets Tuesday.
But Todd Mitchell, senior media analyst for Brean Capital, an investment bank, is not as confident that Volition and THQ Inc.'s other game-development studios will remain intact after the auction.
In a recent interview, Mitchell said the video game industry suffers from overcapacity at this point.
"There are too many studios, too many developers, too many games," he said.
To be profitable, companies must produce games that rank among the world's top sellers.
"Development costs are so high, that for anything out of the top 25 franchises, it's hard to make a profitable game," Mitchell said.
Volition, which employs about 200 at its studio in downtown Champaign, is best known for its "Saints Row" and "Red Faction" game franchises.
"Saints Row: The Third" was released in late 2011, and the fourth in that series of games is expected this year.
But the studio's future is clouded by the Dec. 19 bankruptcy filing of its parent company, Agoura Hills, Calif.-based THQ Inc., as well as similar filings for THQ's U.S. studios.
The parent company and the studios are seeking to reorganize their debts under Chapter 11 of the federal bankruptcy code.
Through an arrangement with THQ, Clearlake Capital Partners entered a bid for THQ, agreeing to provide financing for moving the company forward.
But other companies can submit bids by Tuesday, and the bankruptcy court is allowing bids for specific THQ assets, as well as for the whole company.
The thought is, pieces of THQ may be more attractive than the entire company _ and fetch more money for creditors.
Mitchell of Brean Capital said it's not clear at this point who the bidders will be and what they'll bid for.
"Most of this stuff is done behind the scenes," he said. "All the major (game) publishers would kick the tires on it, poke around to see what's available."
The major video-game publishers include two giants _ Activision and Electronic Arts _ and two moderately sized companies, Take-Two Interactive Software and Ubisoft Entertainment.
Other players could include Microsoft, maker of the Xbox video-game console; Sony, maker of the PlayStation console; and Nintendo, which makes the Wii console. Those companies have captive studio networks.
THQ has a number of game franchises that could prove attractive, Mitchell said. Its World Wrestling Entertainment-licensed games, for example, might appeal to Electronic Arts, which already has sports-oriented franchises.
"They can probably throw that on their platform and do a lot better than THQ did with it as a stand-alone," Mitchell said.
THQ also has a highly anticipated "South Park" game _ "South Park: The Stick of Truth" _ that's scheduled for release this spring.
Mitchell said the "Saints Row" franchise is "probably worth keeping alive," but it's not clear to him which company might want it.
Whether a prospective buyer decides to buy Volition as well as "Saints Row" may depend on how far along the studio is in producing the next sequel.
"If they're three-quarters of the way done with it, it might make sense to buy the whole studio," Mitchell said.
A best-case scenario for Volition, he said, might be if Take-Two Interactive _ the maker of "Grand Theft Auto" _ buys the "Saints Row" franchise and uses its Rockstar Games studio to swallow Volition and make it Rockstar Midwest.
Mitchell added that Take-Two has not publicly indicated specific interest in doing that.
Other titles from THQ studios that might draw interest include "Company of Heroes" and "Homefront," he said.
But overcapacity in the industry will have a bearing on what kind of bids come in.
Activision, for example, probably doesn't need more development assets since it already has plenty of its own, he said.
"If you look at the big media companies, by and large, they're scaling back in development access," Mitchell said. "Disney is scaling back on the console business and concentrating on casual PC titles and handheld iOS titles."
THQ's troubles deepened two years ago after the company placed big bets on a Wii peripheral known as uDraw.
The first version of the gaming graphics tablet was popular, but when THQ attempted to extend it to the Xbox 360 and PlayStation 3 systems, it flopped, Mitchell said.
"They bet the company on the thing and it was a total failure, and since then, it's been a matter of trying to stay alive," Mitchell said.
Mitchell said THQ has been living "on ether for a while now."
"The strategies they announced (last year) were reflective of their lack of capital. ... The air has been very thin for them," he said.
THQ had "an interesting pipeline of titles, but they cut more titles from their future lineup" last year and got out only what they could get out, he said.
One factor that could have a positive bearing on the THQ auction is the need for new content for the next generation of consoles coming out.
"Nintendo introduced a new Wii this holiday season, and though it's not announced officially, evidence indicates both Microsoft and Sony will come out with a new Xbox and PlayStation for the season coming up," Mitchell said.
"Every time there's a new platform, you have to come up with a new way to develop for it," he said.
"With this transition to new consoles, there's going to be a need for more IP (intellectual property). So if you have this new console, you want to get titles out relatively quickly," he pointed out.
That's easier, he said, "if you have an already established franchise with name recognition," such as "Saints Row."
Companies still have to program new games, but they wouldn't have to come up with new characters, he explained.
The video game industry is moving from packaged single-player games to online multi-player games for which customers can buy add-on features.
"Games are becoming much more immersive," Mitchell said, adding that someone who buys Activision's "Call of Duty" may feel compelled to update it with new features every two or three months.
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