THQ Inc.

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Incorporated: 1989 as Trinity Acquisition Corporation
NAIC: 511210 Software Publishers
SIC: 7372 Prepackaged Software

THQ, Inc., is one of the largest developers and publishers of gaming software for use on dedicated play stations, portable game players, personal computers, and wireless devices. The company produces a combination of licensed and self-developed titles, and is a major publisher of games for children. It has had long-term license agreements with major media companies Disney/Pixar, MGA, Nickelodeon, and World Wrestling Entertainment. Its licensed games include WWE Smackdown vs. Raw, SpongeBob SquarePants, Bratz, Ratatouille, American Girl, and Scooby-Doo. Its internally developed franchises include Saints Row, Red Faction, Juiced, and Stuntman. THQ games are sold in North America, Europe, and the Asia Pacific region.

Beginnings: 1990-94

THQ was founded by Jack Friedman, a toy-industry veteran. Friedman had entered the business with LJN Toys in the mid-1960s and had risen to the position of company president 20 years later. After entertainment conglomerate MCA, Inc., purchased LJN, Friedman grew disenchanted with working for a giant corporation and left to start his own company. In April 1990 he formed THQ, Inc., investing $1 million of his own money. The name was short for Toy Headquarters, and the company, based in Calabasas, California, planned to produce a full line of toys including dolls, board games, and electronic games.

Soon after its formation, the company purchased Broderbund Software's video-games division, and the first products came to market in October. Some early offerings were Peter Pan and the Pirates board games and action figures and Videomation and Wayne Gretzky Hockey games. THQ staffers came up with ideas for the products, but contracted out the actual design and manufacturing to other firms.

Needing cash to develop new product licenses, in the summer of 1991 Friedman merged THQ with Trinity Acquisition Corporation. The publicly traded Trinity had been formed some time earlier to raise capital for as yet unrealized ventures. The new entity retained the name of THQ, Inc., and continued to trade on the NASDAQ. By the end of its first full year THQ, with 16 employees, had achieved annual sales of $33 million. The company could boast of two genuine hits: a video game based on the popular movie Home Alone and another drawn from the successful Where's Waldo book series. THQ video games were licensed to run on Nintendo game stations, and the company had extended its contract with Nintendo to allow it to market the games beyond North America to Europe, Australia, and parts of Asia. Nintendo manufactured the games, which were designed by THQ and programmed by an outside software company. Each of these parties took a cut of the profits, as did the licensor of the game's subject matter.

In the spring of 1992, THQ began working with Nintendo rival Sega to produce games for that company's home play system. THQ was also developing games for Nintendo's portable Game Boy units. Again needing more working capital, the company issued a secondary stock offering, selling 1.5 million shares at $4 each. THQ was actively seeking more licenses from popular entertainment or sports commodities on which to base products. Although its sales were rapidly climbing, its net profits were flat, due in part to problems with the dollar in overseas markets and higher product development and promotion costs. In 1993 Jack Friedman agreed to take an 11 percent pay cut and give up his options on 2.2 million shares of stock. Nevertheless, the company's founder was still earning a handsome $850,000 per year and held options on one million shares. During that same year, THQ purchased a Chicago-based home and arcade software company, Black Pearl Software.

Struggling to come up with new hits in an increasingly competitive and costly marketplace, the company saw its net profits begin to shrink, then turn into losses, which mounted quickly. Sales for 1993 reached $37.5 million, but losses totaled $16.2 million. The next year was even bleaker, with revenues of only $13.3 million and losses of $17.5 million. The company attempted to stop the hemorrhaging of money by cutting costs and even selling 3.5 million shares of stock for 50 cents apiece, but this had little impact.

Producing Video-Game Content Exclusively: 1995-98

In 1995, founder Jack Friedman departed, turning over the reins to the chief financial officer, Brian J. Farrell. In the months preceding Friedman's departure, THQ had focused on developing games for the new Nintendo Super NES platform, but this platform wound up being less popular than Sega's Genesis system. Sitting on a huge backlog of unsold Super NES games, Farrell immediately instituted strict inventory control procedures. He also eliminated half of THQ's staff of 60, and moved the company's product lineup exclusively to video games.

Using a new marketing tactic, Farrell decided to focus on supplying the needs of consumers who were still using older game platforms and avoid gambling on which new system would be most popular. Meeting with creditors, many of whom also happened to be product licensors such as Walt Disney Interactive, LucasArts, MTV, and Nickelodeon, Farrell was able to convince them to cut better deals on licenses to produce software for the older 16-bit systems. THQ developed new games that would cost only $9.99 to $14.99, compared with $40 to $60 for games for the most recent platforms. The company also increased its offerings, debuting 24 new games in 1995, more than twice the number it had introduced in 1994. The results were swift and gratifying. Sales in 1995 rebounded to more than $33 million, with a net profit of $600,000. The company was also able to establish a distribution office in the United Kingdom during the year.

Results for 1996 were even better, with sales reaching $50.2 million and profits hitting $1.9 million. The company released more than 30 titles and also invested in a software maker, Inland Productions, Inc., and acquired a design company, Heliotrope Studios, Inc. Deciding that the time was right to reenter the big leagues, THQ began to design games for the newly released 64-bit systems. It struck a major new licensing agreement with World Championship Wrestling (WCW) to produce games based on its players, who included Hulk Hogan and Macho Man Randy Savage. The company was making games for Nintendo's portable Game Boy, Sony's PlayStation, and for personal computers, in addition to Nintendo's other platforms. The Christmas shopping season of 1997 saw copies of WCW versus NWO: World Tour flying off the shelves, with nearly 40 percent of the company's $90 million in sales for the year coming from the wrestling game.

The bubble appeared to burst the following spring, when THQ lost the WCW license to its archrival, Electronic Arts, in a bidding war. Within two days, THQ's stock value dropped by 40 percent. Quickly bouncing back, the ever-resilient Farrell obtained a license from Nickelodeon to make games based on the hit cartoon Rugrats and within a year had replaced the wrestling deal with a license from WCW's chief competitor, the World Wrestling Federation (WWF).

Acquisitions and More Sports-Based Games: 1998-2000

During 1998 the company added two new subsidiaries. It purchased 3D graphics developer GameFX, Inc., for 246,000 shares of stock and $790,000 in cash. The Massachusetts-based firm was soon joined by German software distributor Rushware Microhandelsgesellschaft mbH, acquired for $6 million. Despite the loss of the WCW contract, THQ was allowed to produce its licensed games into 1999, and the company had successful offerings in WCW/NWO Revenge, WCW Nitro, and WCW/NWO Thunder. It conducted major advertising campaigns for the launch of these games, as well as for the company's Rugrats: Search for Reptar, targeted at children 7 to 12 years old. THQ was realizing 55 percent of its revenues from 64-bit Nintendo games, 30 percent from Sony PlayStation, and 8 percent from Nintendo Game Boy. Only 2 percent came from sales of PC-based games. The majority of revenue, 85 percent, was earned in the United States.

THQ was also developing games that targeted fans of real sports, offering Brunswick Bowling, Championship Motocross, and several Bass Masters Classic fishing simulation games in 1999. It also signed licensing deals with motocross star Ricky Carmichael, MTV Sports, and the makers of TV's Power Rangers series. That same year, THQ made another acquisition in the spring when it purchased Pacific Coast Power & Light Co., a developer of game consoles. That company later changed its name to Locomotive Games, becoming part of THQ's studio system.

At the end of the year the company also acquired Genetic Anomalies, Inc., bringing THQ a developer of online gaming products. This area was heating up, as the possibilities of making games interactive via the Internet seemed to be the next major step for the industry. As the year ended THQ had its best Christmas sales season ever. The company had also moved to a new, larger headquarters site during the year.

The spring of 2000 saw the release of THQ's first online wrestling game, WWF with Authority, developed by Genetic Anomalies. The game could be played online in real time against another player anywhere in the world. Other features included chat capabilities and a world ranking system.

The volatile nature of the gaming marketplace was affecting THQ again, however, and the company announced in May that it would lose significantly more money than it had expected during the year. A transition in game console technology was pegged as the cause.

THQ still had new ventures in the works, including an investment in Japanese game developer Yuke's Co. Ltd., a joint venture to market games with the Communication Devices division of Siemens AG of Germany, and the opening of an Australian office. In September, THQ announced it would begin developing games for the newly announced Microsoft Xbox game system, due out in the fall of 2001. New releases included several more WWF titles and games based on television quiz show Who Wants to Be a Millionaire, the Star Wars and Evil Dead movie series, and cartoon dog Scooby-Doo.

Expanding Internal Product Development: 2001-07

THQ raised $140 million in a secondary stock offering in 2001. It also completed its largest acquisition to date, purchasing Volition, Inc., of Illinois for approximately $20 million. Volition was an established designer of original game concepts such as Descent and Freespace, and THQ had earlier teamed with the company to create Summoner and Red Faction. That year, the company had revenues of $379 million.

THQ continued its buying spree, increasing its capabilities to develop original games while also gaining access to new market segments. In 2002, it purchased Rainbow Studios for $48.5 million and ValuSoft for an undisclosed amount. ValuSoft provided access to the value-priced segment of the gaming software market. Acquisitions in 2004 included Blue Tongue Entertainment Pty. Ltd. of Melbourne, Australia, and Canadian-based Relic Entertainment. In 2006, Vigil Games of Texas and Juice Games, in the United Kingdom, were added. In 2007, Paradigm Entertainment and Mass Media joined the system.

THQ was not depending solely on acquisitions to expand. Beginning with the founding of Heavy Iron Studies in 1999, THQ also established its own development studios. These included Helixe Games in 2000; Cranky Pants Games in 2002; THQ Studio Australia in 2003; Concrete Games in 2004; Incinerator Studios and Kaos Studios in 2005; and Vigil Games in 2006. By 2007, there were 16 studios within THQ's internal system, developing original content and contributing to licensed products.

Mobile Gaming and New Licenses: 2001-06

In 2001, THQ set up its mobile gaming division, THQ Wireless, from what was originally its joint venture with Seimens. In 2003, the wireless subsidiary acquired controlling interest in the European-based Minick, adding to the 25 percent it already owned. This vendor of mobile applications brought to THQ Wireless the ability to add more to its games, including mobile voting and information and alert services. However, at the end of 2006, THQ sold its interest in Minick to Swisscom and reexamined its wireless strategies.

Meanwhile, THQ was having few problems with its traditional game efforts. It continued its licensing agreements with Nickelodeon and World Wrestling Entertainment and began creating games under license with Games Workshop and Ultimate Fighting Championship. THQ also reached a licensing agreement with Disney and Pixar Animation Studios to produce three games based on Pixar movies: Finding Nemo in 2003, The Incredibles in 2004, and Cars in 2005. By 2003, THQ was the world's largest publisher of children's video games. By 2005, THQ was also moving into war and fighting games and preparing for the next generation of game consoles.

2007 and Beyond

THQ's game based on the Pixar movie Cars, was the top-selling family game for 2006 on a number of platforms. The company hoped its games based on the movie Ratatouille, released in 2007, would repeat that success. Under its latest agreement with Pixar, THQ had exclusive rights to publish up to two game concepts based on each of the next four Pixar animated films, beginning with Ratatouille. Also in 2007, THQ signed an agreement with Ultimate Fighting Championship and brought out "El Tigre: The Adventures of Manny Rivera" for Nickelodeon. Along with its licensed franchises, THQ produced internally created products including Saints Row, Stuntman, Red Faction, Juiced, and Company of Heroes.

Although sales of video games overall had fallen in the United States, analysts expected worldwide sales to expand, along with sales of gaming platforms. A major challenge facing game publishers was the move by the companies that owned the content, such as Disney, to establish their own game studios rather than rely on licenses. THQ's ability to develop strong original franchises would have to play a major role in its future as it attempted to move from mass market games for families and children to games that would attract the core gamer segment of the market.

The company had more than 70 products in development. Its 16-studio system employed over 1,500 people. Its global distribution network delivered its games to more than 77 countries. It was developing games for every demographic group of the gaming audience, and gamers could play THQ's games whether they used Sony's PlayStation 2 or 3 computer entertainment system or PlayStation game console; Microsoft's Xbox video-game system; Nintendo's GameCube, Game Boy Advance, or Wii; a personal computer; or a mobile phone or other wireless device.

Principal Subsidiaries

THQ Wireless, THQ XDG; Locomotive Games; Volition, Inc.; Juice Games; Mass Media; Blue Tongue Entertainment; THQ Asia Pacific Pty. Ltd.; THQ Deutschland GmbH; THQ France; THQ International Ltd.

Principal Competitors

Activision, Inc.; Electronic Arts, Inc.; Take-Two Interactive Software, Inc.; Ubisoft Entertainment.

Further Reading

Ali, Rafat, "THQ Sells Its Stake in Mobile Content Apps Firm Minick to Swisscom," MocoNews.net, December 4, 2006.

Armstrong, David, "Gaming the System," Forbes, March 12, 2007, p. 104.

Beirne, Mike, "THQ Tries Out New Stunts with an Old Franchise," Brandweek, August 20, 2007, p. 10.

Bond, Paul, "Play Is the Thing: Video Flame Stocks Looking Bullish," Hollywood Reporter, May 8, 2007, p. 75.

Dano, Mike, "Mforma, THQ Wireless Make Acquisitions," RCR Wireless News, May 10, 2004, p. 16.

Dunphy, Laura, "Spate of Recent Deals Boosts Video-Game Maker THQ," Los Angeles Business Journal, September 11, 2000, p. 21.

"Gamer THQ Scores Big with Nic, Dis Pacts," Hollywood Reporter, February 19, 2003, p. 10.

Gaudiosi, John, "'El Tigre' Leads Next Wave of Nick Games from THQ," Hollywood Reporter, May 8, 2007, p. 8.

Gaudiosi, John, and Jesse Heistand, "Gaming Players Rise from Consolidation," Hollywood Reporter, May 23, 2002, p. 12.

"Heavy Losses Continue for Game Maker THQ Inc.," Los Angeles Times, April 4, 1995, p. 2.

Huffstutter, P. J., "THQ Shares Take a Hit from Video Games Console Wars," Los Angeles Times, May 26, 2000, p. C3.

"Loss of License to Wrestling Hurts THQ," Consumer Multimedia Report, March 23, 1998.

MacCallum, Martha, "Power Lunch--THQ Chairman & CEO Interview," CNBC/Dow Jones Business Video, August 25, 1999.

O'Steen, Kathleen, "CEO's Sense of Integrity, Ethics Cited Reputation: People Have Faith in THQ Leader Because of His Honest and Straightforward Manner, Supporters Say," Los Angeles Times, October 26, 1999, p. B6.

Pearse, Justin, "Playing for Keeps: Mobile Gaming Will Go Mass Market (Probably), but Only if the Mainstream Games Companies Get Behind It," New Media Age, September 25, 2003, p. 18.

Peltz, James F., "THQ Inc. to Develop Software for Sega Videos," Los Angeles Times, May 26, 1992, p. 4.

------, "THQ's Video-Game Success Comes with Betting on Winners," Los Angeles Times, December 24, 1991, p. 9A.

Szalai, Georg, "H'wood Fare Powers THQ Vid Games," Hollywood Reporter, March 15, 2004, p. 10.

"THQ and the Art of Bass Fishing: CEO Farrell Takes 'Platform-Agnostic' Stance in Boom Market," Hollywood Reporter, December 7, 2001, p. 16.

"THQ Bags Developer, Inks MTV, Bodacious Rodeo and Motocross Deals," mmWire, May 18, 1999.

"THQ Chief Executive to Take 11% Pay Cut," Los Angeles Times, March 16, 1993, p. 2.

"THQ Hopes for Strike with 'Brunswick Circuit Pro Bowling,'" Multimedia Publisher, November 1, 1998.

"THQ Playing with Future at Incinerator," Hollywood Reporter, July 19, 2006, p. 17.

"THQ Shares Slide After Loss of Wrestling License to Electronic Arts," Dow Jones Online News, March 11, 1998.

"The Ultimate Game Gear," Economist, September 8, 2007, p. 12.

Ward, David, "'Ratatouille' Game Has Right Ingredients, Too," Hollywood Reporter, July 2, 2007, p. 15.

------, "Wanted: Game of Their Own," Hollywood Reporter--International Edition, August 17, 2007, p. 5.

Young, D. B., "Taking Stock of the 3rd Quarter: THQ Among Valley's Top Gainers," Los Angeles Times, October 12, 1999, p. B2.

— Frank Uhle; Updated by Ellen Wernick