Publisher’s Cuts Fail to Score Points With Investors

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It’s the end game for about 200 employees of THQ Inc.

The Agoura Hills game maker announced plans last week to close studios in Phoenix and Australia, resulting in 200 layoffs, or about 11 percent of the company’s global payroll.

The layoffs are part of a companywide restructuring, but even in a terrible week for the stock market, THQ did particularly poorly as investors reacted negatively to the plan.

The day after the announcement, THQ stock fell more than 10 percent to reach a 16-year low. It recovered slightly to close at $1.92 on Aug. 10 but was still one of the biggest losers on the LABJ Stock Index. (See page 46.)

The company’s restructuring plan calls for moving away from its traditional licensed movie-based games for teens and children to focus on high-growth online games.

Analyst Michael Pachter, at brokerage Wedbush Securities in downtown Los Angeles, said the downsizing is a positive step, but there is a question over whether THQ can turn the corner.

“It’s the right strategy, but they have to execute,” he told the Business Journal. “The company is downsizing to focus on higher-profit games, and the licensed content has not generated much profit the last several years.”

The downsizing announcement follows a string of bad news. On June 13, the company closed Kaos Studios, the developer of its “Homefront” series of shooter games. Later that month, the company announced it would end its “Red Faction” series due to poor sales of the most recent installment.

It was all reflected in a disappointing first quarter earnings report. Revenue totaled only $141 million, significantly off from management’s estimates of $165 million to $180 million. Its loss widened to $38.4 million.

THQ established itself by turning out games derived from licenses with film studios and toy manufacturers. In a long-term deal with Walt Disney Co., the company made games based on the films “The Incredibles,” “Up” and “Wall*E.” In 2007, it produced a Bratz game based on the popular lines of dolls made by MGA Entertainment Inc. in Van Nuys.

But as gamers have moved to the Internet, movie-based titles have been eclipsed by games on social media sites and free ones that include advertising. Strategy Analytics, a Boston research firm, predicted in a report last year strong growth in the global video game market. But it also noted the sale of virtual goods for games, in-game advertising and downloadable games would account for most of the growth.

THQ hopes to jump on those trends. It will release a new “Saints Row” game in November that will have downloadable content and online versions for multiple players. A Facebook campaign will accompany the release of the “Margaritaville Online” game in the fall. And the company expects a wrestling title and a martial-arts game will reach stores before the end of the year.

Pachter remains skeptical, given what he called the company’s series of missteps in recent quarters.

“The quality of upcoming games must improve significantly,” Pachter warned in a note to investors July 27. “The company’s performance has become increasingly dependent on a smaller lineup of games, with more risk inherent in each new release.”

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