Game Maker THQ Stakes Revival on UFC’s Choke Holds
Posted: Thu May 07, 2009 10:32 pm
May 6 (Bloomberg) -- Georges St-Pierre, Ultimate Fighting’s top welterweight, trapped his foe in a “ground-and-pound” in his last win, pummeling the opponent with blows to the head.
THQ Inc., the money-losing video-game publisher, is counting on St-Pierre and the Ultimate Fighting Championship to help it get off the mat when the company releases the $59.99 “UFC 2009 Undisputed” on May 19.
Sales at Agoura Hills, California-based THQ are in freefall after topping $1 billion two years ago. Fighting games including “WWE SmackDown” and children’s titles from Walt Disney Co.’s Pixar movies don’t provide the punch they once did. The shortfall has forced THQ to close studios and cut jobs. The company reported its fifth-straight quarterly loss today.
“THQ needs a hit title to break back into profitability,” said Colin Sebastian, a San Francisco-based analyst with Lazard Capital Markets LLC, who has a “hold” rating on the stock and doesn’t own it. The UFC game is “definitely being looked at by investors as an important milestone.”
“UFC 2009 Undisputed” with St-Pierre on the cover simulates the sport’s mix of jujitsu, karate, kickboxing and wrestling, with its choke holds and flying arm bars. Buxom ring girls and excited ringside announcers add color to lure men to stores.
UFC’s male fan base is a main reason Todd Mitchell, a technology analyst with Kaufman Bros. in New York, projects the game will sell more than 2 million copies in nine months.
Mixed martial arts has gone from being banned in many U.S. states to passing boxing and wrestling in pay-per-view events, said Dana White, president of Zuffa LLC, the league’s owner.
Male Audience
“We have the 18 to 35 male; that’s who we speak to everyday,” White said in an interview. “Anybody who gets in business with us, we have the machine.”
The UFC license runs through 2011 and may be extended, said Julie MacMedan, a THQ spokeswoman. The company is probably paying UFC about 17 percent of sales or a guaranteed minimum, said Mitchell, who recommends the stock and doesn’t own it.
THQ has fallen 81 percent in the past year as the company dropped less promising titles and pared its staff. The stock rose 3 cents to $3.91 today in Nasdaq Stock Market trading.
“It’s been a very tough period,” Chief Executive Officer Brian Farrell said in an interview.
THQ reported today that sales excluding changes in deferred revenue fell 29 percent to $154.3 million. The loss, excluding $44.7 million in restructuring costs, was $36.4 million, or 54 cents a share. That’s larger than the 32-cent shortfall projected by analysts.
Return to Roots
“UFC 2009 Undisputed” returns THQ to its expertise making fighting games. WWE titles have brought in $1.5 billion in sales over the past decade. The company spent more than $20 million developing the UFC game and will expense “not quite” as much on marketing, Farrell said.
The target is fans like Jay Vinette, 35, a sales representative for North Face Inc. in Montreal, who attended UFC matches on March 18 at the city’s Bell Centre.
Vinette spends more than $1,000 a year on per-view fights, a club membership, DVDs, T-shirts, hats and action figures. He’s already ordered “UFC 2009 Undisputed” and says, “I’ll be buying those games every year” if they’re good.
Video games have been a bright spot in the recession. Worldwide sales rose 15 percent to an estimated $71.7 billion last year, according to IDC, a Framingham, Massachusetts-based researcher. Sales are forecast to rise 14 percent this year.
Industry Growth
THQ isn’t the only company struggling. Electronics Arts Inc., the second-biggest game company, is also losing money and cutting 1,100 jobs after failing to produce new hits or successful games for Nintendo Co.’s top-selling Wii console.
Farrell partly blames his licensing partners’ material.
Disney, based in Burbank, California, is developing the “Toy Story 3” game itself. THQ has “Up,” a Pixar film about a 78-year-old man and boy in a flying house.
“You can’t give us the output that’s not suitable for video games and keep the ones that are,” Farrell said. “The problem with Nickelodeon is the big hit five years ago when we signed the deal was ‘SpongeBob,’ and five years later it’s still ‘SpongeBob.’”
Wall-E” and “Ratatouille” games were tough sells, Farrell said. The Pixar contract ends after one more title, and Farrell said he won’t sign similar deals in the future.
Angela Emery, a Disney spokeswoman, said the company wasn’t obligated to license “Toy Story 3” to THQ and chose to create the title internally after Pixar concluded Disney’s game division developed a better concept.
Steve Youngwood, an executive vice president at Viacom Inc.’s Nickelodeon, said in an e-mail, “We have had several successful titles with THQ and other partners beyond ‘SpongeBob SquarePants.’”
The UFC game will compete against “Fight Night Round 4,” a boxing title from Electronic Arts that comes out June 30.
Farrell said he’s not concerned. UFC’s St-Pierre recently signed on to endorse Gatorade and was named athlete of the year by a Canadian sports network.
“UFC is 21st Century and boxing is 20th Century,” Farrell said. “We’re glad we’re in this millennium.”
To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net