THQ Bets Big on Wii

THQ(THQI Quote) is betting against conventional wisdom in the video-game business.

The company is eschewing a one-size-fits-all approach to creating games, in favor of segmentation that will match the content to the demographics of the gamers most likely to use the devices.

THQ's stock is down 4% in the three months since Feb. 3 and nearly 8% in the last month (to $32.60 midday Friday). That could make the stock the most undervalued of all game publishers, say some analysts, given the company's focus on the Wii, its minimal investment in games for the lagging PS3 console and its reasonable valuation.

The company trades at 19 times fiscal 2009 earnings compared with 23 times for the group, estimates Todd Greenwald, an analyst with Nollenberger Capital, which does not own shares or have an investment banking relationship with THQ.

THQ plans to put its original games on systems such as Microsoft's(MSFT Quote) Xbox 360 or Sony's(SNE Quote) PlayStation 3, while more mass-market and casual games would be created just for Nintendo's Wii and the PlayStation 2, says Brian Farrell, CEO of THQ.

The company is also channeling development resources toward the Wii and plans to release 11 games for the console in fiscal 2008.

But that can be a risky plan.

Unlike the earlier console cycle where Sony's PS2 ruled over rivals, analysts say that this time around, the three new systems could garner near-equal market share.

For game publishers this means the older plan of creating a title just for one system, known as third-party exclusives, is no longer viable.

In an interview with TheStreet.com, Farrell says THQ's plan can still be cost-efficient, and the company's bet on the Wii could pay off in a year.

TheStreet.com: How can THQ's strategy of creating games tailored to the device be cost-efficient if you cannot take a common code base and modify it for the different systems?