THQ Standing on Its Own

The company will focus less on licensed games.
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Video-game publisher

THQ

(THQI)

has plans to weather the transition toward new game consoles much better than its rivals.

THQ said during a meeting with analysts Friday that it will focus on

Nintendo's

(NTDOY)

best-selling Wii game console and move toward cutting its dependence on licensed games.

This two-pronged strategy will help the company go after the growing audience of casual gamers who have opted for the Wii, while increasing THQ's margins in games for its hardcore users.

THQ plans to release 11 titles for Wii in fiscal 2008, including certain Wii exclusives. THQ also plans to increase the number of games it launches for the Nintendo DS platform.

Though licensed games such as

Cars

and

SpongeBob Squarepants

were big hits for THQ in fiscal 2007, the company says its own games didn't do that badly.

More than 50% of fiscal 2008 revenue is expected to come from internally developed games, up from 40% in 2007 and 30% in 2006, the company said.

Agoura Hills, Calif.-based THQ says it expects 50% of its revenue in fiscal 2008 to come from next-generation consoles, about 20% to 25% from handheld platforms, and 15 to 20% from

Sony's

(SNE) - Get Report

older-generation PlayStation 2. About 10% is likely to come from sales of PC games.

Sony's PlayStation 3, Nintendo's Wii and

Microsoft's

(MSFT) - Get Report

Xbox 360 make the troika of the next-generation consoles, and the transition from older consoles to these new platforms has been a challenge for many video-game companies.

THQ's rival

Take-Two

(TTWO) - Get Report

has stumbled significantly in this transition. The company blamed its higher-than-expected loss for fiscal 2006 on the delays in the availability of next-generation hardware.

"The big idea is with this new generation of hardware is that segmenting the market is most important," says Brian Farrell, CEO of THQ. "The old strategy of putting every franchise on every system is not going to be successful in this round."

A significant release from THQ this year will be its internally developed shooter game

Frontlines: Fuel of War

, which is expected to be released at the end of this year. "We expect it to be one of our biggest opportunities," Kelly Flock, executive vice-president of worldwide publishing, told analysts.

THQ has expanded internal games from 10% last cycle to roughly 50% through this new cycle, estimate analysts.

On the licensed games side of the business, releases in fiscal 2008 from the company will include

Ratatouille

and

Cars 2

, licensed from

Disney's

(DIS) - Get Report

Pixar unit and a

WWE

title for six platforms, up from three last year, said THQ.

THQ also plans to have a new "fighting" brand based on the Ultimate Fighting Championship in fiscal 2009. The company did not give additional details.

Wireless is another big focus area for the company, said Flock. Mobile gaming is expected to be a $6 billion global market opportunity by 2010 and THQ says it expects net sale of $30 million in fiscal 2008 to come from games for wireless devices.

"We expect to see 45% revenue growth in THQ wireless in 2008," said Flock.

THQ has guided revenue at the end of fiscal 2008 to $1.13 billion. For fiscal 2007, it has guided revenue of $1 billion, and it posted revenue of $807 million at the end of fiscal 2006.

International revenue is expected to exceed 40% of fiscal 2007 revenue, up from 39% in 2006.

Operating margin is likely to double to 10% at the end of fiscal 2007, and increase slightly to 11% at the end of fiscal 2008, said THQ.