THQ’s Homefront Woes

Written March 29th, 2011

Jacob McCourt

From the most popular games coming from small teams sometimes consisting of a single man in the 1980 and 1990s to huge 500-man studios and 30+ million dollar projects now, video games have become big business. Like all other big businesses, product launches can make or break companies. One video game company faced this situation a few weeks ago with the launch of the anticipated Homefront video game.

Homefront (developed by Kaos Studios) is played in a world largely different from the one we know today. In an alternate version of history, Kim Jong-il’s son takes power in North Korea after his father’s death in 2002. Additionally, the United States never rebounds from financial instability and its people are decimated by a new pandemic. The Greater Korean Republic (formed after the unification of North and South Korea), capitalize and invade in 2025. You are thrown into play as a member of the American resistance in 2027 and the story rolls on from that point (for more information about the game’s alternate history, click here).

THQ, the game’s publisher, had closed at $5.92 on the NYSE on March 14th, the day before the game’s release, (stock: THQI) amid increasing buzz and a high volume of preorders. Just ten days earlier, the company’s VP Danny Bilson was praising the game’s high preorder numbers at 200,000 units. Often used as a successful forecasting metric, good preorder numbers can spell success for a game. However, on March 15th, the bell rang on the New Stock Exchange and THQ’s stock took a dive, dropping from $5.92 to $4.69 by days-end. Why did the company’s stock take such a dive?

First, even though preorders are considered a good metric for forecasting, review scores might be considered a better tool for forecasting game’s sales potential. Websites like Metacritic are often used in such determinations of sales potential. Even though such metrics are used, they are often quite controversial due to certain procedures Metacritic uses. These procedures include the converting of review scores to numeric values on a 100 point scale, (for an interesting rant by one of video game journalism’s most prolific people, Adam Sessler, click here (NSFW)) the process of selecting the review outlets featured in Metacritic’s calculations (more information here) and arguments made on the difficulty in quantifying the quality of video games. Bringing it back to Homefront, THQ utilized a technique called a “review embargo”. This meant that no review outlets could officially publish their reviews until the day of the game’s release on Tuesday March 15th, 2011. That’s when the game’s Metacritic average dropped a few points to around 75 causing the company’s stock to drop based on higher expectations of the game. The Metacritic average sits at 70 today with most review outlets complaining about the length of the single player campaign.

In an e-mail to Wired, Michael Pachter, analyst at Wedbush Securities stated that review scores were expected to be around 80 for the game. In an industry focused on sequels of successful titles, new intellectual property can be difficult to sell to the cash strapped consumer spending less on entertainment. Most new games need to place in the 80s to sell over a million units and be turned into a franchise. A recent example of this would be the Electronic Arts published Dead Space, which sold 2.7 million copies between the Xbox 360 and the Playstation 3.

All things considered, the company has truly adapted to the new “game” movements well. In response to current industry trends, THQ has really expanded their focus in the past few years by expanding their portfolios into the online, kids and digital/casual areas of gaming. In the online field, they plan on releasing two Massively Multiplayer Online Role Playing Games during their 2011 fiscal year based off the WWE and Company of Heroes properties. What makes these games different is the business model they are utilizing. Like the recent Battlefield Heroes (developed by Electronic Arts), the game is free-to-play. Anyone can jump in and play, but to unlock certain in-game item, for example, the game allows for micro-transactions (lower price transactions). In the children’s space, they announced publishing rights to Kung Fu Panda 2, Puss in Boots and The Penguins of Madagascar. Finally, as many companies have done the past years, the company is publishing games that appeal to the non-core gaming crowd (those who play more Farmville than Call of Duty). These games are usually titles with smaller budgets available on downloadable services. This includes the recently released Stacking for the Xbox Live Arcade and PlayStation Network (currently sitting at a Metacritic score of 84 on the Xbox and 83 on PS3).

In the company’s annual report for 2010, the first operational goal for 2010 was to “deliver one-to-two quality Core Games…” and although they achieved that through the success of “Red Faction Guerrilla and Darksiders, with Metacritic ratings of 85 and 83…” (showing the importance of Metacritic to the business). However, the worrisome aspect of the report is the portion referring directly to Homefront and Red Faction Armageddon as their successful core titles for 2011.

There is a silver lining however. Retailers responded to reviews with a one-day price cut of the game from the regular price of $60 to around $40 at some retailers like Amazon and Walmart. This boded well for the company as the game sold around 300,000+ units on the first day in stores (source). Doug Creutz, vice president and senior research analyst covering the media and entertainment sectors at Cowen and Company LLC stated in an interview with MarketWatch that the reaction to the games’ reviews was “a wild over-reaction” and that game “will likely pass the 2 million mark quite easily”.

For more information about game review scores and influence on play likelihood, consult the following study conducted by EEDAR: http://mandetech.com/wp-content/uploads/2010/07/EEDAR-SMU-Study-One-Review-Anchoring2.pdf

*As a side note, I wrote this for the Prince Arthur Herald and wrote it for a non-gaming audience.