THQ Is the Ghost of Video Gaming Future


Investors won't have THQ to kick around much longer. Shares of the video-game publisher plummeted 74% on Wednesday afternoon after revealing that it was filing for Chapter 11 bankruptcy protection. THQ will be selling its assets in a $60 million deal that will likely all go to its creditors. Common shareholders are out of luck, even if another bidder steps up with a slightly better offer.

This has to be sending shivers down the spines of Activision Blizzard and Electronic Arts . It's not as if either company is going down next. The two largest video game developers have a few strong marquee titles, healthy balance sheets, and encouraging near-term outlooks. However, THQ's demise is more proof that the industry doesn't have room for anything more than its biggest franchises. The publisher had its share of modest hits. THQ had the popular Saints Row franchise, wrestling games, and the once hot uDraw platform of drawing games.

That wasn't enough.

Investors should have seen this coming when it went for a 1-for-10 reverse split this summer to stay in compliance with exchange listing requirements. If that didn't wake investors up, the CFO's departure last month as the company began exploring potential funding alternatives was probably a strong indication to head out to the life rafts if they didn't want to go down with the ship.

It's a bad time to be in the video-game industry. Hardware and software sales have been falling for three years. Millions still turn out for the latest Call of Duty or Madden releases, but there's just no appetite for the non-blockbuster titles. Diehard gamers will show up in big numbers when Take-Two Interactive puts out Grand Theft Auto V early next year. Folks are just using their consoles as video-streaming devices or playing cheaper digital diversions during the lulls between games worth buying.

The industry has become feast or famine, and it's a safe bet that THQ won't be the last company to go hungry.

Digital future
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Longtime Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard. Motley Fool newsletter services recommend Activision Blizzard and Take-Two Interactive. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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