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THQ in grave health - can it survive?

BLOG: The crestfallen publisher has little room to manoeuvre, writes CVG's Rob Crossley

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Skies have darkened above THQ once again. Its financial call last night began on a positive note but it took less than five minutes for the mask to slip.

Investors were warned that the company was not in a position to predict its financial future (as is customary in financial calls), while executives decided against taking questions from the press. It was a disastrous decision at a time when THQ itself has admitted it has no room for mistakes.

There is no disputing that the publisher is now in desperate need for cash to avoid a renewed threat of bankruptcy. With just $36 million remaining in its cash reserves, coupled with difficulties in securing significant credit, one suspects that the priority option is a buyout from a bigger company. I don't personally believe this will happen.

THQ's market value is down to $20.69 million, yet the bargain-bin price is only half the story. A genuine question is whether another company would even take on THQ for free.

Consider that THQ is still straddled with huge debts despite undergoing a very painful cost-cutting operation. Consider that anyone who would buy the firm would have to deal with the restructuring, the debts, the burden of managing new development and publishing teams, as well as all the risk packaged with that.

And the timing couldn't be worse; the entire games publishing sector has never been more afraid to take risks. THQ has the unenviable task of displaying itself in the shop window during a time of corporate austerity and end-of-cycle declines.

More common in the games business is for companies to wait for rivals to collapse before stripping them of their assets at a huge discount. THQ has the IP to make this strategy attractive.

We all know of the embarrassing stories associated with THQ in recent years: The wild investments in exorbitant projects that barely entered production, the cold and empty office space it bought in Canada, the Herculean failure of uDraw.

But there's nothing so amusing about THQ's more recent failures. The sound strategy of producing a quality game (Darksiders 2) and marketing it fairly well has not paid off this time - the game has shipped 1.4 million units into retail and is not expected to turn a profit. Perhaps the desirability of the IP was weaker than some had hoped.

With cash reserves of just $36 million and the intensifying difficulties finding credit, THQ finds itself in a catch-22 situation. It must either spend money it doesn't have right now for next-gen triple-A projects, or otherwise enter the new cycle without a competitive line-up of software.

The commercial response to its next three games - all of which have been delayed -could be vital in determining whether the crestfallen company can inspire confidence once again.

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