[Gamasutra's editor-at-large Chris Morris spoke in-depth to THQ CEO Brian Farrell, as the company ramps up its digital distribution business -- while experimenting with lower price-points for boxed product.
THQ and the broader video game industry have a lot in common. Both have struggled financially in the past couple of years. Both are seeing their role in the greater entertainment landscape change. And both are seeing the evolution of financial models that have served them well for years.
Leading the charge for those changes at THQ is CEO Brian Farrell. He’s in the unenviable position of leading a company that has just completed what he calls a “turnaround year” (and is now in the midst of an "investment year") – with significant growth not expected to resume until 2012.
To get the company to that point, though, he’s throwing out a lot of the industry’s standard practices and he’s raising a few eyebrows in the process.
The biggest experiment underway is an assault on the $60 price point – and a big bet on digitally downloaded content.
For the next installment of MX vs. ATV
, the company plans to charge just $40 – but hopes to supplement that with income from DLC. And even if the net-net doesn’t quite work out in the company’s favor, the company could still see the franchise’s user base grow significantly.
“We spent a lot of time in Asia watching that freemium model,” says Farrell “ I think our markets [in the U.S.] are migrating that way, but you see it more in iPhone and iPad games right now. I think what we’re doing [with MX vs. ATV
] shows us to be forward thinking. It’s a variation to that [freemium] theme.”
He is, however, careful to emphasize that even if this experiment is successful, it does not mean THQ will abandon the $60 price point for all games. Major titles, like the upcoming Homefront
, will remain at that level.
“A movie like ‘Avatar
’ didn’t stop the demand for ‘Survivor
’ on TV,” he says. “They’re different experiences. It doesn’t cost as much to make an episode of ‘Survivor
’ as it did to make ‘Avatar
’. So a fully immersive experience, like a Homefront
is a different type of experience and we’d charge for that. [Titles that are more] mass market oriented are a natural for this type of pricing experiment.”
While the company tries new directions with retail pricing, it’s also ramping up its digital division. While he stops short of breaking out the numbers, Farrell says THQ’s digital business has doubled in the past year – and he expects it to double once again in the next fiscal year.
“That’s where the growth is for us,” he says.
Asked when he expects digital to begin beating retail sales, he cushions his answer, saying it’s a guess, but his estimate is that the industry will see the crossover in 2015. Distribution of PC titles on Steam has been a tremendous experience for THQ, he adds, noting that when the company runs sales of catalog titles, it sees lifts of anywhere from 200 to 2,000 percent.
Sales, of course, lower when the price returns to its normal rate, but tend to level a bit higher than they were before the discounts. And often, he says, the company fields questions about when the sequel will be out.
“The idea is to keep the audience engaged,” he says.
To keep that engagement strong, the company is counting on its transmedia strategy
– extending brands beyond the gaming world.
THQ recently announced plans to publish a novel set in the Homefront
universe. Red Faction
is getting a pilot on the Syfy Channel. And in December, the company will formally announce a major motion picture based on Saint’s Row
. The plan, says Farrell, is for the film to release at the same time as the game’s next installment, but that’s not set in stone.
“I’m not going to comment on their timing,” he says. “I can’t speak for the people in Hollywood. [But] this builds our brand at no cost to us.”
Finally, look for THQ to roll out a number of new franchises in the years to come. While the company has made millions on licensed content, as it looks to increase its transmedia philosophy, it realized that it couldn’t do so using other people’s brands.
And the bulk of those franchises will be aimed squarely at the core audience, which Farrell says is critical to THQ. Two-thirds of its revenues come from core gamers, he says.
“With something like Homefront, think about where we can take something like that,” says Farrell. “Yeah, we made a lot of money on Disney’s Cars
, but they own that franchise. When you create your own brands, which you can do in the core space, that’s when you can create a lot of value for your shareholders.”
The group might be more vocal and harder to please, he notes, but at the very least, they’re easy to identify.
“Right now we know where that core consumer is,” says Farrell. “We know if we create a AAA game that they’ll be there. The casual audience is more complex. There are older players on Facebook. There are kids playing on the iPod Touch. It’s a lot harder market to identify. … [Basically,] there’s the core and then there’s 10 groups within the casual market.”