Coin-OpEd: Pity the Third Party

[Cavalry]

More than anything else, the risk factors portray the publisher as an entity not in control of its own destiny. This isn't limited to THQ, by the way. It's sort of remarkable anything in this industry gets made because every company has a delicate web of interests to maintain, and it just takes a single weak thread to bring things crashing down. Sony, Microsoft, and Nintendo are three such crucial threads. As THQ points out in its report:

"Our platform licenses require that each title be approved by the manufacturer. The manufacturers have the right to review, evaluate and approve a prototype of each title and the title's packaging and marketing materials. Once a title is developed and has been approved by the manufacturer, the title is manufactured solely by such manufacturer or a designated vendor of the manufacturer. ...The amounts charged by the manufacturers for both console discs and handheld cartridges include a manufacturing, printing and packaging fee as well as a royalty for the use of the manufacturer's name, proprietary information and technology, and are subject to adjustment by the manufacturers at their discretion."

So if you're a third-party publisher of console games, the big three have you by the short-and-curlies. They are the gatekeepers who decide whether or not your game gets to market. Oh yeah, and they're also the people making the big-budget, heavily hyped games that will likely be trouncing your game on the NPD charts next month, not to mention taking up all that valuable shelf space at retail. They might even pack their own game in with the system so new owners don't need to go out and buy anyone else's game, much less yours. And they have to approve your game every step of the way, right down to the box art and commercials you run for it. What other industry has companies seeking so much permission from their biggest competitors before they can introduce their products to market?

Then there's always the Entertainment Software Rating Board. The rating a game gets can be a huge problem, and not just if an expected M-rating slides over into an AO for Adults Only, as happened last year with Manhunt 2. That's obviously catastrophic because console makers don't allow those games to be sold for their systems, but a game that slips from a T-for-Teen to M-for-Mature could be problematic as well. The Federal Trade Commission has scolded the industry in the past for marketing M-rated games to children, so publishers don't--or aren't supposed to, at least--place their ads for adult games in media or locations targeted at children.

So even though more hyped up games are usually rated M (Halo, Half-Life, CoD4, Bioshock) a 3rd party publisher like THQ would still be more likely to lose more profit?

While those problems are common to all third-party publishers, THQ has a few risk factors that loom particularly large, specifically its reliance on licensed product. As mentioned in the article linked above, THQ gets more than 50 percent of its sales from games based on Pixar, WWE, and Nickelodeon.
The company has tried in recent years to grow its business based on wholly owned intellectual properties, but results have been mixed. Saints Row was a big hit for THQ, while efforts like Stuntman: Ignition and Juiced 2: Hot Import Nights underperformed so badly that the publisher shelved the franchises entirely.

Its a shame that some had to be shelved. The original Stuntman was good, though Ignition was pretty bad, Juiced 2 seemed to be a big improvement over the original. We'll see about Saints Row 2 though.

If I were the CEO of a third-party publisher, this is the sort of stuff that would keep me up at night. In short, THQ has to stay on the good side of Sony, Nintendo, Microsoft, the ESRB, WWE, Pixar, DreamWorks, and Nickelodeon if it wants to have a chance of meeting its projected profits in the coming years.

Say a 3rd party publisher loses one of these giants, would that mean that THQ goes under?

http://www.gamespot.com/news/show_blog_entry.php?topic_id=26477733