Troubled video game company THQ Inc. recently hired a new president, a new chief strategy officer and this month sold its Ultimate Fighting Championship license as part of an ongoing effort to improve financial performance. Video game industry veteran Jason Rubin was named the company’s new president in late May. He founded Naughty Dog — the studio responsible for the “Crash Bandicoot” PlayStation and “Jak and Daxter” PlayStation 2 series of games. Rubin replaces Brian Farrell who remains CEO and chairman. Jason Kay joins the company as the new chief strategy officer. He worked with Rubin at Flektor, a media mashup tool, which was acquired in 2007 by Fox Interactive Media, a division of Newscorp. Industry analysts say the new hires bring game innovation and marketing talent to the Agoura Hills video game maker. But turning around the company’s performance will be no small task. THQ posted a $53.2 million net loss in the fourth quarter of the 2012 fiscal year, ended March 31. For the full fiscal year, the company had a net loss of $239.9 million, widening the gap from the previous fiscal year when it posted a net loss of $136.1 million. The management changes take place as shareholders prepare to vote on a reverse stock split aimed at keeping the firm from being delisted from the NASDAQ exchange. The shareholders’ meeting is scheduled for June 29. The company has until July 23 to get its share price above $1 a share. Bradley Safalow, an analyst who follows the video game industry for PAA Research LLC, said as president, Rubin will have a lot of latitude at THQ. “It is one of the few opportunities to enhance the core game process and help forge their mobile and digital strategy,” Safalow said. Rubin: A ‘game changer’ In an effort to improve results, the company has shifted its focus to core game titles across multiple platforms and exited the franchised casual and family game market. Poor sales last fall of the uDraw title led to THQ eliminating the title and laying off 30 employees at the headquarters. On June 4, the company announced it was giving up its license to make games based on the Ultimate Fighting Championship franchise for an undisclosed cash payment; Electronic Arts Inc. will now release the fighting genre games. Analysts say the hope is that Rubin will help THQ to move forward. Rubin is among the industry’s best studio operators, and he has a good feel for how video games should be marketed, said Michael Pachter, an analyst who follows the industry for Wedbush Securities. “I have no idea if he knows how to run a company,” Pachter added. The “Crash Bandicoot” and “Jak and Daxter” series of console games that Rubin co-created and directed have combined worldwide sales of 40 million copies. However, Monkey Gods, the mobile gaming company Rubin founded in 2009, has since gone out of business. In some respect, having gone through that experience may help when it comes to devising THQ’s mobile strategy, Safalow said. “He knows what does not work.” Farrell called Rubin one of the brightest minds in the business. “We believe he can be a game changer and can contribute immensely to executing on our strategy of delivering quality connected core game experiences,” Farrell said, in a prepared statement. Upon announcing the management changes late last month, THQ said it terminated Danny Bilson, executive vice president of core games, effective June 1. Company officials said Dave Davis, senior vice president of core studios, left the company. Shareholders to vote In January, THQ was notified of a possible delisting because its shares sold for less than $1 for a 30-day period. Since receiving the notice the highest closing price of THQ shares has been $0.75 on April 20. To push the stock above $1, management seeks shareholder approval for a reverse stock split, a move that reduces the number of shares and in turn increases the price. If approved, the stock split would take effect on or about July 5. In a filing with the U.S. Securities and Exchange Commission, the company said one potential disadvantage of the move may be that the stock price won’t increase over the long term and lead to a decrease in the market value of the stock. Analysts, however, showed no concern. “It’s irrelevant and a non-event,” Pachter said. “It gets their share price above a dollar and it keeps the stock more liquid.” Historically, underperforming companies that do a reverse stock split have not improved because there were no changes to their operations, Safalow said. But, he says, THQ is in a different position. “We remain bullish on their prospects,” Safalow said. “People do not fully appreciate the nature and efficiency of their operation.” Rubin and Kay have a financial incentive to improve the company’s financial performance. Rubin will receive 475,000 restricted shares when the stock reaches $2 per share for 10 consecutive trading days, and another 475,000 shares when the price reaches $3 per share for 10 consecutive trading days. Kay has the same deal for a total of 550,000 restricted shares. In addition, Rubin and Kay will receive just more than three million shares if Rubin, alone or with Kay, purchases $1.5 million worth of common shares prior to March 31. “I look at this whole package,” Safalow said. “(THQ) hired someone with fantastic talent and who has a vision for the industry and aligned his incentives with those of shareholders.”
THQ Building Game Plan for Financial Improvement
