The THQ Aftermath
Last week saw interested parties bid on THQ's various assets. In the end games and studios found new homes, and this is our analysis of what took place.
The THQ auction was a lesson in one of the most important rules of business. You only pay lots of money on bankable assets, sadly not all of THQ's assets were bankable. Think about it. Vigil Games were coming off two solid games, Darksiders & Darksiders II, as well as the unfortunate and later cancelled development of Warhammer 40,000: Dark Millenium Online, and had just started work on a new IP (Crawler). For a publisher to pick them up they would get the value of the Darksiders IP, but they would also gamble on paying for the entire production on a new and risky IP from a developer whose record may be solid in terms of quality, but not stellar in terms of sales.
That's the sort of scenario that publishers rarely go for when pitched by independent developers, so why would they jump on it in this instance? Given the stalking horse bidding process, no-one would have been able to pick Vigil, Crawler and Darksiders up for a dollar; it was likely going to cost a potential buyer a great deal more. And at the end of the day, there was just too much risk involved for there to be a suitor. Vigil's talent was likely already looking elsewhere for jobs, as evident by the exodus to Crytek's recently announced Crytek Austin studio, and new IP's with likely investments in the tens of millions aren't something you casually pick up at auction.
We are all winners
Given the status of the games and studios involved in the auction, it was only natural that Relic Entertainment and their near completed Company of Heroes 2 would demand the highest dollar amount, with Sega winning the auction paying $26.6 million for the studio and certain associated assets (including the Company of Heroes IP). The Warhammer 40,000 IP appears to not have been part of the auction, but it appears likely that Sega - who have teamed up with Games Workshop on the Warhammer fantasy franchise - has that in the bag.
Relic, Company of Heroes and (potentially) Dawn of War in the hands of Sega makes a lot of sense, but in the end Zenimax (owners of Bethesda) were only $300,000 behind Sega with their final bid, and that would have made for a very different outcome. Whereas Sega have spent considerable effort in the PC and strategy segments, Bethesda have been taking a different route, and Relic would have signalled a new direction for the publisher. Either way, Relic would likely have been happy at their new home - Sega with their relationship with Games Workshop and their strong strategy push (through The Creative Assembly), or Zenimax/Bethesda with their strong financial backing.
The price tag of $26.6 million is easy to justify simply by the prospect of Company of Heroes 2 sales, and Sega may even decide to invest some extra development time to ensure quality, and still be able to recoup all of their investment rather swiftly. Let's say they take home $20 with every sold copy of Company of Heroes 2 initially - given that scenario they will need 1.3 million copies sold take get the initial investment back. Sounds reasonable, and there's a lot more value in Relic as well, thanks to legacy sales of Company of Heroes (not to mention Dawn of War, but we still don't know what the deal is there).
Koch Media and their Deep Silver label emerged as the surprise buyer of Volition and the Saints Row IP ($22.3 million). The single most lucrative IP given sales of the series, but also an investment that requires quite a lot of further cash as Saints Row 4 is not near completion at this point. Still, if Saints Row 4 can be completed this year (that was THQ's plan) there's every reason to think Deep Silver has made a wise decision. Another possible route would be to change the direction of the presumed current gen Saints Row 4, and reposition the game as a launch window next-gen title - obviously that would require some further cash, but perhaps that is the way to go ensure the longterm health of the franchise.
It's difficult to tell what state Volition is in currently, the turbulence at THQ over the course of the last year, could have drained some of the talent, but regardless Volition will sit pretty as the top development studio of the German publisher. This is Koch Media's play at becoming a major publisher across the globe (their position in Germany is very strong) - and with Dead Island and Saints Row they have some serious mainstream IP's on the North American market.
Koch Media (Deep Silver) also picked up the Metro franchise ($5.9 million), which should see a more immediate return on investment as Metro: Last Light was targeted for a March release. Perhaps, they will delay the game somewhat to make sure it is up to scratch, but it's hard to see how Deep Silver could lose money on this deal.
It was Take-Two who picked up Turtle Rock Studios' Evolve. The Left 4 Dead developers' game has been in the works for some time, but hasn't been publicly revealed so it is hard to weigh in on whether the $11 million Take-Two spent on securing the rights are worth it. Turtle Rock themselves put in a feeler bid of $250,000, but that was clearly not enough and it seems the developers are more than happy to work with 2K Games moving forward. Given the money Take-Two spent, it is reasonable to assume Evolve is something special given it is likely more than a year away from release.
The easy pick for the biggest winner of the auction is Crytek. Not only did they manage to buy back their own work on Homefront 2 for a cool half a million and in doing so landing the Homefront IP, but since no-one picked up Vigil they were able to go on and land the core Vigil team for their freshly announced Austin studio, and at no additional cost. Crytek may have no real interest in acquiring the Darksiders IP, but perhaps they will make a feeler bid for the Crawler concept that Vigil were working on when the remaining THQ IPs are to be divided up.
Ubisoft and Desilets
Ubisoft has a history of picking up leftover and unwanted studios. Ubisoft Massive and Ubisoft Reflections found new life under the wings of the French publisher, but the case of 1666 and THQ Montreal is a very interesting one and it remains to be seen how it plays out. Patrice Desilets was one of the leading creative forces behind the Assassin's Creed franchise, but left Ubisoft Montreal in the summer of 2010 as his part on Assassin's Creed: Brotherhood was finished. Desilets returned to the industry the following summer to start THQ's Montreal operations, and Ubisoft actually filed a lawsuit against THQ Montreal to try and prevent Desilets from recruiting former co-workers at the Ubisoft Montreal studios - something that could potentially sour the new partnership.
At this point Ubisoft's Yannis Mallet has expressed confidence in working with Desilets again, and quite frankly it's doubtful that Ubisoft would part with $2.5 million without reaching out to Desilets beforehand. In fact, I could even see Desilets reaching out to his former employer to see if they would be interested in rescuing his new venture. I met with Patrice back at Tokyo Game Show back in 2009, and had the chance to talk to him about things other than the game he was currently working on. He struck me as a very calm and measured person, and I very much doubt he holds any grudges towards Ubisoft.
Leaving his longtime employer was likely a way to test the market as a free agent and gain freedom (and likely a pay raise with THQ). Just like sports stars need to test the free agency market at times to make sure they get what they want, the same is true for game developers. If you stay on after scoring a major commercial success like Assassin's Creed, you may never get the opportunity to truly fulfill your earning and creative potential.
Nevertheless, it will be interesting to see how THQ Montreal and Patrice Desilets are absorbed into Ubisoft. If the Assassin's Creed franchise was to falter in the coming years, I'm sure there would be plenty of incentive for Ubisoft to push Desilets back in charge of that franchise in order to "reboot" it, but for now it's reasonable to assume that Ubisoft wants Desilets and his team to continue work on 1666. For hardcore fans the new IP will be intimately related to Assassin's Creed and there will be synergies there for Ubisoft to capitalise on as it is.
Ubisoft also picked up South Park: The Stick of Truth, and once again it is difficult not to applaud that deal. Of course, the added financial muscle of the French publisher will allow Obsidian Entertainment added time to make the most out of a very promising title.
What happens with the rest?
Well, any old IPs are likely going to be auctioned off to the highest bidder at a later date. This is when you'll see some unknown quantity picking up Red Faction or Titan's Quest, or IP's being picked up cheap by the developers who made the games back in the day. There's not a lot of money to be made here, back catalogue sales of dormant THQ franchises aren't going to make a lot of money, but there's still some value to be had. Of course, the last minute fire sales of THQ's back catalogue on PC has likely diluted the value here for potential buyers.
The Homeworld IP is another interesting one. Did Sega get it with their purchase of THQ Canada and associated IPs? Regardless, it's one that should interest the new Sega with their heavy focus on strategy. THQ had Relic focusing on the lucrative Company of Heroes and Dawn of War franchises, but perhaps with Sega backing Relic there could finally be a Homeworld 3? Relic have likely been working on concepts and ideas for it ever since THQ bought out the rights from Vivendi in 2007 - and after Company of Heroes 2 ships, perhaps it's finally time for the long awaited sequel.
A couple of remaining issues are WWE and Vigil Games. As for WWE rumours has it that it's heading to Take-Two once legal red tape has been handled (we're talking about Vince McMahon style contracts here, so it may be a while). It's a solid license that will do well wherever it ends up, and 2K Sports makes a lot of sense as the new home of wrestling. If you think about it, the whole 2K Sports division came as a result of Take-Two acquiring Sega's sports franchises and developer Visual Concepts back in the day. It could also mean longtime developers Yuke's still have a contract to make the next WWE game, but as of now it's all speculation.
As for Vigil Games, the news that the core team will join Crytek USA in Austin is likely the end of the studio. Noone is likely to pick up the remains of a gutted studio, and the Darksiders IP will likely be sold off to someone looking to capitalise on catalogue sales and potentially develop a sequel elsewhere.
At the end of the day, the stalking horse bid made by Clearlake that looked to keep THQ together as an entity was significantly lower than the market value of THQ's assets. Allegations that the move was made with bad intentions and insider knowledge, may or may not be well founded, but it is only natural to suspect that THQ management looked to leave creditors and stock holders with the tab. It's easy to blame the demise of THQ on past mistakes (uDraw and Dark Millenium Online most notably), but perhaps the division of assets and studios was the most honest and correct way for things to finish in the end.