uDraw Debacle Spurs Investigation Into THQ

[Andy Chalk]

uDraw Debacle Spurs Investigation Into THQ

THQ is under investigation for making "materially false and misleading" statements about its business in 2011 and 2012.

Few things will spur the universe to prove that things can always get worse than saying that things can't possibly get worse. Case in point: THQ, the beleaguered game publisher that's seen its share price plummet from over $36 in 2007 to about 64 cents today. It's facing a Nasdaq delisting, was forced to change its Warhammer MMO to a single-player game, has laid off staff, dropped franchises and closed entire studios, and while I don't know if all that and more ever made CEO Brian Farrell say, "Wow, this just cannot possibly get any worse," if he did, then he was wrong.

Holzer Holzer & Fistel LLC [http://www.holzerlaw.com/], "a complex litigation boutique that represents investors victimized by securities fraud and other corporate corruption," announced today that it has launched an investigation into "potential violations of federal securities laws by THQ."

"The investigation focuses on whether a series of statements made between May 3, 2011 and February 3, 2012, inclusive, regarding the Company's business, its prospects and its operations were materially false and misleading at the time they were made," the firm said in a statement. "Specifically, the investigation seeks to determine, among other things, whether the Company knew but failed to timely disclose that demand for its uDraw GameTablet was below internal expectations in part due to differences between gamers who play video games on the Nintendo Wii and those who play games on Xbox360 and PlayStation."

The sticky part is that THQ had presented the future expansion of its uDraw tablet to the Xbox 360 and PlayStation 3 as a big source of revenue growth, but then on February 3 announced that the manufacture and sale of uDraw was being canceled because of disastrously poor sales. I don't know exactly how federal U.S. securities law works, but I suspect that if THQ knew, or had a pretty good inkling, that uDraw was going to tank but continued to pimp it to investors as the Next Big Thing anyway, it's probably in violation of something.

How the investigation will be undertaken or what sort of hammer will fall if it turns out that THQ was cooking the book isn't clear, but if you happened to purchase common stock in the company at any time during the period under scrutiny - May 3, 2011 to February 3, 2012 - and "have questions concerning your legal rights," the company encourages you to drop a dime.

Source: Yahoo! Finance [http://finance.yahoo.com/news/holzer-holzer-fistel-llc-announces-141900793.html]


Permalink

 

[Something Amyss]

I sorta want to buy THQ stock, so they might actually care about pleasing me.

On the other hand, it's about bloody time.

 

[evilneko]

Volition, makers of the Saints Row franchise, is a wholly-owned subsidiary of THQ. What happens to them if THQ goes under? :O

4A, developers of the Metro franchise, aren't owned by THQ. Thus, Metro should be safe.

 

[Something Amyss]

Too bad the uDraw erased their profit margin.
Should'a thought of that before releasing Saints Row the turd.

I sorta want to buy THQ stock, so they might actually care about pleasing me.

On the other hand, it's about bloody time.

I hear Facebook is going for dirt cheep right now.

Yeah, but I don't care if Facebook listens to me.

 

[gigastar]

Volition, makers of the Saints Row franchise, is a wholly-owned subsidiary of THQ. What happens to them if THQ goes under? :O

4A, developers of the Metro franchise, aren't owned by THQ. Thus, Metro should be safe.

If THQ enters administration then Volition would be put up for sale to any interested party. They could be snapped up by another publisher or they could buy themselves and turn independent.

Also the games could be a very different story if THQ retains the IP's. And it probably does, because its rare for publishers to leave an IP in the hands of a studio.

 

[martyrdrebel27]

okay, here's where I see THQ failed and deserves to die as a company.

1. the uDraw tablet was just a terrible idea in the first place. as the article points out, the crossover between the Wii and PS3/360 market is a small one. People interested in interactive peripherals already had either a Wii, Move, or Kinect. the starting market was already such a slim one that investing money in a new piece of hardware was a poor choice, for both the company and the consumers, as well as game studios who would now have to build a game around another piece of hardware.

2. so they went ahead with the uDraw, but with NO marketing support behind it. i personally was not made aware of the thing until i started seeing media about it's failing. and i tend to keep up with the gaming scene. So even if the uDraw WAS a winning idea (it wasn't) it would have failed due to no support.

3. Red Faction: Armageddeon. i absolutely LOVED Guerrilla. It was a really fun game to play, and even today, the multiplayer is fun and innovative. They had a winning formula with Guerrilla, all they had to do was more of the same, bigger and better and REALLY emphasize the multiplayer, as that keeps gamers coming back longer than the single player, and again, was one of the most fun multiplayer shooter experiences of this generation. I don't know why they had so little faith in themselves, as instead they release armageddeon as we know it, which is a linear hallway shooter that almost entirely downplays Red Factions hook, geomod 2.0, and replaced a fun, interesting multiplayer portion with a rehashed version of Horde mode, as if EVERY game these days didn't make us sick of that already. had they released a true sequel to Guerrilla, i think we'd be reading a very different story about the company today.

now, these are just my personal experiences with the company, and have been steadily going downhill for awhile (saint's row series not included, i loved those games) but i read that they recently lost the rights to UFC, so i'm sure those games had a whole different level of problems that another company is willing to address. THQ made this bed of theirs, time to lay in it.

CAPTCHA: clown around. exactly what the asshats in THQ's offices must've been doing the past few years instead of actually operating a multi-million dollar company.

 

[Amnestic]

Volition, makers of the Saints Row franchise, is a wholly-owned subsidiary of THQ. What happens to them if THQ goes under? :O

4A, developers of the Metro franchise, aren't owned by THQ. Thus, Metro should be safe.

Saints Row 3 sold pretty well (beyond expectations if my google is to be believed). If THQ goes under, I wouldn't be surprised to see Volition and the Saints Row IP bought up by EA or Activision.

 

[Therumancer]

Hmmm, interesting. THQ might still recover at this point. They have a couple of decent products under their Umbrella, and the Warhammer 40k licence. Also while uDraw tanked as a product on it's own, I see that being the source of some valuable proprietary technology. I myself have considered the potential for someone to create a game deck with the equivilent of a DS as the controller, allowing games to not only be played with the stick/pad but also with a Stylus. Not to mention what was demonstrated as being possible with multiple screens and how it might work if you say developed games around a big screen (your main view) and a smaller screen on your controller. The uDraw product isn't all that, but the technology developed by THQ will probably be useful for that, and some of the ideas they used will probably be nessicary for development if it goes in that direction. It might not pay off for years yet, but it strikes me as the kind of patent/rights/proprietary tech that you keep tucked away in a locked drawer until similar things become viable, at the very least you wait to show up with a Lawyer when someone does what you did first without checking with you... not good, but valuable.

Time will tell, for all I know THQ will do a company lock out tomorrow, but unlike 38 Studios I see the potential for this to slowly turn around.

Honestly, I suspect that if THQ was about to fall we'd have people circling the 40k liscence like vultures, waiting to try and snap it up when THQ does that last stumble and doesn't get up. I'd suspect I'd be hearing something within the geek community, which leads me to believe that most of those who would make use of the liscence aren't expecting THQ to fall, which is why we aren't hearing stories about tenative, pre-emptive offers.

 

[Baresark]

We should have seen this coming. No one seems to understand that buying stock in publicly traded companies is a very risky business, especially in todays market. This is coming on the tails of a terrible market in which some bad business decisions were made. People seem to think they aren't responsible for their own financial decisions. If THQ is in the wrong, it should be easy enough to prove. But they put a lot of their own money into uDraw, not just investor money. They thought it was a great idea.

As for all the comments talking about how it was a terrible piss poor idea from the beginning, you don't really have room to talk. You don't know the information they were looking at and you can't see the other side of it because you only saw the downside since you even knew about it. Hindsight is considered 20/20, but that is a cognitive illusion.

Honestly, I suspect that if THQ was about to fall we'd have people circling the 40k liscence like vultures, waiting to try and snap it up when THQ does that last stumble and doesn't get up. I'd suspect I'd be hearing something within the geek community, which leads me to believe that most of those who would make use of the liscence aren't expecting THQ to fall, which is why we aren't hearing stories about tenative, pre-emptive offers.

If THQ goes down, the license reverts back to the IP owner. It won't disappear and if they were to go down tomorrow, any competitors could negotiate directly with Games Workshop.

 

[The Random One]

It makes me cringe when I see a Escapist news post that says 'hmmm this could mean a lot of things but I don't know anything about it cuz I'm just a games jurnalizt lol'.

I guess it might very well be the kind of creepy stuff that companies do all the time and only gets investigated when for whatever reason they screw up. It's hard to tell if they knew uDraw would fail but only came to that conclusion when it was too late to turn the boat around and if they kept stringing investors along. Sounds likely, though.

 

[Therumancer]

We should have seen this coming. No one seems to understand that buying stock in publicly traded companies is a very risky business, especially in todays market. This is coming on the tails of a terrible market in which some bad business decisions were made. People seem to think they aren't responsible for their own financial decisions. If THQ is in the wrong, it should be easy enough to prove. But they put a lot of their own money into uDraw, not just investor money. They thought it was a great idea.

As for all the comments talking about how it was a terrible piss poor idea from the beginning, you don't really have room to talk. You don't know the information they were looking at and you can't see the other side of it because you only saw the downside since you even knew about it. Hindsight is considered 20/20, but that is a cognitive illusion.

Honestly, I suspect that if THQ was about to fall we'd have people circling the 40k liscence like vultures, waiting to try and snap it up when THQ does that last stumble and doesn't get up. I'd suspect I'd be hearing something within the geek community, which leads me to believe that most of those who would make use of the liscence aren't expecting THQ to fall, which is why we aren't hearing stories about tenative, pre-emptive offers.

If THQ goes down, the license reverts back to the IP owner. It won't disappear and if they were to go down tomorrow, any competitors could negotiate directly with Games Workshop.

Well, my point is that you'd expect that the fans would be hearing about any offers, including people approaching Games Workshop with offers for if/when THQ goes down ahead of time. Warhammer is one of those properties where if anything is even vaguely hinted at it leads to a literal tsunami of talk and speculation, and discussion about who would like to do what. Things being so quiet leads me to believe that few people with an eye on things suspect THQ is actually going to die.

As far as the other comments you made go, your not incorrect, but the devil is in the details. THQ having invested a lot of it's own money and then coming up short even though it was a failing idea, might have left them lookint for investors to finish so they could get SOME return to reduce their losses, or access to a proprietary technology to stick arounf for later. It all comes down to what THQ knew, and what they told the investors.

If THQ for example told the investors that the product was going to be big, and they had already pre-sold a million units, had favorable test market reactions, etc... but needed more money to finish the product and produce enough units, then yeah... there are going to be some issues with that. We won't know anything for a while, if ever. The guys doing investments here are probably pros, and wouldn't be pursueing this unless they felt like they had a case.

To be honest, given the complete failure of this product, almost total lack of advertising and distribution, etc... I think something has to be up. I can't see THQ having landed this kind of investment if they were honest about how little they actually had going in support of this.

As I said, time will tell. There are a LOT of things that could have happened. Right now I'd be looking at who actually owns the rights to the uDraw and the technologies it functions under. Similar to my reasoning elsewhere, it occurs to me that THQ might have just wanted the investment to finish developing the tech, with no intention of actually marketing a product right now. Did the investors have a right to a share in the profit if the product only succeeds as the "uType"? In that case THQ might have gone for the investment, and sabotaged themselves, with the plan of doing something with the technology under the name and being able to pocket ALL the money without having to pay the investors. Lots of crazy things happen with businesses, as I said, only time will tell.

Any way it goes, I could be proven wrong, but my gut feeling is that THQ isn't going anywhere. I suspect they will linger on long enough to get another Saint's Row game and another Warhammer game out there at least, and chances are they will make enough doing that to launch another wave after that. So I'd imagine THQ won't be dead for another 2-3 years in the worst case if they do die... without considering the uType drama.

 

[Baresark]

snipped myself for sensibility

Well, my point is that you'd expect that the fans would be hearing about any offers, including people approaching Games Workshop with offers for if/when THQ goes down ahead of time. Warhammer is one of those properties where if anything is even vaguely hinted at it leads to a literal tsunami of talk and speculation, and discussion about who would like to do what. Things being so quiet leads me to believe that few people with an eye on things suspect THQ is actually going to die.

As far as the other comments you made go, your not incorrect, but the devil is in the details. THQ having invested a lot of it's own money and then coming up short even though it was a failing idea, might have left them lookint for investors to finish so they could get SOME return to reduce their losses, or access to a proprietary technology to stick arounf for later. It all comes down to what THQ knew, and what they told the investors.

If THQ for example told the investors that the product was going to be big, and they had already pre-sold a million units, had favorable test market reactions, etc... but needed more money to finish the product and produce enough units, then yeah... there are going to be some issues with that. We won't know anything for a while, if ever. The guys doing investments here are probably pros, and wouldn't be pursueing this unless they felt like they had a case.

To be honest, given the complete failure of this product, almost total lack of advertising and distribution, etc... I think something has to be up. I can't see THQ having landed this kind of investment if they were honest about how little they actually had going in support of this.

As I said, time will tell. There are a LOT of things that could have happened. Right now I'd be looking at who actually owns the rights to the uDraw and the technologies it functions under. Similar to my reasoning elsewhere, it occurs to me that THQ might have just wanted the investment to finish developing the tech, with no intention of actually marketing a product right now. Did the investors have a right to a share in the profit if the product only succeeds as the "uType"? In that case THQ might have gone for the investment, and sabotaged themselves, with the plan of doing something with the technology under the name and being able to pocket ALL the money without having to pay the investors. Lots of crazy things happen with businesses, as I said, only time will tell.

Any way it goes, I could be proven wrong, but my gut feeling is that THQ isn't going anywhere. I suspect they will linger on long enough to get another Saint's Row game and another Warhammer game out there at least, and chances are they will make enough doing that to launch another wave after that. So I'd imagine THQ won't be dead for another 2-3 years in the worst case if they do die... without considering the uType drama.

I'm with you. I honestly don't think THQ is going anywhere. And it's one of the few lucrative licenses that THQ has right now. As a lover of their better games, I don't want them to go under.

I don't think THQ intentionally mislead anyone, personally. I also think that such a product would be very attractive to investors. If you look at the time they were pitching it to investors, it wasn't long after the recession hit and everyone was under the impression (no thanks to the media) that it was gonna be over soon. They also initially marketed it on the the highest selling console of the generation which was aimed towards kids (as was the device). I don't think for a second that it didn't look attractive on it's own. That is not to say THQ did or did not do anything wrong.

But, I'm on board with you. Time will tell. I just hope that the outcome isn't the fall of one of the few larger publishers that actually give a crap about what we as gamers care about.

 

[Agayek]

As long as they survive long enough to get Darksiders 2 out the door, I'm not too concerned about this debacle.

 

[PinkiePyro]

I thought the udraw was an interesting concept but i knew that it was probably gonna fail few would really want it for the price they had set for it and it only had 2 games that actually looked good drawing software and a picsonary game and most defintly fail when the wiiU got announced

 

[Bolt-206]

If THQ pulls out of this alive...
They're going to have one hell of an experience under their belt.

Nothing like meeting the face of death to learn a few lessons.

 

[duchaked]

I had no idea the uDraw existed until I walked into a Target one day :/ and with the entire Internet at my disposal too lol

 

[Something Amyss]

Saints Row 3 sold pretty well (beyond expectations if my google is to be believed). If THQ goes under, I wouldn't be surprised to see Volition and the Saints Row IP bought up by EA or Activision.

It's their best selling non-licensed game to date if their own reports are to be believed. But then again, that's the question of the investigation, so...>.>

If THQ pulls out of this alive...
They're going to have one hell of an experience under their belt.

Nothing like meeting the face of death to learn a few lessons.

Thing is, it rarely plays out that way in the business world.

I had no idea the uDraw existed until I walked into a Target one day :/ and with the entire Internet at my disposal too lol

It's not surprising. Their marketing REALLY sucked.

 

[Xanadu84]

Sadly, I'm pretty sure much of this is business mumbo jumbo is obvious to us from a gamer perspective. What exactly is a uDraw? I have never once hear of it. And it didn't sell well? You don't say?

Also, again from this gamer perspective...I want to take a look at this statement.

"...demand for its uDraw GameTablet was below internal expectations in part due to differences between gamers who play video games on the Nintendo Wii and those who play games on Xbox360 and PlayStation."

Was there some person in the room when this was written who played video games, who burst into hysterical laughter when they read this? Really, the market for those 2 are different? Why whatever would make you think that?

My concern here is the 40k games, and that's about it (Besides of course, you know...jobs. That sort of thing.). Other properties, I feel like they can get shaken up and might turn out better, might turn out worse, and at the very least, Red Faction is a nice IP that really can't go any further downhill, so yay for that. Would the 40K games get to use the same game engine? I mean, might be time for an engine update anyways, but I am at least concerned.