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Rival game firms see fortunes vary

Quarterly sales soar at Activision, while rival publisher THQ sees revenue fall and plans to slash 250 jobs.

November 06, 2008|Alex Pham | Pham is a Times staff writer.

The video game industry's rising tide has not lifted all boats.

Activision Blizzard Inc. on Wednesday posted a doubling of quarterly revenue and predicted strong holiday sales.

But THQ Inc., whose games have failed to connect with players recently, said it would slash 250 jobs, or 17% of its developers, as it cancels projects and closes five development studios across the country.

The divergent reports from Southern California's two largest independent game publishers provide a snapshot of the industry as it attempts to navigate through tempestuous economic waters and into the crucial holiday season, when 40% of its sales typically occur.

"The theme this year is caution," said Arvind Bhatia, senior vice president at Sterne, Agee & Leach Inc., a brokerage firm in Boca Raton, Fla.

Activision, which merged with Vivendi's game business in July, posted third-quarter revenue of $711 million, up from $326 million a year earlier. The Santa Monica game publisher lost $108 million, or 8 cents a share, largely because of one-time charges related to its merger, stock-based executive compensation and the halting of some projects within Vivendi's game division. Without those expenses, it made $48 million, or 8 cents a share.

The company also announced plans to spend as much as $1 billion to buy back its own shares, which jumped 10% to $12.08 in after-hours trading after closing down 88 cents at $10.98.

Just over the hills from Activision's headquarters, THQ of Calabasas told a different story. Sales plunged 28% to $165 million in its fiscal second quarter ended Sept. 30. It lost $115 million, or $1.73 a share, compared with a $7-million loss, or 11 cents a share, a year earlier.

THQ also lowered its fiscal year sales projection by $275 million to a range of $875 million to $900 million, citing a strong U.S. dollar, the delay of two key games and the expected reluctance of parents feeling the economic pinch to splurge on games for their children this holiday season.

"It is a hit-driven business," Bhatia said. "And THQ did not have enough hits."

The company's shares tumbled 16% to $5.49 in after-hours trading. They had ended the regular session unchanged at $6.55.

Analysts project that worldwide video game sales will grow 20% this year to about $50 billion, but not all companies will cash in.

Although stores have increased the amount of shelf space devoted to games 40% from last holiday season, retailers are ordering fewer copies of games, opting to replenish their stock more frequently rather than be stuck with large batches of inventory at the end of the year, said Mike Griffith, head of Activision's publishing business.

"Publishers with top-selling titles will benefit disproportionately this year," Griffith said in a conference call with analysts.

That's good news for Activision, which hired 500 workers in California this year to produce titles such as Guitar Hero: World Tour and Call of Duty: World at War. But it's bad for THQ, which said it would announce additional cutbacks of its administrative staff in the weeks ahead.

"There is a softness at retail, not just in the U.S. but globally," THQ Chief Executive Brian Farrell said in an interview. "The big titles are still working. So we're going to focus our energies on fewer titles, make them bigger and better."


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