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THQ's Homefront 'should be profitable,' analyst says [Updated]

March 25, 2011 | 12:14 pm

Homefront Critics may have panned THQ's Homefront, but consumers are still buying the game -- at least enough for THQ to turn a profit on the most costly game the company has ever produced.

"At more than 2 million units shipped, the game should be profitable," Edward Williams, an analyst with BMO Capital Markets, wrote in a note to investors Friday. "More importantly for THQ, the company should be able to bring in a substantial amount of cash as it collects against the receivables over the next month, or so."

The company announced on Thursday that it had shipped 2.4 million copies of Homefront to stores worldwide, about 1 million of which were sold.It's unclear how much of the remaining copies will be sold in the upcoming weeks. Regardless, THQ's target of 2 million copies for the title to break even is based on the number of copies it ships to stores, not how many are ultimately sold.

“To clarify, our guidance of roughly 2 million units to breakeven on Homefront is based on shipments into retail,” said Julie MacMedan, THQ's vice president of corporate communications.

Homefront is the centerpiece of the company's plans for a broader corporate turnaround based on producing big-budget, higher-quality games.

Hopes of blockbuster sales for Homefront faded soon after the game shipped on March 15. The game garnered a disappointing score of 71 from critics surveyed by Metacritic, a site that aggregates game reviews. Investors then pushed the panic button and drove THQ's shares down 21% the day the game debuted.

Williams wrote that investor reaction to critical reviews was "over-done," considering how well the game actually sold.

The disparity between Metacritic scores and sales in the case of Homefront has led to questions over how much companies, investors and retailers should rely on the scores to predict sales.

Of course, the idea that reviews don't necessarily determine commercial success is nothing new in the entertainment industry. With Homefront, reviews were all over the map. Scores ranged from a high of 93 to a low of 40. And a few of the more critical reviews gave high marks to Homefront's multi-player mode, which lets up to 32 people play together online.

"Homefront’s strong sales represent a market where consumers are still discerning enough to fully read game reviews to reach their own conclusion and not solely rest on an aggregated number," said Jesse Divnich, an analyst with Carlsbad, Calif.-based Electronic Entertainment Design and Research.

A number of factors besides reviews can drive sales, Divnich said. A well-regarded title, for example, can sell poorly because publishers don't spend enough to market the game. Conversely, a poorly reviewed game can still sell well if marketing builds enough anticipation or if the game is released at a time when there's little competition on store shelves.

"This helps to explain why titles such as Demon’s Souls can achieve 90+ reviews, but produce lower revenues, and why a game such as Medal of Honor from Electronic Arts can get an aggregated review score in the 70s and surpass nearly 5 million units in sales," Divnich said.

So while it's not a slam dunk that Homefront will pass the 2 million threshold, Wall Street has stopped hyperventilating and is breathing a bit easier since THQ's sales announcement. The company's shares gained 14 cents Friday to close at $4.78.

-- Alex Pham

Updated, Monday March 28: This post has been updated to add THQ's statement on how many copies of Homefront needs to be sold in order for the title to break even. THQ said its 2 million break-even target was based on how many copies of the game it ships to retailers rather the actual number of copies that are actually sold to consumers.

Related:

Homefront misses with critics, THQ stock takes a beating

Danny Bilson aims for turnaround at THQ with video game Homefront

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