In-Depth: THQ's Farrell Thinks Outside The Old Hardware Lifecycle

The old five-year hardware cycle is over, says THQ CEO Brian Farrell, who says the game industry and its investors alike should take a more diverse view of revenue and audience opportunities.
The old five-year hardware cycle is over, says THQ CEO Brian Farrell, suggesting a broader focus is necessary for the continuing well-being of traditional software publishers. The majority of sales for the next three to four years will occur on current consoles, Farrell told an audience of investors at Goldman Sachs' Global Investment Reach Communacopia XIX Conference, as listened in on by Gamasutra. "And there's increasing digital migration," he pointed out. "Our philosophy is, we are in the content generation business, and as our consumers migrate -- and many have already [to digital, social and mobile platforms] -- we've got to provide our games on those platforms as they're there," Farrell said. "Our attitude is, 'let's embrace those concepts and serve our customers in those fashions.'" While on the subject of new platforms, Farrell took the opportunity to caution investors against the "misunderstood" conception that fairly weak NPD retail results this year mean the game industry is in decline. The NPD's monthly report is regularly relied upon as a gauge of the industry's health and a guide for investors in the sector -- but it's not the whole picture, as Farrell emphasized. "We're very fond [of NPD], but unfortunately right now [its results] don't capture much of the data," he said, highlighting international sales, Xbox Live Arcade and PlayStation Network, revenues from Steam, mobile gaming, subscriptions and mictrotransactions as significant absences from the group's retail software sales results. New Places To Play "The way to think about our industry is, yes, we agree completely that there is much slower growth in traditional boxed products, but these nontraditional markets should provide a reasonably robust growth environment for us to participate in in the next several years," Farrell said. Although Farrell said the bulk of the company's investment dollars still go into "high production value core games," THQ's aiming to approach the long lifecycle by entering different spaces, not by trying to push the bar ever higher on core platforms. The company recently joined the Wii peripheral space with its uDraw tablet accessory, with which Farrell said THQ worked closely with Nintendo. "[Nintendo has] been a phenomenal partner," he said. "They've been very cooperative -- they've helped us in design, there've been an infinite number of meetings with them on what the product should be like, look like and feel like." THQ pays a "standard peripheral royalty" to Nintendo and receives marketing and branding support in return, plus true status as "Nintendo product" -- in fact, Nintendo will host the launch of the uDraw peripheral at its World Store in New York City. Succeeding In The Social Space Beyond that, THQ is eyeing the social space, but Farrell said that simply playing catch-up on the highly competitive Facebook platform is no strategy for success. "There's a lot of been there, done that on the Facebook gaming sites now, so you have to differentiate yourself -- we're entertaining people, so we have to give them something different, otherwise they won't come," he said. Success on social platforms comes with either notable production values or strong owned brands. THQ's approach will be "more of the latter," said Farrell. The company isn't announcing any specific plans currently, but the CEO suggested that the publisher's core properties, like UFC, MX vs. ATV and WWE, will be the starting point. "We can do Facebook games based on those, and that's our point of differentiation," said Farrell. "That being said, that [Facebook user] isn't always the user of our core games like that, so we just have to be careful not to put the wrong games to the wrong users." The Long View Ultimately, the transition occurring in the current hardware cycle is promising, but not immediate; at the end of five years' time, digital revenue will be "well more than half" of the industry's total, and also of THQ's own revenues, according to Farrell. "Certain things have to change -- some of it being bandwidth and infrastructure, just to deliver these big games in a compelling way over the 'net," he added. "I do think the way to think about our industry now is... the way the hardware guys are thinking about it: graphics now are phenomenal, the entertainment experience is great -- let's think about how we can expand the service," Farrell recommended. "That's going to be the trend in the industry rather than just hardware updates, in our view."

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