THQ's Decline: Are Bad Reviews Really To Blame? (THQI)
Many believe that bad reviews can affect the sales of films and video games. But can they move the market as well?
That's the indication following the release of Homefront, THQ's (NASDAQ: THQI) long-awaited first-person shooter. The game's release was followed by less-than-desired reviews (by Metacritic standards), prompting Reuters and GameSpot to proclaim that the lack of acclaim was to blame for THQ's declining stock.
Reuters even quotes an analyst, Mike Hickey (from Janco Partners), who says that the score was a “bit of a disaster for THQ” and that the share price reflected that. “The market is a quality driven market (and) you need at least a score of 80 and above on Metacritic to do well,” he said. Reuters also noted that THQ management has been trying to convince investors that its upcoming game lineup was its strongest ever. As a result, Wall Street has been keeping an eye on Homefront, the company's first major release this year.
If that is indeed the case, then investors should be applauded for their efforts. Many Activision (NASDAQ: ATVI) investors were too blinded by the success of Call of Duty to realize that it's not the only game that matters. So if they are paying serious attention to THQ's entire product lineup, then at least some progress is being made.
Still, it seems hard to believe that the reviews alone are the cause. It's not as if Electronic Arts (NASDAQ: ERTS) soared following the successful release (financially and critically) of Dead Space 2. Instead, the market kept an eye on the situation, waited for further developments, and acted accordingly.
But comparing Dead Space 2 to Homefront is like comparing apples to oranges. So why bring it up here?
Simply put, Dead Space 2 is a sequel to a very successful survival/horror franchise. Its release was preceded by a huge demo campaign on Xbox Live and PlayStation Network, which helped to increase the anticipation for a game that was already receiving an immeasurable amount of hype.
Homefront has no such lineage. It is not a sequel, and its release was not preceded by the same level of hype – or the same level of anticipation – as Dead Space 2. Whereas Dead Space 2 may have been a worthy game for the market to move on, it almost seems unfair for the market to do so here. If Dead Space 2 had flopped, it would have been a huge blow to Electronic Arts. But it is unrealistic to think that Homefront will have a similar impact (positive or negative) on THQ's long-term success.
While it is unlikely that Homefront will go on to sell millions of copies, critic reviews alone cannot confirm or deny that fact. In truth, user reviews might be far more damaging because they contain the words that everyday game players are sharing with their friends. Word of mouth counts, especially when Joe Consumer notices an ad for a game online, sees a commercial on TV, and then hears a comment about the quality of that game from his friends. Each impression plays a significant role in the next step that Joe Consumer takes. That last impression might not be able to persuade him to buy a game that he has not heard of or simply has no opinion of, but if the comments are negative, it could make him think twice before buying a game that he was previously excited to play.
However, even if user reviews were that powerful, the game has only been available for a day! Until additional consumers have had the chance to play Homefront, and until the first-week sales figures have been released, THQ's future does not look any better or worse than it did a week ago.
Concerned investors should continue to keep an eye on THQ, the games it releases, and the success those games have at retail. But if you are ever led to believe that one game will make or break a particular corporation, consider the source of the information, thoroughly investigate the game's lineage (if it has one – if it doesn't, that's a red flag), and take a deep breath before making a move that you might later regret.
UPDATE: This afternoon, THQ announced that first-day sales of Homefront reached 375,000 units in North America.
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