Can THQ survive till next gen?

It's dangerously tempting to ascribe a company's individual troubles to some fantastical "trend", especially if, like me, your knowledge of economics wouldn't fill up the dead air inside a packet of crisps. "Casualification", "the death of triple-A", "late cycle fatigue" - there's no shortage of hypothetical phenomena doing the rounds for conspiracy theorists to latch onto.

It's just as dangerous to trace those troubles to a single mishap, however. Many would summarise THQ's present plight in one word, "uDraw" - released in November 2010, the kiddy friendly tablet fell short of projected revenues by around $100 million, contributing the lion's share of a company-wide quarterly loss of $55.9 million and setting the stage for a dismal 2012. It was a watershed moment in publishing, but THQ's most recent woes can't be reduced to uDraw alone. As revealed in a presentation yesterday, the company has recorded a net loss of $21 million for the three month period ending September 30. It now has around $36 million left in cash reserves - pocket change by the standards of the triple-A scene, where games may cost as much as £80 million to develop and market.

To my mind, the underlying problem that THQ has wrestled with for some time now is one of scale. A smaller publisher like 505 Games or Codemasters has relatively few mouths to feed, and can thus afford to double down on comparatively niche audiences, trading broad appeal for a scarcity of competition. The likes of Activision, meanwhile, have enormous cash cushions to sit on during rocky economic conditions. THQ is squarely in the middle, with many of the pressures of a top-tier publisher but none of the protective bulk, and is suffering the inevitable consequences.

It's saddening, because the company is making all the right moves. THQ has chopped away masses of dead weight in the past two years, including a huge quantity of obsolete kiddy licenses. It's also made painful sacrifices to bring down costs, killing off the cherished but under-performing Red Faction franchise, shuttering Homefront developer Kaos Studios, handing over the UFC license to EA and most painfully of all, writing off two promising new IPs in the shape of Guillermo del Toro's InSANE and Tomonobu Itagaki's Devil's Third.

These measures have produced quantifiable results - overheads and licensing costs were down $210 million as of August this year - and in the meantime, the company's core games division has achieved an unheard-of form under the guidance of now-departed executive Danny Bilson. Between Metro, Saints Row, Darksiders, Warhammer, Company of Heroes and the dodgy but strong-selling Homefront, THQ has a decent roster of good quality franchises to spread around. What it doesn't have, necessarily, is the time to convert all that potential into profits.

With that in mind, president Jason Rubin's announcement that Company of Heroes 2, South Park: The Stick of Truth and Metro 2034 will release as late as 2014 prompts mixed feelings indeed. "I firmly believe releasing our fourth quarter titles without extra time for polish in the current environment would lead to under-performance that could in turn lead to future additional capital shortfalls," Rubin told investors in a note. "But extending development schedules in order to make the best possible titles also has financial implications.

"Yet there can be no doubt which path has the greatest chance of leading to the long-term success of the company," he went on. "We must follow the course that generates the highest quality games, and will establish THQ as a mark of quality for the consumer." It's a promising agenda, but it'll come to nothing if Rubin and co can't work the financial wizardry required to offset those debts and shore up shareholder confidence. The transition to next generation consoles is likely to incur a few casualties, thanks to the initial spending threshold - EA alone is pouring some $604 million into R&D; over the coming six months. THQ may well be among the first.