By Dean Takahashi
Tuesday, June 12th, 2007 at 11:37 pm in Dean Takahashi, Dean and Nooch on Gaming, General.
Brian Farrell is the CEO of billion-dollar video game publisher THQ in Agoura Hills, Calif. He’s run the company for more than a decade, starting humbly as a publisher of kiddie games. Now the company has more than 1,500 employees and 16 game studios. It has graduated into the big time and is sparring with the likes of Electronic Arts and Activision. THQ has been known for licensing content from the likes of Nickelodeon, Pixar, and World Wrestling Entertainment. But lately it’s been showing off new intellectual property in the form of original games such as Company of Heroes, Supreme Commander, and Stalker. I sat down with Brian a while back but the interview Q&A is pretty timeless.
Q: Chris Taylor gave that speech at the Dice Summit. He talked about the struggle of how it took so much of his – 19 years worth of hit points to get Supreme Commander out the door. He said he pitched every publisher in the industry. He had Electronic Arts for a while, about a year, and they dropped it. He couldn’t convince anyone it was worth doing. He gave a heartfelt talk and said he broke down in tears in December. Just talking about all that he had to go through to get the game out the door. He’s sold millions of games. It’s such a struggle even for these veterans. One question is why did you guys see something in this game, and why is the process such a struggle for everybody?
A: That’s one thing we’ve been trying to take advantage of. You’ve watched us over the years and seen the metamorphosis of THQ. Looking at what our competitors were doing, they were doing a packaged goods model. Wait a second. We said this is a games business. This is a creative industry. If we position ourselves to execute on that reality, we can say we get game developers and what they are trying to do. We’ve got this pact with them. Here’s the deal. We will give you creative freedom. You can sit down with our executives like Kelly Flock and Jack Sorenson and or Steve Dauterman. Listen to their feedback. They’re in the market and know what’s going down. But at the end of the day, it’s your product. We don’t want to water it down with too many chefs. We want your creative vision with input. We’ll give you the budget. You give us the timeline. It’s not our fiscal year or quarter. You tell us when this thing is done. We’ll do our part. We’ll market it aggressively. Look at Supreme Commander. You saw it aggressively marketed at last year’s E3. Chris Taylor is out on the road with us. We’re evangelizing him and fully supporting him. The good creative people in the industry are starting to get that. Hopefully Chris gave us kudos for that. We’re really trying to do that with the top developers. We don’t see our top competitors reaching out that way. We hear a lot from them about how they need a sequel or a franchise. At the end of the day, we realize we make great games. If we have the creative people wanting to work with us, either our internal studios or guys like Chris, that’s the secret to success.
Q: When the pitch for Supreme Commander passed by your desk, anything strike you about it?
A: I asked the first and most obvious question. If EA is canceling, what are we missing? EA was saying we need to do five million unit franchises. This was a real-time strategy, PC only. When we looked at the actual game, and what can we do with it, we saw we had a great creative guy in Chris with an amazing background and great track record. We loved the game design. It is PC only, and it is RTS, which is a niche. But it’s a good niche. You don’t do five million units with RTS on a PC. But with a game like Supreme Commander, with huge global appeal, we’re No. 1 in every territory where we reported. We had the No. 1 debut in a number of countries in Europe. The U.K., France, Germany, Belgium, Australia. We were No. 1 everywhere in every territory. It’s a niche but it’s a good niche.
Q: It took a while. How do you approach those games that take a long time? It took them four years from the point of pitching to getting it out. You weren’t with them the whole time. But how do you feel about those games?
A: It’s difficult. The downside is you have to watch the technology window. If it’s based on technology that is cutting edge, you don’t want to lose that edge by being too far past where you should be with the product. What we’ve learned over the years — for those types of products like Saint’s Row, Company of Heroes, Supreme Commander – is get it right and the gamers will come. You can’t rush the process. You’ve been around a while. You know some guys that never finish a game. Duke Nukem has been forever, right? They want it to last forever. (laughs). At some point, you need a closer. Someone who says it’s good enough to get a 90 percent rating, and not take another two years to get a 92 percent but it misses the window. That’s the art. The point I was making before. Developers are now starting to trust us. We aren’t telling people like Chris that we need that product in Q4 of 2007. We say, “Chris, you tell us when it’s going to ship.” We won’t put it in our plans until we have the visibility. Deliver a great game but don’t keep iterating until it’s dead. Get it right. When you get the developer’s trust, and they sit down with our guys and we talk about the critical things that need to be done, then they know it’s not about rushing it out. On the other hand, they know there is a market window that they don’t want to miss.
Q: Is this strategy counter to that of other publishers?
A: One of the publishers is really going fully staffed in adopting a consumer packaged goods model. That can be very successful. Because there are a lot of consumer packaged goods aspects to this industry. But if anyone, including THQ, forgets that at the end of the day we’re entertaining people, we’re not just providing a product, we’re providing entertainment that consumers can choose to adopt or not – those that forget that do so at their peril. So we look at how can THQ differentiate itself. It’s by attracting great creative talent, internal or external. The bread and butter of EA is sports, The Sims, things that they can do well. It’s not necessarily the environment that nurtures the creative process. EA is a great company and I have a lot of respect for them. Those large studios, mega studios as they call them, are very different from the studios that we build. We do small hubs of creativity, with two or three teams max. It’s a different approach. On the sports model, EA’s model works. On truly new intellectual property, I think our model is the one to follow.
Q: Did you go through a cycle to get to this strategy, starting much more humbly?
A: Yes. (laughs). It’s always been a strategy to go from the licensed intellectual property into the gamer. If you looked at the way we architected our studio build up over the last six years, it is around the hub of creativity around the talent is. We don’t open a studio in a city and then look for talent. We bought Volition. Is Champaign, Ill., the gaming capital of the world? No, but there was a great team of people that can attract other talent. The same with Relic in Vancouver or Rainbow in Phoenix, and Heavy Iron in Los Angeles. It comes down to where is the talent. Chaos Studios that is doing Frontline – I think we’ve got something there. It goes to how we are positioning ourselves. It was a group of design guys that were with Digital Illusions. EA buys them. In their infinite wisdom, they say they have a studio in Sweden and in Redwood Shores, but they don’t want one in New York. These guys wanted to stay in New York. Developers approach us. We end up hiring them as a team in bulk. We realize their strength is in design. We build an art team around them and import technology from somewhere else. Now we’ve got a team. You see what these studios sell for. By assembling the pieces like a chef, we created tremendous value. We didn’t buy someone else. Here was a team that needed other assets: capital, hiring other people, human resources. We do the back office stuff. There is no purchase price. We own a studio that we think will have a multimillion unit product that just took an investment of time, energy and thought. It’s a unique approach. I’m not sure our competitors would architect the meal that way.
Q: You’ve followed the history of Gathering of Developers. They reincarnated themselves as Gamecock. They have the same argument that developers need better friends among publishers and that there is a crisis for game developers who have to struggle so much. Do you believe there is a crisis among game developers?
A: With Gathering of Developers, there was supposedly a crisis back then. At the end of the day, the right developers like us because we shoot straight. One thing that is clear is the business model is changing. When I got into the business in the 8-bit days, we would pay an external developer $200,000 against a royalty of $2 a unit. If the game sold a million units, the developer cost was $200,000, the profit was $1.8 million. It was a good business. Now if development costs are $15 million to $20 million, there is no royalty in the world that can give you leverage in your business anymore. The only way these developers can monetize their studios is to sell themselves to publishers. It’s the economic reality of the changes in the business. Some developers to look at the publishers as big and bad. If you look at a lot of publishers now, it’s not always a rosy picture among the big public companies. I’ll sit down with developers and tell them this is our point of view. The pie is only so big. We negotiate the slice. Once adults agree that the pie is only so big, we narrow the conversation. I don’t think our development community feels we’re abusing them.
Q: I think it would be abnormal if the only source of money in the industry would come from publishers. If you look at movies, major movie studios are not the only source of money to make films. All sorts of others come to filmmakers to fund things, like independent film, or production houses. I assume the game industry should develop these other alternatives as well. It’s been a long history of the publishers being the only source of money.
A: That’s an interesting question. I think of the Capital Entertainment Group, with the ex-Microsoft guys Kevin Bachus and Seamus Blackley. There was a flaw in that business model, going back to the economic pie being so big. Their pitch is we will take the risk out of development and bring that to you. In exchange for that, they wanted a piece of the economic pie. Our response is that is what we do. If we can’t judge the products and take the risk, and get superior returns, we shouldn’t be in business. That’s not to say there couldn’t be projects that companies like theirs could start and bring to us. The great example is id Software. They fund all their own stuff. They command their own terms because they are that good. The more difficult one is the other independent publishers that need external funding. There should be other sources. We see a lot of things where there are plenty of concepts we see where the idea is great, but we want to see a prototype to know that the game play is good. We wouldn’t be prepared to go further. There could be angels or venture capital in the business. I think there is a place for that. But it is misguided for someone else to say, “We will take the risk out of the model.” That’s what we do.
Q: I wasn’t surprised to see some things develop like Foundation 9 getting money from Francisco Partners and Elevation Partners bankrolling developers like BioWare and Pandemic. That gives those development companies a way to proceed without selling out to a publisher.
A: You’ve seen those models. That’s a healthy thing for the industry to keep a great flow of product coming through that otherwise may have come from publishers. That’s a good model. Getting the games to a place where they are more in shape for a publisher to see. Pandemic and BioWare can say, “Here’s the finished game.” We could work with those guys. Our point of view is we have capital and the way we get a get a return for our shareholders is to risk that capita. Hopefully, we’re smart enough to get superior returns We’re not just a distribution play. We can do deals like taking a finalized game. But our real model is to fund games on our own that we own. We’re happy to work with Pandemic or BioWare. But that will never be a cornerstone of our strategy. The way we provide returns is taking the risk and bring the products to market. We do have distribution deals. We do some, but it’s not cornerstone.
Q: How is the state of the industry as far as consolidation goes?
A: We’ve talked over the years and I’ve said the same damn thing. Consolidation is occurring, but it’s not through mergers and acquisitions of public companies. If you look at it, we gained significant share last year. Big publishers are getting bigger. Is it because we’re powerful and mean? No. It’s like what happened to Hollywood. When the industry starts to grow to a level where the bets are no longer $200,000 but are orders of magnitude bigger than that, the smaller competitors can’t compete. The games business is not exempted from this. Will there be some landscape changing deal at some point? Maybe. You mentioned Elevation. That is what they are trying to do. It’s all about the content at the end of the day. If it is just putting two companies together, that’s not all that exciting.
Q: What are team sizes and game budgets like?
A: We’re over 100 on some of the teams. We have a very diverse portfolio. At the real high end, we have teams over 100 that are still doing a fair amount of outsourcing of no-critical tasks to Asia or Eastern Europe. On the younger-skewing titles that aren’t as technically ambitious, the teams are still in the 30 or 60 range.
Q: And the budgets?
A: It depends on the type of game. When you are aiming high, with a genre-defining game like Saint’s Row, you can spend $15 million to $20 million at the high end. On the core wrestling games where we are expanding the graphics and modes, and we already have the core wrestling technology with our WWE franchise, you’re on the lower end of that range. Now that we have technology up and running on all of the next-generation systems, to take some of our games like the Pixar stuff Cars or Ratatouille to next-generation, we can use existing technology. So it’s nowhere near that range. It depends on where you are aiming and your market segmentation. Now that I’ve said that, that is a big theme of ours we are trying to communicate. We think this next-generation is all about segmenting the market. It’s no longer about taking one game and putting it on all platforms. The guy doing Frontlines isn’t going to put it on the Wii. It belongs on the Xbox 360, PS 3 and the PC. It’s a high-end, core gamer multiplayer title. It doesn’t belong on the Wii. There are some things I can’t talk about on the Wii that we don’t want to put on the PS 3 or Xbox 360.
Q: Are the Wii titles coming out at half the cost?
A: Yes, and sometimes even less than that. Where costs are occurring in this generation are in asset and content creation. And since the Wii is not high-definition, and it can still look good. You have to remember a lot of game systems aren’t yet hooked up to high-def TVs. Content creation is costing all the money. With the Wii, you can look great at a third of the cost sometimes. The business model on the Wii works.
Q: Sony looks like they made a lot of mistakes this time. How do you think things are shaking out?
A: You’ve written a book on some of these guys. They all make mistakes. It depends on your ability to learn from and recover from mistakes. Sony has been the market leader for two generations now. They’re not going away. They have sold more units on PS 3 than they did in a like time on PS 2. Investors look at this and say the sky is falling. I’ve been through many platform transitions. There are a lot of differences but a lot sound the same. Development costs are higher. It’s hard to get things across platforms. We’re figuring those things out just like we always have. With PS 1 and N64, we had cartridges and CDs. We’re all getting there. Sony’s big challenge is price point. That will continue to remain a challenge. That’s why we are thinking about market segmentation. We have the high-end, early adopter, core gamer buying the Xbox 360 and PS 3. The other thing that is the huge point is the strength of the PS 2 market. It’s great. They sold as many PS 2s as PS 3s. No one wants to talk about that. The point is the PS 2 is at $129, seven years later. They may sell four million or five million PS 2s in the U.S. this year. That tells you there are lots of gamers. Some want to play on the Xbox 360 or PS 3 up here. Others will play on the Wii, with the mass market. Some want the PS 2.
Q: Which adds up to the largest part of the market a few years from now? The hardcore or the mass market? Nintendo is betting they can expand the market.
A: There is some anecodotal evidence they are expanding the market. We applaud their bold move toward the approachability of games. It’s something we’ve been concerned about for a while. The old adage is easy to play, difficult to master. We haven’t always adhered to that adage as an industry. Nintendo says it’s just about picking up a controller and having fun. We applaud that. I think that is a great strategy. They have a lot of potential to expand the market. The core gamers aren’t going away. That market is expanding. If Nintendo can bring back guys like me who don’t have ten hours to invest upfront just learning the game. There are 40-year-old investment bankers and newspaper reporters who don’t have the same disposable time. If they can get new gamers and bring back gamers who don’t play anymore, I think that’s a smart strategy.
Q: Some of the Sony and Xbox 360 fans are saying all these bigger consoles have to do is cut their prices by $150 and the Wii demand would dry up. That raises an interesting question. If they were the same price, what would people be buying?
A: If Sony and Microsoft were to do that, one would presume that Nintendo has a significant cost advantage and could keep going down too. Nintendo also has the huge library of intellectual properties that are exclusive to their platform. There is always a market for Nintendo because people want to play Pokemon, Mario, and Metroid. If you want to play those games, you need Nintendo. So it’s a hypothetical question. I don’t think you will see that kind of predatory pricing.
Q: They both got stuck with higher costs. Sony because of Blu-ray and Microsoft because of their returns.
A: Sony is a hardware engineering company. They figure out those things. They get the price right. The whole map to get to the right bill of materials. But as a software company, they are nowhere near what Microsoft is. Flip side, Microsoft’s development tools are so awesome and our developers love working with them. With the PS 3, it’s complaints about not enough memory, 256K in each cell is not enough to move data. Basically they’re saying they’re not a software company. You have a software company struggling with hardware and a hardware company struggling with software.
Q: I guess everybody previously said that by 2007 Christmas time, we will figure out who is the winner.
A: It’s going to be a longer race than that. It’s funny. The financial community is always asking us to pick the winner. The game press and the mainstream press. At the end of the day, we really don’t care that much. It doesn’t matter where the platforms go. That’s where we’re going to allocate our resources. We don’t honestly spend a lot of time thinking about it.
Q: There are wireless, PCs and MMOs as far as games go. You are putting emphasis on PC games, and you had an emphasis in wireless. What is your strategy for the rest of the market beyond consoles?
A: That’s a good way to frame the question. We want to hit gamers on the platforms where they’re playing. With wireless, we need the right experience for wireless. It’s the low end in terms of technology. All the way up to MMOs, things like Supreme Commander for RTS on the PC. Wireless is a very casual experience. It’s quick hitting, in and out. We have adjusted our portfolio with things like Lego Star Wars and Ratatouille. We stopped putting console games on wireless platforms and are making more wireless games. That’s the right thing. On the PC market, there are three genres that work well and where we are very clearly focused: RTS, role-playing games and shooters. Those are the kind of games we’re making. Titan Quest was an RPG. Company of Heroes and Supreme Commander were RTS games. Stalker is a shooter. If you understand where you’re going in the PC market, there is still a good market. If you look at EA and why they dropped Supreme Commander, you aren’t going to get a 3 million to 5 million seller on the PC. But if you do it right, you can make a lot of money.
Q: The PC was a market where many decided it was done. It was on its way down. If everybody chose your strategy, it would be a bad market. You’re one of the few that decided to expand into PCs.
A: There are a lot of gamers that want to play on the PC. If you look at the types of games, they’re more cerebral. It’s older. It’s a more sophisticated audience. They like playing with the keyboard and mouse for game play. Instead of ignoring the market, let’s address it. What we learned is you can’t take a console game and put it on the PC. Company of Heroes would probably never be on console. Shooters can cross over. That’s one small exception. Titan Quest will not be on the console.
Q: EA has been trying to do RTS games on the console.
A: We’ve been watching. There are a couple of games that we would like to make work. I will contradict myself. There are a few experiments we will undertake in that area. It is easy to oversimplify. The PC gaming experience is different. If you try for the same thing you had on the console, you have a tweener product that doesn’t please anyone.
Q: Am I mistaken or was Warhammer Online something that EA had?
A: Two very different franchises. There is the traditional Warhammer franchise which is fantasy based, medieval, with that type of universe. Our rights are with Warhammer 40K. That’s the futuristic franchise. We have been doing the 40K franchise with Dawn of War. We did over a million units on PC. Wildly profitable, very successful. It’s a great universe. We thought it was a natural for the MMO world. I like it because it’s very different from the medieval fantasy MMOs out there. It has compelling game play. We like that franchise a lot. It’s being done in Austin. We’ve got eight people with more than 10 years of MMO experience because they loved the Warhammer franchise.
Q: What do you think of MMOs in general, now that you’ve announced this 40K MMO?
A: You know Kelly Flock’s background. He brought EverQuest to market. He knows what works, how to build them. We have the DNA to do it right. We said we liked the market for a long time. But you have to do it right.
Q: Is it just an area where the risks are even more sky high? If you look at Richard Garriott’s Tabula Rasa, he’s been working on it for six years. He has a point where you can make the game last for ten years, almost like an annuity.
A: They are huge bets. Very long development cycles. That is what Kelly brings to the table. He has great ideas on using existing technology to get a great game out there without reinventing the wheel. You don’t need a tabula rasa. (laughs). What we’re not doing – we have a very small game to begin with. Then we’ll build content. Some of these guys build content from day one. That being said, it’s still very expensive. You have to do the back end, move boxed products at retail. I think we’ll be a force to be reckoned with in the MMO business.
Q: Stalker, how’s that going? That’s a big investment, though I supposed the Russians aren’t that expensive.
A: They aren’t expensive. That’s a business model that works. We don’t have a lot of capital at risk. They deliver the game, they get the lion’s share of money. They’ve gone gold. It’s a different game experience. That’s the right positioning for it. It’s creepy. If you have a single screen in a dark room, it’s creepy. So they’ve executed on that really scary theme. I think it’s going to work well. It’s been in the oven a long time and it’s baked.
Q: How are the changes with E3 changing everything?
A: We look at when the products are ready. It’s not going to be the same. The question we asked ourselves as an industry was “Who is E3 directed at and why?” When we went down the list, press should be a huge one. Getting mainstream and gaming press excited about the products. E3 started as a retail show. Where we sold products. We don’t write orders at E3 anymore. As a retail show, it has outlived its existence. Saint’s Row had two poor E3 showings because it wasn’t ready. We download a demo on Xbox Live and it gets a pop. We’re a digital industry. So retail is not a great constituency. The last is investors. It grew over the years. But it’s not really an investor show. Who has the biggest tank for a military game? I hope it will be successful and works for the show. Sony and Microsoft have their own shows for retailers, and GDC is for the developers. Will part of me miss the E3 with the glitz and glamour? People started asking if E3 was anything, beyond a party?
Q: I think it will lose all the people in the media to film the spectacles, the booth babes or big parties. Broadcast seems to lose out pretty big.
A: There is a fair point. There is a little bit of risk there. If you look at it, the industry spent 1 percent of its revenue on E3, for 20 seconds on E3? I’ll take that chance. As an industry, we don’t have anything to prove anymore. We’re mainstream, we’re here to stay. Ten years ago, we had to scream out and say we really count. We don’t have to spend that kind of money for 20 seconds on CNN.
Q: I suppose July is better for developers.
A: We’ll have more time to finishing things that we show. July is much better.
Q: E for All in October is more like the Tokyo Game Show?
A: We don’t know for sure but it feels like it.
Q: What are you really counting on this year?
A: We always start with our core franchises. We’ve got WWE coming out on all platforms this year, adding PS 3, Wii and DS to the very successful platforms we had last year. We sold 3.5 million to 4 million units on PSP, PS 2 and Xbox 360 last year. Those are staying in the line-up. We are adding three SKUs. Ratatouille is the next Pixar one. Pixar stuff has always done well for us. Avatars from Nickelodeon has done well. It was one of the top PS 2 games last year. We’ll have that and more NickToons franchises. Frontlines is the top hardcore new franchise. One of my personal favorites is Stuntman, with a game mechanic that is just unique. It’s just fun. I think the premise works, and the execution is great. I like that one. We repositioned the Juiced franchise, with hot import nights. It’s more a look and feel of a street racing product with customization. That has come a long way. It’s on next-gen and PS 2. We’ll have a couple of other things we’re talking about later in the year. Those are the big bets this year. We think Supreme Commander will have a lot of long legs.
[ 本帖最后由 零星 于 2007-6-28 01:04 编辑 ]