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Video Game Maker Gets Juiced

I've got it! THQ (Nasdaq: THQI  ) can fix its recent slump by sticking a plastic guitar controller into all of its games!

That strategy has certainly worked for Activision (Nasdaq: ATVI  ) with Guitar Hero III and Electronic Arts (Nasdaq: ERTS  ) with Rock Band this past quarter. Can it hurt THQ?

Dress that guitar up as a pint-sized wrestler in the company's World Wrestling Entertainment (NYSE: WWE  ) licensed SmackDown vs. Raw 2008. Guitar necks can serve as spatulas in the company's Ratatouille game. And instead of a six-string, the guitar's actually a galactic blaster in Destroy All Humans.

I'm kidding, of course. Then again, it seems as if THQ is taking some pretty radical steps to get out its slump. The video game publisher is closing down one of its smaller studios, canceling upcoming titles, and hosing down its near-term prospects.

That final point was enough to send shares off to a brutal 30% dip at the open this morning. The company is bumping up its revenue guidance for the recently concluded fiscal third quarter -- from $490 million to $509 million -- but slashing its profit outlook. THQ is looking to earn just $0.22 a share for the holiday-spiked December quarter, weighed down by costs related to writing down underperforming titles and walking away from select games, including its Juiced and Stuntman franchises. The new earnings guidance is roughly a third of what analysts had been expecting.

Things won't get any better in the current quarter. THQ expects a $0.13 loss, dropping its top-line projection from $240 million to $200 million in the fiscal fourth quarter that ends in March.

Scaling back is never fun, and THQ's move seems surprising at a time when all three next-generation console platforms are starting to build their audiences. Giving up on some of its in-house properties also puts more pressure on THQ's licensed deals. There's nothing wrong with leaning on the proven characters of partners like WWE, Disney (NYSE: DIS  ) , and Viacom's (NYSE: VIA  ) Nickelodeon for fodder -- that approach worked for THQ during the good times. However, finding a winner within your own portfolio of intellectual properties is simply more lucrative. The margins and incremental revenue streams are greater that way. Where would Take-Two Interactive (Nasdaq: TTWO  ) be without its Grand Theft Auto goldmine? Exactly.

THQ isn't going away -- just taking a step back. Unfortunately, it's taking that step back just as everyone else is taking steps forward.

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