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Are Apps the Bane of Kidvid?

15 Feb, 2012 By: Thomas K. Arnold

I feel vindicated. For quite some time I have been maintaining that one reason home entertainment disc sales are slumping is because of iPhone-mania and the preponderance of free apps. Pre-teens, traditionally among the biggest consumers of entertainment, are playing Angry Birds or Tiny Towers instead of watching the latest animated feature on DVD or Blu-ray Disc.

Last October, DreamWorks Animation, which derives more than 50% of its revenue from home entertainment sector, reported a 51% decline in profits.

And my hunch, at the time, was that the iPhone and its larger cousin, the iPad — along with other smartphones and, of course, the iPod Touch — are the culprits.

So now along comes THQ, the venerable video game developer responsible for such hits as Saints Row and Warhammer 40,000, which has just reported dismal financials. The company’s loss mushroomed to $55.9 million in the quarter that ended Dec. 31, 2011, from $14.9 million in the year-ago quarter. Its stock is in danger of being delisted. CEO Brian Farrell is taking a 50% pay cut and, in the latest development, THQ is shutting down its entire Japanese operations.

THQ attributes its woes to a botched attempt to broaden its base from hardcore gamers to the pre-teen set, a move highlighted by the launch of the uDraw Game Tablet and several licensing deals for children’s properties. “Our confidence was misplaced," Farrell said earlier this month, noting that not only is THQ killing the tablet, but it also is pulling out of the entire children’s game business. THQ said it recently ended negotiations with two licensors and is working out agreements with two more to spin off some titles.

One of the primary reasons for the pullout, Farrell said in a conference call earlier this month with analysts to discuss the latest financial results, is that the i-stable of products has taken the kids market by storm in the past year, “since kids can get thousands of apps for free or at low costs.”

If free apps could topple THQ, one of the most successful video game developers of all time, it’s easy to see the danger to our industry, particularly the children’s market, which remains the cornerstone of today’s sellthrough business.

The $64,000 question: Are iPhones and apps just another novelty that kids will eventually tire of, so that they’ll come back to home video? Or are they going, going, gone … for good?

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