Last summer I think we spent a lot of time trying to decide what it was that made THQI successful. As part of this we debated the presence or absence of a THQI brand. We talked about the distribution capability, the ability to fund accounts receivable and many other aspects. We never really IMO addressed the questions of limits if any to growth.
Now we sort of got a lesson on what happens if THQI has a lot of eggs in one basket. Perhaps they might have foreseen this and renegotiated this license before it became so valuable. We don't really know what happened and I for one believe there is a real story behind this event. I don't know what it is but it is very strange that the deal with ERTS seems to have been a done deal before THQI announced the end of negotiations with WCW. Might THQI have been blindsided?
At any rate there is now the question of how far the THQI business model can be pushed. In my field, which is information technology in general, there is something called the Dual Market Dilemma where there are successful small and large companies with great difficulty for medium sized companies hence the demise over the years of CDC, Honeywell, RCA, Sperry, Burroughs, Digital, Wang, Apple (not quite yet), General Data, Prime, etc. etc.
The large companies have the characteristics of large companies including financial strength, global operations, capital intensity, whereas the smaller companies are more nimble and rely more on human resources including often a small group of key executives. When the smaller companies grow they find it difficult to continue to replicate previous successes at an increasing rate and make the cultural transition to being a large company. Operating in the middle can mean being neither adept at being small nor at being large hence the dilemma.
I am not saying that there are limits to THQI's growth, I haven't studied this sector in any great detail, but clearly there are difficulties with getting larger and we see a good example of this right now. If this had happened last year, it would be easier to replace these revenues. Now with the increased success of the WCW franchise, replacing it is far more difficult. |
