The Los Angeles Times from Los Angeles, California • Page 280

BUSINESS THQ Inc. to Develop Software for Sega Videos: The pending pact will allow the firm to put together products for Genesis game players as well as competitor Nintendo. RICHARD DERK Los Angeles Timet THQ is about to join a select group of companies that have the technological ability to design games for both Nintendo and Sega game players. Founded two years ago by Friedman. 52.

THQ posted sales last year of $32.9 million, which yielded earnings of $4.1 million a handsome 12.4 profit margin. THQ still has only a fraction of the game-cartridge market, but the company has made -its mark with several hit games, such as one based on the movie "Home Alone" and another on the popular series of children's books called "Where's Waldo?" Indeed, THQ's strategy is to develop selected games derived from movies, television shows, books and celebrities that are already popular with video-game players. The trick is for THQ to identify early what people or trends are becoming popular, so that it can secure a license based on those media or people and develop a game ahead of its rivals. THQ said its current development work, for instance, includes designing software based on the recent hit movie "Wayne's World" that could be used with either Sega or Nintendo players. (THQ's games are actually manufactured by Nintendo, and THQ also expects that Sega will do likewise.) The Sega move would enable THQ to spread the costs of marketing a particular license such as the "Wayne's World" rights over a larger base of games.

Of course, THQ always runs the risk that its hunches about what movie or book will be popular could be wrong. But if THQ times.it right, having a game based on a popular item helps the company to get valuable shelf space on the crowded videogame aisles in Toys Us. Wal-Mart and other retailers. After Nintendo revived the video -game business in the late 1980s with players using so-called 8-bit computer chips, Sega last year introduced the second-generation 16-bit Genesis player that provides better graphics and allows for more sophisticated games. They were a big hit.

Nintendo responded with its own 16-bit player, the Super NES, and "it's now a horse race" in that market between the two systems, said Acclaim's Holmes. Nintendo still commands about 70 of the U.S. market for game players, but Sega's share has climbed to about 25, said Sean P. McGowan, who tracks the industry for the investment firm Gerard Klauer Mattison Co. in New York.

And in the industry's growth area, the 16-bit machines, current sales are split about evenly between the two companies, he said. The companies are now waging a price war Nintendo early this month cut the suggested retail price of its Super NES system $30, to $149.95, and Sega slashed its Genesis player $20, to $129.95. The price cuts were prompted largely because of slowing sales growth for videogame players in general. "In today's eco By JAMES F. PELTZ TIMES STAFF WRITER THQ Inc.

ia a young Calabasas company that's grown quickly by developing games for the popular video-game players made by Nintendo Co. of Japan. Now THQ has decided that Nintendo is not. well, the only game in town. Amid growing consumer demand for rival game players made by Sega Enterprises Ltd.

of Japan. THQ earlier this month announced that it has a tentative agreement to develop games and other software for use with Sega's Genesis players. Although a definitive pact is still pending, THQ said it already has been develop ing certain games for the system with Sega's cooperation, programs that would reach the market within the next year. By pursuing Sega, which has joined with Nintendo to dominate the video-game business, THQ not only hopes to expand its sales but also to hedge its bets. THQ is moving into a position to benefit, regardless of THQ President Jack Friedman period" before an offering reaches investors.

But in the offering's preliminary prospectus, THQ explains that by making games for both Nintendo and Sega, "the company believes it will be able to reach a larger target audience and minimize the risks of a particular platform becoming obsolete." "There's only a handful of companies that produce software for both platforms," said Electronic Arts spokesman Tom Murphy. In industry jargon, platforms are the different types of game players. The Super Nintendo Entertainment System (NES) and Sega's Genesis player are two different platforms, for instance. As for THQ embracing Sega's system, Murphy said "we anticipated that more companies would be entering that market." THQ PresldentJaek Friedman declined to elarxirafeon'Q'sSega strategy because hfs flso Is planning a secondary stock offering, of 3 million shares, and executives often refrain from discussing their prospects in the "quiet whether Nintendo or Sega players lead the industry's future growth. Call it a type of toy arbitrage.

And it's not child's play. THQ will join a select group out of more than 50 companies that develop video games that have the financial and technological wherewithal to design games for the various players made by both Nintendo and Sega. Other switch -hittlhg developers include' Electronic Arts Inc. and Acclaim Enter-' tainment an Oyster Bay, N.Y.-based concern that began shipping its first Sega games last week. A eclaim Entertainment lident nomic envirpnmsnt, Useemed tp be too itTMrt Holmes said one ttwebg! Jtettag because "Sega success new phenomenon," He agreeCtnaivtrJQ wbVt be the last game developeif expand its But Nintendo tttuj Sega aq installed base oj we'SOBTW ARE, 7 reacn across coin systems.

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