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GAMES—Nickelodeon Takes Video Game Characters to Screen

THQ Inc., the Calabasas Hills-based maker of children’s video games, and Viacom’s Nickelodeon have agreed to co-develop products that will be launched as video games first, then as TV shows and films. Although THQ has produced video game content based on Nickelodeon characters and story lines for the last few years, this will be the first time the company’s products will be used as the creative premise for any of Nickelodeon’s films or TV shows. THQ will also be fully involved in development of the original characters for the games, signaling a reversal in the way the two sides of the entertainment world have done business in the past. “Typically, we license (established) Nickelodeon products to produce the software for the video games and then pay a royalty,” said Jeff Lapin, THQ’s vice chairman and chief operating officer. “This is about both parties working together to create a new brand with its own identity, and both parties will actually invest in promoting the brand.” With this new agreement, Nickelodeon and THQ will propose story and character ideas. Those accepted by both parties will be produced first as video games and, if successful, TV shows and/or movies. Nickelodeon and THQ are already both reaping hefty returns from retail sales of the 1998 release of “Rugrats Search for Reptar,” characters originally featured on television that THQ then produced for the Sony PlayStation, Nintendo 64 and Game Boy color console platforms. Retail sales on the video game have already exceeded $125 million on 4 million-plus units in the U.S. alone, Lapin said. This year, THQ will produce games based on Nickelodeon’s popular TV character “Jimmy Neutron: Boy Genius,” set to debut as a motion picture in December and a TV series in the fall of 2002. THQ’s venture into film is part of a growing trend in the video game industry. At least three films based on popular video games are set for release over the next few months. They include Tri-Star Pictures’ “Final Fantasy,” based on the Japanese company SquareSoft Inc.’s game of the same name, and Paramount Pictures’ highly anticipated “Tomb Raider,” which started as a popular action/adventure game produced by London-based Eidos. Video game makers are hot Hollywood’s renewed interest in the economic potential of video games is helping THQ and its competitors capture the attention of Wall Street too. While tech stocks took a harsh beating in 2000, shares of some of the top U.S. video game publishers continued an upward climb, and THQ was at the head of the pack. THQ reported record net income for the fourth quarter ending December 2000 of $21.5 million, or 99 cents per diluted share, a 45-percent increase over the previous year when reported net income was $14.2 million, or 73 cents per diluted share. Revenues for the last quarter of 2000 were $190.9 million, a 50-percent increase over the same period in 1999 of $127.6 million. THQ’s stock was trading at$43.66 ?? last Friday, down about a point from its 52-week high of $44.99 on May 2. The lines between entertainment for TV and the personal computer have become less and less clear. Industry experts say, with the growing economic potential in video games, the industry is once again capturing the attention of non-interactive entertainment companies in other words, Hollywood. “(The Nickelodeon/THQ deal) is an indication that the interactive entertainment industry is becoming a much bigger segment of the overall entertainment business,” said Miguel Iriban, an analyst with Wedbush Morgan Securities in Los Angeles. In the past, said Iriban, the studios tried to move into the video game market, but never really had any success doing so because of the technical snags they hit trying to create their own games. “Now they are taking their content ideas straight to the experts,” Iriban said. THQ’s and Nickelodeon’s first joint project is still under development, according to Stephen Youngwood, Nickelodeon’s vice president of interactive and book publishing, and should be released late in 2002 or early 2003. “It takes about 18 months to make a good video,” he said. Youngwood would not discuss the financial details of the deal. Under the terms of the deal, THQ will oversee all aspects of the video game production, Nickelodeon the development for TV, film and other products. But both companies will have an equal say in which products get green-lighted and which ones are given the big thumbs down. Bryn Harmon, an analyst with the Portland, Ore.-based Red Chip Review, said THQ and its competitors are poised for a significant boom as the other two of the three top console makers Microsoft and Nintendo roll out their new products later this year. “Everyone who is making the games for those consoles is working like mad to get game content ready,” Harman said. “A lot of people are expecting video game revenue growth of between 25 to 35 percent over the next year.”

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