Check out more from this interview: Crytek going fully free-to-play in 2 to 5 years and Homefront is Cevat Yerli’s dream game.

On the Friday after the THQ auction, Vigil Games shut down for good. The Monday after that? The core members of that developer announced they were now Crytek USA.

I wanted to find out how this happened, so I ignored the boundaries of time zones and got Crytek chief executive officer Cevat Yerli in Germany on the phone along with Crytek USA’s newly appointed chief executive officer, David Adams in Austin. The pair explained what it was like to establish a new developer over just a one or two meetings.

If you aren’t aware of the specifics, on Jan. 23, the Bankruptcy Court of the District of Delaware held an auction to sell off pieces of publisher THQ to the highest bidders. Darksiders developer Vigil games received no bids and by Jan. 25, THQ shut down the studio and let everyone go. Then, on Jan. 28, Crytek announced that former Vigil lead David Adams would run Crytek USA Corp. as CEO and would bring on the core members of his team from that now-shuttered studio.

How did Crytek USA happen?

“We were surprised when nobody bid on Vigil,” Yerli told GamesBeat. “We would have liked to have bid, but there were too many unknowns.”

Through the THQ bidding process, Crytek was most concerned with nailing down the rights to the Homefront franchise, which it’s developing at its U.K. studio.

“But when nobody bid [on Vigil], I thought that maybe we could reconsider bidding,” said Yerli. “But eventually we decided not to because the projects [the developer was working on] weren’t strategically fit for us, but I really liked David [when I talked to him] on the phone. He made a very good impression on me as someone who really cared, someone who is really passionate about what he does, and someone who is passionate about the team he works with.”

Yerli decided to fly out to Austin to talk with Adams and possibly to visit the studio sometime during the week of Jan. 28 to have a closer look. Crytek had already begun planning to start a U.S. Crytek corporation, and the executive thought that maybe the Vigil team could work. But THQ laid off everyone at Vigil before Yerli left.

“We had chosen Austin as the destination for [our U.S. branch], and we needed a lean and core team of expert to run the studio,” said Yerli. “At the same time, we didn’t want to continue with Darksiders 3, since that doesn’t fit with our strategy. So when I heard that [THQ laid off everyone at Vigil], I decided on Saturday morning to fly out to meet with them to see if the team would be interested to join our mission, which is significantly different than what this team has done before.”

At this point, Yerli told me that he based his decision to act quickly on his conversations with Adams and his time with the Darksiders games. Yerli hasn’t finished Darksiders II, but he likes what he’s played so far. Yet at this point, Yerli still isn’t sure if the former Vigil team is right for Crytek USA. The CEO hasn’t seen a single résumé or held an interview with anyone.

Meanwhile, in Austin, the employees of Vigil were trying to figure what to do next. Adams had talked with Yerli on Thursday but wasn’t sure what would come of it. He was also preoccupied with a studio crumbling all around him.

“It was an interesting time,” Adams told GamesBeat. “I was telling everyone that [Friday] was their last day. I was pretty busy trying to help people find jobs. Sure, Crytek was gonna come out the following week, and that was cool. It sounded like a good opportunity, but my mind was really focused on finding people a place to land.”

Then at 8 p.m. Friday, the day Vigil shut down for good, Cevat Yerli’s brother Avni called Adams to tell him that Cevat was getting on a plane to Austin as soon as possible.

“He came out the next day,” said Adams. “We met, and the day after we were pulling a new studio together called Crytek USA.”

But how does something like this happen so fast?

“This is probably the fastest establishment ever [for a new studio],” Yerli told GamesBeat through a laugh. “I don’t think you could establish a studio faster than this. Only a few people within Crytek even knew this was happening because we didn’t have time to update people. So it was a surprise for a lot of people within Crytek.”

Yerli is right. On Jan. 25, Vigil dissolved. On Jan. 28, Crytek announced Crytek USA. That is a busy weekend. I’m lucky if I remember to do the laundry in a similar time frame.

“I was in Delaware for the auction,” Adams said. “I was front row for the entire preceding. I had to come in the next day and tell everybody, and then from there it was this whirlwind into Crytek USA.”

So I asked Yerli what gave him the confidence to move so boldly in this situation.

“I met with David and some of his former colleagues and his dear friends,” said Yerli. “I shared with them, before meeting the other team members, how I see the world. I told them what we want to do and where we want to go [with Crytek]. But I also wanted to get to know them. I wanted to know them as humans, as team members, and as friends. And within a short amount of time I got very comfortable with David and his friends.”

Yerli said he wasn’t worried about discovering the developers’ technical or creative abilities because he believes that the Darksiders games speak for themselves.

“My point is, I saw a history of games that spoke to the team’s capabilities,” said Yerli. “I saw, from a corporate-culture perspective, a very fit core team, and I saw a strong leader in front of me.”

But that was just a small get together with Adams and some lead developers from Vigil. Before meeting with the other dozen former Vigil employees that Adams was thinking of inviting to Crytek USA, Yerli knew how he would decide whether or not to go through with this initiative.

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The original Homefront didn’t do well critically, which is why it was surprising to find out that developer Crytek was working on a sequel for now defunct publisher THQ.

As it turns out, Homefront is Crytek president Cevat Yerli’s dream property. In an interview, GamesBeat asked the executive what he would choose if he could work on any intellectual property — and what he would do with it.

His answer?

“With the acquisition of the Homefront IP, that just happened actually,” Yerli said. “When we decided to sign on for Homefront 2, the only reason we did it is because I really wanted to work on Homefront, but I wanted to have it done differently.”

Crytek had nothing to do with the original Homefront. Crytek UK, formerly Timesplitters developer Free Radical Design, is working on Homefront 2.

“We entered this relationship with THQ that allowed us to do [what we wanted with Homefront], and when THQ found itself in its Chapter 11 situation, we didn’t want to have to stop our plans,” said Yerli. “We wanted to save the project and the team, so we decided to acquire the IP. And now we are able to continue that.”

Yerli went on to say that the original Homefront was trying too hard to mimic Call of Duty.

“We’re gonna make it Crysis and Far Cry minus aliens and mutants,” joked Yerli. “But there’s still North Koreans.”

Even though the executive was mostly joking about that last part, it’s probably good to hear that he doesn’t want to just put another Call of Duty competitor out on the market.

We’ll have more from the GamesBeat interview with Yerli and Crytek USA’s new chief executive officer, David Adams, soon.

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The court has chopped up THQ and sold it for parts. The dream of the publisher’s executives to file for bankruptcy and immediately sell the company as a whole is destroyed … its parts were worth too much.

The auction ordered by the Bankruptcy Court of the District of Delaware for bankrupt video game publisher THQ and its assets ended today. Many gamers and developers are worried about the future of the publisher’s development studios, intellectual properties, and employees.

We now know that Clearlake Capital will not take over THQ, and the company’s assets have been sold piecemeal to other publisher:

Studios:

• Sega bought Company of Heroes developer Relic for $26.6 million. Zenimax (Bethesda) bid $26.3 million.
• Koch Media bought Saints Row developer Volition for $23 million. Ubisoft bid $5.4 million.
• Ubisoft bought new studio THQ Montreal for $2.5 million. No other bids.
• Darksiders developer Vigil did not find a buyer at this time.

Properties

• Crysis developer Crytek purchased Homefront for $500,000. No other bids.
• Koch Media purchased Metro property for $5.8 million. Ubisoft bid $5.175 million.
• Ubisoft bought South Park rights for $3.2 million. No other bids.
• Publisher Take 2 purchased new Evolve property for $11 million. Developer Turtle Rock Studios bid $250,000.

A press release sent out this afternoon said that Koch Media and Deep Silver “will roll out future plans for each franchise [Metro and Saints Row] in the coming months.”

“These franchises hold a special place in the hearts and minds of anyone who loves exceptional video games,” said Geoff Mulligan, the chief operating officer of Deep Silver, Inc. “We’re thrilled to usher in a new era for these franchises and are proud to welcome the visionaries and talented forces at Volition on board.”

Ubisoft also released comment this afternoon. “This deal adds experienced developers to our internal creative teams at a key moment in the cycle of the video game industry,” said Yannis Mallat, the president of Ubisoft Montreal.

Here is the letter THQ chief executive officer Brian Farrell and president Jason Rubin sent to employees, as reported by Kotaku:

To All THQ Employees:

We now have the answers we’ve been seeking through our financial restructuring and
Chapter 11 case. While much will be written, here are the facts of the bids and auction
that occurred t:

• Yesterday morning, we received a competing bid for the operating business,
  along with Clearlake’s offer, and numerous offers for separate assets.
• During an auction process that lasted over 22 hours, the final conclusion was
  that the separate-asset bids would net more than a single buyer for the majority
  of the company.
• Shortly, we will, present the results to the U.S. Bankruptcy Court, which must
  concur with our assessment.
• The proposed sales of multiple assets is as follows :
• Sega agreed to purchase Relic
• Koch Media agreed to purchase Volition and Metro
• Crytek agreed to purchase Homefront
• Take 2 agreed purchase Evolve and
• Ubisoft agreed to purchase Montreal and South Park

We expect these sales to close this week.

Some assets, including our publishing businesses and Vigil, along with some other
intellectual properties are not included in the sale agreements. They will remain part of
the Chapter 11 case. We will make every effort to find appropriate buyers, if possible.

What this means for employees

We expect that most employees of the entities included in the sale will be offered
employment by the new owners. However, we cannot say what these owners may
intend, and there will likely be some positions that will not be needed under the
new ownership. You should receive notice this week or early next week if the new
owners intend to extend employment to you. Please note that the terms of your new
employment, including pay and benefits, may be different from the current terms of
your employment with THQ.

If you are an employee of an entity that is not included in the sale, we regret that
your position will end. A small number of our headquarters staff will continue to be
employed by THQ beyond January 25 to assist with the transition. THQ has sufficient
resources to pay these employees for work going forward, and we will be contacting
these employees immediately to ensure their continued employment during this
transition period. We are requesting the ability to offer certain severance pay to
minimize disruption for employees of non-included entities as they determine the next
steps in their careers.

We know you will have many questions about this news. We’ll be meeting tomorrow
when we return to talk through this announcement and to answer any questions you
have. You will receive a benefits fact sheet and FAQs with answers to some questions
that may be on your mind. Please review these materials closely.

A personal note

The work that you all have done as part of the THQ family is imaginative, creative,
artistic and highly valued by our loyal gamers. We are proud of what we have
accomplished despite today’s outcome.

It has been our privilege to work alongside the entire THQ team. While the company
will cease to exist, we are heartened that the majority of our studios and games will
continue under new ownership. We were hoping that the entire company would remain
intact, but we expect to hear good news from each of the separate entities that will be
operating as part of new organizations.

For those THQ employees who are part of entities that are not included in the sale, we
are confident that the talent you have displayed as part of THQ will be recognized as you
take the next steps in your career.

Thank you all for your dedication and for sharing your talent with the THQ team. We
wish you the best of luck and hope you will keep in touch.

Sincerely,

Brian Farrell
Chief Executive Officer

Jason Rubin
President

In December, THQ filed for bankruptcy. Clearlake Capital, an equity firm, immediately filed a motion to acquire THQ’s assets intact for $60 million. Earlier this month, GamesBeat reported that THQ’s lenders objected to Clearlake’s acquisition on the basis that a liquidation of assets would likely earn a higher price. The court agreed with that objection, which led to this auction.

Founded in 1989, THQ (which stands for Toy Head Quarters), after acquiring Broderbund’s video game division, produced dozens of games over the past two decades. While never a publisher the size of Electronic Arts, the company found success with games like the WWE wrestling franchise, the Company of Heroes real-time strategy games, and the open-world Saints Row games. It also produced a number of games on popular children’s licenses.

In August 2010, THQ debuted the UDraw GameTablet, a peripheral for Nintendo’s Wii console that allowed players to interact with art-based software. The $70 tablet was something of a surprise success on the Wii. Spurred by the positive reception, THQ decided to double down on UDraw by releasing a version for PlayStation 3 and Xbox 360.

This was a mistake.

In February, THQ discontinued the UDraw tablet. It reportedly had thousands of units sitting in warehouses that it could not get rid of. At this time, the company made a shift from kid-focused games, like its Nickelodeon-branded titles, to focus on premium experiences for the core gaming audience.

The publisher brought in Jason Rubin, founder of popular developer Naughty Dog, to operate as company president. This move was to help facilitate THQ’s renewed dedication to hardcore gaming.

It wasn’t enough, in November THQ defaulted on a $50 million Wells Fargo loan payment. It filed for Chapter 11 bankruptcy protection not long after.

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Several lenders have filed an objection to THQ’s fast-track bankruptcy sale, in which it filed for bankruptcy protection and organized a quick sale to Clearlake Capital for $60.5 million.

Clearlake will buy THQ, maker of video games such as WWE wrestling titles and the action-role-playing game Darksiders II, if no other bidders appear within 30 days of the filing, which took place on Dec. 19. The objection states that THQ’s bankruptcy was orchestrated to benefit the company’s newest executives and their friends at a financial firm hired to sell THQ.

The lenders provided THQ with loans of $41 million, or 41 percent of its $100 million loan. They include Silverback Asset Management, Third Avenue Focused Credit Fund, and Wolverine Flagship Fund Trading. They own a part of THQ’s 5 percent convertible senior notes due 2014.

Clearlake said it would pay off secured claims for creditors in the amount of $29 million. It would pay $6.65 million, assume $15 million in liabilities, and offer lenders a promissory note of $10 million at a 2 percent interest rate, due in seven years. Clearlake gets a break-up fee of $1.75 million and $500,000 in expense reimbursement if the deal does not go through.

In a filing, the lenders said that the timing of the sale is too short to let interested parties make rival bids. Those potential bidders wouldn’t have enough time to kick the tires on THQ’s assets. It also says that THQ should allow bidders to offer bids for some of THQ’s game properties, rather than buying all of them. The publisher’s hot properties include sandbox game Saints Row, Darksiders, apocalyptic shooter Metro, near-future first-person shooter Homefront, and World War II real-time strategy series Company of Heroes. THQ also has rights to make games based on WWE and South Park.

The filing alleges that Clearlake would have too much control over the process. The U.S. trustee overseeing the case, Roberta DeAngelis, filed similar objections.

THQ hired its new president, Jason Rubin, and his partner, Jason Kay, in the spring of 2012. The filing says that in June or so, the two Jasons orchestrated plans to take over THQ and gain significant upside, if they executed a turnaround. They hired Centerview Partners to handle a sale of THQ or find new investors for it. The lenders who objected clearly wanted THQ to consider selling off its game properties piecemeal, but Centerview shopped the company as a whole. The lenders allege the liquidity crisis was “manufactured.”

Still, on Nov. 7, Wells Fargo sent a letter to THQ saying it was in default on its credit facility. THQ said that one of its problems was that its cash held overseas could not be brought back to the U.S. without taxation. Wells Fargo held off on proceeding with default process as long as THQ kept it informed of its finances on a weekly basis. The lenders appear to be critical of THQ’s decision to preserve its game development teams at the cost of draining reserves of cash.

THQ hasn’t responded to a request for comment.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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Market researcher NPD reported total March sales of console, portable and PC game software and hardware fell 4 percent to $1.53 billion from $1.58 billion a year ago. Total console and handheld game software and hardware sales were $1.47 billion, down 4 percent from $1.53 billion a year ago. It shows that, despite some new hits, standard video games are still struggling to keep growth high even as consumers start to spend money again in the economic recovery.

On the other hand, the weak retail sales may be masking the true growth of the video game industry, as the numbers don’t include digital sales of games. Those include online games, social games, used games, subscription games, rentals, and smartphone and tablet games. NPD measures those sales about once a quarter.

Last month, the retail picture looked better, with overall game sales growing 3 percent.

“We recently completed our estimate of the total consumer spend on the games industry in the U.S. for 2010 including both physical and digital format sales,” said Anita Frazier, analyst at NPD. “We found that increases in some digital forms of content distribution offset the declines in new physical retail sales of software.  2010 saw a consumer spend on games content of $15.9 billion, which was essentially flat (down less than 1/2 of 1 percentage point) to 2009.”

She added, “While new physical sales of video game hardware, software and accessories are down 1% in the first quarter of 2011, the trends we’ve measured with regard to growth in digital formats like full game and add-on downloads, microtransactions, mobile apps and social network gaming will likely result in net industry growth when we release our full measure of the first quarter consumer spend on games in June.”

Video game hardware sales were up 12 percent to $494.5 million from $440.6 million a year ago. The 3DS launched on March 27 and NPD included seven days of retail 3DS sales in this month’s results. The 3DS sold about 100,000 fewer units than the DS did during its launch month in 2004, but the DS had the advantage of launching in the holiday time frame and was $100 cheaper. Because the 3DS sells at $249, it generated more revenue for Nintendo than the original DS did. The 3DS also has more competition in the form of smartphones and tablets now. The best-selling hardware in the month was the DS, not the 3DS.

Microsoft’s Xbox 360 and Sony’s PlayStation 3 both saw unit sales increases over March 2010. Microsoft said it sold 433,000 Xbox 360 units in March, holding the No. 1 position in the U.S. Those sales were up 28 percent from a year ago, and overall spend on the Xbox 360 goods was $457 million, higher than any other console platform. Sony only said it saw double-digit increases of hardware and accessory unit sales combined.

Video game software (including console and portable games only) fell 15 percent to $790.9 million from $928.3 million a year ago. Nintendo’s Pokemon White game for the DS was the top seller of the month, followed by Pokemon Black. The next most popular titles were THQ’s Homefront, Electronic Arts’ Dragon Age II, and Activision Blizzard’s Call of Duty Black Ops.

Lego Star Wars III from LucasArts was No. 6, EA’s Crysis 2 came in at No. 7, Take-Two Interactive’s NBA 2K11 was No. 8, Take-Two’s MLB 11 The Show was No. 9, and EA’s Fight Night Champion was tenth. The Pokemon titles combined broke the previous record of Pokemon Silver and Gold set in 2000.

“New physical retail software sales declined significantly, and despite the great success of the Pokemon [titles], software sales last year were marked by several marquee titles including Final Fantasy XIII, Battlefield: Bad Company 2 and God of War 3 which were all million plus unit sellers in March 2010,” Frazier said.

The top-selling 3DS game is Super Street Fighter IV 3D edition from Capcom.

Accessory sales were $241.3 million, up 13 percent from $214.3 million a year ago. The top-selling accessory was the $20 PS 3 network card, which can be used to buy downloadable content on Sony’s platforms.

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OnLive is announcing today that anyone who pre-orders the THQ video game Homefront from Feb. 25 to Mar. 14 will get a free version of the OnLive Game System — a $99 value. The customer will also get access to THQ’s Metro 2033 video game for free. It’s not a bad way for OnLive to get a wider reach for its game system, which allows users to play high-quality games on any PC or TV. And it’s the kind of deal that competitors won’t be able to match. Homefront will cost $49 on OnLive.

Homefront is one of THQ’s biggest games of the year. It’s a futuristic first-person shooter game where North Korea invades the U.S. and the war-ravaged citizenry fights back after the U.S. is occupied. The deal will last while supplies of the MicroConsole last. OnLive has created a server-based online gaming service that allows you to instantly play games that are stored and computed in OnLive’s data centers. The video and game actions are transmitted over a broadband connection to wherever you are playing. That allows you to play high-end games on low-end computers, while the MicroConsole lets you play high-end games on big-screen TVs.

“This is a watershed event: It’s the first time a game system has ever been given away with the purchase of a game,” said OnLive chief executive Steve Perlman. “Homefront is one of the biggest games coming out this quarter, and we wanted gamers to see just how incredible is to have the hottest title playable with the instant-play, massive spectating experience on their HDTV that is only possible through OnLive.”

The MicroConsole TV adapter and a wireless controller allow gamers to play high-end computer games on flat-panel displays in 1080p high-definition running at 60 frames per second, or faster than a blink of the eye. OnLive started shipping the Onlive Game System in December, and at that time it offered a free game with purchase.

OnLive launched its instantly playable server games in June. If customers truly like it, the cheap MicroConsole hardware could potentially eliminate the need for players to keep buying more and more powerful and expensive game consoles. OnLive has more than 70 games in its online games library now. If the company can grow that number, then it will have a bigger impact on consumers.

OnLive has been working on its server-based technology for more than eight years and has a team of 200 people. It has raised a considerable amount of money for the task from investors such as Warner Bros. and British Telecom. Most recently, it raised $40 million from HTC in a deal that could possibly value OnLive at $1.8 billion.

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GamesBeat 2013 is our fifth annual conference on disruption in the video game market. You'll get 360-degree perspectives from top gaming executives, developers, and analysts on what’s to come in the industry. Our theme this year is “The Battle Royal.” Check out full event details here, and grab your early-bird tickets here!

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