The Securities and Exchange Commission has initiated a formal investigation into accounting practices in the booming vidgame business, asking for information from at least three companies, according to regulatory filings.
“The investigation appears to be focused on certain accounting practices common to the interactive entertainment industry, with specific emphasis on revenue recognition,” said THQ, one of the companies responding to SEC requests for information, in a filing. Shares of several vidgame makers dropped on the day.
The investigation appears to revolve around the way vidgame companies book revenues from games they publish. Not all copies of a title sell through, and the remainder are later returned from retailers. Three companies — Activision, Acclaim Entertainment and THQ — said they had received SEC requests for information.
“The SEC has advised Activision that this request for information should not be construed as an indication from the SEC or its staff that any violation of the law has occurred, nor should it reflect negatively on any person, entity or security,” Activision said in its filing.
The investigation comes after Take-Two Interactive, another of the biggest U.S. game publishers, recently restated seven quarters of earnings. Take-Two, the company behind the hugely popular “Grand Theft Auto” franchise, is already under a formal SEC investigation. Three years ago, the much-smaller Acclaim settled charges regarding how it booked revenue. A series of computer software companies have also been the target of investigations into their accounting of sales revenue.