Take-Two’s Strauss Zelnick on eSports, virtual reality and the state of E3

Christopher Dring
Take-Two’s Strauss Zelnick on eSports, virtual reality and the state of E3

We talk to the boss of Take-Two about eSports, virtual reality, the state of E3 and the publisher's acquisition strategy.

How digital has transformed Take-Two's business

Digitally-delivered revenue, especially recurrent consumer spending – which we define as anything other than a full-game download, including virtual currency, add-on content and online gaming – remains a high-margin growth opportunity and a key strategic priority for our organisation.

We now support virtually all of our new releases with innovative offerings designed to delight consumers – and create revenue and profits. During fiscal year 2016, recurrent consumer spending grew 33 per cent year-over-year to its highest level ever, and accounted for 48 per cent of non-GAAP net revenue from digitally-delivered content, or 26 per cent of total non-GAAP net revenue. It bears noting that this area of our business didn't exist five years ago; this is an example of our desire always to be the most innovating company in our space.

We're exceedingly mindful of the way we create these offerings: it starts and ends with quality. If you deliver something great, consumers will happily show up and stay connected with your brand.”

Can eSports be profitable?

The rise of video games as a spectator sport is unquestionably an exciting trend in our industry. We were early investors in Twitch. So far, eSports acts as a great marketing tool and an additional way to gain exposure for our brands and expand our audience. We recently completed an eSports tournament for NBA 2K16, where more than 100,000 teams competed in over 2.3 million games, for the chance to win a $250,000 grand prize and a trip to the NBA Finals. We were really pleased with these results, and we expect to explore additional ways to leverage our properties, and to engage and reward our loyal fans.

It remains to be seen whether eSports will be a meaningful source of revenues for our company. We do think advertising and sponsorship opportunities are interesting and potentially profitable.

EA and Activision's decision to forgo E3

I do think it will be a great show for us and for the other people who are going to be there. It is a really important show as it sets the tone for the industry. We are certainly disappointed that not everyone will be there, because we think it shows off the industry when the biggest companies are all there. But we are excited to attend nonetheless, and we are pretty convinced that people will be back in the coming year.

History shows that companies, including ourselves, have occasionally taken a year off depending on what we have to show. But when you have stuff to talk about, it is the best place to do it.”

Taking risks

When focus and discipline pay off, the last thing you want to do is to reduce your focus and discipline. I do think that there may be really interesting opportunities, and I do think that we are hitting our stride. But our watchwords remain the same: be the most creative, the most innovative and the most efficient company in the business, and we don't intend to change that. That means to stick closely to our knitting to deliver the best interactive entertainment experiences to consumers all around the world, make sure to give them what they want, make sure to innovate and make sure to think ahead and create new, exciting intellectual property. And then get up the next morning and do it again.”

Take-Two's release schedule

We are still a work in progress and not every year has had the most robust release schedule. This past year's frontline release schedule was not as robust as the prior year.

However, this new fiscal year has a terrific line-up. We have two big releases in October in Mafia III and Civilisation VI, and of course we have our normal fall releases of basketball and wrestling. We will be heading into holiday season with a strong release schedule with plenty of opportunity to delight consumers.”

Take-Two's acquisitions

Our first priority is to invest in growing our business organically. However, we are also actively looking at strategic acquisition opportunities, with a disciplined approach.

Acquisitions to expand our scale would definitely be attractive to us, but we would also consider acquisitions in areas to which we don't currently have a lot of exposure. We will only consider acquisitions that are both highly strategic and accretive to earnings. An ideal acquisition for us provides three things: high quality intellectual property, a creative team that is tied to that intellectual property, and new technology. It's rare to find all three in one place. We have the financial flexibility and the appetite to grow, and we will continue to be highly selective in evaluating anyacquisition opportunities.”

The US immigration challenge

Immigration reform continues to be a key issue affecting our industry's ability to attract and retain the best possible technological talent in the United States.

Our business resides at the intersection of creativity and technology, and we need to be able to tap into the pool of highly-skilled talent created by our universities to address our growing, complex needs. Whether designers, engineers or the expanding eSports athletes, we need to be able to have unfettered access to these global resources to help fuel our industry for continued long-term growth.”

Can we expect Take-Two VR games?

There is still no market, and that is not a criticism, it is just an observation. I have some very, very smart friends who are big believers that VR will completely transform the entertainment business. If it does, we are in a great position because we own an extraordinary amount of intellectual property and we have 2,000 highly creative people who will develop for whatever platform consumers fall in love with, and that includes VR.

The only point that I've made is that we don't need to change the company's investment strategy in advance of a platform delivering. We can afford to be judicious and to do R&D. I have zero doubt that if VR turns out to be an exciting platform for consumers, then we will be there with our wonderful intellectual property, both sequels and new.

I have read some concerns about the nature of a VR experience, but I think those concerns are irrelevant because our job is not to make those judgements, our job is to be where the consumer is.”

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