Taking stock

Grand Theft Auto IV and Midnight Club: Los Angeles have been complemented with DLC. How is Take-Two approaching this model and what are the benefits to it?

First and foremost, downloadable content vastly enhances the gameplay experience for our audience. For example, The Lost and Damned, our first downloadable episode for Grand Theft Auto IV exclusively on Xbox LIVE, received critical acclaim from the media and eclipsed first-day revenue for all previous downloadable content on Xbox LIVE.

With The Lost and Damned, Rockstar set a new benchmark for innovation, and made a significant contribution to DLC’s evolution with a fantastic episode that featured all-new, highly compelling characters and storylines. We’re looking forward to releasing the second episode for Grand Theft Auto IV this year.

For Midnight Club: Los Angeles, Rockstar’s South Central Premium Upgrade included a whole new section of Los Angeles, together with new cars, races, music and other features that significantly extended the street racing experience

Downloadable content provides us with a compelling way to extend the life of our brands in the market and deepens our relationships with our consumers. For example, in Midnight Club: Los Angeles, we made new cars available via a micro-transaction. Players are able to purchase packs of three vehicles and import them into their game experience. Both the player experience and revenue to our company were enhanced.

We’ll continue to explore ways in which downloadable content makes sense for both our brand and business.

What are your thoughts on how the industry is moving forward with this business model? What areas are left unexplored?

Downloadable content is an area that has rich potential for innovation. It is still an emerging area for our industry and business. While the concept of creating additional content and extending our brands is exciting and can be highly lucrative, the first and most important step is creating great products that consumers will want to spend even more time playing.

You can’t build upon something that isn’t already fundamentally sound. Just because a product is successful, doesn’t guarantee that the downloadable content for it will succeed. The additional content needs to be contextual to the gameplay experience and provide meaningful value to the consumer.

We’ll continue to see a variety of downloadable offerings, from the more basic add-ons like maps and weapons, to complete episodes with new characters and stories, just like The Lost and Damned offered.

Everyday, we explore new ideas and possibilities. We must and will continuously innovate, learn and then innovate further.

How long do you think until the industry sees digital-only releases as its main priority?

The digital-direct channel represents an interesting opportunity for our industry and business. It’s a nascent area. Physical goods and traditional retailers will continue to be the primary channel for the sale of our products for the foreseeable future, with digital downloads providing a back-end service.

How do you see the industry coping with the recession? What’s the best way for the games industry to keep encouraging consumer spending on video games?

Some recent reports have indicated that our economy may be beginning to stabilize and consumer confidence may be strengthening.

The retail environment does appear to be more stable now. Consumers are continuing to spend, albeit cautiously, and retailers remain interested in our titles, while keeping a close eye on inventory levels. Our industry continues to show resilience, especially as compared with other consumer sectors.

The best way to attract scarce consumer dollars is to serve the audience in two very important ways: quality and value.

In tough times, consumers typically spend on products that deliver on these criteria, and very little in between. Most publishers are adopting a strategy that Take-Two has had for some time, namely, to release the strongest possible titles on a highly selective basis as opposed to offering a wide variety of B” titles.

Original IP, and successfully managing its release, has always been a key issue for the games industry. What are your thoughts on how the industry does this – where can it improve? Likewise, how do you see the industry’s relationship to licensed IP changing at the moment and in future?

Creating and owning IP has been a key strategy for our business. We have 16 owned franchises that have each sold more than one million units worldwide, including Grand Theft Auto, Midnight Club, Sid Meier’s Civilization, BioShock, Mafia, Max Payne, Red Dead Revolver, NBA 2K, Rockstar Games presents Table Tennis and Carnival Games.

We also have licensing agreements with some of the biggest brands in the world, including Major League Baseball, The National Basketball Association, The National Hockey League, Nickelodeon and Ringling Bros. and Barnum & Bailey Circus.

In addition to providing better margins, owned IP offers many more creative opportunities to control and extend brands over time, including the flexibility to bridge into other forms of media and entertainment.

A license can bring market awareness to a title and add elements of gameplay; however a license must be an overlay to an otherwise great game. For example, our NBA 2K franchise is the top-selling and top-rated basketball brand in our industry today.

If we created a generic basketball game with no-name players, and unrecognizable teams and arenas, it would still be a great game that’s fun to play. Now, add the real teams, players with their real-life attributes and authentic arenas, and you have a complete experience that resonates with consumers on every possible level.

There’s clearly a long history of licensed games in our industry that were neither commercially nor critically successful. As an industry we have become better at using licenses and more importantly, consumers have become far more discerning and careful with their dollars.

In short, it’s all about the game. Period.

A number of large publishers – specifically EA, Ubisoft and THQ – have turned to China as part of their global expansion. Is this the right thing to do? Where else, geographically, should the industry look for its expansion?

China represents a significant opportunity for the industry and our business. It’s one of the fastest growing markets in the world today for interactive entertainment. Asia in general represents a very compelling opportunity that we are actively focusing our attention and resources on. I am surprised that India has not become a more meaningful market for our industry, but I expect that it will over time.

It’s been a busy time for mergers and acquisitions in publishing, some successful, some not – will there be more of these in the industry, or have all these new/expanded companies ‘bedded in’?

Market downturns often produce opportunities to acquire attractive assets at compelling valuations. Price is only one consideration. Acquisitions must also make strategic and economic sense.

As part of the prudent management of our business, we explore potential opportunities to increase the scale and scope of our business through opportunistic, but selective M&A. Historically, this has been a successful strategy for us. Over the years, Take-Two has successfully expanded its IP portfolio through acquisitions of franchises or studios.

Last year’s E3 was seen as a bit of a disappointment by many publisher bosses – likened to a ‘hospital corridor’ and called ‘soulless’ – by prominent members of the international publishing community. What are your thou