Zelnick: Life after Grand Theft Auto

Christopher Dring
Zelnick: Life after Grand Theft Auto

There were queues snaking around the corner at even the most remote games retailer.

It featured in every national newspaper, on every radio station and across every news channel.

And in just over six months, 33m units were sold into retail, making GTA V the fastest selling title in games industry history.

The impressive arrivals of Xbox One and PS4 are nothing compared to what Rockstar’s latest delivered last September.

Yet let’s step away for a second from the impact GTA may or may not have on the games industry as a whole, and take a closer look at what it did closer to home.

Take-Two, parent of GTA label Rockstar Games, posted revenue of $2.4bn for its last financial year, the biggest haul in its history. It now has cash close to $1bn in the bank. Yet immediately after revealing this last month, Take-Two’s share price fell. Only slightly, but it fell all the same.

HIT FACTORY

Because even today, even after BioShock, Borderlands and Red Dead Redemption, Take-Two is still incorrectly viewed as the ‘GTA publisher’. The games giant that’s over-reliant on just one single IP.

“Over the past several years, Take-Two has been transformed from a company that was dependent on one series into a financially strong, global interactive entertainment enterprise with numerous successful franchises over a variety of genres,” insists Take-Two CEO Strauss Zelnick. 

“Today, our company is defined by its top creative talent; unwavering commitment to quality; and world-class marketing that turns product launches into pop-culture events. Our portfolio includes ten franchises with over five million unit sales, and more than 40 individual, multi-million unit selling titles. 

"Take-Two has been transformed into a financially strong business with numerous successful IP"

Strauss Zelnick, Take-Two

“Success is about consistency.  Our business has outperformed expectations for the last seven consecutive quarters. We achieved this by having the right strategy, the best talent, the deepest portfolio of franchises and the financial resources required to invest in our business – including the successful transition to next-gen.”

He adds: “We’ve been in this business for over 20 years and few companies have enjoyed that longevity. The successful evolution of Take-Two and its vast potential is reflected in our significant profit outlook for the current fiscal year, and our expectation for continued non-GAAP profitability every year for the foreseeable future.”

NO ONE-HIT WONDER

Zelnick has every right to feel frustrated. NBA 2K14 has sold 6.5m units, BioShock Infinite 6m, and Borderlands 2 has shifted 9m. While those numbers combined fail to touch the GTA V phenomenon, those are figures that would be the envy of its rivals.

But there are signs of growing confidence in Take-Two. Aside from a temporary post-financials dip, T2’s share price has been steadily rising throughout 2014.

“I hope the market is beginning to see that we are becoming a more reliable enterprise,” says Zelnick. 

“I think the market sees the diversification of our line-up, that digitally delivered revenue is representing a greater percentage of our business, and that our business model is being transformed as well. It used to be one big release over a couple of year period, today it is ten big franchises, multiple releases and  a good deal of spending happening after the initial release in what we call ‘recurrent consumer spending’.”

Take-Two’s ‘recurrent consumer spending’ (which to you and I means money generated through DLC and microtransactions) grew by 65 per cent to $435m (£260m) last year. A lot of that has been down to GTA Online, and Zelnick expects this to be a major area of growth for Take-Two over the coming years, too.

"I hope the market is beginning to see we are becoming a reliable enterprise."

Strauss Zelnick, Take-Two

And when you consider the cost of making triple-A titles, does that mean fewer games and more digital initiatives moving forward?

“It is possible that over time that you have a multiplicity of titles that are generating ongoing consumer spending. But it’s too early for us to say,” admits Zelnick. “We have a robust release schedule and we are excited about that. The fact that this model is now evolving in this way does support our very selective approach to making games.” 

He adds: “It is a risky business. The way we mitigate risk is by knowing our market and producing the highest quality titles in the business. And according to Metacritic we have been doing that for six years – that does cut your risk. But even so, we have had some things that haven’t gone our way and I am sure we will in the future, much to our dismay. It is incumbent on us to build our business that has some mitigating support, such as our catalogue and our recurrent consumer spending.”

RETAIL IN 2014

For all the talk of its growing digital sales, Take-Two remains a publisher very much imbedded into the world of retail. And Zelnick does not expect that to change.

“Games is still largely a physical business,” he says. “Physical distribution represents somewhere between 70 to 80 per cent of our revenues year-in, year-out. Digital distribution is growing, recurrent consumer spending is growing, and digital revenue is indeed very exciting and compelling. But our primary channel partner remains physical retail.”

It is retail that has been making its big games, GTA included, pop-culture events. Whereas in mobile, for instance, the firm has had mixed success – although Zelnick says it’s just a matter of time.

“It is not about whether something is mobile or fixed, it is about the screen size and the processing power. There’s no doubt that what we are best at and known for are these triple-A immersive experiences. Over time mobile devices are going to be able to handle those experiences well and therefore we will surely launch on those devices.”

Other new tech has caught Zelnick’s eye includes VR: “We are actively interested in virtual reality. Neither Oculus Rift or Morpheus have been launched commercially, so it is too early for anyone to support them. But if the consumer is there, then we expect to be there.”

 

A FESTIVE SHOWDOWN

Take-Two’s big focus right now is on the new consoles. PS4 and Xbox One sales have sold faster than even the most optimistic of analysts had predicted. Will Take-Two speed up development of its next-gen products as a result?

“I would love to say we could develop faster,” he says. 

“Creating the highest quality in the business does take time. 

“We did bring one of the earliest titles to the new platforms with basketball, and that was very successful indeed. 

“We have a pipeline of more than ten unique titles coming to next-gen consoles and we have announced Evolve, NBA 2K15 and WWE 2K15. We have some unannounced titles including some for this fiscal year, but I don’t foresee a tighter development timetable.”

The games Zelnick lists there, alongside upcoming PC strategy game Civilization: Beyond Earth, are all scheduled to release in the last quarter of the year. Take-Two has historically been good at pacing out its products, but this year all of its big titles are due to hit in the final quarter.

Rival EA has already told Wall Street it expects Christmas 2014 to be ‘highly competitive’ and Zelnick does not disagree. Yet he remains bullish.

“Our expectation is that the market will be strong for higher quality titles, and that it will be challenging for less than high quality titles, which is why we are so very focused there,” he said. 

“But we feel quite good about the market, a rising tide lifts all ships, and I think it is a rising tide.”

 

COMING SOON

Take-Two’s current line-up includes a number of promising titles, including new NBA 2K and Civilization games. It also says there are a number of unannounced titles set to arrive before March 2015, including a next-gen title from Rockstar.

But the two releases that are getting core gamers most excited are Borderlands’ return and new IP, Evolve.

BORDERLANDS

With just two games this series has sold-in over 17m units. It is already 2K’s most successful IP, even bigger than BioShock. And later this year 2K expands the series with Borderlands: The Pre-Sequel on PS3 and 360 and adventure spin-off Tales from the Borderlands by Telltale Games.

“There is a huge fanbase that still own 360 and PS3, so we decided to release The Pre-Sequel on those and PC,” says Take-Two boss Zelnick. 

“Our goal with Borderlands is the same as with all of our brands – innovate, delight audiences old and new and build long-term value that contributes to our business.”

Borderlands’ success may be surprising when you consider its origins. The shooter launched in a competitive marketplace in October 2009. Launching new IP during Q4 is typically a risky move, but Borderlands broke through.   

EVOLVE

2K hopes to repeat the Borderlands trick with Evolve, a new sci-fi shooter that launches alongside a number of big name rivals this October.

“We have a track record of launching hits at any time of the year, and trust our labels to select what they feel will be the best launch window,” insists Zelnick. 

“We’re confident that Evolve will be a stellar title with unique offerings that will make it standout.”

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Tags: Rockstar , take-two , strauss zelnick , 2k , Grand Theft Auto V , evolve , borderlands

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