Take-Two took a chance on digital downloads and new IP last year, and posted better than expected Q1 figures as a result. But can the publisher really hope to return to profitability without a new GTA on the horizon? Christopher Dring speaks to CEO Ben Feder about the firm’s plans for 2010…
Take-Two’s Q1 performance was stronger than expected. Why do you feel that was?
We’re believers in the core games market and believe that delivering a select number of quality titles to core gamers is a winning strategy. The strong performance of several of our recent releases, including NBA 2K10 and Borderlands was key. We had an excellent response to our downloadable content, and increasing digital sales of catalogue titles were factors in our performance, too. Moreover, our digital business has delivered solid growth year-over-year, and represented 12 per cent of our revenue in the first quarter.
Despite the good results, you mentioned the need to cut back…
We have continued to make positive strides to improve the efficiency of our business and align our corporate cost structure more closely with our goals. These initiatives are expected to result in $15 million in annualised savings. We also sold our Jack of All Games distribution business, which allows us to focus on our core business going forward.
Borderlands performed strongly. Can we expect more from that franchise?
We’ve sold over 2m units of Borderlands worldwide and released three downloadable add-ons. We’ll continue to create more DLC, and release a retail SKU of the first two add-ons. Borderlands is amazing and we have long-term publishing rights to the series.
There were a few GTA releases last year, not least two hefty DLC packs. Can we expect more from Take-Two when it comes to digital add-ons?
The success of our digital offerings for GTA IV and Borderlands has given us tremendous insight into this growing segment of the industry, as well as meaningful benefits to our bottom line. You can expect Take-Two to innovate around the DLC business model with other key titles, including BioShock 2 and Red Dead Redemption.
Why release the GTA DLC in a retail pack?
While an ever-growing segment of our fans are comfortable with acquiring content digitally, the retail channel will continue to play a valuable role in reaching the majority of our fans. Our retail add-on releases give us additional presence for our brands and provides incredible value to consumers.
Overall, I believe that digital distribution won’t cannibalise retail sales of console games in the short-term. This isn’t the music industry all over again. Our industry has some of the best content protection via the consoles, which helps maintain the value of our IP.
As you look at the history of the entertainment industry, new platforms have grown, not cannibalised, existing markets. VHS recorders almost doubled the size of the business for movie studios, despite fears that home entertainment would cannibalise theatrical revenues. Cable and pay TV had a similar effect for TV shows and movies. I believe downloadable content will ultimately grow the business for games publishers.
As well as extensive DLC, you have also signed up with streaming service OnLive. What is Take-Two’s digital strategy, and how can we expect it to evolve this year?
Our goal is to deliver the most compelling interactive entertainment on the planet. We look to support all viable platforms and distribution channels that help our fans get access to our entertainment. We’ve been steadily and meaningfully growing our digital business. While we still believe that traditional retail will remain the primary distribution channel in our industry for the foreseeable future, we are actively exploring emerging distribution channels to see how we can reach the most fans and maximize the value of our IP. We need to make our content available to consumers wherever and however they want it - whether that’s in-store or online.
Episodes from Liberty City was a timed 360 exclusive, and Agent is scheduled just for the PS3. What are the benefits of releasing games exclusive to a single platform?
In general, we like to make our content available to as broad of an audience as possible. That said, we’ve partnered with all three hardware manufacturers from time-to-time to create exclusive content. There are times when exclusive games may make sense, either because the platform holder is so excited about it that they are willing to share the investment risk and put an effort behind ensuring a successful launch – as was the case for the episodic content for GTA IV on 360 – or because the content is perfectly suited to the platform – as was the case with Carnival Games for the Wii and DS.
The other GTA game you released last year was Chinatown Wars. Is it fair to say that game didn’t perform as well as you had hoped?
Chinatown Wars is the highest-rated DS title, as well as the best-selling M-rated title by a long way. As of February 2010, Chinatown Wars’ unit sales in the US represented nearly 50 per cent of the unit sales of all M-rated DS titles in the history of the platform. It’s also the second highest-rated PSP game of all-time. Rockstar recently launched the game for iPhone and iPod touch, and it quickly became the top selling title on the App Store. We’ll continue to explore ways to bring this game to a wider audience.
At the same time, the handheld market is currently challenged by weak demand and by piracy. Piracy is a real and present danger for our industry and must be addressed, especially in the handheld market. The commercial performance of Chinatown Wars has certainly suffered at the hands of piracy.
Has this made Take-Two wary of releasing core games on DS and Wii?
Given the high development costs of creating triple-A mature titles, we need to place our bets carefully and deliver content where we think it’ll perform. The evidence to date has been that franchises that perform well on Wii and DS tend to be built for those platforms from the ground up. That experience will guide our investment decisions going forward.
BioShock 2 was moved out of the Christmas release window. How do you think this affected the game’s retail performance?
After less than one month in the market, BioShock 2 had shipped three million units. We’re proud of reaching that milestone and believe that our decision to move the title was the right one. For the record, our BioShock franchise has now surpassed 7m units sold worldwide. We recently announced a substantial plan to support BioShock 2 with several upcoming releases of downloadable content, which will further immerse gamers in the world of Rapture. Last week, we launched the first in the series – Sinclair Solutions Tester Pack.
Core games may be your focus, but what more can we expect in the casual space? Carnival Games has been a big seller for Take-Two...
Carnival Games is our Energizer Bunny – it just keeps going and going – and it recently passed six million units sold worldwide. We haven’t announced any new offerings for Carnival; however, it’s certainly the cornerstone of our casual business. Carnival Games is also the third best-selling third-party title on the Wii behind Guitar Hero and Mario & Sonic. We’ve been fairly active in the casual space, including launching titles for Xbox Live Arcade and iPhone. This year we’ll release Sid Meier’s Civilization Network – a social network game.
Take-Two has a deal with Nickelodeon. Is licensing an important part of your business?
Our business is driven by internally creating and owning our IP; however, we have selectively engaged in licensing opportunities that enhance our portfolio. Our industry has seen the challenges of relying too heavily upon film and TV licences, which in most instances translate neither into premium games nor sales that warrant the licence fees involved.
We believe that our best opportunities for the long-term lie in owning the vast majority of our IP. We think that many of our properties would lend themselves well to other forms of entertainment including film, television and books.
There have been movements on the Board at Take-Two, leading some to speculate a buy-out may be imminent. Is Take-Two open to an acquisition?
The proposed changes to our Board will be voted on during our annual shareholder meeting. That said, we do expect these new Board members to be elected and we welcome the new directors who each have experience in the entertainment industry. With respect to the potential for an acquisition, of course we don’t comment on speculation. As is true of all public companies, if Take-Two were to receive an offer our board would evaluate it based on the relevant factors at that time.
Take-Two has developed a reputation for being the GTA company. Do you feel, with no new GTA this year, that Take-Two can lose that reputation?
We’re very proud of Grand Theft Auto. The franchise is second to none and we’re very fortunate to have it. While we’re often seen as the ‘GTA company’, the truth is that most big publishers have one or two flagship franchises that drive a meaningful portion of their revenue. We actually believe that relative to the rest of the industry we have great depth in the quality of our IP.
We have 15 owned franchises in addition to GTA that have each sold over a million units. Every year we’ve launched new IP that we can develop into a franchise. In 2006, it was Bully. 2007, BioShock. 2008, Carnival Games. Last year, it was Borderlands. This year, Rockstar will launch L.A. Noire. And in 2011, 2K plans to launch Spec Ops: The Line.
How key is the 2K Sports business for Take-Two? And how do you plan on growing it?
We’ve proven that we can be a leading sports publisher, and have achieved success with our NBA 2K franchise, and we’re pleased with the response to MLB 2K10. One of the other ways that we plan on growing our sports business is through our partnership with Tencent Holdings to develop NBA 2K Online in China.
We’ve received excellent support from our partners at the NBA, and have teams of specialists in Singapore and China, which we believe can help to make NBA 2K a global hit. We’ve significantly invested in our sports business and will continue to pursue opportunities in this space as long as they are profitable for our company.
These games are based on US sports. Is 2K interested in appealing to European tastes at all?
If we are going to enter a market we do so to win. European sports are an interesting opportunity. To date, we have not found a compelling way in which to enter and win, but we’ll keep looking.
How confident are you in your 2010 line-up?
We couldn’t be more excited about our 2010 line-up, which includes sequels to some of our most successful franchises. Red Dead Redemption is poised to redefine open world games with its vast and beautiful landscape of the American West – it’s just as creatively ambitious as Grand Theft Auto and benefits from an evolved game engine. Civilization V, Mafia II, Max Payne 3 and NBA 2K11 are all eagerly anticipated titles that come from proven franchises with very passionate fans. And, L.A. Noire, which has been generating major buzz, could be one of the most innovative titles that we’ve ever launched.
What are your thoughts on the motion-sensing devices coming from Microsoft and Sony this year?
We’re working with the console manufacturers to explore opportunities to utilise Wii MotionPlus, Project Natal and PlayStation Move. Each of these new interfaces have compelling attributes, and we are exploring how we can best leverage their technologies to further enhance the creativity within our triple-A games.
Nintendo, Microsoft and Sony have stated that this console generation will last longer than before. What are your thoughts on this?
In some ways, I think this console cycle has only just begun. With past price cuts, a robust line-up for this year, and improving performance of the high-def platforms, software sales could see new highs. The longer this cycle lasts, the better off we are. Our catalogue can be sold over a longer period of time. Extended cycles also provide increased predictability for our business. It’s clear that this console cycle will last longer than before – and that’s great news for Take-Two.