When Strauss Zelnick and his team walked into Take-Two’s offices in 2007, the publisher was in disarray.
The firm had become wholly reliant on its indomitable Grand Theft Auto series. It had been damaged by financial scandal involving a former CEO. And it was posting huge losses.
So in March 2007 the Board was ousted and Zelnick took control.
Over the course of six years, Take-Two has turned itself around. It has fended off hostile takeover bids from EA and political attacks from US activist Jack Thompson to reach its 20th year in business.
Now, following an impressive year where it posted $1.21bn in revenue – all without the help of GTA – MCV sat down with Zelnick to discuss the firm’s rebirth, Xbox One and PS4, and the long-awaited return of GTA.
In what way do you feel Take-Two has changed in its 20 years?
20 years, especially for our industry, is an important milestone. It’s a testament to our people and their ability. While I can only personally speak to the last six years, I can affirm that we are an entirely different, if not new, company.
When we joined, Take-Two was facing several historical legal issues, relied upon one hit franchise, operated a non-core distribution subsidiary and had a relatively small global footprint.
Today, we bear no legal overhang. All of our contracts are aligned with the goals of our business. We have diversified to the point where we now have nine brands with individual titles that have sold 5m units and we’ve launched six new franchises.
Our labels – Rockstar and 2K – each provide meaningful contributions to our bottom line. We’ve divested all of our non-core businesses. And we’ve expanded onto every relevant platform and increased our presence throughout the world.
As a result, we are in a stronger position than at any other time in our history. But we believe that our most successful times are ahead. Fiscal 2014 promises to be one of our best years ever, with the launch of GTA V. And, our current outlook is for non-GAAP profits in fiscal 2015 and for the foreseeable future.
What gives you the confidence to predict profits so far in advance?
Our confidence resides in the ability of our world-class creative talent, the strength of our IP, and the fiscal discipline of our management team. We have an extraordinary pipeline of next-gen and emerging platform titles in development, including both new IP and proven franchises.
How are you approaching PS4 and Xbox One? Has the high cost of development made you cautious?
Our strategy to be the most innovative, creative and efficient company in our industry has served us well during this hardware cycle and we will apply the same rigor throughout the next. We try to be judicious and analytical in our approach – balancing increased risk with increased reward.
Do you think that’s why Take-Two has succeeded while the likes of THQ?have not?
This is a hit-driven business. While many in our sector have faced serious challenges, we benefit from focusing on creativity, innovation and efficiency. Our success with NBA 2K13, Borderlands 2 and BioShock Infinite, as well as the continued sales of GTA IV and Red Dead Redemption, demonstrate that the market for core games remains strong when you deliver high quality titles.
Borderlands 2, BioShock Infinite and NBA 2K13 have sold almost 15m units between them this past year. Did that surprise you?
No. Please? Yes. Each title was from one of our proven franchises, created by some of the best talent in our industry, and marketed with expert precision. 2K’s ability to consecutively launch some of the past year’s most critically acclaimed titles is simply an outstanding achievement. Since its founding in 2005, 2K has flourished and played an integral role in our diversification, growth and ability to deliver consistent profits.
27 per cent of your Q4 revenue came from digital. How do you anticipate that growing? Could it overtake your retail business?
We expect digital offerings to grow in importance over the long term. Whether DLC, full game downloads, mobile titles, online games or virtual goods, we will seek to broaden our array of content. That said, we expect retail goods to represent the majority of our revenue for the next few years.
But has the importance of retail within Take-Two reduced?
Retail continues to be our primary distribution channel. Our retail partners work in lockstep with our global sales force to turn our launches into major tent pole events. And we will continue to find ways to maximise retail’s new business models aimed at deepening consumer loyalty.
You mention mobile earlier, you’ve been cautious about that market in the past. What has changed?
Mobile is an area of increased focus for us. They generally require smaller teams, budgets and timelines than console titles. However, the passion required of our talent remains a constant. Consumer consumption of games – particularly on tablets and smartphones – will increase with the continued proliferation of devices, as well as improved network speeds.
You’ve acquired a THQ game [an unannounced new IP from developer Turtle Rock] as well as picked up the WWE licence. Can we expect more acquisitions?
When we have made acquisitions in the past, it has been to add high quality IP or talent. We have the financial flexibility and the appetite to grow, and we will continue to be selective in evaluating any acquisition opportunities.
Why acquire the WWE licence?
We believe there is an untapped opportunity to enhance the performance of the WWE series by leveraging 2K’s superb development and marketing resources, which have made NBA 2K an annual hit.
Last time we saw a full GTA title it was the biggest video game franchise in the world. Since then it's been eclipsed by Call of Duty. Can GTA get its crown back?
Many in our industry are predicting Grand Theft Auto V will be the biggest and most important launch of the current console generation. It is certainly our biggest release of fiscal 2014. GTA is the industry standard bearer and we’re confident that the team at Rockstar North will deliver something worthy of that legacy.
It launches just before Xbox One and PS4. Could that hurt sales?
GTA V is the most highly anticipated release of our biggest franchise. It features the largest, most dynamic and diverse open world Rockstar has created. The installed base of current consoles is estimated to be in excess of 120m, and most of those consumers have been waiting for Grand Theft Auto V for years.
We expect there to be enormous demand for GTA V regardless of when PS4 and Xbox One are released.