“Better than expected” has become an accidental catch phrase for Take-Two when it reports its financials.
Despite being behind the company responsible for the unstoppable Grand Theft Auto V, it continues to be surprised by just how well that title has done.
The base game has shipped 75m units – and sold 6m in the UK – while Grand Theft Auto Online has driven Take-Two’s digital revenue, which formed 20 per cent of the firm’s total revenue for fiscal Q3. Though CEO Strauss Zelnick had high hopes for the game at launch, he wasn’t bullish enough to make specific sales projections.
“When we launch a product what we are focused on is whether it will delight consumers and how good it is,” CEO Strauss Zelnick tells MCV.
“We certainly knew that it was a phenomenal title and we had high hopes. But we tend not to have specific expectations because we really are of the view that if you put out something phenomenal people are going to show up to it. That’s been true over and over again for this company. In the case of GTA Online, we were really excited about the opportunity to have a companion title and multiplayer options, and this ability to have a world that could grow and be updated. But we didn’t have specific expectations about how it would perform economically.”
Though Grand Theft Auto V continues to be a success for Take-Two, it’s not the biggest news for the company’s last quarter.
After years of public skepticism from Zelnick about the mobile market and its low hit ratio, Take-Two made a sizeable investment in the sector this month with the $250m acquisition of Spanish developer Social Point, following in the footsteps of Activision Blizzard, Tencent and EA with their respective purchases of mobile companies King, Supercell and Chillingo.
So what changed in Take-Two’s thinking on mobile?
“The key thing is that we were looking for a way to participate in the fast-growing $40bn mobile free-to-play market,” Zelnick says. “We were looking for an enterprise that has a track record of creating a multiplicity of hits [some of which are pictured, below] – which is very unusual in this space – where they own their IP – also unusual – where they generate meaningful revenue and meaningful cashflow right now – somewhat unusual – and where they’d be a great cultural fit with us.
“We found all of those things in Social Point. That’s who we’ve been looking for. We also like that Social Point focuses on mid-core titles, games that are deeper, have story and character elements because we think that’s the direction that free-to-play mobile casual games will be heading. I stand by the concerns I had about the space and what we love about Social Point is that we believe it addresses all of our concerns.”
Back onto the console side of Take-Two’s business, and it appears that a key component of the firm’s strategy is amiss this year. Previously, the company’s aimed to release one new IP each year, a strategy seen in 2015’s Evolve and last year’s Battleborn. Yet, there are no new franchises on its release slate for 2017; has the poor performance of its last two new franchises discouraged the publisher from trying new things?
“The goal is to try and launch one new successful IP in every fiscal year, but we don’t achieve that in every year,” Zelnick explains.
“There are the vagaries of development, but there is no question that the strategy of the company remains to bring our beloved franchises to market regularly. We have 11 franchises that have each sold over 5m units in initial release, we have something like 60 that have sold a couple of million units in initial release. New IP is still a big part of our strategy going forward, but we don’t always achieve that each year.”
One of the big trends in games recently is publishers taking their IP to the silver screen. Last year saw Angry Birds, Ratchet & Clank and Warcraft films launching, while a Skylanders TV show was released on Netflix. This year opened with Assassin’s Creed coming to the big screen, and properties like Minecraft, Five Nights Freddy’s and Tetris are also getting the film treatment.
Some of Take-Two’s IP would also be ripe for the cinema, but the company won’t be funding them itself.
“We’ve licensed a couple of titles for motion picture production and we don’t have much more to say about that yet,” Zelnick says.
“We’re open-minded. We certainly aren’t going to use our own balance sheet to invest in motion pictures and TV. If other people want to license them and we can retain creative control, we are open-minded. The track record of the conversion of video game IP to motion pictures is spotty at best.”
Another area that’s become popular recently is merchandise. In fact, two weeks ago Activision launched a new ‘Consumer Products’ division to this very end.
While Zelnick is interested in pursuing this business, he feels Take-Two’s IP doesn’t lend themselves to these goods.
“Yes, we would be interested,” he says. “It depends on the property you have. When you have IP that are aimed at adults – as many of our properties are – the merchandising opportunities are more limited. Some of our IP that are aimed at families, like WWE and NBA, we don’t control the merchandise rights for. From our company’s perspective, it’s somewhat less of an opportunity than it may be for some of our competitors.”
While Take-Two says it saw a good calendar Q4, that wasn’t true for many publishers. As has been said numerous times, releases such as Call of Duty: Infinite Warfare, Watch Dogs 2 and Dishonored 2 failed to hit the lofty heights set by their predecessors.
“It’s hard to know,” Zelnick says when asked for his insight as to why this happened.
“I’m not sure why some publishers struggled. At the end of the day, quality wins and when we or our competitors put out a really high quality title, it sells and usually better than expectations. When we or our competitors miss on quality – to be clear, we do as well now and then – we see that we have sales disappointments. The market is properly, correctly so, unforgiving about quality. That’s my own experience of what’s going on.”
But looking towards the rest of calendar, Red Dead Redemption 2 is hitting shelves. While it’s too early to talk expectations, the prospect of a new Rockstar title launching is, of course, a very big deal.
“It’s quite meaningful, obviously,” Zelnick says. “One of the reasons we’re excited about the remaining titles of 2017 is based on the fact we expect to have another growth year for both bookings and cashflow. We also have other titles coming as well. We’re excited and optimistic. In terms of the title itself, Rockstar will talk more about RDR2 in due time, but if you’re asking whether we’re excited and enthusiastic, that would be an understatement.”