INTERVIEW: Strauss Zelnick

It has been a tough year for the games industry, but not for Take-Two. Why do you think that is?

Fiscal year 2011 was a terrific 12 months for Take-Two. We generated substantial revenue growth and earnings. Our strategy is to produce a select number of triple-A titles and support them with add-on content, delivered both on disc and digitally.

We believe that ‘good’ is no longer good enough. Today, games need to be off-the-charts great in order to capture mindshare and market share. Our performance demonstrated that consumers are as willing as ever to open their wallets for exceptional entertainment experiences.

In addition, we believe that if you attract and retain the best creative talent, provide them with the resources to pursue their passion within practical economic parameters and support their efforts with world-class marketing and distribution, you have an opportunity to make hits — and profits — in any market.

You posted these results in a year without a new Grand Theft Auto. Was that important?

Operating our company profitably was a goal we outlined when we took over in 2007. It’s been a challenging road to get to where we are today, and it came about through a focus on creativity, efficiency and innovation. We’re proud of what our teams around the world have accomplished.

How do you expect the company to look in two to three year’s time?

One of our key long-term initiatives is to reach new audiences by delivering our triple-A games through emerging online platforms – including MMO and social games. As a general rule, Take-Two’s online strategy focuses on content development, while remaining platform agnostic. We will develop for all online platforms that are capable of supporting highly compelling entertainment.

From a product standpoint, I believe that we have the best creative teams and IP in our industry. From a business standpoint, our balance sheet gives us the flexibility and strength to take the right strategic steps to generate growing profits and returns for our shareholders over the long-term.

Is the tablet an important part of this? I know you have spoken a lot about tablets in the past…

Tablets are a natural extension of both the internet and traditional gaming. In my view, they’ll become nearly ubiquitous in the coming years and will be an important platform for delivering consumers information as well as entertainment.

As the installed base of tablets grow, so will the demand for high quality games. To date, we’ve selectively released titles for the iPad, including Grand Theft Auto: Chinatown Wars HD, Sid Meier’s Civilization Revolution and NHL 2K11. We’ll continue to explore how we can best leverage this portable platform to expand the audience for our content.

Why do you think the market is in a depression at the moment? Is it time for a new console?

If you exclude Wii – which one could argue is at least partially a different market than Xbox 360 and PS3 – the market is not in a depression.

Moreover, we’ve seen and will continue to see huge growth in new forms of interactive entertainment. If you give consumers what they want – whether that’s a social game on Facebook or a triple-A, multi-hour experience on a console – they’ll come out for it. As for the technology itself, we still have plenty of room to push the limits of creativity in the current console generation.

Take-Two has been really active in digital, how much does it account for your business now?

Our digital content accounted for about nine per cent of our revenue during FY 2011, led by offerings for Red Dead Redemption, Borderlands and Sid Meier’s Civilization V.

Over the long-term, we expect digital revenue to increase as a per cent of our overall revenue; that said, it will naturally vary based on our release schedule and the success of our titles.

One of the most exciting areas of interactive entertainment is online gaming, including MMO and social gaming. Asia’s MMO market represents about $8.7bn. To that end, we’ve undertaken strategic initiatives to deliver triple-A experiences through online platforms.

These include 2K Games’ planned summer release of Civilization World for Facebook, 2K Sports’ partnership with Tencent to develop an online basketball game based on our NBA 2K franchise in Asia, 2K Sports’ partnership with Nexon to develop an online baseball simulation in South Korea; and 2K Games’ partnership with XLGAMES to create an MMO based on one of our franchises for the Asian market.

These initiatives are all examples of how we are pursuing emerging opportunities by leading with our content while minimising our financial risk. We’re very encouraged by the prospects for these projects. Over time, if we get it right, we ought to be able to deliver significant revenues and profit for Take-Two, and we will continue to pursue these and other online initiatives at the same time as we execute on our core strategy of delivering triple-A games for consoles.

GameStop has made big moves in digital. What do you make of retail’s attempts to stay relevant in this shifting market place?

While 90 per cent of our business is comprised of the sale of physical goods, there is clearly an industry-wide paradigm shift underway. It is not surprising that retail is actively engaged in evolving their business, especially given the lessons learned with music, books and DVDs.

Our goal is to distribute our content to consumers how and where they want it. I’m confident we’ll maintain our strong relationships with retail as they develop new ways to make our content available to consumers.

You’ve just had a big new IP hit with L.A. Noire. How do you strike the balance between creating IP and developing exisiting brands?

We think that Take-Two owns the strongest portfolio of IP in our industry. We have worked diligently to diversify our portfolio and to create more hits – and the team has done a superb job in executing against that strategy.

I think that we’ve done a good job in balancing our line-up between existing franchises and new IPs.

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