Take-Two's rollercoaster not finished yet as key GTA talent could depart claims pundit

Housers will spark bidding war in February, says analyst

GTA and Rockstar Games’ creative chiefs Sam and Dan Houser could further draw out Take-Two’s legal maneuverings with the likes of EA when their contract is up for renewal in February 2009.

Yesterday, EA announced it was to abort its attempted takeover of Rockstar Games parent Take-Two after six months. According to EA head John Riccitiello, one key reason for the move would have been to gain ownership of the Rockstar studios.

However, Wedbush Morgan analyst Michael Pachter says that the president and VP/creative directors of Rockstar, the Houser brothers, will spark a bidding war when time comes to renegotiate their deal with Take-Two. Pachter reckons that such deals would negatively impact Take-Two regardless of the outcome.

Said Pachter in his latest analyst note: "In trying to calculate the sustainable earnings, we must address the risk of losing key talent. Following a protracted negotiation, Take-Two signed Sam and Dan Houser to a three-year contract in February 2006. The brothers are the driving force behind the Grand Theft Auto series, and are intimately involved in game decisions. While neither writes game code, we believe that they are analogous to the director of a Hollywood film, instrumental in determining the final shape of the ultimate games released. We expect a bidding war for the Housers’ services in February 2009, and remain convinced that Take-Two faces two equally unpalatable options: either lose the Housers to another bidder, or pay more to retain them.

"The outcome will be leveraging, and the impact is likely to be negative. Should the Housers depart to Activision, Ubisoft, or even to EA, we think that Take-Two will suffer lower future sales of its GTA games. We draw an analogy to EA’s Medal of Honor brand, which saw sales decline by over 40% following the departure of key members of its development teams in 2003. Those teams produced Activision’s Call of Duty franchise, which has consistently outsold Medal of Honor since the departure.

"In our view, the loss of the Housers could trigger a similar result, with a competing brand threatening future GTA sales. On the other hand, should the Housers remain at Take-Two, the price of making future Grand Theft Auto games will go up; we estimate that the current “internal royalty” paid on the game is approximately 15% of sales, and expect negotiations for retention to commence at a 20% royalty rate. That would impair the company’s bottom line results in future years; for example, had the “internal royalty” been 5% higher in FY:08, operating profits would have been lower by $32 million (5% x $640 million in revenue), or around $0.40/share. "

About MCV Staff

Check Also

[ICYMI] Develop:Brighton’s keynote speaker will be Team17’s Debbie Bestwick – “We came together as an industry and supported each other in a way I’ve never seen in over three decades”

Bestwick discusses how the pandemic impacted Team17, the importance of in-person events, her keynote and her outlook on the industry’s future