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Take-Two's Revenue Up As Losses Increase
by Leigh Alexander
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December 18, 2008
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In a statement released today, Grand Theft Auto IV and BioShock publisher Take-Two reported that its fourth quarter losses doubled over the same period last year to $15 million.
Looking ahead in a poor economy to a year with no major console retail Grand Theft Auto release planned, board chairman Strauss Zelnick says that the company is "drastically" reducing its expectations for next year.
But alongside the doubled quarterly loss, Take-Two reported quarterly sales up 11 percent to $323.4 million. And the company saw overall fiscal year profits of $97.1 million, results Zelnick calls "the strongest revenue and earnings in our company's history" -- driven primarily by Grand Theft Auto IV.
On the company's call to investors, Take-Two revealed that the Grand Theft Auto franchise, including catalog titles, accounted for $710 million -- 60 percent -- of the company's publishing revenue for the year, and only $40 million, or 17 percent, of its fourth quarter.
Zelnick also says Midnight Club: Los Angeles, NBA 2K9 and Sid Meier's Civilizations: Revolution played key roles in the fourth quarter results, which were in line with its own guidance.
The Take-Two Chairman expressed marked concern about the economic climate, but urged investors that the company is well-positioned, having begun conservative cost-cutting initiatives as far back as 2007, when the current management team was brought in to lead the company's restructuring efforts.
Studio Losses Are Take-Two's Opportunity?
President Ben Feder said, however, that the Take-Two would "continue to look" at the company's structure. Although he maintained that there's "no need for additional dramatic cost initiatives," Feder added the company's management will still "explore areas where we could derive additional benefits."
Notably, Feder said the company's still interested in hiring. "We're continuing to invest in the growth of our creative resources," he explained. Noting numerous studio closings and layoffs across the industry recently, Feder said Take-Two views them as an "opportunity to acquire strong talent."
Feder also noted that, to drum up capital for its holiday season, the company has borrowed $71 million from a credit facility that it secured last year, and that Take-Two is "fortunate" to have lenders available given the circumstances.
Addressing Next Year's Uncertainty
Given Grand Theft Auto IV's strong results, many analysts have expressed doubt as to whether Take-Two can continue to perform in 2009.
One area of uncertainty was the fate of the Rockstar studio talent, whose contract is up in February 2009 -- and Take-Two addressed this issue today by negotiating a new agreement with key employees Sam and Dan Houser and Leslie Benzies that would keep them with the publisher until 2012.
Feder also assured investors that the company is focused on future opportunities to broaden its offering, noting that downloadable content is a "significant opportunity... in the near term."
The Lost & Damned expansion pack for GTA IV launches on February 17th, and the company is "looking across our entire portfolio" for other opportunities to create DLC revenue streams.
Feder noted online play as a way to staunch revenue leakage from the sale of used games, and the potential for microtransactions and subscriptions to "enhance the packaged goods business by offering multiple revenue channels."
"We're driving toward continued success," stressed Zelnick. "We believe in our strategy, we believe in our team, and therefore, we believe in our future."
[UPDATE: The company's much-reduced outlook for 2009 is disappointing shareholders and analysts, with Reuters noting that Take-Two "...expects profit for the year ending in October 2009 to range between nil and 20 cents per share, significantly missing the average analysts' estimate of $1.21 per share."
First-quarter outlook was also massively reduced from analyst estimates - as a result, Take-Two shares are down almost 20% to $9.90 in after-market trading.]
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Too much competition. Companies need to put less games on the market, but games people will play for longer. Currently we have terrible return on investment as code developed for one game becomes immediately irrelevant once the sales fall a few weeks after the release. Yet with online-oriented games the return on investment lasts for years. WoW is a perfect example of this, where code written back in 2002 is still generating money today.
Games need to be fewer but online and persistent in design, which will bring better return on investment and reduce competition. There is no reason why a company should compete with its own game, they should seek to have one big title per genre. Activision is doing it right; one big online RPG at a time, one big online-RTS at a time, one big online FPS at a time, one big music game at a time, etc.
THAT, is the right model. Games like Dead Space, Mirror's Edge, etc., are complete gambles based on a model that is no longer effective for a highly competitive business where quality and durability is necessary for success.
The real money makers are not the 8 hour games, they are the expendable ones where players have an incentive to keep on playing. WoW has its avatar and gear system where players keep on playing to have better equipment and get that feeling of accomplishment, Guitar Hero has its "I'm getting better at guitar, I'm a rock star" illusory factor.
Developers need to stop making games for themselves and start making games to generate sales and long lasting returns. We might be an industry that has artistic aspects, but don't forget that WE ARE MAKING PRODUCTS.