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Analysts: Take-Two Must Fix 'Lack Of Discipline' In Dev Cycles
by Leigh Alexander [PC, Console/PC]
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December 22, 2009
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Analysts are praising Take-Two's long-overdue sale of its distribution arm, Jack of All Games -- but until the company can demonstrate shorter and more reliable development cycles, the absence of distribution revenue will only highlight its volatility, they say.
"While the disposition of the distribution business will provide much-needed cash (we had previously estimated that Take-Two would require a capital raise in mid-2011 if no GTA games were released by then), we think that the transformation of Take-Two into a pure-play publisher exposes the company’s stock to volatility (and its management to criticism) in the case of further game delays," says Wedbush analyst Michael Pachter.
The company recently announced a $137.9 million loss at the close of its fiscal 2009, and has expressed its intention to help repair its performance by focusing squarely on AAA, core-market video games. The Jack of All Games sale is a step in the streamlining strategy -- but the company's volatility still needs addressing, the analysts stress.
The lack of Jack of All Games' revenue going forward will "highlight the impact of any prospective revenue shortfalls from its publishing business," adds Pachter.
Cowen Group analyst Doug Creutz also approves of the sale, but says it's not "particularly material to management's eventual goal of sustainable profitability." Both analysts point out that until Take-Two can deliver its AAA games more consistently, it will still face the same difficulties.
Alongside the average development time of two to three years for most AAA titles, Take-Two's dev cycles are unacceptably long, and that's the core of their revenue difficulties now, says Pachter.
"For example, this year’s lineup contains sequels to Max Payne 2 (last released in December 2003), Mafia (last released in March 2004) and Red Dead Revolver (last released in May 2004)," he says.
Even factoring in the time required to update or rebuild game engines, says Pachter, six years between major franchise installments "suggests a lack of discipline within Take-Two’s development organization."
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Or a reasonable approach to the frequency of sequels, which really shouldn't need to be in full scale development immediately after one another (or in Activisions's case often two concurrently by different studios) until the franchise gives out. This attitude is crushing the creative landscape of the AAA games and really isn't good in the long run (look at the over-saturated music genre).
However, saying that Take 2 needs better planning is obviously fair. We'll see how it works out for them next year, Red Dead Redemption and Mafia 2 look great so far.
Some companies like Blizzard get away with it because they have consistent flow from other titles like WoW. It doesn't look like Take Two has that luxury.
How many years were there between The Terminator and Terminator 2 in the movie biz? Answer: 8.
How many years between when Unforgiven the screenplay was acquired and when Unforgiven the film was released. Ten or fifteen.
Why? It's an entertainment business.
Entertainment is about generating hits. It's about creativity. As soon as you start forcing it, you begin to turn out formulaic crap.
The answer is simple. Adopt the virtual studio model. Once a game is over, shut down the studio. You don't need it. Give the core creative people time to think. Time to rest. It's not rocket science.