Analysts have lowered their expectations
for Take-Two ahead of the publisher's year-end results announcement tomorrow.
But in an environment where many game companies are seeing the kind of weaker-than-expected sales that Take-Two will likely reveal for Midnight Club: Los Angeles
, the predominant uncertainty around the publisher in particular is how it'll do next year.
"The main question mark remains the status of Rockstar's key talent," notes Cowen Group analyst Doug Creutz. That 'key talent' refers to Rockstar brothers Sam and Dan Houser, whose contract with the publisher expires in February 2009.
With the Grand Theft Auto
series proving a lynchpin in the publisher's long-term success, the Rockstar studio remains the largest jewel in the Take-Two crown, and to lose it would create a major challenge for the publisher.
"The team has created, developed and produced some of the most recognizable IP in the world, including Grand Theft Auto, Midnight Club
," adds Janco Partners' Mike Hickey.
"Considerable operational upheaval has run parallel with game development over the last several years, yet they managed to harness extreme adversity to cement a profoundly elegant culture."
According to Creutz, the loss of Rockstar is an unlikely outcome: "We expect Rockstar's key talent to remain at Take-Two," he says, maintaining that for the company's current shareholders, the "risk/reward trade-off" is still "attractive," and reiterating his faith that Take-Two can still outperform the market.
Hickey suggests that the Housers will stay with Take-Two because of the company's culture of valuing talent. "Take-Two's management correctly credits products success to developers, when appropriate," he says, contrasting the publisher with Electronic Arts, believed to be a likely contender for Rockstar.
"While large IP aggregators like Electronic Arts can claim they could sell more copies of GTA IV
, we believe their assertion highlights a mismanaged value balance between the mechanics of publishing/distribution and the importance of a harmonized culture in the art of game creation, consumer acceptability and product sales," Hickey adds.
Further, Hickey believes the macroeconomic environment makes it a bad time for Rockstar to make a change. "Change is difficult to embrace in the best of environments, much less the current global economic upheaval we are living in today," he says.
"We do not believe this is an appropriate time for the Rockstar team to raise capital and go independent. We do not expect the Rockstar team could find a more compelling corporate structure to work under. We do not believe they will compromise their considerable mid-cycle product/passion momentum, by leaving Take-Two Interactive, the Rockstar team/culture, and the meaningful IP Take-Two controls."