Take-Two Interactive Chief Executive Officer Ben Feder told analysts on the fourth-quarter 2008 earnings call the video game publisher was excited about its 2009 pipeline, which would include the first downloadable episode of its Grand Theft Auto 4 for Xbox, Grand Theft Auto - The Lost and the Damned, and new titles from its franchises BioShock, Mafia and the 2K Sports roster. Unfortunately, Feder’s optimism that Take-Two could deliver on new “hit” titles is not borne out by experience. Since its series debut in 1997, the company has become more dependent on its action adventure video game Grand Theft Auto, according to the 2008 regulatory 10-K filing:
- Our latest iteration in the Grand Theft Auto series, Grand Theft Auto IV, was released on the PS3 and Xbox 360 platforms in the second quarter of fiscal 2008. For the years ended October 31, 2008, 2007 and 2006, our Grand Theft Auto titles accounted for 46.2%, 13.1% and 22.4% of our total net revenue, respectively. No other products accounted for more than 10% of our revenue for the year ended October 31, 2008.
However, as a percentage of total publishing sales, the Grand Theft Auto franchise accounted for 60 percent, or $710 million, according to Chief Financial Officer Lainie Goldstein.
The cost to develop a frontline software product can range from $10 million to $30 million. Ergo, it is cheaper — and safer — to roll out sequels. One could question management’s commitment to bringing to market creative, new titles: in 2008, Take-Two spent 28.7% of revenue, or $353.2 million, on software development, an increase of only $32.9 million from the prior year. Albeit management claims to have 36 titles in various stages of development, most of them are retreads of existing games.
In contrast, as the market for video-game titles is characterized by short product life cycles, the company increased its advertising budget by $27.8 million to capitalize on the releases of Grand Theft Auto IV and Midnight Club: Los Angeles.
Management warned on the conference call that it was operating in “a retail environment of great uncertainty.” For full year 2009, Take-Two lowered guidance, and now expects to report earnings of between breakeven and a profit of 20 cents per share — far below consensus analyst estimates of $1.26 per share, as polled by Thomson Reuters. If gamers tire of the antics and action in Liberty City, the company could find itself on the hostile end of another hostile tender offer.
