Take-Two Interactive had one of the most impressive E3 booths this year with its recreation of a two-story New Orleans French Quarter building, which celebrated the upcoming launch of 2K’s Mafia III. The game publisher also promoted its bestselling franchises WWE 2K17, NBA 2K17, Sid Meier’s Civilization VI, and XCOM 2 at the annual trade show.
The company is on a roll, having completed its 2016 fiscal year with GAAP net revenue of $1.414 billion, up from to $1.083 billion last fiscal year. Thanks in large part to the success of Grand Theft Auto Online, GAAP net revenue from digitally delivered content grew 53 percent year-over-year to a record $697.7 million.
Strauss Zelnick, who has served as CEO of Take-Two since January 1, 2011 and chairman of the company since March 2007, talks to [a]listdaily about the potential eSports opens up for the company and the challenges of launching original games in today’s market.
What impact does eSports play as new games like a Battleborn or Evolve are being developed?
Everyone who is in the development community is mindful of eSports, but I don’t think we’re yet at the point where we would want to design a game around the hope that it will become an important eSport. Everything that’s going on in the marketplace informs our thinking, but it’s too early to say that we would actually be designing games around the possibility of them appealing to an eSports audience.
What happened with Leagues of Legends was very organic. The folks at Riot very cleverly made the title available and, over time, began to modify it. In fact, that title really speaks to almost all of the revenue that is eSports-related in the business now. But it feels like the audience voted, more than the company decided. And we think that that’s probably about right.
We suspect that’s how eSports will develop going forward, but naturally we have to be mindful about the opportunity and try to pursue it. So our own view is that fewer than 10 games in the coming years will be meaningful for eSports. We certainly hope to have one or more of them, but it probably would be pushing it too far to say that we’re actually developing titles in that direction.
What are the challenges of launching a new IP such as Battleborn into today’s sequel-driven ecosystem?
Markets always have sequels, and the best companies always put out new intellectual property. Because we’ve been launching new intellectual property ever since we took over the company in 2007, we now have 11 franchises with at least one 5 million-unit-selling release and 50 individual multimillion-unit-selling titles. We’ve launched nine new brands since 2007, including Battleborn, Bioshock, Borderlands, Carnival Games, Evolved, The Darkness, WWE, and XCOM, so we are believers that you keep the business fresh. It is challenging. It is risky. It doesn’t always work out the way that you would hope, but we’ve been very pleased with the results.
That said, they have to succeed from a quality point-of-view. Our aim is to maintain our reputation as a company with the highest Metacritic scores for a third-party publisher. We’ve had that mantel for many years, and hope to continue to do so. So with the caveat that you have to deliver the highest quality, both with new IP and sequels.
One differentiator between games and Hollywood is that game sequels often explore brand new stories and locales. What’s the challenge of delivering sequels such as XCOM 2, Mafia III, and Civilization VI to gamers?
It does happen sometimes in the movie business as well, but I agree it’s more typical in the interactive entertainment business where you hang on to the brand, you hang on to some of the themes, and you feel empowered to change any number of other things including the lead characters—which typically wouldn’t happen in linear entertainment experience. But that’s one of the many ways that interactive entertainment is different than motion pictures or television. The gameplay and the brand are the stars, and the characters can come and go. That’s exciting creatively. It allows us to do really extraordinary things.
Can you explain how Grand Theft Auto Online’s content extends the life of the game with a recurring revenue stream? Does this represent a major shift in the gaming industry?
You make a very good point. In fiscal 2016 our recurrent consumer spending was at its highest level ever and that counted for over a quarter of our total revenue, which is extraordinary. That’s an 11-fold increase since 2011 when the business was nascent. So at present, consumer spending is essentially digitally distributed revenue that isn’t full game downloads, so it would be downloadable content, virtual currency game payments, and the like.
The business used to be big physical releases, and people would show up and buy them or not, and eventually the titles would be reduced in price, and they were cataloged, and then we’d be out of the market for a while. What’s exciting about staying engaged with the consumer with digitally distributed content of all types is that we can keep the brands alive, build franchises, and continue to delight consumers in between these big physical releases and we can create revenue and profits as we do it.
Specifically with regard to GTA Online, this has been a really extraordinary story. The title is nearly three years old and the fourth quarter of the last fiscal year were respectively the best quarter and the best fiscal year ever for Grand Theft Auto Online in virtual currency sales. And those sales are obviously attracting engagement, and engagement is tracking delight, and that’s what we’re here to do. Grand Theft Auto V has sold over 65 million units. It remains the highest-rated title on Xbox One and PS4 and it has become clear that—for an age-appropriate audience—when you get new hardware, you need to have Grand Theft Auto. And when you have Grand Theft Auto, generally speaking, you connect to the internet. And when you connect to the internet, generally speaking, you try Grand Theft Auto Online. We’ve remained excited and gratified by it.
How do traditional paid games complete in today’s market when there is so much competition from the free-to-play world?
I’m not sure the competition is free-to-play with console games, because they’re still very different experiences. The bulk of the free-to-play market are games that you consume on smartphones for short amounts of time. The demographics are more female than male. Whereas for console and PC titles, it’s a few more male than female, and they tend to reflect deep engagement. Both can be really interesting. There’s no doubt that the free-to-play ecosystem is popular. It’s highly competitive because budgets are lower. The engagement levels are lower. The audience is unforgiving and fickle, and it’s not clear you can transition your users from one title to another, although some have tried.
