Pachter: Expect Fall 08 Release Of GTA IV Episodic Content

Following Take-Two's Q3 results, Wedbush Morgan's Michael Pachter has expressed continued skepticism in new management and its long term future despite the recent success of BioShock, also saying that GTA IV's exclusive Xbox 360 episodic content looks likely to appear no earlier than fall of 2008. On the latter point, it was Take-Two's note that "the $50 million deferred revenue for GTA episodic content was reclassified as 'long term,'" that leads Pachter to imply that "a release date no earlier than [the fourth quarter of fiscal 2008]." The quarterly earnings call gave Pachter no shining hope for a fast turnaround, and the analyst continued his skeptical outlook of the publisher's new management in light of no truly positive results. "For example, we note that notwithstanding the positive surprise from Bioshock shipments of over 1.5 million units to date, and from the rapid modifications made to Manhunt 2, management reiterated guidance for the quarter." "We believe that other games," he said, "notably All-Pro Football and Fantastic 4 are performing so poorly as to limit the opportunity for reorders during the quarter, entirely offsetting upside from the other two games." He went on to predict that Grand Theft Auto IV will sell "around 8 million full-priced units, averaging over $50 per unit, for revenues of $400 million," but expressed much skepticism for "management’s statement that at $250 million, [its sports division] would be profitable." "We are highly skeptical that sports will breakeven, and even more skeptical that the business will achieve the $250 million revenue level," said Pachter. "The sports business appears to us to be delivering around $200 million in revenue in FY:07, and we think that 25% revenue growth is an unreasonable goal, given our estimate of 16% industry sales growth in 2008." "While we think that games like Civilization, Bioshock, Max Payne, Mafia, Red Dead Revolver, LA Noire and Beaterator could drive growth of $330 million in revenue, we think that poorly advised games like Fantastic Four and Ghost Rider should not be repeated, making the growth hurdle steeper," he continued. "On balance, we believe that Take-Two’s library of intellectual property has incredible potential, but its track record of persistent delays gives us little confidence that it can produce enough of these titles in the same year to deliver much more than a breakeven year," said Pachter. Finally, on the GTA franchise, Pachter puts much of the profitability question squarely on its developer's shoulders, saying "We do believe that the GTA franchise has a great deal of potential, and think that future versions will sell more than the 8 million units we expect from GTA IV." "However," he continued, "we remain skeptical that future versions will be as profitable as past versions, as the Rockstar team has apparently taken its studio name to heart. We believe that the compensation structure for the Rockstar team will be more onerous in the future than it has been in the past, and caution investors against presuming that the game will generate $2.00 per share of profits each time it comes out."