Take-Two: 'The Safest Place To Be Is In Triple-A'

In a period of historically weak consumer confidence -- and as publisher Take-Two is increasing its loss projections for the fiscal year -- Take-Two's chairman Strauss Zelnick believes core, triple-A games remain the industry's best bet. "The demand for top-tier products is okay. The demand for lower-tier products is not so clear," Zelnick (pictured) said during an analyst conference call attended by Gamasutra today. "The safest place to be is in triple-A." Part of that is because triple-A games targeted at dedicated gamers can retain value, while lower-end games or titles targeted at less hardcore audiences are more likely to be devalued as retailers institute promotions. "Some people were hoping for a nice [sales] bump [in games] over the Thanksgiving weekend, and generally speaking it was a little bit on the soft side," said CEO Ben Feder, who pointed out that many of the bright spots over the holiday were "on a highly promotional basis." Such promotions, which can decrease profit margins, are less likely to be necessary for top-tier games. "This is a high-value product; consumers see it this way... particularly at the triple-A level," Feder said, comparing such games to other media. "So I think pricing will be preserved." That said, the company is staying conservative in its sales estimates for 2010, and its slate includes BioShock 2, Mafia 2, Red Dead Redemption, and the re-delayed Max Payne III, a situation that may be exacerbated by the additional funds the publisher has allocated to ensure its quality expectations are met. "We've committed additional development resources to some of our fiscal 2010 products," Feder said, explaining that the decision "will likely reduce potential profits on some of these products -- [but] we do expect each of these products to make a positive contribution." He added that the company is confident it has made the "right decision to ensure their quality and potential in the market," but that it has also "assumed lower unit sales for the majority of our titles in 2010." Feder also said that despite its financial troubles -- some of which are due to an underperforming baseball game market and additional unspecified product delays -- Take-Two believes its strategy of pursuing a relatively smaller slate of high-quality intellectual properties is the right path. Both Zelnick and Feder stressed multiple times that when the company does release a major title, it is always a considerable driver for the company. "We do have this distinction of, across the board, when we do put out a triple-A title, it's a profit contributor of [significant] proportion," Feder said at one point. Most recently, that held true for the Gearbox-developed Borderlands, which the CEO said "shows every sign of becoming an important, long-term franchise." And, of course, it applies to Rockstar's Grand Theft Auto games, which Zelnick called "gratifying in every way that one could imagine" to Take-Two as a company. "This is an exceedingly profitable enterprise. GTA IV and the subsequent line extensions were profitable," he added, responding to a question about the thinking behind releasing downloadable expansions to Grand Theft Auto IV rather than moving more quickly on the next main title. "It's especially gratifying that the creative team was willing to try new platforms, to try new formats, [and] consumers were delighted with the results. I think that bodes extremely well for the franchise going forward." "We don't feel that GTA ought to be an annualized franchise," Zelnick said. "There's a balance between how long it takes to develop such an incredible title...and how long you wait for the [consumer's] appetite to be both satisfied and whetted for the next title. That's something I think the company has done well." In the long term, as Zelnick pointedly noted in response to an analyst question about projected losses due to Take-Two's Major League Baseball contract, "the baseball contract does have a termination date, and GTA does not." Encapsulating the tone of the call overall in a simply-stated mea culpa and forward-looking projection, Feder offered the following: "We understand we are accountable for our performance, and have a responsibility to deliver better results. We firmly believe that our strategy of focusing on a select, diverse roster of the highest quality titles is the best course of action."