Grand Theft Auto Online gives Take-Two breathing room as it awaits Red Dead Redemption 2 | GamesBeat | Games

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Take-Two Interactive’s stock price took a short dip in May after its Rockstar Games label delayed its much-awaited Western video game Red Dead Redemption 2 until the spring of 2018. But it bounced back as the company reassured investors that it could still have a pretty good year.

That’s because revenues are still pouring in from Grand Theft Auto Online, which was launched in 2013. And Grand Theft Auto V also launched that year and continues to sell as well, with more than 80 million units sold to date. On top of that, the company will make money from expansion packs launched for Mafia III and XCOM 2 this year.

Take-Two has come a long way from the days when it was entirely dependent on the release of a new GTA title to make its numbers in a particular year. And the company is asking both investors and fans to be patient for what could be a very big 2018.

Overall, Take-Two is a more valuable company today ($7.6 billion market capitalization) because it is the owner of some of the most valuable intellectual properties in the world. It has also diversified with the $250 million acquisition of mobile game maker Social Point, and it has launched a new esports effort with NBA 2K.

I spoke with Strauss Zelnick, chairman and CEO of Take-Two Interactive, and David Ismailer, the newly appointed president of the company’s 2K label, which publishes games such as Borderlands, XCOM, Civilization, and NBA 2K.

Here’s an edited transcript of our conversation.

Above: David Ismailer (left), president of 2K, and Strauss Zelnick, CEO of Take-Two Interactive.

Image Credit: Dean Takahashi

GamesBeat: What’s interesting to you right now?

David Ismailer: We’ve been talking a lot about the NBA and our efforts in esports today.

Strauss Zelnick: We announced a joint venture with the NBA to launch the first professional gaming league based on a real sport. We’ll have a season in 2018. 17 teams will be participating, drafting professional players and populating five-person teams.

GamesBeat: Was this a gradual approach to esports that you’ve had? You seemed to pick your time carefully.

Zelnick: We did two tournaments to see how it would play. It played really well. Then we thought, “Wow, if there was an opportunity to do this with the NBA, that would be great.” But I would say we’ve taken our time. It’s been two years.

GamesBeat: And then the NBA teams have been investing in esports teams, meanwhile.

Zelnick: Some of them, yeah. Some of them have bought into Overwatch, for example, or League of Legends.

GamesBeat: It seems like that’s starting to get more real, these edges of the business.

Zelnick: What’s real in terms of real live revenue so far is League of Legends, and to a lesser extent Overwatch. What’s real for sure is viewing, though. 250 million people watch esports. 125 million watch avidly. When we had the finals of our second tournament, the viewing was huge. Anecdotally, there are a lot of people who are excited about watching esports. It’s more than a dream. There’s a real market. But it’s still nascent.

GamesBeat: How do you look at some of these frontiers and how they’re progressing? Esports is one. VR is another.

Zelnick: VR is not a market, currently. Mobile is a huge market, a $45 billion market. We acquired Socialpoint recently and two hit games in the marketplace, Dragon City and Monster Legends. They’re working on additional releases, so we feel good about our exposure. We also have exposure to mobile titles at 2K, with WWE Super Card and the NBA2K app. Mobile is an important part of our business. What we call recurrent consumer spending at our company – all forms of digitally delivered content except for full console game downloads – that’s rapidly growing. It was nearly a third of our net bookings last year.

Above: GTA V is still making money for Take-Two.

Image Credit: Take-Two Interactive

GamesBeat: You’ve grown a lot over the last decade. I remember years ago you were the Grand Theft Auto company.

Zelnick: That’s exactly right. Look, Grand Theft Auto is still terribly important to this company. As we’ve grown and become successful in other areas, Grand Theft Auto has grown too. Grand Theft Auto V has sold 80 million units. Grand Theft Auto Online had another record year. Grand Theft Auto is an important part of our company, but we’re fortunate that we have other hit franchises as well. Certainly not as big or as powerful, though.

Above: Grand Theft Auto Online.

Image Credit: Rockstar Games

GamesBeat: Grand Theft Auto Online seems like it’s become a pleasant surprise to everyone, including you.

Zelnick: We weren’t surprised that the quality was great, because we knew what Rockstar was doing, what they’re known for. Naturally we’re surprised we had another record year, because we said we expected the results to moderate.

GamesBeat: And Red Dead is waiting in the wings. You still seem to have the focus on quality that prompts decisions like delaying that release.

Zelnick: On quality, I would say everyone’s focus sharpens all the time.

GamesBeat: How do you look at the whole industry and select your strategy? I have this theory that, in some ways, some of the big companies have evolving strategies. It’s taking a long time, but — if I look at Bethesda and Fallout Shelter, the opportunity they had, they had their core guys make a mobile game that was very well-designed. That represented an opportunity, but they didn’t fully exploit it. They nailed the mechanics of that game, but they ran out of content. If they had the content, it might have become a Clash Royale, a billion-dollar game that funds everything else they want to do. They’d never have to worry about delaying a triple-A game, thanks to that mobile revenue. It seems like that’s an opportunity that somebody could push for.

Zelnick: It’s very, very hard to have console developers create a mobile title, though. We tried it. We made Civilization for mobile – or for Facebook, actually – and it was fantastic, but it didn’t speak to what people do on Facebook. We made stand-alone mobile titles before we bought Socialpoint and they didn’t succeed. We have had success with WWE and NBA. We’re getting better at this. But Cat Daddy is the studio in our shop that does this. They’re not a console developer. They’re a mobile developer.

GamesBeat: Triple-A talent is all concentrated in a certain area, do you think?

Zelnick: I just think it’s a different business.

Above: Grand Theft Auto Online has a new Kill Quota adversary mode.

Image Credit: Rockstar Games

GamesBeat: I look at companies in Hollywood. They seem to see things stalling there a little, but they’re still in love with making movies. The audience is slowing down for movies and TV, so they’re moving into games. I wonder if console game companies might ever have similar thinking.

Zelnick: We don’t really think that way. We’re not looking for financing. We’re looking to delight consumers. If we can’t do something well we don’t want to do it. We just don’t look at the world through that lens. We’re an entertainment company. We want to be the most creative, innovative, and efficient company in the business. We want to delight consumers in everything we do. We want to create the highest quality.

We got involved with Socialpoint because they make their own intellectual property, because they pride themselves on quality, and because there’s a market opportunity. We’re not doing science projects. There has to be a market opportunity. But we’re not looking for a cash cow to finance something else. It would be nice to have a cash cow, but it would come out of doing great work.

We have a strategy. Our strategy, again, is being the highest quality company, the most innovative company, the most efficient company in our space, and delighting consumers. That’s our strategy, and arguably the expression of our tactics as well.

GamesBeat: You guys have some of the most valuable properties in the industry, but you don’t have the highest valuation as a company.

Zelnick: We don’t have the highest sales or operating income. If you think about where the company was 10 years ago, we’ve made a lot of progress. None of our two bigger competitors were in that position 10 years ago. We’re playing catch-up. I’m proud of the position we’re in. We have a market cap of $7.5 billion or so today, compared to $700 million 10 years ago.

We have a lot of wood to chop, a lot of opportunity. We won’t just be judged on the quality of our games and how much we delight consumers. We’ll also be judged on our bottom line, appropriately.

Above: XCOM 2: War of the Chosen

Image Credit: Firaxis Games/2k

GamesBeat: Do you approach 2K in a different way?

Zelnick: I hope not. It would be a problem if you were.

Ismailer: No.

Zelnick: Oddly, we have the same strategy.

GamesBeat: What do you want to accomplish with 2K?

Ismailer: Speaking to 2K’s strategy, we have six focus areas, six growth areas. We have the NBA and WWE businesses. We have the strategy business the Firaxis anchors. We have the triple-A titles that alternate between years – different years, different studios, different titles. We’re focusing on mobile in Asia. We’re trying to grow each of those over time to become a bigger company, as Strauss was saying. Get to higher revenue, higher market cap.

GamesBeat: It seems like a year of expansion for you, but it’s not a problem. You can keep running on what you have even while expanding.

Zelnick: It’s a very thin frontline year, with only our sports and entertainment titles coming. Yes, it’s a disappointment that, because of the way our development has unfolded in search of the highest quality possible, a number of events aligned so we don’t have the kind of release schedule this year we’d like to. We’d like to have the kind of year 2K had last year, or that the company had in 2015, where we bring a lot of titles to market and have a lot of success, plus we have catalog and recurrent consumer spending.

That’s the kind of year we expect to have in fiscal ’19. We have Red Dead coming from Rockstar. We have a big title coming from 2K. We have our sports and entertainment releases. We have recurrent consumer spending. We have catalog. We have Socialpoint. We have NBA2K Online in China and the like. Then you have a company doing $2.5 billion in net sales at least and $700 million in cash flow for operations. Then we’re knocking on the door of what our bigger competitors are doing. But right now we’re not.

At the end of the day, though, where did this come from? It came from the high class position of—we have diversified the business. We have 11 franchises that have sold at least five million units in one release. We have more than 50 that have sold over two million units in an individual release. We have the biggest title on the market in Grand Theft Auto. We do come at this from a position of strength. I think you’re right, and I’d reinforce your statement: even with a thin frontline release schedule, it’s still a pretty good year.

Above: NBA 2K17

Image Credit: 2K

GamesBeat: What about China? How do you look at that opportunity?

Zelnick: It’s super exciting. We’re exposed to Asia. We have a headquarters in Singapore. We have the number one PC sports title in China, with 35 million registered users, in association with Tencent. We’re excited to support Tencent’s new downloading platform. It’ll be interesting to see what the Chinese government does about approvals. We think there’s a great opportunity.

GamesBeat: As far as how you reveal things these days, with influencers playing a role in a big way, how has that changed?

Ismailer: We’re committed to working with them. They’re clearly what people follow today. With every title we have a specific strategy as to which influencers we’re going to. It’s the evolving form of marketing right now.

Above: Lincoln Clay and Thomas Burke in Mafia III

Image Credit: 2K

GamesBeat: I wonder if they’re the vanguard of a world where people play one game all year round. GTA Online and nothing but.

Zelnick: I hope not. I don’t think that’s what’s going to happen. People get engaged with a title and then eventually they move on to the next thing. Maybe they stay engaged with a couple of titles at a time. But I don’t think you’ll ever see a situation where a gamer plays only one title, permanently. That seems unlikely.

The numbers don’t bear it out, either. Massively successful titles like World of Warcraft—the number of subscribers they have is a small percentage of the number of gamers out there. And they have churn, people coming in and leaving. I don’t mean that critically. It’s a great piece of business. I’m just saying, that’s how it is.

GamesBeat: With Mafia III, how do you feel about how that turned out?

Ismailer: We’re pleased with the results on the title. It’s a little early for us to do any postmortems.

Zelnick: It sold more than five million units. It was the biggest first week we’ve had for a 2K title.

Above: Mafia III.

Image Credit: IGN

GamesBeat: I loved the story, and I’d love to see games go more in that direction. It feels like some titles here this week are doing that.

Zelnick: We’re trying. It’s that ephemeral sweet spot of character development, graphics, music, look and feel, and gameplay. You need all of it. We had great gameplay in Evolve, but we were sort of missing the story. We’ve had other situations where we had a great story, but the gameplay wasn’t adequate. When we get all of it right, like with GTA – great story elements, great character, graphics, look and feel, great gameplay – you see what happens.

GamesBeat: Do you think someone like Socialpoint has to worry about that?

Zelnick: They absolutely have to worry about quality. In super casual, maybe you don’t have all of those elements to it, but Socialpoint is aspiring to be a mid-core company. Character development matters. Story matters. But gameplay really matters. In that way I think you’re right. It’s also a shorter experience. A mobile game is a seven- to nine-minute experience. A console game can be a four-hour experience at just one time.

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