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Take-Two Needs 'BioShock' Jolt

Priya Ganapati

Troubled video-game company Take-Two Interactive(TTWO Quote) may be finally seeing a ray of light through all the clouds.

In BioShock, its first-person shooter video game, the company has what is likely to be the sleeper hit of the holiday season.

The game, which has gathered tremendous buzz, bagged near-perfect scores from game review magazines and Web sites and, as a preorder, already ranks second on Amazon.com's(AMZN Quote) video games best-sellers list.

"It's pretty rare to have this kind of buzz around a completely new game," says Shane Satterfield, editor-in-chief of Gametrailers.com, a game review and downloads site owned by Viacom's(VIA Quote) MTV Networks.

The company's stock is down 35% in the three months since May 17, after a stream of bad news that includes the delay of the release of Grand Theft Auto IV and ratings-related issues around another game, Manhunt 2. Midday Monday shares rose 6.7% to $13.08.

BioShock could help turn that around. "If they open up another viable hit in BioShock, it will be a big positive for the stock," says Doug Creutz, an analyst with Cowen & Co.

While most analysts are betting that BioShock could sell between 1 million and 1.5 million copies, sales could go as high as 4 million.

Online video games prediction market The simExchange forecasts 3.2 million copies sold for Microsoft's(MSFT Quote) Xbox 360 and some 980,000 copies for PCs.

Those numbers could mean an upside that hasn't been accounted for in the stock's current value, says Creutz, whose firm does not hold stock or have an investment banking relationship with Take-Two.

"If BioShock does 3 million copies in sales, instead of 2 million, it could add an incremental $50 million in gross profits," Creutz points out "And given the game's reviews, it will do much better than anyone has expected."

Perfect Score Into Profit?

BioShock for Xbox 360 has bagged a "perfect 10 score" from game publications such as 1UP, Game Informer and EuroGamer. Ratings aggregation site Metacritic has given it a score of 98 out of 100 based on 10 reviews.

Those numbers also mean that BioShock has enough appeal to become a franchise -- and something of an answer to Take-Two critics claiming that the company is a one-trick pony with only Grand Theft Auto in its stable.

Now Take-Two needs to get the selling and marketing of BioShock right.

BioShock will be a part of a fiercely competitive genre from franchises such as Activision's(ATVI Quote) hit Call of Duty, Microsoft's Halo and Electronic Arts'(ERTS Quote) Medal of Honor.

Still, BioShock offers gamers something different, says Gametrailers.com's Satterfield. "It has a unique sense of style, and it forces people to make moral decisions in the game," he says.

Players are offered an ethical choice between saving young girls -- known as "Gatherers" in the game -- or killing them to obtain immediate resources to continue a successful play.

"It forces the players into a mental dilemma," says Satterfield, "and has gamers looking at their scruples and searching their souls."

That kind of powerful, emotional hook should resonate among gaming customers.

The simExchange predicts that 440,000 copies of the game will be sold in the two weeks following its release. Enough buzz and the game could cross over from hard-core gamers -- the likely buyers -- to a broader audience, says Jesse Divnich, an analyst for the simExchange.

Getting the early head start is important for Take-Two. Halo 3, a game in the same genre as BioShock but with a captive fan base, is set for release on Sept. 25. Halo 3 has already racked up 1 million units in preorders.

BioShock can hold its own, especially if it continues to get positive reviews, says Divinich. "If it does about 2 million copies, that's a fantastic number to be at," he says, "and that kind of sales does beg for a sequel."

A hit in BioShock will come as sweet success for Take-Two. BioShock has been developed in house, and a hit internally owned intellectual property is the ne plus ultra for most video-game companies because of the big margins it offers.

"The incremental dollars for an owned IP is tremendous," says Creutz. "We are talking about 70% to 80% in gross margins for sales over 2 million units."

Creutz and others are quick to point out that BioShock may become a blockbuster but never reach the level of success that games in the Grand Theft Auto series have.

BioShock is a dark and complex game, says Todd Greenwald, an analyst with Nollenberger Capital, after playing the game. It also lacks the pop-culture elements and a great soundtrack that turned Grand Theft Auto into a sensation.

But the success of BioShock will be enough to stave off criticism that Take-Two is excessively dependant on its one successful franchise.

Take-Two has already felt the pain of missing the Grand Theft Auto IV release. The company's decision to push back the launch of that game from October to next year forced it to cut forecasts for the fourth quarter and fiscal year and sent shares down by more than 14% on the news.

BioShock will release on just two platforms, the Xbox 360 and PCs, and the lack of the game's availability on Sony's(SNE Quote) important PlayStation 2 or PlayStation 3 consoles and Nintendo's Wii will hold it back.

"All the buzz will only get Take-Two about a million in sales," says Satterfield. "Beyond that, it is up to the publisher to market the game to the right places and people."

If Take-Two doesn't drop the ball, BioShock could become the silver lining for the company this year.