Take-Two's Steamy Scenes: a Wash?

Many retailers who dropped the game said they would carry the revised game when released. And two notable retailers -- Amazon.com (AMZN Quote) and Electronics Boutique (ELBO Quote) -- said they planned to continue to sell the now "adults only" version of San Andreas, albeit after a temporary pause to relabel the game with the new rating.

Indeed, as of Thursday afternoon, the PC, Xbox and PlayStation 2 versions of the game were ranked No. 3, No. 4 and No. 6 among the best-selling products in Amazon's electronics store.

"I hate to say it, but I suspect that the 'adults only' rating, particularly for people over the age of 17, may actually increase sales," says Conley, noting the aphorism that "any publicity is good publicity."

Still, Monticelli argues that the controversy is likely to revive investor concerns about Take-Two's management. The company replaced much of its senior executives in recent years after an accounting scandal that led to a Securities and Exchange Commission investigation that the company recently settled.

Take-Two executives were likely unaware of the hidden content in San Andreas, Monticelli says, but that doesn't make them innocent.

"What this shows is the lack of control that exists," Monticelli says. "The stock has always traded at a discount to its peer group because of issues like this."

But other investors were less ready to criticize management for the controversy. The practice of embedding hidden content in games and other software has a long history and is "endemic" in the industry, says Spiegel. Take-Two's previous management was "shaky," Spiegel acknowledges, but that -- or the sex scene scandal -- shouldn't reflect poorly on the current executive team.

"They've done such a good job to clean themselves up," Spiegel says. "I've got nothing but the highest respect and admiration for them."

So, where does that leave the stock? Spiegel says the shares would have been a "wonderful" buying opportunity if they'd dropped into the low-$20s. But at the current level, they are probably fairly priced, given the updated earnings outlook.

But those earnings numbers could be in doubt, Monticelli says. The key will be how quickly Take-Two can come out with the new sex-scene-free version of the game -- and how willing retailers are going to be to carry it.

"I could be wrong, but I don't see that as a slam-dunk," he says.