The sports video-game contest between rivals
is entering its second season.
But some are wondering why Take-Two hasn't taken a knee.
"I don't know why Take-Two is wasting this much time and effort" to establish itself in the sports arena, says Michael Pachter, an analyst at Wedbush Morgan Securities. "They may make it, but I don't think it's within their control. It's within EA's control if EA decides to allow them to compete in sports."
"EA doesn't seem to want to let anybody do anything," adds Pachter, who doesn't own either stock and whose firm has not done recent investment banking for either company.
The sports-game battle is important for the overall video-game industry and for the individual companies. In essence, two companies are battling over how to split up a $1.2 billion market, which represents more than 19% of total video-game software sales.
So far, EA has dominated that market, with about 62% of the sports-game market, according to Jeff Karp, group vice president of EA Sports. And sales of sports games accounted for more than 30% of the company's revenue last year, he said.
But for Take-Two, sports represent an opportunity to diversify beyond the company's megahit, the
Grand Theft Auto
franchise. Despite the company's success with
Grand Theft Auto
, its stock trades at a discount to peers such as EA and
, in part because it's often seen as a one-hit wonder. Indeed, the franchise accounted for 34% of the company's $1.13 billion in sales last year.
Take-Two considers the sports market attractive and is committed to it, says company spokesman Jim Ankner.
The company's sports label "has quickly established a long-term presence in the sports segment," Ankner says. "A year ago, we didn't have a sports business."
In the last year, Take-Two aggressively pursued the sports market as part of its diversification efforts. Last year, the company teamed up with
to co-publish the
line of sports games. By slashing the price of the games to less than half the cost of some of EA's rival titles, Take-Two cut into EA's lead and forced it to
slash prices on its own line of sports games. EA
disappointing results last year in part to the sports competition.
EA followed that battle with a series of off-season deals. The video-game giant signed exclusive deals with the
National Football League, the
NCAA and the Arena Football League. The company even took the ESPN brand name away from Take-Two,
signing an exclusive deal with
sports media network.
Despite those moves, Take-Two still wanted to play, spending more than $42 million to buy a series of game studios that specialize in sports games, including the
studios behind the 2K line of sports titles.
The company also matched EA's exclusives with a partially
exclusive deal of its own with Major League Baseball that forbids other so-called third-party publishers -- such as EA -- from making pro baseball games.
The end result is that Take-Two made a business out of sports games. In its most recent quarter, Take-Two's sports titles accounted for about 9% of its total revenue -- up from about nothing a year earlier.
Still, the company admitted in its most recent quarterly report that its attempt to enter the sports effort could prove daunting.
"Competition for sports and other licensed properties is intense," the company said in the filing. "We may be unable to enter into favorable license agreements, and our efforts to diversify our product offerings may not result in increased revenues or profitability."
While declining to comment specifically on Take-Two's challenge, EA's Karp praised Take-Two, saying the company "always makes great products."
In terms of competition in the sports market, "we have a healthy paranoia to everybody," Karp says. "What we're trying
to do is create great games."
And at least some analysts wonder how long the company can or will stay in the competition.
For example, football games are the best-sellers, accounting for about 36% of all sports-game revenue, according to NPD, meaning that Take-Two is now excluded from the biggest part of the market. Because of that, Take-Two can't maintain the momentum it gained last year, says Michael Goodman, an analyst at the Yankee Group, an industry research firm.
"The market has fundamentally changed," he says.
Indeed, because of their popularity, football games can help boost sales of other sports games, analysts say. EA's Madden NFL -- the "800-pound gorilla" of sports games -- helps attract customers to EA's other sports titles. No other sports title has that type of marketing power, analysts say.
That means Take-Two must build up its sports franchises title by title -- a daunting task.
"I don't believe baseball, hockey or basketball are popular enough to build a brand around," says Goodman. "They have a fan base, but I don't believe they're big enough to build an entire corporate identity."
The loss of the ESPN brand represents a further challenge for Take-Two, forcing the company to essentially begin brand-building from scratch. That's in contrast to EA, which just put out the 16th version of its
But on top of the marketing challenges, Take-Two also faces a well-financed competitor. EA is rumored to have spent hundreds of millions of dollars to get the exclusive on the NFL game. And if the company feels under threat in the other sports areas, it may well decide to throw money at them as well, says Pachter.
"I don't think EA's done defending its turf," says Pachter, adding that "People don't get into bidding wars with Electronic Arts."
That said, Take-Two seems determined to keep fighting. In addition to its seven-year deal with Major League Baseball, the company signed a multiyear with the National Basketball Association.
And at least some analysts and investors believe the company has a good shot at success. Take-Two has shown that EA is vulnerable, says Janco Partners analyst Mike Hickey. And while Take-Two may not be participating in the football market, it could benefit if other sports gain in popularity, he says.
If the company can make it work, sports can be a much better opportunity than other types of games, Hickey and other analysts say. Unlike other kinds of games, consumers are typically willing to buy the updated version of a sports game every year.
"It's the one great category that has staying power," says Hickey, who doesn't own the stock and whose company does not do investment banking. "Take-Two recognizes that great opportunity. I think they've already established themselves as a player."