Publish date:

Take-Two CEO Touts Games Plan

The maker of megahit Grand Theft Auto outlines efforts to diversify and run rival EA off the road.

Among some investors,

Take-Two Interactive

(TTWO) - Get Report

has the reputation of being a one-hit wonder.

Of course, a video-game maker could do a lot worse than having

Grand Theft Auto

as its only hit. Each of its last three iterations has been a runaway success, including

Grand Theft Auto: San Andreas

, which was the top-selling game in the industry last year. Still, the company's results have tended to rise and fall depending on its release schedule for the hip-hop and gang-banging title.

Take-Two CEO Paul Eibeler sees one of his most important tasks as broadening the company beyond

Grand Theft Auto

, which was developed by the company's core studio, Rockstar Games. In the last year, under his direction, The company has

taken on industry giant

Electronic Arts

(ERTS)

in sports,

bought several studios and

licensed the rights to a series of new games, including the newest version of the PC classic

Civilization

.

With new hardware on the horizon, the industry is about to go through one of its periodic transitions, which should provide opportunities for Take-Two, Eibeler says. By the next console cycle's end, the CEO expects, Take-Two will be in same league as EA.

At the

E3 conference in Los Angeles last week, I spoke with Eibeler about the coming transition, Take-Two's diversification efforts and the company's plans for

Grand Theft Auto

.

Q: You and Sony (SNE) - Get Report have had an exclusive arrangement with the Grand Theft Auto titles. Are we going to see a similar arrangement on the next generation of consoles?

When we announced that -- back

on

Grand Theft Auto 3

-- Sony was a big, big factor in the business and was a great partner of ours. We have

since brought that brand to the Xbox and the PC market. It's just a wait-and-see attitude that we take to the market.

We study the market and see

whether that exclusive nature is good for the company at that time or if it's something that we might not want to do.

Q: So, the decision hasn't been made yet?

We haven't announced anything yet. It's a good position to be in, because we have the world's biggest brand and we have the hardware companies asking us, and certainly they want that product on their system. We will be finalizing that decision as we study the market.

Q: When will we see a version of Grand Theft Auto for the new consoles?

We haven't announced anything further. We're still enjoying sales of

San Andreas

.

So You Want to Be a Rockstar?

Q: Grand Theft Auto is your flagship product, but beyond that franchise, where is Take-Two's growth going to come in the next console cycle?

Our goal is to first look at Rockstar and to build Rockstar. They have more assets and resources than they have ever had before, so that they can develop more product both "sequeling" games and extending their games, as well as developing new brands and extending their games to things like the PC and the PSP.

The growth will come, really, across the board. We think Rockstar can grow, we think our 2K publishing business can grow, and our distribution business -- Jack of All Games -- that I didn't talk about, is a $359 million business that will grow through the transition. But that probably will grow at a slower rate than the publishing.

TST Recommends

Q: How do you nurture Grand Theft Auto so it continues to be a consistent performer for you?

Well, the good news is, one, we own that brand completely. We believe we have the best creative people in the business. And two, if you just look at their track record, they did

Grand Theft Auto 3

, and then

Vice City

came out and beat expectations in terms of game play. And then

San Andreas

came out and again beat expectations, so the bar got raised.

There hasn't been anything close to that in the industry --

Grand Theft Auto 3

being the biggest game to hit the market and then followed by two other products, one that outperformed and one that's tracking to outperform it. Those people are extremely passionate and extremely creative -- very, very driven. I'd say if there is one thing we are very confident, or most confident about, is our ability that they will deliver great product.

Q: The console makers are talking about broadening the audience for video games beyond the core gamers. With Grand Theft Auto and your Rockstar games, Take-Two largely seems to target that core gamers demographic. How important is it to branch out beyond that?

Grand Theft Auto

was a product that, based on the unit numbers, has really become a mass product. We're approaching 12 million at the end of our last quarter on

San Andreas

. It shows that it's been

embraced by the masses and that the core gamer market is growing, because it's a fairly sophisticated product to play.

Because a game is rated "mature" doesn't mean it's not mass market. The average age of a PlayStation 2 owner is still 20-plus. The Xbox owner is slightly higher.

Q: You're not concerned about reaching other potential customers beyond the core gamer?

We'll reach that audience through different types of products. We have

Dora the Explorer

. People don't realize that it's a whole different mentality that goes into making

Dora the Explorer

or

Codename: Kids Next Door

or

Willy Wonka and the Chocolate Factory

. For us to grow as a business, we have to look at all the different segments.

Q: Take-Two's been talking a lot about diversifying from its dependence on Grand Theft Auto. What are the key components of the diversification effort, and where are you in the process?

Sports, because it's so inviting, and because of the annualization. And because we had an opportunity to connect with the best developer of sports games.

The other diversification efforts are products that just fit outside the Rockstar umbrella. Some of that is more opportunistic. Some of that is with outside developers. Even within sports, to diversify from the licensed leagues, to properties that we own, like

Amped

and

Top Spin

.

Q:

In terms of the sports segment, EA made a big splash earlier this year by signing exclusive deals with the National Football League and Disney's (DIS) - Get Report ESPN network. How much of a setback were those to Take-Two's sports efforts?

We took a shot with the NFL because we had done so well. We were making real inroads -- football being a very, very big market and a big part of the sports business. But I think we reacted pretty quickly to change the game a little bit. And the results were that

Major League Baseball chose us because of our marketing plan, our innovative approach to baseball.

The NBA said, "I like the nonexclusive, competitive marketplace," and awarded us a five-year opportunity to market NBA products. Both hockey and college basketball are now leaning toward longer-term, nonexclusive arrangements.

Now we're surrounding those key licensed properties with other properties that we own, and make that whole sports franchise more important.

We didn't look upon

EA's NFL deal as a loss, because we only had it for that one year. I don't think it changes our thoughts. But if you're asking, "Would we rather have the NFL?" Absolutely.