Business Breakdowns
Episode 124 Take-Two Interactive: GTA and NBA 2K
Business Breakdowns

Episode 124: Take-Two Interactive: GTA and NBA 2K

Business Breakdowns

Episode 124

Take-Two Interactive: GTA and NBA 2K

Eric Kress is a principal at Gossamer Consulting Group. We cover the history and strategy behind Take-Two's acquisitions and IP, how the economics differ between PC, console, and mobile gaming, and whether industry consolidation is a positive or negative for large publishers.

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(00:00:00) - (First question) - Brief overview of Take-Two

(00:00:57) - Take-Two's acquisition of Zynga represents a significant push into mobile gaming

(00:02:30) - Mobile gaming faces challenges from Apple's IDFA removal and Google's changes

(00:04:02) - Apple's privacy changes benefit them but hurt mobile publishers

(00:05:15) - How Take-Two evolved from PC and console to mobile

(00:08:13) - Console and PC target AAA games; mobile reaches a broader, less premium market

(00:10:18) - Creating new iconic AAA gaming IP is nearly impossible due to high costs

(00:12:33) - Big IP success in gaming historically depended on retail relationships and distribution

(00:13:59) - Grand Theft Auto and 2K likely represent 80-90% of Take-Two's business

(00:15:04) - Sports games have almost 100% revenue visibility; others like GTA fluctuate

(00:17:01) - GTA's next release is anticipated and guaranteed to sell millions, but post-launch is uncertain

(00:22:49) - Risk of new console alignment affects expectations for next GTA game release

(00:25:22) -  Updating titles for different consoles has become less complicated with PC architecture

(00:25:56) - GTA's revenue splits 70-30 or 60-40 between upfront sales and in-game purchases

(00:27:09) - Pricing at $60-$70; new tech may boost in-game spending

(00:28:55) - GTA's mature nature makes in-game advertising tough

(00:30:24) - NBA license with 2K is a partnership, not exclusive

(00:32:53) - Take-Two lacks profitable titles beyond GTA and 2K

(00:35:22) - EA smartly bought Respawn and built studios; Take-Two lacks similar capability

(00:36:54) - Gaming industry consolidated to fewer franchises; similar to film industry's trend

(00:38:49) - Big publishers dominate mobile gaming; Zynga's main franchises are declining

(00:41:32) - Zynga's acquisition was ill-timed; it's a declining asset with no value

(00:44:57) - Microsoft's deal may lead to Amazon or Comcast buying Take-Two

(00:47:36) - Valuing these businesses often relies on traditional PE methods

(00:48:46) - In-game purchases boosted predictability, raising multiples to 20-25x earnings
(00:49:31) - Key risks for Take-Two are overhyped GTA expectations and service burnout

(00:51:02) - Lessons learned from studying Take-Two

Take-Two Interactive: GTA and NBA 2K

Introduction

Matt
This is Matt Reustle and today, we are breaking down Take-Two Interactive. If you listen to our business breakdown on Electronic Arts, Take-Two is another giant in the video game publishing space. They are best known for their Grand Theft Auto and 2K franchises. To break down Take-Two, I'm joined by Eric Kress, Principal at Gossamer Consulting.

Eric spent multiple decades inside the video game market, both as an investor and as an operator, and we tap into his perspective from both sides of the table. We drilled into historic IP, the strategy behind new releases and what mobile means for the market and specifically for Take-Two. Please enjoy this breakdown of Take-Two.

All right, Eric. I'm excited for this one. You bring a very unique background to this business breakdown. You spend basically after your career in industry, after your career in the investment world, you're still involved in both worlds, which I think is ideal for these types of conversations.

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