Peter Kafka

Recent Posts by Peter Kafka

Grand Theft Auto Maker Take-Two Blows Earnings, Keeps Game Gurus

Take-Two Interactive, the videogame company that’s best known for its ultraviolent, ultrasuccessful Grand Theft Auto franchise, had a miserable fourth quarter: It missed Wall Street’s revenue and earnings goals and offered up disappointing guidance for the next three months.

But Take-Two (TTWO) did have one glimmer of good news today: It has managed to hang onto the creative team at Rockstar Games, the studio that made the GTA games. It has signed brothers Sam and Dan Houser, along with other “key members” of the group, to a contract that runs Jan. 31, 2012. The Houser brothers’ current contract was set to expire early next year, and there was lots of speculation that a rival game company–likely Electronic Arts (ERTS)–would try to lure them away by backing up a truck full of cash.

So how much did Take-Two have to shell out to keep the Housers, who are the game world’s equivalent of Steven Spielberg and Jerry Bruckheimer? The company wouldn’t spell out the terms during its earnings call except to note that it will share profits from the games the brothers sell so that “their incentives are aligned”; it has also given the brothers the ability to create games that they would own themselves and that Take-Two would distribute.

But make no mistake: There’s no way the Housers agreed to stay on without a significant guarantee: In 2005 alone, the company paid out $84 million in royalties, and most of that went to the RockStar group, according to this excellent Wall Street Journal story. And the Housers have only become more important to the company since then.

Even in a best-case scenario, that contract won’t really pay significant dividends for Take-Two for several years, when the Housers come out with their newest shoot ’em up. In the near term, the future looks rough: Videogames were supposed to be a recession-proof industry, but turns out that game buyers are just as susceptible to economic collapse as the rest of us.

In the meantime, Take-Two shares closed today at $12.07–less than half of the $25 per share that EA offered investors for the company in February. They’ll open even lower tomorrow–investors drove the stock down nearly 20 percent once they got a look at the company’s newest numbers.


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