While it owns one of the most successful franchises in gaming, Take Two Interactive Software has taken its share of hits over the past year.
After rejecting an unsolicited takeover offer from Electronic Arts, the company has seen its share price fall more 50 percent. It’s often viewed as a one-trick pony, overly reliant on its "Grand Theft Auto" franchise. And the last two games bearing the "GTA" name haven't been the blockbusters of their predecessors.
As if that weren’t enough, the company is suing a former development partner, 3D Realms, over the collapse of a long-in-development game. And that partner is arguing its case directly to the gaming hard core.
Still, Take Two CEO Strauss Zelnick remains upbeat.
While media and analysts still question the company’s refusal of EA’s 2008 $2 billion offer, Zelnick stands by the decision, saying it was the best one for the company and its shareholders.
"I don’t engage in regrets," he says. "To this day, I don’t know what [EA] was up to. Everyone knew they couldn’t have been unmindful of the fact that their initial offer couldn’t have been a final offer… It’s hard to imagine what we could have done better. My job is to ensure value for the shareholders."
After the offer (and talks with other potential suitors), Take Two underwent a strategic process to determine whether it should sell the company. Ultimately, it decided to remain independent, though Zelnick now says “if something comes up we will consider it.”
Rejecting EA’s bid took a heavy toll on Take Two’s stock, and the recession hasn’t helped. Shares were at $17 before the offer and climbed as high as $27.65 after it was made. Today, the company trades in the $8-$9 range.
Zelnick concedes the stock is lower than he’d like, but points most of the blame at the economy.
"We can’t be unmindful of the fact that the market was 13,000 and the market is now 8,800," he says. "We’re a market participant and there’s no one who is holding stock now that hasn't been affected. We take responsibility for what we do— good, bad or indifferent—but we can’t take responsibility for the market."
Takeover chatter aside, critics have also begun to express concern about the state of the "Grand Theft Auto" franchise. While the last full game in the series—2008’s "GTA IV"—broke sales records, the company has notably refrained from announcing sales figures of a digitally distributed add on for the Microsoft Xbox 360, leading to speculation that the numbers were disappointing.
Meanwhile, sales of "GTA: Chinatown Wars" for the Nintendo DS weren’t exactly slow, but the game hasn’t fired up the charts. The title sold 163,000 copies in its first two months, according to The NPD Group, which tracks game sales.
Zelnick declines to give sales information for the downloadable add-on (which was called "The Lost and the Damned"). In fact, he says, the company never set any sort of internal projections for the content.
"We couldn’t predict who still had the [original 'GTA IV'] disc," he says. "And of those people, which of them are on Xbox Live. And of those, who still has interest in the game…I’d be awfully surprised, though, if it isn’t entirely profitable."
He remains nonplussed about the sales of “Chinatown Wars,” saying the game did make money, but proved that the Nintendo DS audience doesn’t seem interested in M-rated titles, making it questionable if the company will attempt future “Grand Theft Auto” installments for the industry’s best selling handheld.
'Duke Nukem' Court Battle
Amid all this, Take Two has launched a court battle against 3D Realms for its failure to publish “Duke Nukem Forever,” a video game that achieved legendary status for its 13-year development window. The developer abruptly laid off the team working on the game in May.
Take Two has filed court papers, saying 3D Realms did not live up to its contractual obligations and demanding the assets of the game. The developer responded with a public statement (carried by virtually every gaming site on the Web) that called the suit “a bully tactic” and detailed funding negotiations between the two.
Zelnick says he was “disappointed” by 3D Realm’s actions, but will move forward with the suit.
“It’s a great title consumers love and they deserve to see it,” he says. “Nothing would please any of us more than to bring an A+ 'Duke Nukem' to consumers.”
While Take Two has launched titles on virtually every major platform in gaming, it is still notable absent on one: the iPhone.
Despite rumors that work is progressing on titles for Apple's omnipresent smartphone, Zelnick refuses to confirm them. While the audience base for the iPhone is growing rapidly, he says, there are particular hurdles in creating games for the system.
"It's a challenge to make money on those games," he says. "The price point is a lot lower…[Also,] when you're playing on an iPhone, you’re waiting for the bus or the subway or have five minutes before a meeting. The intellectual property has to be tailored for that user.
"Should we be doing something for it? Yeah," he said. "But it’s going to have to be innovative."