Though it might not seem so on the surface, Lara Croft and the thugs of “Grand Theft Auto” have a lot in common. Both play a large role in the success of Sony as a console company. Both broke new ground in video games. And both sent their respective publishers’ stock to new heights.
But in many ways, the success of Lara Croft and the “Tomb Raider” franchise is a cautionary tale for the video game industry—one that Take Two Interactive Software could learn from.
“Tomb Raider” was the face of the Sony PlayStation—and the popularity of the game contributed significantly to the machine’s sales. Debuting in 1996, Lara’s adventures combined revolutionary graphics and sophistication with a cinematic style that helped elevate the industry to another level. For Eidos, it was a huge financial shot in the arm—turning a 1995 $2.6 million loss into a $14.5 million profit in ’96.
Not surprisingly, Lara became the company’s icon and games came out regularly—one per year for the next four years. With every mention of a new "Tomb Raider" game, the company’s stock saw a bump. But the focus on Lara meant other games suffered.
Sure, there were other hits, such as "Hitman," "Deus Ex" and "Legacy of Kain," but in investor's minds, Eidos was a one-trick pony. Management, it seemed, could not consistently make a profit, despite having talented developers in house and a stable of strong games.
When 2003’s “Tomb Raider: Angel of Darkness” flopped, it was the beginning of the end for the company. After a brief stint as an SCi Entertainment holding, Eidos was bought by Square Enix in 2009 for $120 million. Today, the name as a publishing entity has disappeared for good.
To those who follow Take Two, there are some striking similarities. “GTA” was the biggest game on the PlayStation 2. And its sandbox style of play—letting gamers follow the storyline or set off on their own adventures—has been widely adopted by the rest of the industry.
However, despite the company’s efforts to diversify, investors still largely judge Take Two solely on the release schedule of each new “Grand Theft Auto.”
Why Take Two R&D Costs So Much
Analysts have criticized the company’s management for its failure to turn games around quickly, citing the three-year gap between “BioShock” installments, the six-year gap between “Red Dead Revolver” games (despite a teaser trailer for the game being shown in 2005) and the seven-year gap between “Max Payne 2” and the upcoming “Max Payne 3.”
“Take-Two continues to take too long to release games between iterations, leading its research and development expenditures to grow larger than is customary in the industry,” said Wedbush Securities’ Michael Pachter in a note to investors last year. “As a result, Take-Two’s earnings are pressured, and it requires a very high revenue threshold to break even.”
There are, of course, some differences between Take Two and Eidos. The quality of each successive Tomb Raider game got a little worse. “GTA” games have been consistent critical hits – and the extra time between releases seems to whet player demand.
But the company is still overly reliant on the franchise. Other publishers, such as Electronic Arts and Activision Blizzard, for example, are generally viewed as being rich in intellectual properties, with several to fall back upon when one falls flat.
If, however, Take Two releases a major “GTA” game that flops, it could be devastating to the company's bottom line.
How dependent is Take Two? With no new “GTA” installment planned for 2010, the company has already told investors that it will lose money this year, despite new installments for several of its highest profile titles, including the aforementioned “Bioshock,” “Max Payne” and “Red Dead Redemption.”
Making matters worse, the last few iterations of “GTA”—on the Nintendo DS, Sony PSP and available for download on Microsoft’s Xbox 360—weren’t exactly barn-burners.
That’s not quite reason enough to panic. After all, the game’s last major release set sales records. But it does have some investors concerned.