All right. Thank you all for being here today. My name is Doug Creutz. I'm the senior media and entertainment analyst here at TD Cowen. As a PSA, I'm sure you all know the XTD voting window is open. TD appreciates your vote as do I. And I'm very pleased to have with me here today the chairman and CEO of Take-Two Interactive, Strauss Zelnick.
Thanks, Doug. Nice to be here.
I have been joking with clients that artificial general intelligence is like GTA 6. It's always 12 to 18 months away. But I'm going to have to retire that joke because we are now less than 6 months away from GTA 6. We do think it's going to be the biggest entertainment launch of all time. Which is a high bar. So, how do you define success for a product like that beyond, you know, revenue units? And how does Rockstar define success and what's their ambition for the product?
Well, we are aiming to make in everything that we do the greatest entertainment on Earth. That's our goal. Our goal is to make phenomenal entertainment. And our strategy is to be the most creative, the most innovative, and the most efficient company in the entertainment industry. And each of our labels in its own way tries to create something extraordinary in everything that they do. And sometimes we fall short, of course. And that you probably put a fine point on that at Rockstar given the metacritic scores that they've always enjoyed and the breathtaking success of Grand Theft Auto and Red Dead and other intellectual properties that Rockstar's brought to market over its 25 year history. So, you can imagine that the ambitions are very, very high and both for Rockstar and for Take-Two. But I think you would define success, you know, you can't help it in terms of the scores it gets, the reviews it gets, and the unit sales.
Do you think about it in terms of engagement over the long term?
Well, of course, we can't help thinking that way because Grand Theft Auto V has thrived through three console generations and has sold in 230 million units. So, and has been around for the better part of 13 years and shows no signs of abating. And Grand Theft Auto Online, of course, remains a very powerful property. And you've seen the economic effect of that title when Rockstar generates meaningful unit sales year in year out and also has significant recurrent consumer spending year in year out. We've also guided to significant recurrent consumer spending going forward for Rockstar.
Yeah. And you anticipated my next question. You had on your earnings call last week...
It's amazing how you can anticipate the next question when you provide them to our head of IR, Nicole, in advance. It's extraordinary. I have this incredible mental capacity to read.
You're giving away our secrets. So, yeah, you did guide to GTA recurrent consumer spending growing this year. And I know you're not going to divulge sort of what the plans are for GTA 6 launch, but can you talk about what Rockstar has learned from GTA Online and Red Dead Online in terms of running a successful live service title, what they may have learned from observing other parts of your portfolio like NBA 2K and Zynga or even looking at some other high-profile live service launches in the last few years that haven't gone well?
So, remember, we have live services at Rockstar now, right? We have GTA Online, we have GTA Plus, we have the 5M business. So, we already have that in market. And we expect those businesses to continue to thrive. There'd be no reason that they would not. And what have we learned? Give consumers something great and they show up for it. We've learned the oldest lesson in the entertainment business.
By the way, that leads me to a story, which is true. So, I started in the movie business, in the television business, and I worked at Columbia Pictures. And I bet there's no one here who knows this, but the head of Columbia Pictures in its heyday, Columbia Pictures was a B studio going back in the old days, and the head of Columbia Pictures was a guy named Harry Cohn. Anyone know this? This is a true story. And Harry Cohn was detested, reviled in the movie business by everyone. And so much so that there was some amusement at the fact that people were at his funeral. And two stories about that. But one is someone said to, I think Jack Warner, but I'm not sure, 'Why do you think there's so many people at Harry Cohn's funeral?' And he did say, 'Give people what they want, they come out for it.' And true story. And the rabbi who officiated at the funeral was a famous rabbi in Los Angeles named Rabbi Magnin. And someone went up to him and said, 'Rabbi, you must be able to say something nice about Harry Cohn.' I mean, this was the rabbi at the funeral. And he said, 'He's dead.' Okay, but I digress. Anyway, you give people what they want, they come out for it. That is true. You can look it up. Both are true stories.
If we look beyond GTA 6, I'd imagine a few things are probably true. I would think Rockstar would probably, beyond GTA 6, not like to have another 13-year gap between GTA releases. Maybe not. I mean, obviously GTA 5 has done very well. And I assume Rockstar has other ideas that they'd like to pursue beyond just GTA. So, how are you and they thinking about how they evolve over the next 10 or so years to best serve their audience and create value for the company organizationally?
Well, the only way I can answer that is to say these are the very conversations we always have with all of our labels, Rockstar included. And we have a plan. And our plan might not be to have a specific cadence around our properties because we're not a cadence-driven company. We never have been. I didn't show up at Take-Two nearly 20 years ago and say the way everyone else was, you know, we're going to annualize our products like clockwork. To the contrary, and I was an outlier at the time. I said the only products we're going to annualize are sports entertainment properties. We are specifically not going to do it with everything else. That was very unheard of in the business at the time. And the thesis was that if you do that, A, you're going to burn off your intellectual property because you're in market too often. B, you can't possibly deliver the kind of quality you need to deliver to deliver an A+ property by doing that. And I'm not going to name the properties, but we've seen that some very competitive properties have had good annual releases and bad annual releases because it's just so hard to do. And also, if you take a look at the intellectual property landscape when I joined Take-Two in 2007, you know, GTA was not the number one property. It was a top five property, but it was not the number one property. And take a look at what happened to the properties that were higher up in the food chain that were annualized to see what happened. So, we set a new standard in the business, which is you have to make stuff that's great and creating some anticipation on the part of the consumer is a good thing. That doesn't mean that we said there should be a 13-year gap between releases. What has driven the gap is the amount of time it takes to do something that is as good as it can possibly be for that intellectual property. And sometimes, you know, for example, with Borderlands, Gearbox has done a great job coming to market somewhere between two and four years after a release and generally speaking succeeded mightily at doing it. In other instances, for example, BioShock, it's taken longer than we would like. In the case of GTA V, it was not a simple story of like, 'Wow, guys, took you a long time to come back to market.' Because look at what Rockstar launched. Again, they re-launched and they actually remade the title for PC. They re-launched and remade the title for each new generation. And they launched GTA Online plus other services that were either required to launch. To the extent that, you know, GTA has become a thriving business that's an ongoing business. So, it's not as simple as, 'Wow, what have you been up to for 13 years?' The answer is they've been up to quite a lot. And I think one of the reasons that GTA VI is so widely anticipated is that we now have a GTA ecosystem that Rockstar built.
I would imagine that it's not as simple as saying, 'Oh, let's just pour more resources into Rockstar.' That they probably are finding the right people to work in that environment is probably not the easiest thing in the world.
Look, you know, again, I'm not to name names, but a very big resource-heavy company, you know, went into the video game business about what, 12 years ago? And they've had one title that was moderately successful. It is not about, you know, headcount. It is not about technology. I know you'll get to that. It is about the intersection of talent, passion, and resource that creates hits. And so, it isn't as simple as let's hire more people. Obviously, you have to hire the right people and then manage them the right way with the right creative vision in the first place and then with daily attention to execution.
So, let's move on. NBA 2K, another very big franchise. You had a tremendous run over the last... and a huge year this year. What lends you the confidence to drive all that growth and you did guide to I think 7% growth in the coming fiscal year. You know, what lends you the confidence because, you know, I'm a big believer that arrogance is the enemy of continued success and the team at Visual Concepts, if Greg, I know he wants to say hello to chat, he would be happy to tell you all the things that we got wrong and all the things that we need to do better at. And I sort of would dive in, but because I didn't actually create the title, I can compliment the team appropriately. I think what they got right is a wonderful intersection of phenomenal gameplay and the ability to show online and, you know, play the game or engage with the culture of the game.
Yeah, and I will try this stream stuff. I also think that Greg and his team at Visual Concepts, enhancements are in service not of enhancing revenue but in service of creating a better experience. If we create a better experience, the revenue should follow.
Yeah, nothing new, but good new Strauss said things about GTA success. Everything we... I can only say yeah. Okay, I listen to him again. Nothing significantly new, but you can scroll back to hear him talk about GTA and GTA Online and GTA 6.
By the way, not the only great game in market, you know, we're running scared at all times and, you know, our friends at EA have the number one sports title worldwide in FC. So, we know what the competition has and we know what we got to do to continue to win.
Do you feel like there's still a lot of untapped opportunity outside the US with NBA?
Huge. I mean, basketball is a growth sport. It is growing outside. There's no secret that there's a lot of attention around growth in Europe. And we're very optimistic about where European growth could lead, but also growth in developing markets. And that's a broader theme at Take-Two, where we're very focused on growing developing markets. So, remember that the nature of a multinational interactive entertainment company today, unless you're a Chinese company, is that 80% of your revenue comes out of the US, UK, Western Europe and a little pockets of Asia. And you're not serving at all, you know, in a meaningful way, Russia, Latin America, India, Africa, and the Middle East. And we want to change that and so we're aggressively building up our international markets presence, which is challenging because it requires you to invest in advance of revenue, something we hate doing, but we are doing that.
And can you talk a bit about opportunity with college basketball that you see?
Well, I mean, there was a mode, you know, I think the team at 2K Visual Concepts did a great job getting to market so quickly on college basketball and the consumers loved it, but it's early days yet. There's much more to come.
Yeah. Yeah, I think there were 16 or 17 universities represented. It was a really great start. As a Duke basketball fan, I'm excited to see what you bring. There are more to come, much more to come. Let's talk about some other things that you've talked about coming in the AAA side. You've announced Judas. You've announced Project Ethos. I think you said last week that you would have seven AAA sequels in total in fiscal '28 and '29, which I assume includes the BioShock sequel that you've talked about. And as you mentioned earlier, you know, BioShock's been brewing for a long time. Judas, I think you announced in 2022. When you think about value creation of the company beyond GTA, how important are these titles to that?
Incredibly important. And I mean, Lainie's sitting here, but I think in the past few years, GTA as a total business has been less than 15% of our overall net bookings, if I have that right. So, 85% of the company has not been about GTA. And that is no way to detract from its importance as a title. Obviously, it's to make the note that we're a big diversified company with lots of hits, and we have half of our business is mobile, of course, and half is console and PC. So, our job is to grow in all directions because we're serving consumers everywhere. Every kind of consumer, wherever they are and however they want to engage. That's our job. That's what we're trying to do. It's our mission. And in this past year, past fiscal that we just reported, of course, all of our labels did better than expected. So, the goal is, you know, not to work on one title at a time, right? The goal is to build up our business by delivering great hits and to have largely owned intellectual property that we can bring to the consumer over and over again. So, we have 11 franchises. Do I have that right? That have each sold over 5 million units. I think it's... Sorry? I think it's 13. It's up to 13. And you know, when I showed up here, the number was one, to be clear. It's one. And it's really hard to do. And you know, I'm not really in the business of patting our collective selves on the backs, but no one else has done that. No one else has done that. And we have invested heavily and sometimes, you know, had failures and missteps in so doing. But the reason our company is as valuable as it is is because we have all these franchises that deliver over and over again. In most instances, actually sell more units with the new iterations.
So, jump scare again. Strauss did speak about GTA 6 and GTA Online and GTA stuff earlier, but it was mostly just repeats from the earnings call. But there's a crowd listening to them currently. They will be taking questions later. So, might be more GTA 6 stuff. How do you think about that? They're not wrong. I mean, but the cost of making the best entertainment on Earth is actually an entry barrier. And so, you know, you don't want to go up against that from the outside, but when you're on the inside, if you're judicious and you're careful about your capital allocation, one could argue it's actually a benefit because you have fewer high-end competitors. That's relying upon the fact that the money is well spent, which is to say that you're making hits. So, it is a game for the big boys. The entertainment business in maturity is always a top 10 or 20 business, always. And if you think otherwise, you're kidding yourself. It is not a long-tail business. It's a long-tail business when you're in the top 10 business. That's great. Like, we have a terrific catalog. It generates revenue and cash flow year in year out. We have terrific live services. Generates revenue and cash flow year in year out. But, the locomotive for all that is the front line, and the front line has to include sequels and new intellectual property if you want to be in a more powerful position in 10 or 20 years than you are today. And that's our goal. You know, this management team has never looked at the business quarter to quarter, as you know. I don't. And as you know, we're willing to do things that other people would see as unnatural acts because we don't look at things quarter to quarter. We're building this business for 5, 10, 15, 20 years hence. Even though, you know, the odds of my sitting in this seat in 20 years are reasonably low, but hey, you never know. So, that's the goal. And the reason that we have the market cap we have today is because I looked at that 20 years ago when we had a $700 million market cap. I wasn't playing quarter to quarter. We made a lot of really hard decisions. And by the way, we were in the wilderness for quite some time. And then, you know, we were undervalued for quite some time where people are like, 'Is this real?' And then finally, it began to come to fruition. But, it did not happen overnight. And now we're in this incredible position of luxury. What a terrible shame it would be if we incinerated by now thinking short-term. So, yes, we're going to have to invest a lot of money behind our creative teams if we still want to be delivering the best entertainment on Earth. We have to be judicious about capital allocation. We have to be thoughtful, and at times, we're going to have to, you know, take hits because we were wrong. But, if we get it right, and I do believe we'll get it right with Grand Theft Auto and with BioShock, and I hope with Ethos, and with many other titles. We do get it right with NBA 2K. These are immensely profitable enterprises despite high production costs.
And high marketing costs. I think I've always said to clients, there's no amount of money you can spend on a hit that's too much, and no amount of money you can spend it that's too little.
That's right. And that's just how you have to approach the business. Not to spend much on flops. The best thing is like when you put out something that doesn't work and you run into someone. This has happened to me. Also in the movie business more typically, but I, you know, run into someone at a cocktail party and they're like, 'Why did you make that horrible flop?' It's like, 'Because I thought it was going to be a hit. Like, what do you think I thought? Like, that'd be a good idea. Let's do that even though it's going to be a flop.' Because I thought it was going to be a hit. Where it's a little more complicated is mobile, because you kind of don't know. So, the way we have addressed that is meaningfully to reduce our exposure pre-launch in mobile. When we took over Zynga, they had a couple of projects that, you know, had huge numbers attached to that were legacy projects. We don't do that anymore because the hit ratios are so low in mobile, it just doesn't make sense. And really to focus mightily on fewer than 10 new launches a year in hopes of having, you know, one or two hits a year. And that strategy has paid off. It's what led to Color Block Jam and Match Factory and some titles that are doing really well that are somewhat smaller than that. And we hope that we'll be able to do that year in, year out. But what we have done in mobile is gotten out of the business of spending massive amounts of money where the hit ratios just don't bear up. And mobile is essentially a direct marketing business on the marketing side, whereas, you know, a piece on PC and console releases feel more like brand marketing. So, we do a bunch of performance marketing, but when you market a PC or console title, it's a lot like marketing a movie release in the old days for me. Whereas marketing a mobile title is much more performance direct marketing. And you know, I have a whole history in the old-fashioned direct marketing business. And one thing about direct marketing is it's very difficult to predict. It's the data that tells you the answer. So, if you're in a situation where you can't predict, like we double down on GTA because we believe, 'Okay, if we get this right, it should do really, really, really well.' But you can't double down on a mobile title because the hit ratios are just too low. So, I can't tell you the numbers, but you know, it cost us... I mean it was like a rounding error to get to market on Color Block Jam. It was just very, very, very low. Now, then you have to invest in marketing. So, equally Match Factory wasn't a rounding error, but it was an inexpensive title, but then we had to really spend on marketing and we made no bones about it. We were public about it. And takes a while to get your money back when you do that, too.
