Take-Two CEO addresses potential disruption from new business models, distribution and tech

Strauss Zelnick, CEO of Take-Two Interactive, talked in an analyst call about how the company approaches new technologies and potential disruption from changes in gaming.

While Zelnick said a miss in bookings targets was due mostly to the weak economy and its effect on consumer buying, he said the company will stay the course on investing in its game development pipeline, especially on huge intellectual properties.

During the call, he answered questions from analysts about things like cloud gaming. Zelnick said, “We’re believers in cloud gaming. We were one of the first licensors, if not the first licensor for Google Stadia to support that product.”

Google shut down that service after a multi-year effort late last year.

“But remember, cloud gaming is a technology. It’s not a business model. It’s a distribution technology. And our view is broader distribution is always a good thing in the entertainment business. If we can reach more consumers with our properties, we’re happy to do it as long as the terms make sense,” he said. “I think broader distribution over time probably benefits us in any number of ways, including the cost of distribution, which I believe will go down over time. That said, never felt like cloud gaming would represent a seismic change because I think if you’re prepared to pay $60 or $70 for a frontline title, you’re also prepared to buy a console. And I think Stadia found that out.”

He added, “So bringing high-quality titles to consumers who don’t own consoles will probably have an effect around the edges, but I don’t think it’ll be hard revolution in the business. I think it will be more and the evolution of the business, and there’s still technical challenges to be addressed.”

As for mobile games, Take-Two spent $12.7 billion acquiring Zynga. But it remains a challenge during the industry slowdown to aggregate a lot of users for each new game. The aim is to generate $100 million games, but Take-Two president Karl Slatoff said in the call that you have to invest in a lot of titles. You can put a game out there, support it with user acquisition spending, and then change it based on the feedback one or more times. That’s how you find the $100 million games, he said.

Going forward, he said, “It’s going to be harder to get to that $100 million threshold.” Zelnick added about mobile, “I don’t think the business has gotten easier or harder. I think it’s pretty much what we expected, as I said. The hit ratios in mobile are low.”

As for the changes in the Identifier for Advertisers, where Apple prioritized user privacy over targeted ads for mobile apps and games, Zelnick said the company has been living with that for some time now and there is some improvement in how the company can target customers.

“I don’t want to characterize that as we’re sort of back to where we were because that could be a mischaracterization,” Zelnick said. “But we certainly feel like we got our hands around it, and then we’re going in the other direction. So that’s positive in terms of our ability to target.”

Asked if subscriptions are taking a toll on sales of individual games and changing the way people engage with new titles, Zelnick said he is thrilled to be in the subscription business for catalog titles at the appropriate time.

“We think that is the right way to support subscription,” he said. “I think the last announcement was that Game Pass was 25 million subscribers. We’re not talking a huge broad-based business yet. I don’t believe that businesses cannibalizing our business.”