Take Two: "Our Competitors Burn Off Their Franchises" by Annualizing Them
"One of the things that's best about Take-Two is our franchises seem to be permanent."
Addressing a crowd of investors today at an MKM Partners event, Take-Two CEO Strauss Zelnick again spoke about why his company generally does not annualize its franchises like its competitors do.
"I suppose, conceptually, if we took all [of our franchises] and we just turned it into an annualized schedule--leaving everything else to the side--the math says you would be in a better place," the executive explained. "But what would it imply? It would imply doubling our development teams. It would imply calling into question our quality. And it would imply the risk that consumers tire of these franchises. One of the things that's best about Take-Two is our franchises seem to be permanent. They're beloved and permanent. Whereas our competitors burn off their franchises, which means they have to create new ones, which is incredibly difficult to do."
Zelnick pointed out that Take-Two, spanning Rockstar Games and 2K Games labels, has eleven franchises where an individual release has sold over 5 million copies. Additionally, Take-Two has released 54 games that have sold at least two million copies. "That's second to none in the business," Zelnick said.
Take-Two's goal is to eventually get to a point where it has enough franchises to release different ones every year to give other ones room to breathe in between releases. "We can have a really powerful release schedule without burning off the IP and that's our goal," he said.
This has been Take-Two's objective ever since it took over control of the company in 2007, Zelnick said, adding that at the time, Take-Two was far too dependent on the GTA franchise.
In November 2015, Zelnick echoed similar sentiments when he said annualization can lead to the erosion in the value of a brand.
"The market asks us, 'Why don't you annualize your titles?' We think with the non-sports titles, we are better served to create anticipation and demand," he said at the time. "On the one hand to rest the title and on the other hand to have the highest quality in the market, which takes time. You can't do that annually."
Take-Two does annualize some of its franchises, but only its sports games like NBA 2K and WWE 2K.
Also during his talk today, Zelnick said Take-Two is not against growing its company inorganically via M&A--mergers and acquisitions. However, he stressed that Take-Two is taking a disciplined approach and won't buy another company unless the move is accretive to Take-Two's overall outlook.
In making his point, Zelnick claimed that Electronic Arts, under the leadership of former CEO John Riccitiello, burned $20 billion in market cap through its various acquisitions over the past decade. Riccitiello was replaced by Andrew Wilson, who has since earned it all back, Zelnick said (EA's stock hit an all-time high last year). "Andrew has done a great job" leading EA, the executive explained.
"Most corporate M&A fails. Most corporate M&A is driven by ego and empire-building and a complete lack of awareness about simple mathematics," he said. "I don't think our competitions even know what the word accretion means."
Also during the event today, Zelnick teased that Red Dead Redemption 2 will offer a "big, sprawling, optimistic view of America."