Tuesday, November 20, 2012

Take-Two Hopes New Titles Fight off Electronic Arts, Activision

Take-Two Interactive (TTWO) shareholders have been enjoying a very healthy 2010. The video game studio behind Rockstar-developed western Red Dead Redemption — released on Microsoft’s (MSFT) Xbox 360 and Sony‘s (SNE) Playstation 3 this past May — has done incredibly well for the publisher. Take Two video game Red Dead sold over 5 million units sold as of early June. That has caused competitors Activision (ATVI) and� Electronic Arts (ERTS) to take notice.

The success of Take Two’s Red Dead is in edition to the nearly 1 million sales of the internally developed Bioshock 2, released on the aforementioned video game consoles as well Windows-based PCs in February, as well as healthy sales for the Grand Theft Auto IV expansion pack Episodes From Liberty City. Take-Two has been performing so well that they have raised their 2010 fiscal year forecast, expecting a loss of just 10 to 30 cents a share where they were predicting a 60 cent loss earlier this year.

While Take Two isn’t the force in videogame publishing that Activision (ATVI) and� Electronic Arts (ERTS) are, TTWO has been very successful over the past decade thanks largely to the success of development studio Rockstar’s Grand Theft Auto franchise. (ERTS actually found Take-Two successful enough to attempt a hostile takeover in 2008.) The monumental success of that series has led to undue pressure on the publisher from Take-Two shareholders anxious for the latest Grand Theft Auto.� Take-Two’s reputation for introducing successful new IPs into the extremely competitive game software space hasn’t kept Take-Two stock from fluctuating in years the company hasn’t released an entry in the core Grand Theft Auto series.

In an interview with website Gamasutra, Take-Two VP of corporate communications Alan Lewis stressed the need for investor patience with the development of successful new properties like Red Dead Redemption and Bioshock. “Every year we’re going to try to introduce at least one new IP that we hope over the long term will work well for us,” says Lewis. Rockstar is currently developing two brand new series for Take-Two, the spy thriller Agent and hardboiled crime drama LA Noire.

Take-Two are smart to invest heavily in new intellectual properties with franchise potential. Both ATVI and Electronic Arts, companies known for their monumental success releasing perennial game franchises like Guitar Hero and Madden football, are both investing heavily in the development of new intellectual properties. Activision announced a 10-year publishing deal for a new unnamed game series by Bungie, the developer behind MSFT’s 30+ million selling Halo series. Analysts predict that the series, still years away from release, has the potential to match Activision’s own Call of Duty: Modern Warfare franchise. This has investors salivating over the potential of an Activision Bungie partnership. ERTS has spent the past three years fostering new IPs to compete against the likes of Halo and Grand Theft Auto. At last week’s E3 expo, they showed of their new series Bulletstorm, created by Epic Games, the developer behind another successful MSFT property, Gears of War.

Investors, like hardcore gamers, would do well to keep an eye out on who’s developing the next big thing.

As of this writing, Anthony Agnello did not own a position in any of the stocks named here.

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