Take-Two's Zelnick Talks Diversity, Longevity Through DLC

For years Take-Two has aimed to ditch the "one-hit wonder" label that the vast success of Grand Theft Auto has earned it. "As important as that franchise is... we've made a lot of headway in diversifying the portfolio," chairman and CEO Strauss Zelnick told audiences at the UBS 38th Annual Global Media and Communications Conference. The company's published more than 12 titles this year and is on track to recognize its first profitable year without a numbered GTA release. During fiscal 2010, "almost 60 percent of our revenue came from franchises that didn't even exist prior to 2009," Zelnick said. Take-Two's effective pioneering of the downloadable "episode" strategy has been very important to its increasingly stable revenues and broader options at retail, Zelnick says. "We were among the 1st pub to experiment with downloadable content -- we did that with Grand Theft Auto... at a time when people didn't even really know what DLC would do." Not only have the company's DLC endeavors reduced time between new content for popular brands, but it can help build a single release into a franchise without necessarily jumping right to a sequel, Zelnick explains. For example, the company launched Borderlands in 2009, released the first DLC episode 30 days later, then followed at 60 and 120 days later with further content. The final piece of Borderlands DLC was released 11 months after the game's October 20 release; Take-Two brought to retail a physical disc with the first two DLC episodes on it (similar to the initiative with GTA IV's episode release), and then this fall, a physical "Game of the Year" edition launched with all of the content. That's seven different products for the same brand in less than 15 months, Zelnick points out. And it's less about alternate monetization strategies through DLC or even circumventing used games, although that latter point is particularly important to the company. "Margins are roughly the same; risks and rewards are roughly the same," says Zelnick of physical and digital goods for Take-Two. "The key issue is that you want to be where the customers are." "It's not a different business model; in fact it's the logical extension of the identical business model," Zelnick adds. "Innovation actually does pay off. We innovated with DLC and we didn't know what the model would be, what the price point would be, we didn't know what it would be creatively and we did so and it's been making money and it's been a terrific thing for the company." There are also other benefits to a release strategy that leaves plenty of room for smaller, incremental follow-ups. "Let's say you decided to take as many people as you could with an initial release at a much higher price," Zelnick says. "I expect you could do that, but the stuff would end up on the used game shelves pretty quickly... you might end up in a worse position after all." He adds that the company has "tried to do a better job of bringing some titles out in somewhat quicker cycles," pointing to BioShock, which had two years until its sequel this year and has BioShock Infinite on the slate for 2012. But it simply takes a long time to assure top quality, he asserts. And "reasonable people can disagree about this, but my belief is even a very, very high-quality annualized franchise runs the risk of burning customers out."