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Concerned Over 'Rough Holiday Season', Take-Two Looks To New Biz Models

Take-Two Board chairman Strauss Zelnick is "concerned that it's going to be a pretty rough holiday season," and as part of a long-term success strategy, he says the company will further explore downloadable content and subscription models - noting that <
Amid prevailing economic concerns, Take-Two plans to explore multiplayer gaming, subscription models and microtransactions further. "I notice the market is only down about 5 points today," said Take-Two Board chairman Strauss Zelnick, taking an optimistic tone as he talked at BMO Capital Markets' annual Interactive Entertainment Conference today. Optimism aside, Zelnick conceded that the crucial holiday season is still up in the air -- "it doesn't look very promising," he said. But he hopes that aiming for a basis in fewer, higher-quality titles rooted in owned IP will lay he foundation for the company's expansion into alternative business models. "Looking ahead, the biggest opportunity we see for the industry, as well as for us, is downloadable content," he said. He noted that the much-anticipated downloadable episodes for Grand Theft Auto IV are a part of this strategy, and are "close to being completed". The downloadable content, which is currently exclusive to Xbox 360, "may move into the second quarter" of Take-Two's fiscal 2009, which starts February 2009, to ensure the highest quality results, according to Zelnick's comments. It was originally scheduled for a fiscal Q1 (November 2008 to January 2009) debut. "We're excited about the creative opportunity; we're very excited about the profit potential, and we'll see how these things roll out," Zelnick said of the downloadable content business. "I think the entire industry is focused in this area." Also part of Take-Two's sustainability strategy is the broadening role of multiplayer gaming. "This is where the industry is headed," he stressed. "Not only does it make for a better consumer experience, but it also helps to address concerns regarding the sale of used products." The company is also "beginning to explore opportunities with regards to microtransactions," Zelnick said. "We think there are opportunities in the massively multiplayer segment, and in the mobile market," he added, noting that the upcoming Cryptic-developed Champions Online will mark Take-Two's retail publishing entry into the MMO biz. But according to Zelnick, "The 'Holy Grail' is taking a business... that's focused on packaged goods that you sell once and then are resold occasionally by others -- to no benefit to us -- and turning that into a subscription business, or a semi-subscription business, where we have an ongoing relationship with the consumer." But he maintains such an approach won't work for every title; "It's our view that you won't be able to apply a subscription model to mid-tier titles, but triple-A titles... that are really must-haves are best-positioned for this business model." This ties in with Zelnick's belief that Take-Two's strategy of avoiding "an enormous array of tonnage, of mid-tier titles" in favor of "a limited number of top-tier titles... somewhat cushions us in the environment." He noted an in-game ad business that is "interesting" despite being applicable mainly to sports games -- an arena in which Zelnick said Take-Two is aiming to expand. The company's strategy also includes broadening global distribution and offering online games in high-growth markets like Asia-Pacific. Zelnick also sees additional opportunities for traditional media extensions, as Take-Two is doing with Universal Pictures' BioShock film -- "the benefit to us is we have no out-of-pocket investment costs," he said. "Despite the times, we're in a great industry," said Zelnick. "It's an industry growing faster than any other form of entertainment. That said, no one's immune from cycles like these -- especially when the economic activity in the cycle is so hard to predict." And notably, Zelnick pegged retail weakness specifically on decreased foot traffic instead of retailer investments in shelf space, contrary to many prevailing opinions. "The issue for us is going to be the holiday season, which is hard to call -- but I'm concerned that it's going to be a pretty a rough holiday season." Even still, said Zelnick, "If you had to be exposed to the holiday season, [the game industry] is a great place to be."

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