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Take Two Filings Show GTA Still Predominant

Rockstar, 2K Games and Global Star parent Take-Two Interactive has filed its 10-K financial document for the quarterly period ended January 31, 2006, and contained within...
Rockstar, 2K Games and Global Star parent Take-Two Interactive has filed its 10-K financial document for the quarterly period ended January 31, 2006, and contained within it are a number of statements underscoring the importance of the Grand Theft Auto franchise to the company. Take-Two recently reported a disappointing $29 million loss for its latest quarter, though the company is significantly expanding its 2K Games operations in an attempt to diversify further from its core hit title. Listed in the statutory 'risks' section of the document, which is merely a list of possible problems to inform investors, rather than events that Take-Two expects to happen, the company lists that 'A substantial portion of our revenues is derived from a limited number of titles', commenting: "Grand Theft Auto and certain of our other titles are “hit” products and have historically accounted for a substantial portion of our revenues. For the three months ended January 31, 2006, our ten best selling titles accounted for approximately 41.7% of our revenues, with Grand Theft Auto: Liberty City Stories for the PSP accounting for 19.5% of our revenues; Grand Theft Auto: San Andreas for the PlayStation 2 accounting for 5.5% of our revenues; Sid Meier’s Civilization IV for PC accounting for 4.6% of our revenues...." Interestingly, in years when major new GTA titles launch, the blend can be even more skewed, as the filing notes: "For the three months ended January 31, 2005, our ten best selling titles accounted for approximately 64.8% of our revenues, with Grand Theft Auto: San Andreas for the PlayStation 2 accounting for 57.1% of our revenues; Grand Theft Auto: Vice City for the PlayStation accounting for 1.3% of our revenues; ESPN NBA 2K5 for the PlayStation 2 accounting for 1.3% of our revenues; and ESPN NFL 2K5 for the PlayStation 2 accounting for 1.1% of our revenues." The section concludes: "For the years ended October 31, 2005 and October 31, 2004, our ten best selling titles accounted for approximately 48.2% and 46.3%, respectively, of our revenues, with Grand Theft Auto products accounting for 38.2% and 34.3%, respectively of such revenues for these periods. If we fail to continue to develop and sell new commercially successful “hit” titles or experience any delays in product releases or disruptions following the commercial release of our “hit” titles, our revenues and profits may decrease substantially and we may incur losses." Most interestingly, the company has recently (as of February 2006) made a major agreement with key figures at Rockstar Games, presumably including a number of those behind the Grand Theft Auto franchise, granting them up to $25 million in Take-Two stock, and showing how vital GTA still is to the firm: "In February 2006, in connection with the Company’s Rockstar compensation plan, the Board of Directors approved the issuance of shares of restricted common stock... having an aggregate value of $25.0 million. Shares of restricted stock having a value of approximately $14.8 million (950,000 shares) were immediately granted principally to certain Rockstar employees responsible for product development, and the balance of the shares with a value of $10.2 million will be issued to certain Rockstar employees when the stockholders of the Company approve an amendment to the Company’s Incentive Stock Plan." Of course, one of the reasons that Take-Two is under such close scrutiny is that it has multiple lawsuits pending against it for the 'Hot Coffee' GTA-related incident, and with the continual threat of legislation against violent titles, and Rockstar creating some of the edgiest games out there (including the upcoming, already controversial Bully), the company faces significant financial problems in the case of any crackdown, as it notes in another risk factor: "If retailers decline to sell our “M” rated products or products containing graphic violence or sexually explicit material or other objectionable content generally, or if our “M” rated products are re-rated “AO,” we might be required to significantly change or discontinue particular titles, which in the case of our best selling Grand Theft Auto titles could seriously hurt our business." Overall, however, with notable attempts to diversify with games such as Civilization IV, the co-published Oblivion, The Darkness, The Da Vinci Code, and even bizarre Rockstar concept Table Tennis, it's clear that Take-Two is trying to both embrace its key IP while continuing to make its business more balanced.

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