Interview: Take-Two's Ben Feder Talks GTA, Wii, MMOs and More

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Interview: Take-Two's Ben Feder Talks GTA, Wii, MMOs and More

In this exclusive, we sat down at E3 with Take-Two's CEO Ben Feder to discuss his company's business approach, supporting Nintendo, industry consolidation, entering the complex MMO market and much more. Dig in...

by James Brightman on Monday, July 28, 2008

GameDaily BIZ: What do you see as the major releases driving Take-Two's business this year and into next year?

Ben Feder: I think we have one of the strongest release schedules in the industry for all of 2008. It starts with GTA IV, but also includes Civilization, BioShock for PS3, and it includes a bunch of our games that when you put it all together it's probably the strongest release schedule in the business.

BIZ: The reason I ask is that Take-Two has been criticized over the years for perhaps being overly reliant upon the GTA franchise.

 

"We have 15 franchises that have sold over a million units each. So I think the [GTA dependent] tag is wearing a little thin."

 

BF: The truth is if you look at the just about every company in this industry, most companies are dependent on a few key franchises. It's just the nature of the business. If you have hit titles, you'll rely those franchises for most of your revenue. It's not just true for Take-Two; it's true for a lot of publishers. It's kind of a catch-22; the more you're successful with GTA IV, the more criticized you get. At the end of the day, I'm a businessman, and our profitability speaks for itself. Our goal is to never be unprofitable, although we have been in the past. Are we in a volatile business? Yeah, and we do have the kind of 'James Bond' of the video game business. By that, I mean hits that generate other hits and that every sequel does better than the previous release in that franchise.

We are absolutely unapologetic about GTA's performance and its financial impact. But we do find ourselves in a volatile business and we have a terrific lineup, not only strong but demographically diverse. Civilization IV is one demographic that doesn't really intersect with the GTA demographic... you've got Carnival Games on Wii, which has sold over 1.5 million units and that doesn't really intersect, and then you've got Midnight Club, which does intersect a little bit.

What people also tend to forget about Take-Two is we have a library of franchises. We have 15 franchises that have sold over a million units each. So I think the [GTA dependent] tag is wearing a little thin. So there's no reason for us to be apologetic. The more successful we get, the more we get criticized.

BIZ: Take-Two recently said on a financial call that sports won't be profitable this year. What is Take-Two doing to make sure that its 2K Sports division is profitable?

BF: The issue with profitability is more of the cost structure, not the revenue side of the business. We are highly rated, [but] one of our challenges is translating the ratings into bigger market share. I think if you compare our market share to our rating share, we underperformed on that index. There are certain titles that are more profitable than others, so we need to balance our portfolio. The fact that the overall division isn't projected to be profitable this year masks the fact that certain titles are actually hugely profitable. Top Spin 3 is doing fantastically in Europe, and we're pushing it hard in the U.S. as well, so that's also going to drive profitability.

BIZ: Do you feel that EA Sports overshadows 2K Sports? Is there a problem with brand recognition in the mass market?

BF: I think of it like Coke and Pepsi. When Pepsi was first doing the Pepsi challenge, Coke's position was unassailable. Pepsi said "we are going to live or die on .1% market share" and we are pushing that through the brand and the 2K Sports franchises. We draw a line in the sand and then we move that line a little further and a little further and a little further, and we are bound and determined to increase our market share across all sports franchises. The fact that EA has got brand recognition in the marketplace, we accept it, but we are very happy in an environment where there are actually two competitors. I'd rather see that than a completely fragmented business. No question there are challenges, but it's a challenge I think we're up to, and that the development and marketing teams are up to. I will say without question that our development teams are the best in the business.

BIZ: We were a bit surprised to see an exclusive GTA announced for the DS at Nintendo's conference. Why the DS? Is it just because it's a huge installed base or you really wanted to take advantage of DS features?

BF: There are a number of things going on, but you can imagine we're really excited about one of the best franchises, if not THE best franchise in the business, mapped against the largest installed base in the business. I will tell you corporately, we have been impressed with Nintendo. We have been good partners on a few of our titles to date and we want to continue that relationship, which is important to us. The opportunity we think is terrific and we will deliver on the GTA promise for a Nintendo platform.

 

"Our goal is to be the most creative and innovative company in the industry. You don't get there by just porting and dumping games on the shelves."

 

BIZ: What about GTA on the Wii, or is that being considered for the future? If the hardcore market is underserved on the Wii, maybe bringing GTA to Wii would be perfect for it...

BF: I can't comment on it, but obviously we have one of the best selling third –party games on the Wii in Carnival Games from 2K Play, so we know the Wii pretty well. We're building up assets to develop for the Wii and we're excited about its growth. I can't comment on GTA specifically on the Wii...

BIZ: More generally speaking though, is the Wii being pegged as a casual platform?

BF: What I'm pretty certain about is that porting from 360 or PS3 to the Wii (or DS) isn't a winning strategy. And I'm equally certain that titles that take advantage of the unique hardware aspects of any platform... that's key to the success of the title. So we are not going to be looking to port games just to take advantage of an installed base. Our goal is to be the most creative and innovative company in the industry. You don't get there by just porting and dumping games on the shelves. You get there by looking at the platform and creating games specifically for that platform. Maybe you write off some marketing and some brand recognition, but you need to create a game for that platform and that's what we expect to do with GTA: Chinatown Wars for DS.

BIZ: Speaking of taking advantage of unique aspects of a platform, Nintendo seems to be happy with the response from third parties to its new Wii MotionPlus attachment. What does Take-Two plan to do with it?

BF: It's still early, but to me this is the difference between gross motor and fine motor. Certain sports don't need the fine motor; bowling for example. As the fine motor begins to get reflected in the hardware platform, you're going to see more and more developers and publishers specifically design games for that capability. And in that way, sometimes you need to lead, sometimes you need to follow. We will follow our partner's lead and if this is a unique aspect of the platform, we're going to build games to take advantage of it.

BIZ: So when you say you're going to "follow" do you mean you're going to take a wait-and-see approach to see how Nintendo uses the accessory?

BF: What I mean is Nintendo has innovated in a way we think is very cool. We'll take that innovation and say "How can we create games to take advantage of it?" and at the same time help ourselves and our partners along the way.

BIZ: How do you feel about Microsoft's Xbox Live Avatars and will they be incorporated into Take-Two titles?

BF: We're going to look at it carefully, but I can't comment on it today.

BIZ: With games having astronomical costs these days, what is Take-Two doing to mitigate the risk on titles that aren't labeled GTA?

BF: While game development cost are high, when I started in the movie business 15 years ago the cost to develop a movie at that time is about what it is to develop and market a game today. Now fast forward 15 years, and what does it cost to make a movie? You say costs are astronomical, but that's just looking backwards. It may in fact be that when you look 15 years from now that the costs today will look cheap. I think it's a competitive advantage in some ways. The more we go up that cost curve, the more and more 'mom and pops' fall away and it becomes a game of big players. As the third largest publisher in the business, there's an element of that that's good news. I don't mind costs going up as long as the opportunity goes up. By spending more in a game, I get more market share or get to sell games to customers I wouldn't normally. If the market grows and you can justify spending more on a game, it's fine.

We have a very disciplined approach, a new approach, at Take-Two to investment in video games. We have a very rigorous process that we installed when we came in a year and a half ago. That's paying off, and games either get cut or more often you take risk mitigation as you go along, and you say, "Look if you go in this direction it's just going to cost too much" and we look at the market for each one of these games and we say "Are we going to make back our investment?" ... That said, games may well get more expensive rather than cheaper. As you go through the cycle, everyone expects games to get cheaper because you develop assets and share resources, and we expect to take advantage of that too. 20 years from now, though, you may look back say "these were the cheap days."

BIZ: With Activision Blizzard and EA possibly getting you guys – and I realize you probably won't comment on the EA deal – what is your opinion on this wave of industry consolidation and how it's affected the game industry ecosystem? It seems like the rate of consolidation has picked up...

BF: When I came to Take-Two I said consolidation was inevitable; I still believe it's inevitable. As the games industry grows up from a cottage industry to a more mature industry and ultimately to kind of mainstream media, it will require greater capital resources, better systems, and much more robust marketing development organizations. And it requires consolidation in terms of costs. All of that speaks to consolidation, but also margins and competitive advantage and the falling away of 'mom and pops.' There will always be room, but this is becoming what the studio system is like in Hollywood. There will be majors in this business and the majors are going to drive the higher margins. It's going to be hard to compete against them. The guys that are not majors are going to have to be very clever about what they produce and how they market it.

BIZ: That reminds me of what Denis Dyack told us in a recent interview, that only a handful of publishers will remain in the near future and control everything. Do you agree with that?

BF: It's true about almost any industry that matures. What's clear is this industry isn't going away. It's growing. Those two elements mapped against any other industry, you'd expect to see consolidation. It seems to me consolidation in inevitable. I don't know if that happens this year, next year or in five years... but at some point this is a big business and it's going to be operated like a big business.

BIZ: In terms of the online business, you guys recently picked up Cryptic's Champions Online. Is Take-Two trying to become more of a major MMO publisher?

BF: MMOs has been a strategy [for us] almost since day one. Cryptic for sure is an element of it and I think there's much more to it because it's a very complex marketplace. It's important, or imperative, that we participate in that, but we have to be judicious on how we enter into the business. We need to be disciplined about our partners and our territories and path to growth. While it's an important part of the business, it's also a risky area. It's not an area that we have a lot of experience in. We're going to tread carefully but tread aggressively.

BIZ: There are a lot of business models to consider in that space, with subscriptions, free-to-play, ad supported, micro-transactions... Is there a particular business model for Take-Two?

BF: It's a complex environment. What we think we know is that our brands and our franchise are second to none. So to the extent that we get into this business we will also be looking to our brands and our franchises to lead the way.

BIZ: Rockstar at one point said that a GTA MMO would be very compelling and very doable, so I'm assuming that's what you're alluding to.

BF: Well, look, we have a lot of brands. As I said before, 15 franchises with a million-plus units, and we're continuing to develop franchises as we go along and BioShock is a brand new franchise. So I frankly meant it as a blanket statement that we have some excellent franchises in all sorts of genres and we look to those to guide the way.

BIZ: Speaking of BioShock, that was a big success and you're looking to leverage that further now with a Hollywood partnership on a BioShock movie? Do you see that kind of collaboration with Hollywood only increasing?

BF: I think there is going to be more and more integration of traditional media generally with the video game business. At this E3 you're seeing a lot of music oriented ventures. I think it's almost inevitable that Hollywood and Silicon Valley will join forces. There is only so many dollars a consumer wants to spend on entertainment. At some point, the consumer makes tradeoffs. You've seen the music industry... to say they've experience challenges in the last five years is an understatement. But there needs to be a new way to engage users with respect to music, and lo and behold it's the video game business.

BIZ: It seems like because of the success of Guitar Hero and Rock Band that a lot of publishers are jumping on the music genre bandwagon. Is Take-Two actively exploring this too?

BF: We are... ummm... yeah I don't want to comment on that. But it's obviously an area that's gotten a lot of interest in the industry. There doesn't seem to be any abatement in interest from consumers towards the space.

[PR rep: time for just one more...]

BIZ: Sony's Jack Tretton promised that the wait will be worth it for Home, and he said the virtual world on PS3 is getting a lot of support from publishers. What's your thinking on how successful Home will be and what Take-Two's aspirations for it might be?

BF: Obviously we've been big supporters of Sony and will continue to do so. To the extent that Home creates an opportunity for Take-Two we'll take advantage of it.

BIZ: But will it create an opportunity?

BF: I think so, I hope so and I'm eagerly awaiting it.

BIZ: Thanks very much for your time today.

http://www.gamedaily.com/articles/features/interview-taketwos-ben-feder-talks-gta-wii-mmos-and-more/?page=1