BioShock franchise prospects "hurt for the long term"

It's been a tough week for the talented staff at Irrational Games, most of whom are now looking for new work. While Take-Two decided the "best approach" was to find new jobs for most of the employees instead of keeping Irrational's doors open, we can't help but think that the shuttering of the venerable studio hurts the publisher and the future of the BioShock franchise overall.

"It hurts the prospects for the franchise long term," said Wedbush Securities' analyst Michael Pachter. "The game wasn't coming out again until 2018 or so, meaning that it isn't really a big deal to the company's valuation."

Of course, if the next BioShock is in development for 5-6 years, that's a long time to have a new team working on a title that may or may not yield huge dividends. Rockstar is one of the few studios that can take as long as it wants in between titles, because the GTA games generally produce massive profits (GTA V hit $1 billion in sales in just three days). Whoever takes the reins of the BioShock series next is going to be facing immense pressure - that's likely something Levine didn't want to contend with anymore.

"Just as Bungie was trapped by its own success with Halo, I suspect the idea of another multi-year effort to take BioShock to the next level was really daunting to contemplate. I don't envy whomever Take-Two decides to continue the franchise - and yes, I do think we haven't heard the last of these characters or their retro-fascist world," commented IDC research manager Lewis Ward. "It's going to be tough to top Infinite but I think, especially since the franchise has made money, that Take-Two will farm out the next installment in the 2015 time frame."

Independent analyst Billy Pidgeon agrees that Take-Two is far from closing the book on BioShock. "BioShock may continue to be an important franchise -- with or without Irrational -- there is much available talent at Take-Two," he said.

James Hardiman of Longbow Research is less confident. "I think the news is very much mixed. BioShock has proven itself to be a great franchise, albeit primarily when Levine is at the helm. Levine created the original BioShock and BioShock Infinite, two of the best reviewed games of all time, but was not involved in BioShock 2, which was generally considered to be a bit of a disappointment. So with Irrational no longer involved with BioShock, there is certainly the risk that quality will suffer on the next sequel, although realistically, we probably shouldn't expect that for another 2-3 years," he said.

He added, "The good news is the new studio that Levine appears to be building at Take-Two sounds awfully interesting. The big knock against TTWO has always been the lumpiness of revenues and earnings, and so the idea of a replayable digital content for the core consumer could be a big positive in terms of both sales and margin. I think investors may also appreciate the fact that TTWO is eliminating some amount of costs that won't realistically generate any revenues for 2-3 years."

In the cold, corporate world, investors may appreciate the cost cutting associated with the layoffs, but Take-Two's stock likely jumped up a couple days ago for other reasons, noted Hardiman.

"I actually think the move in TTWO shares was much more about the realization (after the market closed on Friday) that well know investor David Einhorn (of Greenlight capital) has been building a position in TTWO. The reaction was essentially the opposite of what we saw when Carl Icahn's company got out of the stock, despite the fact that that announcement came with the news that TTWO had just bought back about 12 percent of the company," he explained. "Such a buyback would typically drive a stock way up, but if you remember, the stock was down about 5 percent that day. In the case of Icahn, there was clearly the hope that an activist investor like him would help put pressure on management to unleash some of the value in the stock, and there's likely now the belief that Einhorn could play that same role, which is arguably all the more important now that the company is sitting on $1B in cash."

"At the same time, investors like to follow the 'smart money', although you would think that they could figure out on their own that a company with $1B in cash relative to a market cap of about $2B, with the biggest game of all time and a nice portfolio of other franchises is extremely undervalued."