Take-Two braced for new economic storm
As publisher stocks fall, CEO Zelnick puts faith in barbell strategy to avoid repeat of 2008 financial crisis
With signs pointing to a new economic downturn, Grand Theft Auto publisher Take-Two has said that it has refined its business following the 2008 market collapse and is better prepared for more years of financial disruption.
CEO Strauss Zelnick admitted that the entertainment business is not recession proof, and acknowledged that the disruptions of a few years ago is not something he wants the games industry to suffer through again.
"The entertainment industry is not counter-cyclical despite what people say," he said in a call to investors last night. "After the '08 financial crisis we suffered, our competitors suffered, our numbers suffered and we don't wish it on anyone."
Zelnick said the company will stick to a barbell strategy of long and short-term product investment - blockbusters and catalogue titles - with no room for products that sit in the middle.
After the '08 financial crisis we suffered, our competitors suffered, our numbers suffered and we don't wish it on anyone
Strauss Zelnick, Take-Two
"Years ago we talked about the barbell effect in our business as the economy got tighter and we designed out strategy accordingly. There's always room for blockbusters and there's always room for budget titles.
"What gets lost is an expensive title that doesn’t distinguish itself and we try really hard not to make products like that. Quality withstands the test of even a difficult time. Obviously we're not unmindful of the economy as we make those projections. While none of use wants to go into a storm, if we have to weather one we'd like to take it from this seat," he said.
US and European markets are falling dramatically as traders lose confidence following the downgrading of US debt and troubles in the Eurozone. The FTSE 100 in London was down almost 10 per cent last week and the Dow Jones in New York almost 6 per cent.
Stocks for games publishers have been affected, with falls for Electronic Arts overnight of 9.25 per cent and Activision Blizzard 4.64 per cent. Take-Two shares were down 8.81 per cent on the same day it revealed first quarter losses of $8.7 million - during the period it released hit console game L.A. Noire.
However, Zelnick believes his company's strategy can ride out coming troubles, and that consumers will still choose quality product, albeit with less spare cash to spend on unproven games.
"I think our strategy is meant for good times and bad, that's how we designed it. We put out a limited number of what we hope will be the highest quality releases.
"What that means is we're not asking consumers to show up every day or every week. We're saying 'come out a few times a year when we give you a real reason to turn up', and they do.
"When times are tough people still do consume entertainment they just tend to be more selective. It's the titles in the middle that tend to get hurt, it's the B+ titles that are still expensive."