Take-Two failing to make profits in non-GTA years

Rockstar's newest game, Red Dead Redemption, is unlikely to be profitable for publisher Take-Two, due to its protracted development and the high marketing budget ear-marked for its release.

The game was delayed yesterday by three weeks, pushing it out of the publisher's second quarter and into the third, and highlights the company's inability to be profitable during years when it does not release a console instalment in its market-leading Grand Theft Auto franchise.

"Red Dead Redemption was delayed into Q3, which ironically we believe actually helps Q2 earnings as it is unlikely to be a profitable title given the over 3-4 years of development costs and very heavy marketing spending," wrote Todd Greenwald, of Signal Hill Capital Group, in a note to investors.

Despite a line-up of heavyweight releases, the publisher still expects a first-half loss of around $0.44 per share, something that is off-putting for the investment community.

"While Take-Two's remaining line-up is chock full of highly anticipated, AAA titles, we remain concerned about the profitability of these titles," noted Greenwald. "Take-Two is still significantly unprofitable, even in a six month period which includes blockbuster releases like Red Dead Redemption, Mafia 2, Max Payne 3, LA Noire, Civilization V, and NBA 2K11."

There are signs the company is not a one-hit publisher, said Michael Pachter of Wedbush Morgan, but the business needs to turn around franchise hits quicker rather than let them remain in development for five years or more.

"Strong results for NBA 2K10 and Borderlands reinforces our belief that Take-Two is not a one-hit wonder dependent solely on GTA," he said. "The company has at least eight bona fide franchises, and that it has demonstrated a superior ability to develop hits when others perhaps don’t fully recognize a game’s potential."

"The average Take-Two game takes far longer than the industry average of two years in development, and the company must amortize an additional year or more of development cost for each of its major franchises. The continuing delays of Max Payne 3 (six years in development) and Mafia 2 (also six years) suggests to us that these games cannot be profitable, and until the company can streamline its average development time, leads us to the conclusion that it cannot deliver sustainable profits."

As well as the delay to Red Dead Redemption, the company also said that it is likely to delay another of its big releases this year. "If the company were able to compress the development cycles for its triple-A titles in financial year 2010, we believe that its development costs during the fiscal year could have been at least $60 million lower," added Pachter.

First quarter losses at Take-Two were revealed to be $33.8 million yesterday, an improvement over the $53.8 million for the same period last year.

BioShock 2, a sequel that has been released relatively quickly compared to other Take-Two titles, has now shipped over three million units.