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Four keys to next-gen success, according to Take-Two's Zelnick

Four keys to next-gen success, according to Take-Two's Zelnick Exclusive

June 15, 2012 | By Chris Morris

While Nintendo fell short of its goal of whipping gamers into a frenzy for the Wii U at this year's E3, third-party publishers, who see the system as a key driver of future growth, were reticent to downplay its potential. Instead, they cited the system's long-term potential, rather than its initial impact.

Take-Two Interactive Software chairman and CEO Strauss Zelnick, however, was not among the cheerleaders.

While Take-Two will make sports and family titles for the Wii U, its bigger core franchises have been notably absent from the list of partners. And that seems unlikely to change anytime soon.

"We haven't announced anything," says Zelnick on the possibility of moving the company's mature titles onto the Wii U. "I'm skeptical."

Don't mistake that skepticism for a pessimistic attitude about the next generation of consoles, though. If anything, Zelnick is eager to kick off the next line of game systems, because he sees it as a chance for Take-Two to continue to advance its position in the industry.

"For a company like ours, it's a great opportunity," he says. "[New console launches] separate the winners from the losers -- and we fully expect to be one of the winners."

There are four keys to success in a new console cycle, Zelnick believes -- owned intellectual property, top-tier technology, top-tier development talent and a strong balance sheet.

Take-Two, he says, has all four. And that could help it overcome the launch cycle hurdles that many publishers struggle with.

"I don't want to minimize the challenge of creating titles for new technology or the economic challenges of doing that, but if you get it right, it's a terrific time to launch a new IP," he says.

While more and more companies are rolling out new versions of their biggest hits each year to ensure a steady (and, ideally, reliable) stream of income, don't expect Take-Two to follow that model anytime soon.

There's a risk in overexposing your key franchises, says Zelnick. And while doing so might give a company a tremendous short- (and even mid-) term cash boost, the practice can ultimately leave money on the table.

"I don't aim to annualize our non-sports titles because I think you run the risk of burning out the consumer -- even if its very high quality [product]," he says. "Some of our competitors have had this trajectory where they extract a lot of value and the IP goes away. We're trying really hard to build permanent IP. And if you have to rest the title for a few years, over time you'll extract more value. ... We're not trying to create something good and market the hell out of it. We're trying to delight customers with something great -- and market hell out of it."

That's a strategy that initially baffled some shareholders and analysts, but one that has helped the company rebuild from the chaos it was in five years ago (even if the stock, which has fallen roughly 50 percent in that time) doesn't reflect that. Zelnick concedes there's still work to be done -- which is part of the reason he's eager to see the next generation begin.

"We haven't optimized our system – our slippage last year tells you we haven't - but we've made a lot of progress," he says. "When I showed up here five years ago, THQ's market capitalization was four times that of Take-Two. Ubi's was twice Take-Two. EA's was 25 time Take-Two's. To say the very least, that's not remotely the way the world works today. Would I like to apply a little more rigor to our art? Of course I would! Look at me, I'm a suit! But I have an excitement for what our team can do."

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