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Analysis: Take-Two Misses A Free Pass In Light Of NBA Lockout
Analysis: Take-Two Misses A Free Pass In Light Of NBA Lockout Exclusive
August 9, 2011 | By Chris Morris

August 9, 2011 | By Chris Morris
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More: Console/PC, Exclusive, Business/Marketing



[In light of an NBA lockout, Gamasutra editor-at-large Chris Morris calls Take-Two's optimistic outlook for NBA 2K12 "baffling," arguing that the publisher missed a "free pass to lower expectations in a way investors would understand."]

There was plenty of bad news in Take-Two's earnings call Monday.

The company missed expectations and managed to do so on a day where investors were already in panic mode. Duke Nukem Forever, the company said, was profitable, but the overwhelmingly negative reviews put a ceiling on that title's earnings potential. And because of that stumble from the flat-topped king of the one liner, the company was forced to cut its forecast.

But the bad news was almost overshadowed by Take-Two's baffling decision to maintain a downright optimistic outlook for this year's NBA 2K title, despite the dark clouds hovering over the real-world NBA.

The ongoing lockout hasn't shown a lot of signs of an imminent resolution with some stars reportedly on the verge of signing deals to play overseas until things are settled. That's the sort of thing most publishers would panic about, but rather than taking this free pass to lower expectations in a way investors would understand (and, more importantly, not blame the company for), Take-Two stood firm by the game.

Keep in mind that sales of this title are now going to be compared to NBA 2K11, which sold a whopping 5 million copies last year.

There's confidence and there's hubris and by refusing to acknowledge the possibility that a shortened or cancelled NBA season would negatively impact sales of a game that revolved around that sport, Take-Two took a big step in the second direction.

That said, Take-Two has always been a cocky publisher. For years, the sheer force of the Grand Theft Auto franchise was enough to deflect any criticism. But after the SEC went after the company for inflating its revenues in 2000 and 2001, the GTA shield wasn't enough.

Another example: When EA offered to buy the company in 2008, most people expected it was a fait de complete and were shocked when Take-Two dismissed it in what seemed an almost offhand fashion.

That confidence has served the company well for the most part. Its stock did, in fact, rise higher than EA's offer price. And CEO Strauss Zelnick and crew managed to erase the stink of the SEC troubles in fairly short fashion, turning the company around and even accomplishing something most people thought might never happen: Turn a profit in a year without any GTA title in the lineup.

But now, everyone in the investment community is afraid the company's self-assurance is about to backfire.

In a conversation with Reuters, Zelnick said: "Given how lifelike our games are, we think it's possible we can fill a need in the case of the lockout and offer consumers an opportunity to participate in basketball."

That's ballsy but he wasn't nearly as confident two months ago.

"I think a strike would hurt us and frankly it's a bad thing for everyone involved," he told me at E3. And on a corporate level, he added, Take-Two just wasn't certain what the impact of a strike would be.

EA, when it was facing the possibility of an NFL strike, may not have been certain either but when it came to projecting earnings to its investors, the company quickly adopted a conservative approach, noting that a lockout would lower sales of Madden 2012 by 30-45 percent.

EA had the cushion of a wide breadth of product offerings to help absorb that sort of blow (albeit in a limited fashion, given Madden's earnings power). Take-Two doesn't. The company is leading the industry movement in 'invest more in less' earmarking more dollars towards games it's convinced will be blockbusters, rather than AA games or emerging trends.

Perhaps that confidence in NBA 2K12 is driving the decision to essentially ignore the league's real-world labor troubles. Maybe Take-Two believes the season will happen, after talking with its partners. Or it could be that the company is just that sure that having classic players like Jordan, Bird, Magic, Kareem and Dr. J will be enough to drive buyers.

Maybe. But if it's wrong and the earnings take a noticeable hit - Take-Two is going to have a lot to of angry investors and analysts to answer to.


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