Take-Two sees opportunity in digital

NEW YORK Wed Dec 1, 2010 5:20pm EST

Take-Two Interactive's Chairman Strauss Zelnick speaks at the Reuters Global Media Summit in New York December 1, 2010. REUTERS/Mike Segar

Take-Two Interactive's Chairman Strauss Zelnick speaks at the Reuters Global Media Summit in New York December 1, 2010.

Credit: Reuters/Mike Segar

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NEW YORK (Reuters) - Take-Two Interactive Software Inc (TTWO.O) says digital and mobile games are likely to make up a substantially larger portion of its business in coming years as the game market expands into new formats and devices.

Take-Two Chairman Strauss Zelnick told Reuters Insider that although digital and mobile currently make up less than 10 percent of revenue, he estimated that could grow to 25-30 percent "over time."

"I still think in five years the packaged goods business will dominate," said Zelnick, who will add the title of chief executive officer on January 1. "It's kind of irrelevant to us -- basically the same gross margin, basically the same risk."

Earlier on Wednesday, Zelnick spoke to the Reuters Global Media Summit, where he highlighted the progress that has been made in overhauling the company, which publishes the blockbuster "Grand Theft Auto" franchise but had struggled to achieve consistent profitability.

When Zelnick took over as chairman in 2007, the company was in disarray and faced a slew of financial and legal problems. But Take-Two is now on track to achieve profitability in a year when it does not release a new "Grand Theft Auto" game, which was its main goal.

"We don't have any structural impediment to being profitable in a given year," Zelnick said, noting that this was not the case when he came on board.

Take-Two successfully fought off a hostile takeover bid from Electronic Arts Inc ERTS.O in 2008. Activist investor Carl Icahn has taken a nearly 15 percent stake in Take-Two, leading many to speculate that the company might be sold.

But Zelnick said he is focused on growing the business rather than on deals. Still, he said the video game sector in general is still ripe for consolidation.

"I have been saying for many years the business would further consolidate; not a lot of it has really happened," he said.

Zelnick said he is surprised that traditional media companies haven't shown more interest in the video game space, because "it's less volatile and less risky than their motion picture businesses."

GAMING WOES

Take-Two's shares have outperformed those of its U.S. rivals in 2010, but the volatile gaming sector has not been a favorite of investors over the past few years.

Zelnick said: "It's pointless to argue with the market."

"I think we are really seeing a correction of what was a very high-multiple sector," he said.

Although Zelnick gave no hint as to when a new "Grand Theft Auto" might be released, the company has recently scored another hit with "Red Dead Redemption," which entered the market earlier this year.

Zelnick said the company doesn't plan to release new versions of its top-selling games every year, the way Activision Blizzard Inc (ATVI.O) has successfully done with the "Call of Duty" franchise.

Zelnick said "annualizing" games threatens their quality and risks burning out consumers.

He said the company is open to renewing its game licensing agreement with Major League Baseball, but only if the economics change.

"It's a losing proposition and we don't have any interest in pursuing losing propositions."

Take-Two's shares closed up 31 cents, or 2.8 percent, to $11.37 on the Nasdaq.

(Reporting by Gabriel Madway; Editing by Gerald E. McCormick, Phil Berlowitz)