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00:00As the gaming world zeroes in on what could be the biggest launch the industry has ever seen.
00:05Pre-orders for Grand Theft Auto 6 have been open for almost 24 hours now,
00:09setting off a global rush for a title that's been more than a decade in the making.
00:13It's already testing how much more gamers are willing to pay.
00:17With an $80 base price, a push towards digital-only distribution,
00:21and expectations of billions in sales,
00:24Grand Theft Auto 6 is not just a game launch.
00:27It could redefine pricing power, monetization, and the economics of blockbuster gaming.
00:32Some even see it as an early test of consumer sentiment.
00:35Shares of Take-Two Entertainment have rallied since the pre-orders were announced.
00:40Joining us now is Joost van Drunen,
00:42who teaches about the video game industry at the NYU Stern School of Business.
00:47He is also the author of the book,
00:49One Up Creativity Competition and the Global Business of Video Games.
00:53Professor, thanks so much for joining us today.
00:55And I just wonder if we could start by having you set the scene for us.
00:59I don't think it's underselling it to call this a cultural event.
01:02Grand Theft Auto 5, 12 years ago, sold a billion dollars worth in three days.
01:08I mean, that's bigger than any movie, book, or any other cultural release ever.
01:12What are your expectations for Grand Theft Auto 6?
01:17My expectations are even bigger.
01:19You get the sentiment, but so often our attention goes towards tech industries and their ability to scale and excite
01:26consumers.
01:26But games and culture tend to be those key moments in any of these companies' histories where they define the
01:34next generation.
01:35And so Grand Theft Auto 5 was a blowout success by many standards.
01:40And the expectation is that Take-Two will be able to repeat and excel that earlier example.
01:46Early sales indicators give you forecasts of around 38 million copies in the first 12 months,
01:53somewhere between three and 3.2 billion dollars for the company in total revenues.
01:57You know, it's hard to overestimate it.
02:00The question is not whether it's going to be a big cultural moment.
02:03It is whether or not it's been priced into the stock already.
02:07Yeah.
02:08And, Professor, I was there 12 years ago when Grand Theft Auto 5 came out,
02:12and I filed a story, some of which we'll show you on Bloomberg.
02:16Yeah, it was amazing.
02:16And you had to buy a physical copy back then and still queue up to buy the thing.
02:20Now, this edition has been delayed for some years.
02:25Can you give us a sense of just how much time, how much money has been invested in bringing this
02:31to market
02:31and how important it is for Take-Two Interactive?
02:36That's an excellent question.
02:37And I'm happy to hear that you were part of the team back then.
02:40It's a, you know, 12, 13-year development cycle.
02:43These companies, they tend to start immediately after launch on the next thing.
02:47It's part of how they de-risk the financial model that comes with this.
02:52You have to imagine, you know, employing thousands of people for that long of a period.
02:57You're talking about a billion dollars easily.
02:59It's probably closer to a billion and a half, two billion dollars total in what they sank into development and
03:05marketing.
03:05And so the risk profile is substantial.
03:08However, the upside is enormous, right?
03:10Like you already pointed out, within three days, they sold a billion dollars last time around.
03:15That's probably going to be a repeat this time around.
03:17And it's an immense moment for Take-Two Interactive.
03:21What's different, of course, is that back then, everything was very much physical.
03:26It was very much a product-based business where you would sell a single copy to a consumer.
03:29Since then, we've moved into digital distribution and particularly microtransactions
03:33and what Take-Two likes to call recurrent revenue from its consumer base.
03:38That has been an enormous, accretive source of income to their revenue model.
03:43And so out of the five billion that they currently make annually, they're going to add another three billion on
03:48top of that.
03:49And so in many ways, it's not just a continuation of the success of a franchise,
03:53but it's also an evolution of how they do business with their consumer base.
03:59Yeah, and it was interesting to see that transition because the long gap that was that period that online gaming
04:05became extremely popular
04:06and then Grand Theft Auto V just keep making more and more money in the interim.
04:11Is that something you anticipate we'll see with Grand Theft Auto VI to the degree that we might never see
04:17a Grand Theft Auto VII?
04:20That's an excellent question.
04:22So for me, the difference between Take-Two Interactive and, say, Electronic Arts or Roblox or any of those kind
04:29of companies
04:30is that what Take-Two is launching is not a new software title.
04:34What they're launching is effectively an operating system.
04:37Part of the financial success that we've seen over the last decade coming from this franchise alone
04:41has everything to do with being able to cater to and cultivate an online community,
04:45keeping people engaged when you look at live streaming channels on Twitch and on YouTube consistently for a decade now.
04:52Grand Theft Auto, the franchise, has been the number two on all of these channels.
04:56And so the audience engagement is something of a whole other level.
05:00We're talking Taylor Swift, Beyonce type of category here, meaning that you have deep loyalty
05:05and you're selling in against that audience.
05:07So the real challenge is can we transition those people from GTA V to GTA VI?
05:13Can we invite them over?
05:14And the way that they're doing that, of course, is by removing all of the obstacles.
05:18An $80 price tag for the base game, I think, is a very aggressive but earned starting point.
05:25And from there on out, you can see, of course, the door open up to other additional things
05:30where unlocks occur really at a premium edition of $100.
05:33And my guess is that very soon we'll hear of like a $200 and $250 version that's a collector's edition.
05:40And so they're transitioning their audience not just from title to title,
05:43but from one digital social online environment into the next one.
05:48And with all the accoutrements that you would expect to go with that.
05:53Yeah, you mentioned the price, which has caused a little bit of concern.
05:56But, you know, the true believers are probably going to pay anyway.
05:58But there's also no physical disc, which has made collectors unhappy.
06:01Those who wish to sell their games as well secondhand are not particularly happy too.
06:06What do you make of these sorts of developments in the video game industry
06:10and what it means for loyalty from customers
06:13and for the reputation of the companies putting these products out?
06:18It's a bit of a boondoggle.
06:21You have to imagine that people, of course, love it so much
06:23that they want to have something tangible.
06:25In the same category that you see music fans collect vinyl,
06:28you see movie buffs have the DVDs all lined up nicely.
06:32Gamers are very much the same in that they have an affinity for collecting things.
06:37For that exact reason, I think the base game is going to be digital.
06:41And that's the mainstream one for the people that just want to play.
06:44They want to be part of the cultural moment.
06:46But the diehards, they get an opportunity to get the special collector's edition.
06:50They're going to have like little statues and swag and keychains and what have you.
06:54It's not dissimilar from what you see in things like Pokemon
06:57or, you know, Nintendo franchises overall with Mario,
07:00where the upsell isn't only in more game content.
07:04It's also in a broader experience.
07:07I expect that Take-Two Interactive is going to be leaning into that very heavily.
07:11They have a rich history of coming up with really creative ways to sell their games
07:15and market their games and kind of keep people in the loop.
07:18And so for that reason, of course, there's going to be some hemming and hawing early on
07:22because it's an aggressive price point and also it's only digital.
07:25But if you look at the numbers, 80 to 85 percent of Take-Two's revenue comes from digital channels,
07:32as is the case for every other publisher nowadays.
07:36So digital is regarded as some skepticism by consumers, but they all get into the pool anyway.
07:43So I think it's really about the upsell and enriching the experience for the audience.
07:48There's evidence that other developers have been avoiding releasing games during this period
07:52because of the imminent arrival of GTA 6.
07:55What evidence have you seen of that?
07:57And how long do you see this game just sucking the oxygen out of the broader ecosystem?
08:03Yeah, it's a real problem for publishers.
08:06So last year we have had a few delays on GTA 6.
08:10And as a result, you see Electronic Arts in a season ago do very well with Battlefield 6.
08:16Of course, it's a great game.
08:18But also, very clearly, that was in the absence of GTA 6.
08:22They were able to kind of claim the market for themselves.
08:24Nobody should, in their right mind, go against one of the largest releases in a franchise history,
08:31you know, only to know that they're going to lose out, right?
08:34This is very much a blockbuster-driven market.
08:36Winner takes most.
08:37You win or you die in gaming.
08:39And so to go up against Strauss Zalnyk and GTA 6, you'd be stupid to do that.
08:44And so you want to kind of give them the runway, give them the road, see how audiences react.
08:50Chances are that there is still going to be some gravitational pull from sort of the Fortnites and the Roblox
08:56-type games out there.
08:58Because live services games, they tend to have deep loyalty and people play those games as part of a routine
09:03of daily life.
09:04Often, around AAA launches, you'll see sort of a two-week absence.
09:08You see a drop in usage.
09:10And then very quickly, people move back once they've cleared the first-person campaign.
09:15In this case, GTA 6 launches with the first-person campaign.
09:18So for that reason, I think we're going to see two, three weeks of absenteeism around everywhere else.
09:23You know, there's going to be a quiet market in marketing.
09:25There's going to be fewer people in the service everywhere else.
09:28And then slowly, they'll get back to what they were playing beforehand.
09:31But, you know, it is really up to take two.
09:34They have the initiative right now.
09:38Yeah, and to your point, I mentioned during my story 12 years ago that if you recognized anybody in the
09:42footage,
09:43you should take a good look because you won't be seeing them for a while.
09:45But more broadly, what is this game release going to tell us about consumer sentiment, if anything?
09:51Or is this game just sort of a one-off where people just find the money to buy it and
09:55upgrade their console?
09:59It's really a question of, if you're not playing GTA 6, are you really a gamer?
10:05It's sort of the big launch.
10:07Most people will identify very much through this.
10:10In the same way that music and film can sort of define a generation,
10:13GTA is a franchise that's defined a generation of gamers.
10:17So I suspect that that's going to be a big deal here.
10:21What will change for the industry overall is that the premium titles can now start charging $80 a pop.
10:27EA does this already.
10:28Nintendo does this too with Mario Kart World.
10:31All of these are high-end, top-shelf games.
10:34Everybody else is going to have to hold short and be a little bit more modest in their pricing.
10:38But it speaks to really finding new ways to price consumers or offer a pricing scheme to consumers that suits
10:46them.
10:47After a period of consolidation where we look for economies of scale and really reaching out to the large-scale
10:52audiences and make games mainstream,
10:55more and more in recent years do we push into a luxury category where top-shelf titles just command a
11:01higher price.
11:02And it really forces the question for everybody else in this space.
11:06Does Ubisoft have the potential to also charge $80 for its titles?
11:10I don't think so.
11:11I don't think that they're quite there yet.
11:13And so you have to then decide where you're going to be next as a publisher.
11:17Consumers will do the deciding for you if you don't.
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