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Title may drive Take-Two bid higher

The publisher's 'Grand Theft Auto IV,' due out Tuesday, could prompt a sweeter offer from EA.

April 28, 2008|Alex Pham | Times Staff Writer
  • A scene from "Grand Theft Auto IV." The game will be the latest entry in the 11-year-old video game franchise that has sold more than 65 million copies worldwide and made Take-Two Interactive an attractive target for suitor  Electronic Arts.
A scene from "Grand Theft Auto IV." The game will be the latest… (Rockstar Games )

It's the video game that launched a $2-billion takeover war.

"Grand Theft Auto IV" is expected to have one of the biggest debuts in entertainment history when it hits stores Tuesday. Analysts predict it will ring up more than $400 million at retail shops in the first week, topping "Halo 3," which last fall smashed the previous record with $300 million in sales.

The "Grand Theft Auto" franchise, which lets players engage in a host of criminal activities, has stirred up controversy with its sexually explicit and violent fare. This time, it's also generating corporate drama. With its eyes on the blockbuster game, Electronic Arts Inc. has offered $2 billion for Take-Two Interactive Software Inc., the game's New York-based publisher.

Take-Two has told its suitor it's not willing to consider a deal, at least not until after Tuesday. Company executives believe that the game's launch will give its stock a turbo boost and force EA to sweeten its offer.

The 11-year-old franchise has sold more than 65 million copies worldwide. Each installment has outsold the last, and the latest entry is widely expected to top "Grand Theft Auto: San Andreas," which has sold more than 14 million copies since its launch in 2004.

Some analysts expect "Grand Theft Auto IV," which will retail for $60, to ultimately sell 18 million copies and ring up nearly $1 billion in sales. Analysts say about 80% of that would go back to Take-Two as gross revenue, and retailers would get the other 20%.

So to a potential buyer, the franchise would be worth "in the neighborhood of $700 million to $800 million," said John Taylor, managing director of Arcadia Investments, which owns shares of Take-Two and Redwood City, Calif.-based EA. That's roughly 70% to 80% of Take-Two's market capitalization, when its stock traded at $13 to $17 a share in the months before EA's February offer of $26 a share.

EA's overall bid remains at $2 billion, but it lowered its per-share offer to $25.74 to account for 2 million additional shares recently issued by Take-Two for executive compensation.

Take-Two's shares gained 6 cents to $26.20 on Friday.

"Historically, people have felt that this game has a lot to do with the company's valuation," Take-Two Chairman Strauss Zelnick said. "But as we develop more hits like 'BioShock' and 'Civilization,' we've become a much more diverse company. That said, 'GTA' is the 1,000-pound gorilla."

To its fans, 'GTA' represents a singular experience. Created by Rockstar Games, now owned by Take-Two, the games generally revolve around a gangster plot. The first two versions sold well, but the third, 2001's "Grand Theft Auto III," raced off the charts. It lets players roam around a gritty urban environment, steal cars and run errands for various unsavory mob bosses while being chased by the police.

Competitors tried to mimic its success, including EA, which released "The Godfather" in 2006. But none took off.

" 'GTA' speaks to a certain audience in a way that no other game does," said Geoff Keighley, editor of Gameslice, a website that covers the game industry. "They're movie buffs. They're music buffs. But they're not necessarily game buffs. I had friends who would go out and buy a console just to play this game, even though they wouldn't play any other game."

Many "GTA" games could be played only on Sony Corp.'s PlayStation 2, at least when the games first came out, which many analysts said helped cement the console's success. Next week, however, the game will debut simultaneously on PlayStation 3 and Microsoft Corp.'s Xbox 360.

Early reviews of the game are glowing.

"As a fan, my expectations were exceeded," said Ricardo Torres, editor of GameSpot, a game review site. "It's what 'GTA' was always meant to be, but couldn't be because of the technical limitations of the previous consoles. With the current hardware, they have a canvas that lets them paint whatever they want. The city, which used to be just a background for the game, has so much detail that it feels alive. The level of immersion is crazy."

Torres cites details such as the players' ability to call up characters in the game on a cellphone and arrange to go have a drink with them.

"It's one of those things that makes the game fun to play and fun to watch," he said. "It's like 'The Godfather' or 'The Sopranos.' "

The industry is hoping this entry helps boost its fortunes by giving reluctant consumers a reason to buy a console during the holidays. That would help other publishers too.

"A lot of people expect this game to kick off the industry's sales in earnest," Taylor said.

Still, acquiring Take-Two carries risks for EA, the No. 1 game publisher. Although the series shows no signs of flagging, fans could grow tired of future versions. Also, the brains behind the "GTA" franchise, lead developers Sam and Dan Houser, could move on when their employment contract with Take-Two ends in February 2009.

In addition, the games have attracted controversy. In 2005, players uncovered a secret mini-game within "Grand Theft Auto: San Andreas" that lets players act out sex scenes with their virtual girlfriends. The game's developers had tried to make the scene inaccessible by locking the code for the mini-game, but players were able to get in with a code that circulated on the Web.

The discovery led stores to pull the game from their shelves and drew harsh criticism from lawmakers, including Sen. Hillary Rodham Clinton (D-N.Y.).

"Grand Theft Auto IV" also is proving controversial. The developer cut parts of the game to be able to sell it in Australia, but declined to say what those scenes depicted. In Chicago, the city's transit authority announced last week that it would take down ads for the game on its buses and trains.

"It wouldn't be 'Grand Theft Auto' if it didn't push the envelope," Keighley said.


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