People of the Year 2017: Strauss Zelnick

Take-Two's chairman set the company up for a banner year with no major new releases beyond its annualized sports titles

It's a little odd recognizing publishing executives for year-end awards. In some ways, it's like doling out a "GM of the year" in a pro sports league. While you're likely honoring a GM for putting together a squad that enjoyed a strong season, the actual GM work that produced that season was often handled years earlier, in the contracts that were signed, the scouting done, the coaching team assembled, the trades made.

It's one reason we discussed honoring the late Satoru Iwata as one of our People of the Year for 2017, as the beloved Nintendo head assembled the pieces that enabled the company's dramatic turnaround this year. But if we're talking about honoring the gaming executive that best encapsulated what success in the games industry of 2017 looks like, we could think of no better candidate than Take-Two Interactive's Strauss Zelnick.

Coming into 2017, Zelnick and Take-Two were expected to thrive, largely based on the planned fall release of the eagerly anticipated Red Dead Redemption 2. But in May, expectations changed when Take-Two announced that Red Dead Redemption would not be making its release date after all, having been pushed to spring 2018. Even worse, that left Take-Two with a massive hole in its release schedule. The company wasn't even two months into its fiscal year, and the only major releases it had planned for the next 10 months were a pair of annualized sports titles: NBA 2K18 and WWE 2K18. (It would eventually add multiplatform ports of 2011's LA Noire to the slate.)

Zelnick has positioned Take-Two to succeed even if his own expectations of the market prove wrong

A decade or so ago, this would have been emblematic of Take-Two's biggest difficulties. The company's biggest titles were habitually delayed, and any year without a Grand Theft Auto would produce disappointing results. But this is 2017. The industry doesn't work the same way as it used to, and thanks to Zelnick, neither does Take-Two (with the unfortunate exception of those delays).

Where some publishers boldly predict a future and then bet heavily on it coming true, Zelnick has been content to prepare the company for whichever way the market shifts, positioning it to succeed even if his own predictions and expectations are off base. For example, Zelnick has been openly skeptical of VR, but the company has made sure to dabble in it enough to not be caught completely flat-footed if it starts to take off. His approach to the industry has been more agnostic than dogmatic.

One downside of this approach is that we rarely see Take-Two with an early mover advantage. It was not at the Switch launch, happy to wait for September to release its first game, a port of NBA 2K18. It waited until months after the system launched and was clearly more than a passing fad to confirm its next two projects, ports of WWE 2K18 and 2011's LA Noire.

Take-Two also played it safe with mobile, investing cautiously for years as it tried to find the right approach before finally going big with this year's acquisition of Social Point for $250 million. (Early returns on that acquisition are promising; Social Point's Dragon City and Monster Legends were Take-Two's biggest contributors to net bookings last quarter after the GTA and NBA 2K series.) The company's even investing in indies now, where it will be a relatively big fish arriving fashionably late to a small but potentially lucrative pond.

However, the upside of Zelnick's approach is that it has left the company fairly adaptive to changes in its core business. The biggest stories in the AAA space this year have been the accelerating shift to digital games and away from physical boxed sales, the way games-as-a-service has changed the long tail into the potentially infinite tail, and the advent of recurrent consumer spending schemes. Take-Two was ready for those shifts if and when they happened, but it wasn't counting on them. And while publishers across the industry are seeing the impact of these overlapping trends, none can be said to embody them more in 2017 than Take-Two.

For the company's last fiscal year (12 months ended March 31), 48 per cent of its revenues came from the physical channel. Its most recent numbers show that for the first half of this fiscal year, physical only accounts for 34 per cent of its revenues. That may be somewhat expected given the light release slate, but when you consider the company has forecast its revenues this year to be roughly the same (down 2% to up 3%) and its net bookings to be up between 7 per cent and 13 per cent, the company's digital growth is clearly offsetting not just the decline of the physical market, but the lack of major new releases like the previous fiscal year's Mafia III, Civilization VI, Battleborn, and console versions of XCOM 2.

Take-Two has merged recurrent consumer spending and traditional AAA as well as anyone with Grand Theft Auto Online

As for what drove that digital growth, some of it was an increasing preference for more consumers to download their games rather than buy physical copies. However, another large chunk of it was recurrent consumer spending schemes that essentially uncap the maximum amount of money any given user can spend on a game. As anyone who has followed the EA Star Wars Battlefront II saga knows, recurrent consumer spending models were all the rage in 2017 - sometimes with an emphasis on the "rage."

Take-Two has merged the model into the traditional AAA business as well as anyone with the continued success of Grand Theft Auto Online. Grand Theft Auto Online has been running for four years now, and just enjoyed its best quarter ever. The game it comes with, Grand Theft Auto V, has now shipped 85 million units, laying claim to the title of "all-time best-selling video game in the US," and probably plenty of other markets as well. Take-Two may never again have to worry about being profitable in a non-GTA year, because non-GTA years may cease to exist.

Here too, Take-Two is as much a reflection of the industry trend as a whole as it is a success story. And that means the company had to deal with a vocal contingent of its audience upset over its monetization methods. In this case, the game was NBA 2K18, which adopted a more aggressive approach to its virtual currency sales than in past years, opting to weave it into the career mode instead of keeping it confined to its own separate section of the game like EA Sports does with the well-received Ultimate Team modes.

That said, even Take-Two's missteps seem to be working in its favor. Upset players aside, NBA 2K18 shipped six million copies in its launch quarter (up 20 per cent year-over-year), saw virtual currency sales skyrocket 57 per cent, and has Take-Two expecting it to be its best-performing sports game ever.

It remains to be seen whether Take-Two can continue to manage the shift to digital as adeptly as it has thus far, but Zelnick seems to have the publisher well positioned for the future, however it may turn out.

"We believe that if we focus on creating the highest-quality entertainment experiences and deliver new and innovative ways that captivate and engage our audiences, success will follow," Zelnick told after being informed of his People of the Year nod. "We're immensely proud of our development teams' passion, creative vision and ability to connect deeply with their fans."

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