Take-Two CEO: "Fortnite never affected the industry"

Strauss Zelnick explains why free-to-play games won't change premium business models, and why platform revenue share splits may soon change

For the last year and a half, the question, "How is the rise of free-to-play/battle royale/Fortnite affecting you?" has been a familiar one across multiple gaming company investor calls and conferences. But ask the CEO of Take-Two, Strauss Zelnick, and his answer seems to be that it simply isn't.

During a presentation at Baird's 2019 Global Consume, Technology, & Services Conference today, Zelnick began by retreading some of the ground he already covered at another conference last month regarding free-to-play business models. When the time came for questions, he took that conversation another step further by looking specifically at Fornite's success and its impact on the industry. Or in Zelnick's view, lack of impact.

When asked if the surge of free-to-play game releases would affect the pricing of paid titles, Zelnick responded that it wouldn't, because "they're different animals." Zelnick believes that any game - free-to-play or otherwise - being successful doesn't have an impact on other games being successful, since games that are good enough to succeed in the first place are usually incredibly different. That's where he brought in Fortnite as an example.

"I think the biggest disconnect on the topic is sort of a Fortnite disconnect too. I'm occasionally asked, 'Is the Fortnite effect affecting the industry?' And the answer is, Fortnite never affected the industry. Fortnite didn't affect us in the least. We had huge hits when Fortnite was in the market, because Fortnite is different from our titles, and our titles are different than Fortnite."

"I don't believe for a minute that simply being available in one business model means something that is completely different can't be available in another business model. There is no need for any entertainment property. If there's no movie you want to see, you don't watch any movies. And if there are a number of movies you want to see, you try to find a way to watch them all. But they don't fill up a need - the need doesn't exist in absence of something you want.

"So that's why when people said, 'Is Fortnite crowding out other titles?' No, not in the least. I think some companies point at Fornite as sort of an excuse for why their titles didn't do well. But our view is, when titles are great, they do well, and when they're not as good, they don't do well...Put out something really great in entertainment, and people will show up for it."

Another question Zelnick was asked touched on the standard revenue model for gaming storefronts such as the App Store and Steam, where the developer receives 70% of the earnings from a sale and the platform receives a 30% cut. That model has recently been shaken with the Epic Games store's 88/12 split, and Steam reducing its share for games that sell enough copies.

Zelnick sees the increase in storefronts willing to challenge the model as the beginning of a larger, industry-wide change.

"In the event that there is broader distribution, one would believe that the percent a platform can take would have to go down," he said. "The platform take rates were driven by the fact that there were two platforms effectively that had the same business model and didn't change it. That's relatively easy to do in an oligopoly and exceedingly hard to do in a broad economy. While a distribution platform offers value, if there's five of them and they're all equally good, and you can decide whether to make your products available on the platform, and the platform's not viable without your product, then I think that gives you some leverage on the take rate.

"I wouldn't underwrite to it, but my opinion is that you're going to see take rates decline materially and obviously that [directly impacts] operating profit. I believe that will happen very quickly.

"Just by way of putting it in context, say you're launching a service that offers video games, and you can't come to terms with Take-Two. So that means you're going to offer a robust service that does not include Grand Theft Auto, the biggest title in the business, Red Dead Redemption, one of the biggest titles in the business, [NBA 2K], the biggest sports title in the US, WWE, Civilization, Borderlands, BioShock, and the list goes on. Good luck to you."

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Latest comments (4)

Chris Payne Managing Director & Founder, Quantum Soup Studios3 years ago
So by "Fortnite never affected the industry" he means "Fortnite never affected the bottom line for our titles, which are the biggest in the business".

I am stunned at this piercing insight.
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Jerry Liu Sales Analytics Manager, Sony PlayStation3 years ago
From the perspective of Fortnite not affecting actual sales of games like Red Dead Redemption 2, he is correct. But he is being disingenuous to suggest that some of those millions of hours and dollars spent online for Fortnite might not have been spent on RDR2 or other Take-Two digital offerings post-launch --- the same goes for every other publisher. So to borrow the immortal words of Inigo Montoya...I don't think "affecting the industry" means what Mr. Zelnick thinks it means. Because Fortnite has absolutely changed the video game world. From turbocharging the battle royale genre, to skyrocketing sales of hardware/headsets, to the ascent of Ninja to the top of the Twitch mountain top, to the creation of the Epic Store which is now aiming to take down Steam...the impact of this game has been far reaching and immense.

Edited 3 times. Last edit by Jerry Liu on 5th June 2019 11:50pm

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Edward Buffery Head of LQA (UK), Testronic3 years ago
His film analogy is also wrong on both counts when he says "If there's no movie you want to see, you don't watch any movies. And if there are a number of movies you want to see, you try to find a way to watch them all"

On the first count, I literally sit down in front of the TV sometimes and load up Netflix with the simple goal of watching... something, with no idea of what that will be in advance. I'll always reach that goal too, regardless of whether I end up watching something I was planning to watch and I enjoy it, or something random that fails to entertain me and I spend half the time looking at my phone.

On the second count, I go to the cinema once every 2 to 4 months. Whether there's 1 film showing that I want to watch or 5 has very little effect on how long it will be till my next cinema trip. I may be odd, but I'm sure I'm far from the only one who fails to fit how he thinks people consume entertainment.
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James Berg Games User Researcher 3 years ago
To add to previous comments, I'd point to the prevalence of Battle Pass models across our industry as well, which is a direct result of Fortnite's success there.
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