Take-Two Interactive teased a new game during its earnings call today, saying that it would launch an unnamed game under the 2K label in the fiscal year that ends March 31, 2019.
The game publisher said that results for that fiscal year would get a boost from Rockstar Games’ Red Dead Redemption 2 and “a highly anticipated new title from one of 2K’s biggest franchises.”
That set off a lot of speculation on the Internet, with fans hoping for follow-up titles in the XCOM and Borderlands franchises. But the publisher didn’t give any indication of what the new title would be. Karl Slatoff, president of Take-Two Interactive, said in the earnings call that Take-Two would not show any brand new games on the show floor at the Electronic Entertainment Expo (E3) in June.
The last game in the XCOM series was XCOM 2, which debuted on the PC in February 2016 and on the consoles in September 2016. Borderlands saw its last release in 2014 with Borderlands: The Pre-Sequel. Gearbox Software’s Randy Pitchford also showed technology for a new game in March at the Game Developers Conference, and the art clearly looked like a Borderlands game.
Other 2K properties include Mafia, Civilization, BioShock, NBA 2K, WWE 2K, and The Darkness.
Take-Two Interactive’s stock price took a short dip in May after its Rockstar Games label delayed its much-awaited Western video game Red Dead Redemption 2 until the spring of 2018. But it bounced back as the company reassured investors that it could still have a pretty good year.
That’s because revenues are still pouring in from Grand Theft Auto Online, which was launched in 2013. And Grand Theft Auto V also launched that year and continues to sell as well, with more than 80 million units sold to date. On top of that, the company will make money from expansion packs launched for Mafia III and XCOM 2 this year.
Take-Two has come a long way from the days when it was entirely dependent on the release of a new GTA title to make its numbers in a particular year. And the company is asking both investors and fans to be patient for what could be a very big 2018.
Overall, Take-Two is a more valuable company today ($7.6 billion market capitalization) because it is the owner of some of the most valuable intellectual properties in the world. It has also diversified with the $250 million acquisition of mobile game maker Social Point, and it has launched a new esports effort with NBA 2K.
I spoke with Strauss Zelnick, chairman and CEO of Take-Two Interactive, and David Ismailer, the newly appointed president of the company’s 2K label, which publishes games such as Borderlands, XCOM, Civilization, and NBA 2K.
Here’s an edited transcript of our conversation.
Above: David Ismailer (left), president of 2K, and Strauss Zelnick, CEO of Take-Two Interactive.
Image Credit: Dean Takahashi
GamesBeat: What’s interesting to you right now?
David Ismailer: We’ve been talking a lot about the NBA and our efforts in esports today.
Strauss Zelnick: We announced a joint venture with the NBA to launch the first professional gaming league based on a real sport. We’ll have a season in 2018. 17 teams will be participating, drafting professional players and populating five-person teams.
GamesBeat: Was this a gradual approach to esports that you’ve had? You seemed to pick your time carefully.
Zelnick: We did two tournaments to see how it would play. It played really well. Then we thought, “Wow, if there was an opportunity to do this with the NBA, that would be great.” But I would say we’ve taken our time. It’s been two years.
GamesBeat: And then the NBA teams have been investing in esports teams, meanwhile.
Zelnick: Some of them, yeah. Some of them have bought into Overwatch, for example, or League of Legends.
GamesBeat: It seems like that’s starting to get more real, these edges of the business.
Zelnick: What’s real in terms of real live revenue so far is League of Legends, and to a lesser extent Overwatch. What’s real for sure is viewing, though. 250 million people watch esports. 125 million watch avidly. When we had the finals of our second tournament, the viewing was huge. Anecdotally, there are a lot of people who are excited about watching esports. It’s more than a dream. There’s a real market. But it’s still nascent.
GamesBeat: How do you look at some of these frontiers and how they’re progressing? Esports is one. VR is another.
Zelnick: VR is not a market, currently. Mobile is a huge market, a $45 billion market. We acquired Socialpoint recently and two hit games in the marketplace, Dragon City and Monster Legends. They’re working on additional releases, so we feel good about our exposure. We also have exposure to mobile titles at 2K, with WWE Super Card and the NBA2K app. Mobile is an important part of our business. What we call recurrent consumer spending at our company – all forms of digitally delivered content except for full console game downloads – that’s rapidly growing. It was nearly a third of our net bookings last year.
Above: GTA V is still making money for Take-Two.
Image Credit: Take-Two Interactive
GamesBeat: You’ve grown a lot over the last decade. I remember years ago you were the Grand Theft Auto company.
Zelnick: That’s exactly right. Look, Grand Theft Auto is still terribly important to this company. As we’ve grown and become successful in other areas, Grand Theft Auto has grown too. Grand Theft Auto V has sold 80 million units. Grand Theft Auto Online had another record year. Grand Theft Auto is an important part of our company, but we’re fortunate that we have other hit franchises as well. Certainly not as big or as powerful, though.
Above: Grand Theft Auto Online.
Image Credit: Rockstar Games
GamesBeat: Grand Theft Auto Online seems like it’s become a pleasant surprise to everyone, including you.
Zelnick: We weren’t surprised that the quality was great, because we knew what Rockstar was doing, what they’re known for. Naturally we’re surprised we had another record year, because we said we expected the results to moderate.
GamesBeat: And Red Dead is waiting in the wings. You still seem to have the focus on quality that prompts decisions like delaying that release.
Zelnick: On quality, I would say everyone’s focus sharpens all the time.
GamesBeat: How do you look at the whole industry and select your strategy? I have this theory that, in some ways, some of the big companies have evolving strategies. It’s taking a long time, but — if I look at Bethesda and Fallout Shelter, the opportunity they had, they had their core guys make a mobile game that was very well-designed. That represented an opportunity, but they didn’t fully exploit it. They nailed the mechanics of that game, but they ran out of content. If they had the content, it might have become a Clash Royale, a billion-dollar game that funds everything else they want to do. They’d never have to worry about delaying a triple-A game, thanks to that mobile revenue. It seems like that’s an opportunity that somebody could push for.
Zelnick: It’s very, very hard to have console developers create a mobile title, though. We tried it. We made Civilization for mobile – or for Facebook, actually – and it was fantastic, but it didn’t speak to what people do on Facebook. We made stand-alone mobile titles before we bought Socialpoint and they didn’t succeed. We have had success with WWE and NBA. We’re getting better at this. But Cat Daddy is the studio in our shop that does this. They’re not a console developer. They’re a mobile developer.
GamesBeat: Triple-A talent is all concentrated in a certain area, do you think?
Zelnick: I just think it’s a different business.
Above: Grand Theft Auto Online has a new Kill Quota adversary mode.
Image Credit: Rockstar Games
GamesBeat: I look at companies in Hollywood. They seem to see things stalling there a little, but they’re still in love with making movies. The audience is slowing down for movies and TV, so they’re moving into games. I wonder if console game companies might ever have similar thinking.
Zelnick: We don’t really think that way. We’re not looking for financing. We’re looking to delight consumers. If we can’t do something well we don’t want to do it. We just don’t look at the world through that lens. We’re an entertainment company. We want to be the most creative, innovative, and efficient company in the business. We want to delight consumers in everything we do. We want to create the highest quality.
We got involved with Socialpoint because they make their own intellectual property, because they pride themselves on quality, and because there’s a market opportunity. We’re not doing science projects. There has to be a market opportunity. But we’re not looking for a cash cow to finance something else. It would be nice to have a cash cow, but it would come out of doing great work.
We have a strategy. Our strategy, again, is being the highest quality company, the most innovative company, the most efficient company in our space, and delighting consumers. That’s our strategy, and arguably the expression of our tactics as well.
GamesBeat: You guys have some of the most valuable properties in the industry, but you don’t have the highest valuation as a company.
Zelnick: We don’t have the highest sales or operating income. If you think about where the company was 10 years ago, we’ve made a lot of progress. None of our two bigger competitors were in that position 10 years ago. We’re playing catch-up. I’m proud of the position we’re in. We have a market cap of $7.5 billion or so today, compared to $700 million 10 years ago.
We have a lot of wood to chop, a lot of opportunity. We won’t just be judged on the quality of our games and how much we delight consumers. We’ll also be judged on our bottom line, appropriately.
Above: XCOM 2: War of the Chosen
Image Credit: Firaxis Games/2k
GamesBeat: Do you approach 2K in a different way?
Zelnick: I hope not. It would be a problem if you were.
Ismailer: No.
Zelnick: Oddly, we have the same strategy.
GamesBeat: What do you want to accomplish with 2K?
Ismailer: Speaking to 2K’s strategy, we have six focus areas, six growth areas. We have the NBA and WWE businesses. We have the strategy business the Firaxis anchors. We have the triple-A titles that alternate between years – different years, different studios, different titles. We’re focusing on mobile in Asia. We’re trying to grow each of those over time to become a bigger company, as Strauss was saying. Get to higher revenue, higher market cap.
GamesBeat: It seems like a year of expansion for you, but it’s not a problem. You can keep running on what you have even while expanding.
Zelnick: It’s a very thin frontline year, with only our sports and entertainment titles coming. Yes, it’s a disappointment that, because of the way our development has unfolded in search of the highest quality possible, a number of events aligned so we don’t have the kind of release schedule this year we’d like to. We’d like to have the kind of year 2K had last year, or that the company had in 2015, where we bring a lot of titles to market and have a lot of success, plus we have catalog and recurrent consumer spending.
That’s the kind of year we expect to have in fiscal ’19. We have Red Dead coming from Rockstar. We have a big title coming from 2K. We have our sports and entertainment releases. We have recurrent consumer spending. We have catalog. We have Socialpoint. We have NBA2K Online in China and the like. Then you have a company doing $2.5 billion in net sales at least and $700 million in cash flow for operations. Then we’re knocking on the door of what our bigger competitors are doing. But right now we’re not.
At the end of the day, though, where did this come from? It came from the high class position of—we have diversified the business. We have 11 franchises that have sold at least five million units in one release. We have more than 50 that have sold over two million units in an individual release. We have the biggest title on the market in Grand Theft Auto. We do come at this from a position of strength. I think you’re right, and I’d reinforce your statement: even with a thin frontline release schedule, it’s still a pretty good year.
Above: NBA 2K17
Image Credit: 2K
GamesBeat: What about China? How do you look at that opportunity?
Zelnick: It’s super exciting. We’re exposed to Asia. We have a headquarters in Singapore. We have the number one PC sports title in China, with 35 million registered users, in association with Tencent. We’re excited to support Tencent’s new downloading platform. It’ll be interesting to see what the Chinese government does about approvals. We think there’s a great opportunity.
GamesBeat: As far as how you reveal things these days, with influencers playing a role in a big way, how has that changed?
Ismailer: We’re committed to working with them. They’re clearly what people follow today. With every title we have a specific strategy as to which influencers we’re going to. It’s the evolving form of marketing right now.
Above: Lincoln Clay and Thomas Burke in Mafia III
Image Credit: 2K
GamesBeat: I wonder if they’re the vanguard of a world where people play one game all year round. GTA Online and nothing but.
Zelnick: I hope not. I don’t think that’s what’s going to happen. People get engaged with a title and then eventually they move on to the next thing. Maybe they stay engaged with a couple of titles at a time. But I don’t think you’ll ever see a situation where a gamer plays only one title, permanently. That seems unlikely.
The numbers don’t bear it out, either. Massively successful titles like World of Warcraft—the number of subscribers they have is a small percentage of the number of gamers out there. And they have churn, people coming in and leaving. I don’t mean that critically. It’s a great piece of business. I’m just saying, that’s how it is.
GamesBeat: With Mafia III, how do you feel about how that turned out?
Ismailer: We’re pleased with the results on the title. It’s a little early for us to do any postmortems.
Zelnick: It sold more than five million units. It was the biggest first week we’ve had for a 2K title.
Above: Mafia III.
Image Credit: IGN
GamesBeat: I loved the story, and I’d love to see games go more in that direction. It feels like some titles here this week are doing that.
Zelnick: We’re trying. It’s that ephemeral sweet spot of character development, graphics, music, look and feel, and gameplay. You need all of it. We had great gameplay in Evolve, but we were sort of missing the story. We’ve had other situations where we had a great story, but the gameplay wasn’t adequate. When we get all of it right, like with GTA – great story elements, great character, graphics, look and feel, great gameplay – you see what happens.
GamesBeat: Do you think someone like Socialpoint has to worry about that?
Zelnick: They absolutely have to worry about quality. In super casual, maybe you don’t have all of those elements to it, but Socialpoint is aspiring to be a mid-core company. Character development matters. Story matters. But gameplay really matters. In that way I think you’re right. It’s also a shorter experience. A mobile game is a seven- to nine-minute experience. A console game can be a four-hour experience at just one time.
VentureBeat's PC Gaming channel is presented by the Intel® Game Dev program.
Interviewing some of the wisest people in the game industry is a fun part of my job. Over the past few weeks, at the Electronic Entertainment Expo (E3) in Los Angeles and at the Gamelab event in Barcelona, Spain, I interviewed a bunch of executives, CEOs, and game creators about their views on gaming. This week’s column takes snippets of wisdom that I gleaned from those interviews.
I like to think of this as “strategic zoom,” or zooming in on important details or zooming out to see the big picture, just like you could do in Chris Taylor’s Supreme Commander game from a decade ago. After each E3, I try to absorb a few of the ideas and quotes that are really important.
We’ve all had a big data dump from talking to so many people at these big events. But I hope to zero in on some of the people who can synthesize what’s important. I’ve run longer Q&As with many of these people, but you probably didn’t have time to read these interviews during the show. Each name links to our full interviews. I hope some of these people will be speaking at our GamesBeat 2017 event on October 5-6 in San Francisco.
Also, here are quotes from the leaders we interviewed at E3 2015 and E3 2014.
Above: Insomniac Games chief Ted Price (left) talks with Mike Gallagher, CEO of the Entertainment Software Association, at the GamesBeat Summit. 2017.
“I continue to hear and see great reasons for optimism when it comes to the ability of this country to continue to have a leading position in game-making. But it has to be earned every day. Policymakers cannot coast or expect that it will continue. They have to be very engaged to make sure that the environment remains favorable.
It’s not an easy task. Around the world — look what’s happening now, just within the United States. All 50 states now have game companies in them. That shows the democratization of game-making. Game creation is now something that can be done anywhere by anybody. That doesn’t just apply within the borders of the United States. It applies around the world, when you have tools like Unreal and Unity that can be accessed freely over the internet and put to work.
The United States does not have the market cornered on creative genius. What we do have is huge momentum drivers. We have respect for the rule of law. We have a thriving economy. We have a terrific secondary education system. We have protection for intellectual property. Most important, we have freedom of expressions. The government does not tell a game-maker what they can or cannot make. That’s a force multiplier that gives us an advantage even over western Europe.
I’m bullish about the prospects for the U.S., but very clear with policymakers. They need to continue to compete, because other countries are subsidizing the placement of jobs and seeking to displace the U.S. when it comes to making great games. When you look at mobile, it’s the wild west. There is great success being enjoyed by companies founded and operating outside the United States. That’s a signal. We have to continue to earn it every day.”
Above: David Ismailer (left), president of 2K, and Strauss Zelnick, CEO of Take-Two Interactive.
“It’s very, very hard to have console developers create a mobile title, though. We tried it. We made Civilization for mobile – or for Facebook, actually – and it was fantastic, but it didn’t speak to what people do on Facebook. We made stand-alone mobile titles before we bought Socialpoint and they didn’t succeed. We have had success with WWE and NBA. We’re getting better at this. But Cat Daddy is the studio in our shop that does this. They’re not a console developer. They’re a mobile developer.”
Zelnick also lauded the move toward better stories in console games, like in Take-Two’s Mafia III.
“It’s that ephemeral sweet spot of character development, graphics, music, look and feel, and gameplay. You need all of it. We had great gameplay in Evolve, but we were sort of missing the story. We’ve had other situations where we had a great story, but the gameplay wasn’t adequate. When we get all of it right, like with GTA – great story elements, great character, graphics, look and feel, great gameplay – you see what happens.”
And he does not think that mobile games are poised to finance big console hits.
“We don’t really think that way. We’re not looking for financing. We’re looking to delight consumers. If we can’t do something well we don’t want to do it. We just don’t look at the world through that lens. We’re an entertainment company. We want to be the most creative, innovative, and efficient company in the business. We want to delight consumers in everything we do. We want to create the highest quality.
We got involved with Socialpoint because they make their own intellectual property, because they pride themselves on quality, and because there’s a market opportunity. We’re not doing science projects. There has to be a market opportunity. But we’re not looking for a cash cow to finance something else. It would be nice to have a cash cow, but it would come out of doing great work.
We have a strategy. Our strategy, again, is being the highest quality company, the most innovative company, the most efficient company in our space, and delighting consumers. That’s our strategy, and arguably the expression of our tactics as well.”
Above: Sam Lake is Remedy Entertainment’s storyteller.
Image Credit: Gamelab
I spoke with Sam Lake, creative director at Remedy Entertainment, at the Gamelab event in Barcelona, Spain. We talked about transmedia, or taking a single story and using it in different media such as TV and games.
“There are many signs of these different media coming together, and separating again, and then coming together again in different, surprising ways. That still interests me a lot. I want to explore those possibilities, keep exploring them. Both the traditional idea of transmedia — taking a game concept or character or story and seeing if you can do spin-offs or extensions outside games — but then also very much looking for new ways of bringing other media into the game experience. I think it’s essential as well as exciting. Like anything else, you can do it in an interesting way, or in a way that really doesn’t bring anything very new to it. Even that can work out nicely if you have talented people catching it and making their own interesting spin out of it. But either way we’ll keep exploring it in the future.”
Above: Richard Garriott speaks at Gamelab in Barcelona about his 40 years in games.
Image Credit: Gamelab
Richard Garriott, also known as Lord British, created the Ultima series of fantasy role-playing games, and he made the Ultima Online and Tabula Rasa massively multiplayer online role-playing games. Now he is back to being an indie again with Shroud of the Avatar at Portalarium. Here’s what he had to say about making new intellectual properties.
“Part of that is my belief that the introduction moment of a new platform is the moment where you can create new IP. Ultima, Wizardry, Might of Magic, all of these things were created, essentially, at the beginning of all platforms.
But once a platform matures, you have the reverse problem. Once you already have Ultima, Wizardry, Might and Magic, and Bard’s Tale, an RPG no one has heard of is hard to market. That’s when people start to buy licenses, like Lord of the Rings or Star Wars, to break through the chaff. But those people who do that don’t own the IP themselves. It’s only a way to get their game to sell well. As game creators, the real opportunity—you want to create IP, you want to own the IP, and the place and time to do it is when you have the blue ocean of a new platform, where existing powerful IP is not already present. These windows open and close periodically around us and you have to take advantage of those moments.”
Above: Cliff Bleszinski, CEO of Boss Key Productions and creator of LawBreakers.
“I’m just proud. I got a little emotional this week. For me to un-retire because I was getting bored, to have a seat the table here, and to know that with my scrappy team of 65 folks I can compete with the heavyweights — it’s a pretty amazing feeling. Being at the Marriott and catching up with everybody, everybody was coming up and shaking my hand and saying, ‘Congratulations.’ I’m like, ‘Okay, I guess we’re doing all right?’ They weren’t putting their hands on my shoulder and saying, ‘My condolences.’ It feels good to be back on my own terms. I’m gonna sleep well after this show.”
Above: Paul Bettner of Playful and Jeff Grubb of GamesBeat.
Image Credit: Michael O'Donnell/VentureBeat
Paul Bettner, CEO of Playful, maker of Lucky’s Tale for virtual reality and Super Lucky’s Tale for the Xbox One, talked about the strategy of creating a new intellectual property in virtual reality and then taking that property, based on the character Lucky, to 2D flatscreen games.
“I’ve been thinking about it a lot at this show because it sounds similar, but it’s a different idea. We are targeting two groups of gamers with what we’re working on with Super Lucky’s Tale. We’re targeting 30- to 40-year-old gamers who grew up playing platform games and who love this genre. They see it and think, ‘That’s like a game I remember from when I was a kid.’ Those are the folks that are going to talk about the game. They’re the reviewers that’ll give us a lot of press. But we’re also targeting the 8-year-olds who are playing their first game.
In the way that we’re using VR as our tip of the spear to get attention for the IP, we’re also using the enthusiasm and the nostalgia for these kinds of games to get that attention and ultimately using that in service of introducing the game to a new generation of gamers. I was having this conversation with our creative director last night. I think that’s actually what Nintendo does and has been doing for decades. It’s this endless cycle because then, those folks grow up and have kids. It’s a great strategy, I think, for the stuff we’re building.”
Above: Yves Guillemot celebrates a good E3 and and a good three decades
“It’s difficult to say what eventually becomes the biggest part of the industry. We like very much that the consoles are so successful now. They’re coming back as a major entertainment medium. Interactivity is going to become the major force in entertainment as a whole.”
Above: Phil Harrison (left) of Alloy Platform Industries and Matt Handrahan of GamesIndustry.biz
“They all have tremendous positives and some small challenges. If Microsoft’s Xbox business was a stand-alone business, only focused on games, that would be an incredible business. When you look at it as a part of Microsoft spitting out $20 billion in free cash flow every year, it just shows up as a tiny little dot, which is always a deep frustration for the leadership in the Xbox business. They do an incredible job, but they don’t show up that often on the scorecard.
It’s a different pressure that Sony has. They have a much smaller balance sheet. They’re a much more focused company through necessity, through the challenges they’ve been through, which have been public over the last 10 years or so. It’s a good question. Which would you rather be: a focused company with a smaller balance sheet or an unfocused company with a very large balance sheet? Ultimately a strong balance sheet is a good thing to have, which is why a company like Amazon could end up being a disruptive force in games. They have AWS as this secret provider of incredible services to so many games companies, which they’re monetizing like crazy.
I think Amazon knows they have a games business. It’s interesting that the games bit of Amazon reports in to the AWS leadership. That’s not a surprise or an accident. That’s very purposeful.
The one unknown, unseen is what Apple is really doing in AR and VR. I don’t believe for an instant that what they showed at the worldwide developer conference is all they’re doing in AR. But they made a very strong statement of intent, and that’s exciting for the future.”
Harrison said that mobile is the key market for game entrepreneurs to target.
“Even with all of the challenges of audience acquisition and barriers to entry — the development barrier to entry is really low, but distribution, awareness, cutting through the noise is really hard. Even with all those challenges, I still think mobile is the place to go. To make a console game as an indie, unless you have a sugar daddy relationship with the platform holder effectively sponsoring you, it’s really hard to make money….
You’re betting on five watts versus 160 watts. Are you going console, PC, hardcore, or are you going mobile, free-to-play? It doesn’t seem like there have been breakout hits in free-to-play on console yet, maybe because the top of the funnel isn’t big enough to support all of the customer acquisition. But that will happen.
I’m excited about the future. I’m enormously bullish about the future of games, mainly because now we don’t have to explain what this is anymore. There’s an understanding of games among the wider population.”
Above: Eric Hirshberg is CEO of Activision Publishing.
“Sledgehammer has that cinematic storytelling gene, that impact in their creative approach that is really well-suited to the anguish and the humanity of the WWII setting. To their credit, they talked to the team, got excited about it, and got on board. We’re all over the opportunity. It’s been off to the races from there.
Everyone talks about ‘boots on the ground.’ I think of it a little differently, in terms of a human scale. There’s a vulnerability to the way you feel when it’s just a man and a gun. That’s what taking Call of Duty back to its roots means to me, that sense of vulnerability. And I think it’s a great game.
Certainly the level of graphic fidelity, the level of emotional connection you have with a human character in a game, the level of immersive, photorealistic environments — all of that has gotten exponentially better since the last time we were in the WWII setting. As a result, I think the impact and the feeling is incredible. It’s a game that not only plays great, but it feels great.”
Disclosure: The organizers of Gamelab paid my way to Barcelona. Our coverage remains objective.
A few years ago, gamers had a good laugh when they learned that a Chinese chicken meat company bought Digital Extremes, the maker of Triple-A games such as The Darkness 2 and Warframe. Then, when the company bought Splash Damage in 2016, people did a double take again.
Alex Xu, the CEO of Leyou, was the guy behind that. He was the chief business officer at Perfect World, a Chinese role-playing game maker that acquired Cryptic Studios and publishes titles, such as Neverwinter. To do more deals, he left Perfect World and acquired control of a shell company in Hong Kong. It so happened the shell company was a chicken meat supplier, and Xu planned to use it as way to buy more companies. He exited the chicken business, and he is fully focused on publishing triple-A games. Xu will be a speaker at our upcoming GamesBeat 2017 event in San Francisco on October 5 and 6.
Xu’s company, Leyou, sees a big opportunity in publishing free-to-play games on the consoles — like Warframe and Dirty Bomb. The consoles don’t have as many users as mobile devices or the PC, but they do have very committed audiences. And games like World of Tanks have shown that you can run a free-to-play game on the consoles because a larger percentage of players are willing to pay for something. Warframe has been going strong for years now, and it will help Leyou expand into the West. I caught up with Xu at the Devcom event in Cologne, Germany.
Digital Extremes has a Warframe booth at PAX West, the big fan show in Seattle this weekend. That shows that Leyou is willing to spend money to raise its profile among Western gamers. And if Xu gets his way, we’ll be seeing a lot more Leyou games in the West in the future.
Here’s an edited transcript of our interview.
Above: Alex Xu is the CEO of Leyou, owner of Splash Damage and Digital Extremes.
Image Credit: Leyou
GamesBeat: Tell us how you got started.
Alex Xu: Once upon a time, it was big news when a Hong Kong chicken meat processor acquired a triple-A game studio like Splash Damage. A lot of people were asking questions about that, why a chicken company was buying game studios. That was my start. I didn’t have any chance to explain that.
Back in 2013, when I was at Perfect World as chief business officer, we were trying to do cross-partnership deals. Perfect World was one of the early Chinese game companies that tried to do some Western operations in the U.S. We acquired Cryptic Studios, the makers of Star Trek Online and Neverwinter, and Runic Games, the maker of the Torchlight series. We did a lot of those deals. We had experience in working with Western studios. Perfect World was trying to talk with any Western studio doing online games, multiplayer games, trying to get them join Perfect World’s platform and bring in more online game players.
We found Digital Extremes, which was doing a free-to-play game that had just launched on Steam, Warframe. Warframe had a lot of potential, so we talked to them about doing something together. We thought we could link up Chinese experience in developing and operating online multiplayer games, especially free-to-play games. We had that experience from working with Cryptic, how to make a free-to-play game run in the right way in the Western world. We had a lot of synergy there.
Then, we come to the point where we were talking about merging together with Digital Extremes.
GamesBeat: But it wasn’t easy to do?
Xu: But in early 2014, Perfect World already had some plans to go private off the Nasdaq. We were trying to find another way, instead of using internal funding, to do the acquisition. I was forced to find some other ways to do the acquisition and still keep the possibility of Perfect World doing a buyback in the future. That wasn’t easy. Whenever a studio gets sold to someone else, in most cases, it’s hard to buy that back. You have to pay multiple times the valuation in the future.
A Hong Kong-listed company could serve that purpose. If you don’t do any promotion in the market and attract eyeballs from investors, you can make it very quiet. I was able to find a shell company. Previously, they were in the chicken industry, supporting KFC or something, but they were almost out of business. They were still listed, but that was all. We leveraged that company to acquire Digital Extremes step by step, by issuing bonds or new shares, whatever. It’s very complicated. That took almost a year. We signed the deal in 2014 and partially finished it by 2015. It was 100 percent finished in 2016.
During those two years, Perfect World was doing the privatization and relisting A shares on the Chinese domestic financial market. We were also talking to Splash Damage. We kept finding more good targets to acquire but still by using the Hong Kong-listed company. Back then, the company had a different name, but after the acquisition of Digital Extremes, we changed the name to Leyou. It’s an independent Hong Kong-listed company. We’ve been able to get rid of everything related to chicken. It’s just a game company now, holding Digital Extremes and Splash Damage.
Last year, when Perfect World was trying to acquire the whole listed company back, there were some difficulties. It didn’t happen. Now, there’s a new owner of the Leyou group. They did a general offer to take over the whole shell company from the previous shell owner. It’s now owned as an independent company, and they hired me as a CEO because I’m the guy who made the deals happen. I’d already left Perfect World to work for Qihoo 360. They hired me away from Qihoo 360 to join Leyou as CEO.
Above: Perfect World booth at ChinaJoy 2015.
Image Credit: Dean Takahashi
That’s the whole story over three years. We’re an independent company holding two triple-A game studios in the West. The strategy is very clear. From the beginning, it was about trying to help Western triple-A studios do online multiplayer games for the worldwide market — not only for the Chinese market but built from scratch for the worldwide market, especially targeting PC and console. We see the biggest opportunity on console.
In PC and mobile, 60 [to] 70 percent of the revenue, the majority of revenue, comes from item trading, free-to-play, continuous live operations, the game-as-a-service model, as opposed to the premium model, paying per download. But on console, still, almost 100 percent of the revenue comes from premium. A bigger and bigger percentage is coming from online, but it’s still premium. You pay before you play. But, we’ve seen more and more games on console, even premium games, building a longer life cycle by putting more efforts into live services after sales. Premium games on console are selling more content, more items, and greatly lengthening their lifespans. People are becoming more engaged with one game because they love it, and they want to keep playing together in multiplayer modes for a longer time. That’s changing the premium world as well.
Still, most developers in the West, especially triple-A developers, are scared of doing a game that starts from scratch as free-to-play. There are different reasons. They’re investing huge development costs in games, hundreds of people working for many years. They’re doing very high-quality games. It seems reasonable to charge up front. It’s an easy way to generate money. They still don’t know how to design a game, too, for a long life cycle, how to make players happy in that context. People hate the pay-to-win model, and that’s mostly come from Western developers or a few Asian developers who don’t know how to design a game in the right way for a Western audience.
One of the biggest games of the decade has hit another milestone. Rockstar’s Grand Theft Auto V has sped past 90 million copies sold-in to retailers and sold-through digitally worldwide. The 2013 open-world crime game has had “unparalleled longevity,” according to publisher Take-Two Interactive, due to the appeal of GTA: Online. T…Read More
Hangar 13 built its rep as a triple-A game studio with 2K’s Mafia III, and now it is expanding to a fourth location with the opening of an office in Brighton, England. Game development veteran Nick Baynes will run this outpost. It says something that a studio working on one or two big console or PC games has to have offices around the globe t…Read More
Strauss Zelnick is very efficient with his answers. When I interviewed the CEO of Take-Two Interactive last week at the 2018 Electronic Entertainment Expo (E3), the big game industry trade show in Los Angeles last week, he gave some short answers. But when it came to topics that interested him, he gave engaging replies. Zelnick says he’s not…Read More
Since cofounding DMA Design in 1987, Dave Jones has created video games that have become massive franchises, including Lemmings, Grand Theft Auto, Crackdown, and APB: All Points Bulletin. Few people have had such hits as Jones, who most recently founded Cloudgine, a cloud-based game engine company, and sold it to Epic Games earlier this year. But i…Read More
Take-Two Interactive‘s 2K label announced today it will publish a new arcade-action video game, NBA 2K Playgrounds 2, from game studio Saber Interactive. The New York-based 2K said the sequel will debut this fall for PC, PlayStation 4, Xbox One, and Nintendo Switch. It will focus on 2-on-2 competition. The game will be complement the realisti…Read More
For Take-Two Interactive Software, it’s the calm before the storm. The New York company reported better-than-expected financial results for the first fiscal quarter ended June 30, but the company has the most-anticipated game of the year, Rockstar Games’ Red Dead Redemption 2, coming on October 26. That’s when the company could ki…Read More
VentureBeat's PC Gaming channel is presented by the Intel® Game Dev program. Stay informed about the latest game dev tools and tips. Get the news you can use.
