Author | Geng Chenfei
Edit | Song Wanxin
The one-and-a-half-minute trailer was played nearly 100 million times in 24 hours. Only GTA has that magic.
In August, the GTA franchise had sold 405 million copies, including more than 185 million copies of GTA 5, released a decade ago, a figure second only to Minecraft and Tetris.
But the company behind it is a different story. Parent company Take-Two (hereinafter referred to as "T2") recorded the largest loss in its history in fiscal 2023, compared with Tencent's net profit margin of 40%, T2's net profit margin is less than 20% all year round.
This is determined by the nature of the triple-A game. A masterpiece like "GTA", which has not been opened for ten years, and has been open for ten years, has always been a double-edged sword for game manufacturers.
01 How much is the rebellious culture worth of a money-sucking weapon?
GTA has been significant for T2's sales and performance. In its Q2 FY2024 financial report, T2 announced that GTA's total revenue has exceeded $8.7 billion, contributing approximately $236 million to the company's net income for the second quarter of 2024, accounting for approximately 15% of total net revenue.
Image source: Screenshot of foreign social media
At the same time, the share price of T2 was also driven. Since the official announcement on November 8 that the trailer for "GTA6" will be released, T2's stock price has risen by more than 18%.
On TipRanks, T2 stocks are listed as strong buys. Of the 19 analyst ratings, 16 are Buy and 3 are Hold. The average price target for T2 shares is $168.89, an increase of 4.29% from $161.95 last time.
图片来源:TipRanks
The popularity of GTA is not unrelated to its reinvention of free-play and rebellious culture.
The original GTA was a pioneering city with NPCs such as pedestrians and police who reacted immediately to player actions. The sequel, GTA3, takes this concept a step further with 3D, giving many players their first glimpse of the "open world".
At the same time, as a sandbox game with a strong degree of freedom, players in the game can choose to perform the main quest, or ignore the quest and just entertain themselves. In this huge and real city, players are no longer just "beating levels", but can freely explore and interact with each other, and experience a new feeling in the unlimited city.
"A true gamer will use the rules of the game to find as much freedom as possible. Game designer Soren Johnson once said of the game design philosophy.
"Blood" and "violence" have always been the most eye-catching labels in the GTA franchise. In GTA, outrageous acts of violence such as car snatching, hitting people, shooting, drug use and trafficking, and even fighting the police are all actionable.
Unlike most previous games on the market, GTA chooses to position the game characters on the fringes and low-level characters of society, such as gangsters and criminals.
On the one hand, the lives of characters on the margins of society are full of conflicts and dangers, and often violate the norms of society, which makes for excellent game elements, which can increase the tension and uncertainty of the game, and provide rich inspiration for the game's plot and scene design.
On the other hand, by setting up marginal characters, players have the opportunity to see and feel the world from another perspective. Since GTA 4, the game has gradually added a reflection of society, and the developers have emphasized that the game can be used as a remake of the real world.
And those who seek excitement, challenge authority, or even have rebellious tendencies in real life, but can't actually act, and want to vent their stress through the game, have become the most loyal fans of GTA.
With its unique setting and experience, the GTA series has a large number of players around the world, and the fan effect is strong, which in turn drives the sales of the game. According to PlayTracker, 44% of GTA5 players have purchased the game across multiple platforms. According to market research firm Omdia, the number of monthly active players of GTA Online on PS4/5, Xbox One, and Xbox Series X/S platforms has reached 20 million.
02 Troubles, Take-Two "Black History"
However, the game's outrageous violence naturally can't escape the criticism of GTA from all walks of life. Among them, the most influential is the "hot coffee" incident.
In Jacked: The Outlaw Story of Grand Theft Auto, Sam has always wanted to push the boundaries of the game, and for GTA it's as much freedom as possible, and that includes one thing: sex.
During the development of GTA: San Angeles, R actually designed a lot of realistic and explicit erotic scenes, but later in order to get the game rating of M, Sam chose a compromise approach, not cutting the game code, but hiding the relevant content - which brewed the later "hot coffee" event.
The day after the PC release of GTA: San Angeles, a mod called "Hot Coffee" was launched, and the explicit adult content in the game was widely disseminated, with "Hot Coffee" being downloaded more than 1 million times within a month.
The Entertainment Software Rating Board (ESRB) quickly stepped in to investigate, and they and the Australian Film and Literature Classification Office (OFLC) re-evaluated the game's content ratings. The ESRB changed the game's rating from M (mature) to AO (adult only), which meant that GTA: San Angeles was banned from many retail stores, and the OFLC banned it from sale in Australia entirely.
R Star and T2 had to quickly stop selling the current version of the game, spend about $24 million to recycle the offline retail version, and after several months of revisions, re-launch and restore the original rating.
In fact, T2's conflict with mod makers has also persisted after the "Hot Coffee" incident. T2 often sends lawyer letters to suppress mod makers and content creators in the community.
In 2015, T2 shut down some of GTA5's modding teams, such as "FiveM" AND "GTA:MP", on the grounds of protecting the intellectual property rights of its own games. In 2017, T2 shut down "OpenIV" again. This move has caused dissatisfaction among many players, with more than 40,000 fans petitioning the official to stop shutting down the mod tool, and the game reviews on Steam's GTA game page have dropped all the way to "bad reviews".
But T2 didn't stop there. In 2021, T2 forcibly removed some mods for GTA3 and GTA: Vice City, and filed a lawsuit for financial damages.
03 3A doesn't make money?
In addition to the controversy, T2 is also facing a loss. Its financial position is worrying compared to companies in the same industry. In the past 10 years, although T2 has been profitable for 7 years, in fiscal 2023 and the second quarter of fiscal 2024, T2 has lost $1.125 billion and $544 million, respectively, with an average net loss of about $40 million in the past three years. The other two major game developers, Activision Blizzard and Electronic Arts, have average net profits of $2.14 billion and $800 million respectively in the past three years.
According to GuruFocus Research's analysis, T2's operating margin is -24.08%, which is lower than 75.34% of peers, the 3-year average annual revenue growth rate is 7.3%, lower than 51.06% of peers, and the 3-year average EBITDA growth rate is -15.9%, ranking lower than 74.87% of peers.
This is inextricably linked to T2's principle of high cost and high return.
The sharp increase in development costs is a phenomenon that cannot be ignored in the triple-A game industry in recent years. Games like T2's GTA and Red Dead Redemption 2 can be a microcosm of this upward trend.
According to insider-gaming, GTA6 is rumored to have cost $1 billion to $2 billion so far, the highest in history, with a total development time of 10 years, while Red Dead Redemption 2 has a budget of more than $800 million, a team of more than 2,000 people, and eight years of development.
The concept of "triple-A game" has been relatively vague in the industry, and the more common interpretation is: A lot of time, A lot of resources, A lot of money, which means, a lot of time, a lot of resources and a lot of money.
With the intensification of competition among game manufacturers, triple-A games are moving towards "Hollywoodization". In order to meet the needs of gamers for realistic graphics and excellent game experience, the development team has to invest a lot of energy in technological innovation and breakthroughs, such as the optimization of graphics processors, the application of motion capture technology, and even the use of cutting-edge technologies such as virtual reality.
At the same time, the marketing expenses of games are also rising rapidly in the vicious competition. In order to increase the popularity and reach of the game, developers must invest a lot of money in marketing and promotion. From the creation of trailers, to the display of major game exhibitions, to the promotion of Steam, PlayStation, Microsoft Store and other platforms, the diversification of marketing methods has made the investment more and more huge.
In addition, high-budget games often mean more risk.
Take "Cyberpunk 2077", which was released in 2020 and benchmarked against "GTA", as an example, it has waited for eight years and been postponed three times, which has whetted the appetite of players. But after the launch, players found that the "goods are not right": there are countless bugs of all kinds, which are far lower than expected. Forbes reports that the share price of publisher CD Projekt fell nearly 28% in the week after the game's release.
According to a securities researcher, GTA6 is a very expensive game that T2's developers have been working on for years, but the cost is high and the risks come with it.
According to Demitri Kalogeropoulos, an analyst at The Motley Fool, one of the main risks for T2 is that the release of upcoming games may be delayed, or the game may not meet the quality needs of players. "The goal of the developers is to avoid these problems, but they are common in the video game industry. ”
But in terms of returns, paid buyouts usually result in lower returns.
Compared with in-app pay-to-play games, buyout games such as Red Dead Redemption and GTA usually have a fixed selling price, and the revenue of this model mainly comes from the purchase of new users.
In-app pay-per-view games allow players to purchase virtual items or services in-game to generate revenue, which is the main profit model of domestic game manufacturers such as Tencent, and continues to stimulate players to spend in-game through different reward mechanisms.
Reflected in the profit margin, T2's gross profit margin is around 50%, and the net profit margin is less than 20% all year round. In comparison, according to Guohai Securities, the gross profit margin of Tencent mobile games is more than 60%, and the net profit margin is about 40%.
However, the pressure and risk on profitability have not stopped the market from optimistic about the outlook for T2, with most Wall Street professionals expecting revenue growth of 4% in fiscal 2024.
Due to the high barrier to entry for triple-A game development, many small and medium-sized game developers shy away from it, resulting in a market that is not saturated with competition. Therefore, despite the huge amount of money required, T2 still has a high probability of generating significant revenue from game sales.
At the same time, through IP licensing and other methods, 3A games can open up the connection with other industries, and build a single game product into a sub-cultural circle, which can further create additional revenue for the company. Taking "GTA" as an example, according to the Wall Street Journal, Netflix has obtained the authorization of T2 and R stars to develop related IP products.
Since the release of GTA5, T2's market value has expanded by more than 11 times.
Image source: Wind
Joost van Dreunen, a gaming industry expert, had predicted that GTA6 would sell around 25 million copies at initial sales, and that it would sell about 12 million to 14 million copies at launch, which was about the same as GTA 5's previous 11.21 million copies sold in 24 hours. Similarly, GTA 6 is on track to generate $1 billion in sales revenue in its first week of release. For reference, GTA 5 broke through this sales in 3 days.
Will GTA6 be the one that can surpass GTA5?
Stay tuned for more information