2 Areas of Growth for This Video Game Maker

Take-Two Interactive Software Inc. raked in revenue of $1.27 billion last quarter thanks to the overwhelming success of Grand Theft Auto V. With over 160 perfect scores from reviewers, the game has sold-in roughly 29 million copies, which exceeds the total lifetime sell-ins of Grand Theft Auto IV. 70% of Take-Two's quarterly revenue came from Rockstar, the studio that makes Grand Theft Auto, with the other 30% coming from 2K. Moving forward, the company hopes to keep up momentum with next-generation and digital gaming.

Downloadable growth
Last quarter, Take-Two saw net revenue from digitally delivered content increase 85% year over year to $105.5 million. With digital content, gamers can purchase games and add-on content for their favorite franchises online. This allows developers to create and sell extra missions, levels, and stories without having to make an entirely new game.

Take-Two's most successful digitally delivered content came from Grand Theft Auto V, Borderlands 2, Civilization V, and BioShock Infinite. The most recent release is BioShock Infinite: Burial at Sea, a two-part campaign add-on set in Rapture, the original game's setting.

Rockstar has announced a free downloadable-content pack for Grand Theft Auto 5 called the Beach Bum Update. The update will give players additional weapons, vehicles, and character customizations like beach outfits. Future updates will include cooperative heists, capture the flag mode, Content Creator, and eventually additional single-player stories.   

It's also possible to download complete games like Grand Theft Auto V, but a downloaded game might not run as well as a hard copy. This setback will be mediated if not eventually corrected with the next generation of consoles. Expect revenue from downloadable content to increase for Take-Two and other game developers in the coming years.

The next-generation
Take-Two has opened a new studio in the Bay Area for 2K that will focus on creating a new title for next-generation consoles. The studio will be headed by Rod Fergusson, formerly of Epic Games and Irrational Games. Fergusson was the executive producer and then the director of production at Epic Games, participating in the development of the Gears of War series. He then moved to Irrational Games to work on BioShock Infinite. With Fergusson's history, expect the studio to produce an exciting game that attracts consumers.

The company's first next-generation release is NBA 2K14, which has been remade for the enhanced capabilities of the new consoles. The new game will be up against competition from Activision Blizzard and EA , who are offering improved versions of their top franchises for the new consoles. Activision has Call of Duty Ghosts, the next part of the immensely popular franchise, and EA has Madden 25,FIFA 2014, and Battlefield 4.

Take-Two currently has over 10 titles planned for next-generation consoles, which include multiple releases for 2015. The company is expected to unveil these titles in the coming months.

Extra costs
Take-Two's investment costs for next-generation games and its current franchises increased during the most recent quarter. Operating expense rose to $159 million, up $47 million from increased marketing of Grand Theft Auto V. This and an increase in software development expense caused the company's gross margin to drop 4.5% to 39.2%. This is low compared to EA and Activision's gross margins of 65% and 68%, respectively. Take-Two expects gross margin to be higher for the next two quarters giving the company a yearly gross margin in the low 40s.

Take-Two's studio expansion and growth require extra expenses to insure success.  So while the company's margins aren't as consistent as those of the competition, the actions the company has taken will hopefully pay off in the long run with more successful franchises.

Next gen next steps
The most recent quarter will most likely be Take-Two's best sales quarter for the foreseeable future. Moving forward, the company will continue to leverage Grand Theft Auto V through downloadable content while planning next-generation games for new and existing franchises. With the launch of new consoles, expect things to be good for the gaming industry while Take-Two continues to have a record year.

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The article 2 Areas of Growth for This Video Game Maker originally appeared on Fool.com.

Ben Popkin has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Take-Two Interactive. The Motley Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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