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Grand Theft Auto Creators to Create Contract Controversy

| 17 Sep 2008 17:30
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The battle between Electronic Arts and Take-Two isn't over, as Sam and Dan Houser, the brothers behind Rockstar and the Grand Theft Auto series, will play prominent roles in ongoing contract negotiations with both companies.

Rockstar, a subsidiary of Take-Two and the developer behind venerable and incredibly profitable Grand Theft Auto series, will soon be a free agent among game companies. In February, the Rockstar/Take-Two exclusivity contract in which Take-Two acts as the sole publisher for Rockstar's games will end, allowing Rockstar employees to re-sign with Take-Two, join competitors for higher compensation or become independent.

Recently, Take-Two Interactive survived a hostile takeover attempt from industry heavyweight Electronic Arts which ended with EA walking away from negotiations.

Securities analyst Doug Creutz of Cowen and Company told GamesIndustry that the retaining Rockstar talent might have proven too difficult for Electronic Arts.

"Presumably EA decided to walk because it could not justify paying a price in the USD 28-30 range, which we think would have gotten the deal done," said Creutz. "We think EA's decision to walk was motivated by some combination of the following: a desire to appear fiscally responsible after several years of capital misallocation, concern about EA's ability to retain the development talent at Rockstar, personality conflicts between the management teams of the two companies, and skepticism about Take-Two's multi-year release lineup."

The failure of the merger deal might be explainable, but where the Rockstar team, particularly its founders Sam and Dan Houser, will settle down after February is unclear.

Regardless of who purchases Houser and company, Wedbush Morgan analyst Michael Pachter predicts a bidding war between EA and Take-Two for the Rockstar team.

"The brothers are the driving force behind the Grand Theft Auto series, and are intimately involved in game decisions. While neither writes game code, we believe that they are analogous to the director of a Hollywood film, instrumental in determining the final shape of the ultimate games released," explained Pachter. "We expect a bidding war for the Housers' services in February 2009, and remain convinced that Take-Two faces two equally unpalatable options: either lose the Housers to another bidder, or pay more to retain them."

While the staff might make more money with new owners, losing the Take-Two relationship could cause a drop in future GTA sales.

"We draw an analogy to EA's Medal of Honor brand, which saw sales decline by over 40 per cent following the departure of key members of its development teams in 2003. Those teams produced Activision's Call of Duty franchise, which has consistently outsold Medal of Honor since the departure," commented Pachter. "In our view, the loss of the Housers could trigger a similar result, with a competing brand threatening future GTA sales."

Disclosure(s): Strauss Zelnick, Chief Executive Officer and Chairman of the Board of Directors of Take-Two Interactive Software, Inc., is the head of ZelnickMedia, an investor in both Take-Two and Defy Media, LLC, our parent company. This article was published without approval or consent of ZelnickMedia or Take-Two.
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