Take Two knew they were going to have a hit on their hands with their new game. The strength of the Grand Theft Auto brand, and increased market expectations caused by development delays, insured it. The expectation was already set for a record breaker. The question was – by how much would the bar be raised? Microsoft’s Halo sold $300m in its first week on the market and was available for just one console (Xbox 360). How much bigger a return could GTA IV do with the added PS3 audience? And to follow up on that: on the Richter scale of gaming, would it be enough to impact Electronic Art’s pending take-over offer? Would it push them past the more than 60% trading pricing premium in their original offer? Looking at it by the numbers:
The Retail Results: Actual and Comparative
Wednesday, the first hard data arrived. The game is big. $500 million big according to Take Two. In the first week on the market, 6 million copies were sold worldwide at an average price of $83 a game. (International pricing is higher in many markets than the US $59.99 price). Those results represent an unquestionable success both by gaming, or general entertainment standards. They’re measurement of a blockbuster.
Comparatively, in the film industry Spider-man 3 generated a worldwide opening box office return of $381.70 million at the theaters. ($151m, or about 40%, was domestic (via Box Office Mojo). At last year’s average U.S. average ticket price of $6.88 per ticket, that meant the movie was seen by approximately 55.48 million people in its debut.
In the book world, Harry Potter and the Deathly Hallows sold 8.3million copies in the first 24 hours (U.S. market only) at a cover price of $34.99. At full retail, that translated to $290.4million in revenue and a customer reach of more than 8 million (assuming each customer bought just one book).
On some levels, these book and film to video game comparisons are a little bit Apples to Oranges. A movie ticket is a onetime purchase and a small price point. A book is often read just once. A game, in contrast, is a repetitive entertainment medium but costs $60 or $90 a pop, in this case, plus prior investment in the console. Still, the sheer dollar returns the gaming industry is generating are massive, and the comparisons provide a benchmark for how people spend their entertainment dollar (even given a different cost factors). As a measure of reach, it’s also telling.
Taken with no price adjustments, the book reached 8 million (U.S.), maybe 18m globally (counting only English language markets). The movie reached 55 million. There’s not much comparison. But adjusting for the same average entry price, $83 a play (e.g. if a movie ticket cost 83 dollars, or likewise the Harry Potter book), it’s a different story. On an adjusted basis, Harry would have reached an audience of 3.5million people in the U.S. market (7.4million globally). Spiderman 3’s worldwide debut would have reached 4.6m people. GTA IV hit 6 million.
That GTA IV would be a hit was a given, a foregone conclusion. The other part of the question was whether the sales would be dramatic enough to influence EA’s offer. Were they going to exceed expectations by a landslide?
The $500m opening surely sounds impressive. It sounds like its big enough on the surface. On closer look, however, it’s not as outrageous as it may sound. Some facts:
•While GTA IV’s numbers are a record. The previous record holder, Halo 3, was only available on a single console (Xbox 360). Follow up retail data being reported is estimating about 60% of the opening sales for GTA IV were for the Xbox 360 platform. Separating out the consoles and comparing on a similar basis wih that data would put the debut in an almost dead heat with Microsoft’s Halo 3 Debut (60% of sales represents approximately $300m gross or the same result as Halo 3).
• Another factor: within the GTA franchise, 2004’s San Andreas edition is the current best seller. It’s sold approximately 21.5m units to date. 2002’s Vice City Edition sold 17.5m. (Data via Take Two). To do much better than either of those titles at retail will be difficult. The installed user base of existing consoles (number of consoles in the market) acts as a ceiling for growth. A range of 17 to 23 million is probable with the high side of that range being a stretch.
•Lastly, Halo 3 moved about 5 million copies during its opening week in late September 2007. 98 days later, as of January 3, worldwide sales totals reported were at about 8.1 million units. Mathematically, the opening represented 62% of the estimated 3 month total sales. If a comparable pattern of an opening surge and subsequent slowdown happens with GTA IV’s 6million unit debut, three months out, totals will be about 9.72million units. From then on, similar to movies in the theaters, there is going to be a further deceleration of sales over time (time decay or “theta” to analysts). Games start with a surge, and then decelerate over time as more and more of the core audience has been reached. (As a reference for that penetration, the sales of Microsoft’s Halo title in January were at 8.1million. That represented approximately 46% of the installed user base for the console at the time).
Most analysts covering the space, along with EA’s own number crunchers, had the data on Halo 3 available for their analysis. They were able to use that data to build sales models long before GTA IV hit the market. Assuming they made adjustments for the single console offering (Halo) as compared to the dual console release (GTA IV), chances are, the data here was no surprise.
Analyst Michael Pachter, as one example, had previously forecast sell through for the game of 18million units. In press comments he’s holding fast to that estimate even in light of the new numbers. He is also saying that by his metrics, the fundamental valuation for Take Two, inclusive of GTA IV sales, still falls in the $20 to $22 range – the same range he previously forecast.
At EA it’s the same thing. EA spokesman Jeff Brown said “nothing has changed.” The company remains committed to their existing offer (though they do say they’re willing to negotiate).
Come May 16th, the final day of EA’s offer, things may take some twists and turns. It’s possible, and wouldn’t be a surprise if EA upped their offer to as high as 27.50 to get the deal done, but it’s by no means foretold nor does the impressive sales rate of GTA IV appear likely to have any underlying financial pull on shifting it.
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