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Take-Two Interactive Software, Inc. (NASDAQ:TTWO)

F1Q09 Earnings Call

March 10, 2009 4:30 pm ET

Executives

Cindy Buckwalter - Executive Vice President

Strauss Zelnick - Chairman of the Board

Benjamin Feder - Chief Executive Officer, Director

Lainie Goldstein - Chief Financial Officer

Analysts

Doug Creutz - Cowen and Company

John Taylor - Arcadia Investment Corporation

Daniel Ernst - Hudson Square Research

Edward Williams - BMO Capital Markets

Heath Terry - FBR Capital Markets

Operator

Greetings, ladies and gentlemen, and welcome to the Take-Two Interactive first quarter 2009 conference call. (Operator Instructions)

It is now my pleasure to introduce your host, Cindy Buckwalter, Executive Vice President for Take-Two Interactive. Thank you, Ms. Buckwalter, you may begin.

Cindy Buckwalter

Thank you. Thank you all for joining us today for our first quarter conference call. Today's call will be led by Strauss Zelnick, Chairman of Take-Two, Ben Feder, our CEO, and Lainie Goldstein, our CFO. Our team will be available to answer your questions during the Q&A discussion following our prepared remarks.

Before we begin, I'd first like to quickly review our safe harbor statement by reminding everyone that the statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements.

Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our press release today and our filings with the SEC, including our 10-K for the fiscal year ended October 31, 2008. These documents may be obtained from our website at www.TakeTwoGames.com.

Now I'll turn the call over to Strauss.

Strauss Zelnick

Thanks, Cindy, and good afternoon, everyone. Today we'll review our financial results for the first quarter, discuss operating highlights, our upcoming product lineup and initial guidance for the second quarter. We'll provide our insights into the economy's ongoing challenges and uncertainties and how we remain focused on driving toward continued success.

Take-Two's first quarter results were somewhat better than the initial guidance we provided in December. That said, we were not satisfied to report a significant loss. We expect this quarter's loss to represent the low point of our fiscal year and we're maintaining our prudent outlook and previously stated 2009 guidance.

The interactive entertainment industry enjoyed significant growth in 2008 and performed better this holiday season than many other consumer sectors. We still believe, though, that entertainment isn't immune to economic downturns that our industry will be negatively affected in 2009. It's likely the consumers of interactive entertainment will continue to spend cautiously and retailers will also remain challenged in their ability to stock their shelves with the same level of inventory as in previous years.

Our strategy has been to release only a select number of triple-A titles that are internally owned and developed and to enhance our release schedule with a few top quality licensed brands. We're confident that this continues to be the right strategy for our business.

I want to reiterate that we believe we're extremely well positioned in all facets of our business to manage effectively through these challenging times. Now I'll turn the call over to Ben, who'll provide more detail about first quarter results, operations, products and our road map for the balance of the year.

Benjamin Feder

Thanks, Strauss. Q1 sales were led by the continued success of Grand Theft Auto IV, Carnival Games, NBA 2K9, Midnight Club Los Angeles and various catalog titles. Today we reported net revenue for the quarter of $256.8 million compared with $240.4 million for the first quarter of 2008. Non-GAAP net loss was $39.3 million or $0.52 per share compared to non-GAAP net loss of $30.3 million or $0.41 per share in the first quarter of 2008. And we ended the first quarter with $218 million in cash. Our cash position net of debt was $148 million. Lainie will provide further details about the quarter.

I'd like to take a moment to discuss some of our recent business highlights. We released The Lost and Damned, our first downloadable episode for Grand Theft Auto IV exclusively on Xbox LIVE. The episode received critical acclaim from the media and eclipsed first day revenue for all previous downloadable content on Xbox LIVE. With The Lost and Damned we set new benchmarks for innovation and made significant contributions to the evolution of this high margin platform. The digital distribution of such a substantial piece of content is a new opportunity for us, and we're pleased with the profitability of this product and believe that downloadable content will continue to be an important part of our business going forward.

Last week 2K Sports launched Major League Baseball 2K9 across multiple platforms, featuring their new cover athlete National League Cy Young award winner Tim Lincecum of the San Francisco Giants. We look forward to the upcoming release of the first downloadable content for Midnight Club Los Angeles for both Xbox 360 and PlayStation 3. The South Central premium upgrade features a whole new section of Los Angeles, together with new cars, races, music and more to significantly extend the street racing experience.

We're confident in our great lineup and we are keenly focused on delivering the strongest possible performance in these challenging times while continuing to scale our business for profitable growth in the future. We believe we're well positioned to meet consumers' demands for quality and value and we've taken recent actions to strengthen our sales operations and build our presence in emerging markets.

We're maintaining our focus on creating the most innovative triple-A games in the industry today, are committed to nurturing the talent of our 1,500 developers across 15 studios who continue to set new benchmarks in the video game industry. At the same time, we recognize that in this economic environment consumers' decisions are driven by both quality and value. We see the market as being barbell shaped, with triple-A titles at the one end and value products at the other. We're extremely well positioned at both ends.

We have triple-A titles - for this season alone we have BioShock 2, Red Dead Redemption and Mafia 2, which are on the leading edge of technology and game play - and we serve the value and family markets with our catalog titles and the products distributed by Jack Of All Games, as well as our family titles offered by 2K Play.

The current phase of this hardware cycles places greater importance on catalog titles. Take-Two's track record of developing triple-A titles means that over time we're adding strong products to our catalog to generate higher margins, provide incremental visibility to our business, and reduce volatility in our top line. We've been seeing growth in our catalog sales year-over-year, including this most recent quarter, where catalog sales increased over 30%.

We've restructured Jack Of All Games for better efficiencies and margins, as well as make that unit more central to the company's core business. Jack continues to play an important role in our ability to serve the value market. And we're working at the same time to strengthen our sales operations. We've recently changed our reporting lines within our sales group for the Americas to better coordinate the company's sales efforts, leverage expertise, and maximize synergies and efficiencies.

As part of this initiative we've appointed Jordan Katz as Take-Two's new head of sales for the Americas, with responsibility for both Take-Two's frontline software publishing group and Jack Of All Games' U.S. business. Jordan has more than 20 years of sales experience and joins us from Universal Music Group. We're excited to have him join our team.

Another important area for long-term growth of our business is emerging markets for our product, especially Asia. We've made more progress in this region and have been aggressively pursuing business development and distribution opportunities that will leverage our existing portfolio as well as capitalize on market-specific initiatives that will appeal to these consumers. Our Asia business increased by nearly 50% in the first quarter compared to last year.

While triple-A titles are the foundation for our business, the underlying engines and technologies behind those games make it all come together to create our great IP. Across our development studios we've made significant investments in creating proprietary tools and technologies that allow our teams to create multiple top titles on a cost-effective basis throughout a given hardware cycle. This tends to result in cost savings and reduced development times.

An example of this is the Rockstar Advanced Game Engine or RAGE, which greatly enhances our ability to create powerful open world experiences on the current generation of consoles. 2K has also created proprietary game engines for their sports titles, which are increasingly valuable as they have much shorter development cycles to create on their annual releases. Similarly, our 2K Czech studio has used proprietary state-of-the-art game engines and tools to deliver highly immersive game play experiences, including the upcoming Mafia 2. We will continue to leverage these investments in technologies that help us maintain and strengthen our competitive edge in the market.

Now moving on to our pipeline for the balance of 2009, Grand Theft Auto Chinatown Wars will be coming to Nintendo DF next week on March 17th. We're excited about combining the world's largest video game franchise with the world's largest installed base in this generation of hardware.

This fall Rockstar San Diego will release Red Dead Redemption, the sequel to their 2004 hit Western epic, Red Dead Revolver, which sold approximately 1.5 million units. The game will utilize Rockstar's RAGE engine and feature an open world environment for players to explore on the Xbox 360 and PlayStation 3. This is a clear example of how our company can execute and leverage this portfolio of proven brands over time to bring new titles to market with fewer risks.

Rockstar is also planning to release Beaterator this summer as well as the second exclusive downloadable episode for Grand Theft Auto IV on Xbox LIVE later this year.

2K will release Borderlands, an exciting new sci fi franchise from acclaimed developer Gearbox. Combining first-person shooter game play, RPG character progression, and an array of weaponry, Borderlands is poised to deliver an incredible entertainment experience.

The anticipation is building for 2K Games' BioShock 2. Our global PR campaign has kicked off the sequel of our smash hit, with the game appearing this month on the cover of nearly 30 video game magazines around the world, including the April issue of Game Informer Magazine hitting the newsstands this month.

2K Czech is hard at work on Mafia 2, the sequel to our 2 million unit selling hit which is due out later this year. The technology that 2K Czech is utilizing to power this title will help deliver a highly immersive game play experience.

2K Sports recently announced The Bigs 2, the highly anticipated sequel to The Bigs. The game will be released this summer. And the teams are also hard at work on NHL 2K10 and NBA 2K10, both due out this fall.

This year we're continuing to grow our family entertainment portfolio with the launch of a slate of new titles from 2K Play. We're excited to be expanding on our successful relationship with Nickelodeon and will release a solid lineup of games based on their top brands, including new titles based on Dora the Explorer and the video game debut of the popular Backyardigans.

At our internal Cat Daddy Studio, the talented team behind our Carnival Games franchise will deliver two exciting new properties that are poised to strengthen our position in the family entertainment category. Carnival Games continues to be a tremendous success and the franchise now has shipped over 4 million units worldwide.

We intend to continue to explore and implement cost-saving initiatives that should benefit our company through more efficient and productive operations while continuing to invest in a disciplined way in premium interactive experiences. We have the ability to run our business efficiently without sacrificing our renowned standards for excellence.

We recognize the challenge that every company faces today and we will remain steadfast in our determination to deliver value and quality by being the most creative, the most innovative and the most efficient company in the interactive entertainment industry.

Thank you. I'd like now to turn the call over to Lainie.

Lainie Goldstein

Thanks, Ben, and good afternoon, everyone. Today I'll review our first quarter results and then discuss our outlook for Q2 and fiscal 2009.

Net revenue was $256.8 million in the first quarter compared with $240.4 million a year ago. Non-GAAP net loss is $39.3 million compared to non-GAAP net loss of $30.3 million last year, the non-GAAP loss per share of $0.52 compared to non-GAAP loss per share of $0.41 last year. Our press release provides a complete reconciliation of our non-GAAP to GAAP numbers.

We are pleased that this is the seventh quarter in a row that we have met or exceeded our guidance. The quarter's revenue drivers were Grand Theft Auto 4, Carnival Games, NBA 2K9 and Midnight Club Los Angeles.

There were several factors that led to our results exceeding guidance. A variety of our titles performed better than expected. Our catalog business is also very strong, representing approximately 45% of our publishing revenue in the quarter. Our catalog sales include some of the bestselling titles on the prior generation platform as well as current end software. Our distribution revenue also exceeded our expectation, although it was down compared to last year as we had forecast on our last earnings call.

On the expense side, our marketing spend was a bit lower than we had forecast, primarily due to the timing of some advertising campaigns, and we also realized a foreign exchange gain of nearly $4 million which flowed through the interest and other income line.

Our GAAP results for the first quarter were a net loss of approximately $50 million or $0.56 per share compared with a net loss of $38 million or $0.52 per share in the first quarter of 2008. Our GAAP results this year included $6.2 million in stock-based compensation expense and a total of $4.9 million of professional fees and expenses related to unusual legal matters.

In looking at our consolidated results, our non-GAAP gross margin for the quarter was 22%, about flat with last year. While we had a more favorable publishing mix compared to last year, our gross margins this quarter were affected by higher internal royalty expense and price protection.

Excluding our sports and distribution businesses, our split between North America and international revenue was about 50/50 compared to 65% to 35% last year. In fact, our international publishing business excluding Sports grew over 90% year-over-year. Non-GAAP operating expenses in the first quarter were approximately $97 million, which is up from last year's first quarter primarily due to the following reasons:

Sales and marketing expenses accounted for the largest increase, with a majority due to marketing for Midnight Club Los Angeles and Grand Theft Auto 4.

R&D expenses increased with a continued investment in our development studios, including the three studios we opened or acquired last year, and an increase in production expenses.

Our interest and other line includes the $4 million foreign exchange gain I mentioned earlier offset by interest expense related to the drawdown on our credit facility.

Our tax expense is a quarterly estimate based on our projected expense for the year which primarily reflects earnings in our international territory.

Moving on to our balance sheet, at the end of Q1 we had $218 million in cash, including $70 million from borrowings on our credit line. Cash was used in the quarter primarily for inventory purchases, product manufacturing costs, internal royalties, incentive compensation and advertising during the holiday season.

Our accounts receivable reserve was about $63 million at the end of the quarter, which represented approximately 51% of gross receivables. The reserve percentage is higher than historical levels primarily due to increased levels of price protection and bad debt reserves required in the current economic environment.

Inventory at the end of the quarter was approximately $76 million, down slightly from this time last year. This is a direct result of our focus on reducing the number of SKUs and inventory level at Jack Of All Games to maximize margins in the business.

Software development costs and licenses were down year-over-year. We amortized a significant amount of software development costs during 2008 as a result of our [Q] releases and have also capitalized costs related to our upcoming releases. We currently have 29 titles in various stages of development.

Now to our outlook. We are reiterating the fiscal 2009 guidance that we provided during our Q4 call in December which reflected a challenging economic condition and our heavily backend-loaded year. While we exceeded our first quarter guidance, we maintained our full year estimates due to the continued uncertainty in the economy, a reduction in unit projections for some of our titles, as well as some movements in our lease schedule.

As we said in our last earnings call, maintaining our release schedule is critical to achieving our fiscal year numbers. Our results may also be affected by variability in foreign exchange rates, which have been very volatile in the past several months.

For the full year we expect non-GAAP earnings per share in the range of breakeven to $0.20, $1.1 billion to $1.25 billion in revenue. This excludes stock-based compensation expense of $0.25 per share and expenses related to unusual legal matters of $0.10 per share. As outlined in our press release, this also excludes stock-based compensation expense of $0.10 per share related to the potential issuance of approximately 2.8 million shares to certain employees of Rockstar Games that is subject to the approval of our 2009 stock incentive plan at our annual stockholder meeting in late April.

We provided the key assumptions underlying our fiscal 2009 guidance on our last conference call. Those assumptions are still valid today, with just a few exceptions. We now expect our overall revenue mix to be about 75% from publishing and 25% from distribution. The mix of our publishing business will vary slightly from what we previously forecasted. We now anticipate about 40% from Rockstar and 60% from 2K. The 60% from 2K breaks down as follows: 25% from 2K Sports, 25% from 2K Games, and 10% from 2K Play.

We now expect our tax expense to be approximately $11 million in 2009 based on the mix of our business. Our estimates reflect tax expense primarily attributable to the geographical mix of our business.

We are also issuing initial guidance today for the second quarter, which is provided on a nonGAAP basis. We expect a non-GAAP loss per share in the range of $0.10 to $0.20 on $200 to $220 million in revenue. This excludes share-based compensation expense of $0.07 per share and expenses related to unusual legal matters of $0.01 per share.

Let me provide some additional data points in our Q2 outlook. We expect our revenue mix to be about 75% from publishing and 25% from distribution. We have several new releases in Q2. We have released The Lost and Damned, the first episode for Grand Theft Auto 4 on Xbox 360, and Major League Baseball 2K9 on multiple platforms. We'll be releasing downloadable content from Midnight Club Los Angeles on PlayStation 3 and Xbox 360 shortly. Next week we launch Grand Theft Auto Chinatown Wars on DS, and at the end of the month we have Don King Boxing for Wii and DS. The remainder of our Q2 business is expected to come from catalog sales of our second quarter of releases.

We expect gross profit margins in the mid 30s in Q2, reflecting a significant improvement from our gross margin of 22% in Q1. There are several different factors affecting gross margin. We will recognize deferred revenue in the quarter related to The Lost and the Damned episode. The new Rockstar royalty plan also went into effect beginning in Q2, which is a profit sharing arrangement. Based on our forecast, this should result in higher margins in the second quarter. Partially offsetting these factors, we expect to have a relatively high contribution of distribution revenue in the Sports business in the quarter.

We expect overall operating expenses to trend down fairly significantly in Q2 as compared to Q1. Sales and marketing expenses should be down about 10% in absolute dollars based on a smaller number of releases. We expect several million dollars of G&A reductions as a result of our cost-cutting initiatives and the positive impact from foreign exchange rates on our international costs. R&D expenses are also expected to decrease by several million dollars in Q2. Depreciation and amortization should remain about flat. We expect to show a provision for taxes in Q2 primarily related to our international business.

Looking to the rest of the year, we're focused on continuing to drive costs out of our business while delivering our strong lineup of titles planned for the fall.

Now I'll turn the call back to Strauss.

Strauss Zelnick

Thanks, Lainie. I'd like to close by reiterating that we're committed to offering the best home for top creative talent, setting new benchmarks with triple-A products, making strategic investments for growth, prudently managing our business and maintaining our sound financial position.

We'll now take your questions. Operator?

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from Doug Creutz - Cowen and Company.

Doug Creutz - Cowen and Company

I was wondering if you could maybe comment on where the preorders for GTA Chinatown Wars are? How do they compare maybe to the PSP GTAs that you released in the last several years?

Benjamin Feder

Doug, we don't generally release preorder information. The company itself doesn't have a ton - or Rockstar, say, doesn't have a ton of experience on the DS platform in terms of how it's performed against other titles. I will say that I personally have high hopes for the title. I think it's going to do well, but I don't want to get in front of the release.

But we tend not to give out information on preorders. Sorry.

Operator

Your next question comes from John Taylor - Arcadia Investment Corporation.

John Taylor - Arcadia Investment Corporation

I've got a couple of questions, some of them related to GTA. I wonder, Lainie, could you tell us what percentage of published revenue came from GTA in the quarter?

Lainie Goldstein

For GTA 4 and the entire catalog of GTA, for the whole franchise we had about $60 million in sales for the quarter, which was about 40% of publishing sales.

John Taylor - Arcadia Investment Corporation

And I ask you this every time but now that it's coming up here let me try it again. So when you book the revenue from the downloadable version of The Lost and Damned, can you give us a sense of what the P&L looks like? Is there a contribution margin past a certain amount or how can we think about the operating leverage potential of that?

Lainie Goldstein

Well, as we've mentioned before, JT, we can't go into too many specifics due to the confidentiality of the agreement, but we can tell you generally that we'll be recognizing some deferred revenue and it will be paired with some capitalized software amortization and some associated marketing expenses. And the title will also be subject to the new Rockstar royalty plan and any revenue we recognize from Microsoft will be net of any of their royalties.

John Taylor - Arcadia Investment Corporation

And then you mentioned that the reception was good relative to other downloadable content. I wonder if you could tell us how many downloads there have actually been?

Benjamin Feder

We're not announcing that any more than we announce for specific products. We only announce retrospectively very selectively the number of units sold. It was, however, announced by Microsoft to be the biggest first day of downloadable content. It got terrific critical acclaim. Obviously, it's continuing to sell. As Lainie mentioned, it's a profitable title and we're thrilled not just because it's a terrific piece of interactive product. We're also thrilled because I think it signals the beginning of the next phase in our industry. And for a company that focuses on tripleA titles, the notion that we'll put out an initial release and have an opportunity selectively and in a high quality way to follow that up with downloadable content is something that we said we wanted to do and something we said we would do.

You know, JT, one of the key elements of our strategy is to be the most innovative company in the business and we've talked a lot about that, and this is an innovation and it's being led, as it should, by Rockstar, a label that's known for innovation and quality.

John Taylor - Arcadia Investment Corporation

And then in terms of the Rockstar, all the human resources you have deployed on JTA, I wonder if you could give us any sense as to how many of those folks are working on Episode 2, how many of those folks are working on the next major iteration of GTA 4 - let's call it GTA 5 or whatever you guys are going to call it - and the number of folks working on new platforms like DS or other things maybe.

Benjamin Feder

We don't give out that kind of detail in terms of where our resources are being placed. I will tell you that Rockstar's obviously working on an array of upcoming titled - Red Dead Redemption, episodic content for Midnight Club Los Angeles, Beaterator, which is coming out - there are a lot of terrific titles coming out, so stayed tuned. But we do not parse that by individual folks on particular titles.

John Taylor - Arcadia Investment Corporation

What's driving Asia? That number was up so much. Anything in particular?

Benjamin Feder

Asia was an effort that we embarked on almost immediately after we got here. I continue to believe that emerging markets generally are probably the first to come out of this economic malaise. I think Asia in particular was an area that I felt like was a hole in our distribution footprint.

We went ahead and hired Hubert Larenaudie, a Frenchman who comes to us from EA. He's done a terrific job extending our relationships in Asia, working our catalog, working our front line releases. GTA 4 for the PC in this particular quarter helped drive some of those revenues, but I think he built a terrific team out there and I expect great things out of Asia in the future.

Operator

Your next question comes from Daniel Ernst - Hudson Square Research.

Daniel Ernst - Hudson Square Research

First on the subject of downloadable content, can you give us a little bit of color how you see that going forward, whether that's an update to packaged media software or is that a stand-alone software release venue for you?

And then secondly, looking across your pipeline for the year I see some holes in your kind of front-line titles whether they are or not on the Wii which is, you know, more than half of the home console market today. It gets categorized as being a family friendly market and you're well represented there, but it is over half the market. I'm just wondering what your thoughts are on developing for the Wii?

Strauss Zelnick

On your question about downloadable content, right now the structure of the business is we put out a packaged good and we're following it up with downloadable content. And I think your question is: Is that the nature of the business going forward or might front-line product be distributed that way as well? And I think the answer is one step at a time. There are bandwidth issues; there are technical limitations. There are also business model limitations.

That said, I'm sure over time some frontline product will be distributed entirely electronically, but from the point of view of a producer and distributor, which is our point of view, in a way it's irrelevant. Our goal is to make the best quality interactive entertainment that we can. We'll continue to do that with hardware companies. I don't see that changing. We're thrilled that we support Sony, Microsoft, Nintendo - we love all our children equally - and we have terrific relationships across the board.

So I don't see the console business changing. I don't see us entering an open format world anytime soon. The video game business has been around a long time and there's a reason for the specific technology that the business is tied to.

I do think that the notion of electronic distribution is important. It's good for the business. It's good for everyone engaged in the business, and I do think we'll continue to pursue it. That said, from our own point of view, how products are distributed is somewhat less relevant than the quality of the products themselves. That's our big focus.

Benjamin Feder

Strauss, I got quoted a little bit in the [press's quarter] about the issues about [inaudible] games and downloadable content and all that stuff and, you know, I should say that while the issue is real for the industry and is shared with our peers, we value our retail partners, we think they're terrific partners for us, and there's a balance between both in the economics and in the content about what gets sold at retail and what gets available on download. And I see that balance, you know, it could - there'll be ebbs and flows, but it'll be a balance as opposed to one or the other for at least a long period of time.

And I can't call where it's going to go ultimately, but I see it as a balance more than anything and I agree with Strauss that our console partners will continue to be our console partners for a long time to come.

With respect to the release schedule, you may characterize as holes. I don't quite see it the same way. 2K Sports for a long time has been developing on the Wii and we continue to develop for the Wii. We have Don King Boxing coming out for the Wii. Cat Daddy has two unannounced [huddles] on the Wii. I think those will be terrifically helpful.

I think it's important when we talk about Chinatown Wars also to remember that this is really the first game on the Nintendo platform that Rockstar's developing it for. There aren't a lot of Mrated titles on Nintendo platforms, certainly not the DS, and this is going to be - we're going to watch this very carefully to see the opportunity. I do believe that there is an opportunity for Mrated titles on Nintendo DS and on the Wii, and I believe that we are the right company to be delivering that content, so I watch that carefully.

So I don't think there's a hole. I think across the board we've got an interest and we have an ability to deliver on the Wii. As I've said before, we value our relationship with Nintendo very, very greatly and we intend to continue that relationship.

Operator

Your next question comes from Edward Williams - BMO Capital Markets.

Edward Williams - BMO Capital Markets

First of all, going back to JT's line of questioning, can you give us an idea as to this 13 million GTA 4 units, how many of those are Xbox 360 platform? So what's the addressable market for the downloadable The Lost and Damned.

Lainie Goldstein

It's approximately 50/50, Ed.

Edward Williams - BMO Capital Markets

And what about a geographic breakdown, U.S. versus international?

Lainie Goldstein

It's about 50/50 there as well.

Benjamin Feder

50/50 generally.

Lainie Goldstein

50/50 over both, right.

Edward Williams - BMO Capital Markets

So 50/50 platform, 50/50 geographic. And what about the economics of Midnight Club downloadable content versus GTA downloadable content, is there any material difference there?

Lainie Goldstein

Well, the GTA downloadable content was subject to our Microsoft agreement that we haven't discussed specifics on, but the Midnight Club downloadable content is a separate arrangement.

Edward Williams - BMO Capital Markets

Separately, can you give us an idea - you mentioned some comments, Lainie, during your prepared remarks about movements to the release schedule. Can you give us any color as to what was moving around?

Lainie Goldstein

Well, there's some titles that were not previously announced, so we're not going to talk about those in detail. And then there's other products that may have been earlier in the year that may have moved towards later in the year.

Edward Williams - BMO Capital Markets

So it's some unannounced products moving out of the fiscal year?

Lainie Goldstein

Yes.

Edward Williams - BMO Capital Markets

And then other products just moving later in the fiscal year, again unannounced?

Lainie Goldstein

Correct. Yes.

Edward Williams - BMO Capital Markets

And then can you give us an idea as to what your headcount was like in the studios within Rockstar and 2K as of now or as of the quarter end?

Lainie Goldstein

Well, the total development studio personnel is 1,500 approximately at the end of the year, but we don't break that down by label.

Edward Williams - BMO Capital Markets

And what is your expectation for that headcount by the end of the current fiscal year?

Lainie Goldstein

We also don't provide that level of detail, but we are focused on growing our development capabilities throughout all of our studies.

Edward Williams - BMO Capital Markets

And then just a last quick question for you is can you give us an idea where on the revenue side there was an upside relative to your own expectations for the January quarter, however specific you can be?

Lainie Goldstein

Well, NBA did fantastically well during the quarter. We also had some - GTA 4 and Midnight Club did better than we had expected. And also Carnival Games is a game that just continues and continues to surprise us and do fantastically in the market. And also I mentioned in my prepared remarks the catalog just was extremely strong during the quarter.

Edward Williams - BMO Capital Markets

And then the last question I have is: Is there any particular takeaways - I'm not sure, Ben, this maybe addressed more to you - but any particular takeaways coming out of Destination PlayStation that you heard, not necessarily from Sony but just from the retail channel in general, that you think are relevant at this time as we kind of look at how the industry's performing.

Benjamin Feder

Well, if I can brag for a second I will tell you that the universal feedback that we got is that we were one of the most [inaudible], had one of the most exciting presentations of any of the publishers out there, so we'll see. We hate to do that on a call, but I can't help myself. So I'm very pleased at the reception we got at Destination PlayStation.

And in terms of industry response, I think we said in the prepared remarks this is an environment where we see consumers exhibiting either a flight to quality and/or a flight to value, and we see that as well. And the value can get confused with casual and family orientation, but I do think that at the right price those titles sell as well. That was validated at Destination PlayStation.

And as I said, I think Take-Two is perfectly positioned in that regard. We've got great frontline product and Jack Of All Games to deliver values to an array of channels that don't necessarily show up at Destination PlayStation, but are certainly there in numbers as well. So that was reconfirmed. It confirms what we had suspected, in any event, kind of flight to quality and flight to value.

Operator

Your next question comes from Heath Terry - FBR Capital Markets.

Heath Terry - FBR Capital Markets

I'd appreciate it if you could give us kind of an update on the baseball business and maybe just the Sports business in general, if you're seeing any more with the initial few weeks of the baseball game being out there now, if you can kind of give us an idea of how that's performing relative to expectations and whether or not the economy may be having a bigger impact on your

Sports business or less impact on your Sports business relative to the overall market?

Benjamin Feder

The Sports business generally, I'd say, it's hard to tell. NBA 2K9 has done terrifically well. It's a word we use eternally. It's on fire. It's just been a fantastic success for us. We're really, really pleased with it. We're pleased with the guys at VC and the guys at 2K Sports. They've done a terrific job with it.

And it's too early to tell. I know some of you have seen kind of reviews. I think it's too early to tell A) on those reviews, and B) the way those reviews are skewed, one or two reviews kind of skew it down. If you kind of lop off the bottom and, in fairness, lop off the top, it actually looks a lot better than you would see just on the headline number from Metacritic. So we're watching the market carefully.

It's also important to remember that this year we have more SKUs coming out in baseball than [inaudible] with The Bigs coming out. So there's a lot going on in the baseball season in general, so I think it's way too early to call, but we're watching it very, very carefully. I think the guys at VC have done a very good job given the time constraints that they were under, so we have full faith in the team at VC to create the best baseball game available.

Heath Terry - FBR Capital Markets

And just, I guess, kind of a housekeeping thing. How many more years are left on your current major league baseball relationship?

Benjamin Feder

About three years - 2012.

Operator

I would now like to turn the conference back over to Strauss Zelnick for closing comments.

Strauss Zelnick

Thanks, all, for joining us. We feel pleased about the results we're reporting today. We are taking, as we've said, a prudent outlook for the rest of the year and we're cautiously optimistic about how that's unfolding based on the current results. And of course it's always nice to get on the phone on a day when the market's up as much as it is, so thanks for joining us.

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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