$20 GTA: Chinatown Wars Is a Problem for Take-Two

As you probably know, Take-Two Interactive’s (TTWO) Grand Theft Auto: Chinatown Wars bombed in its March debut, moving a measly 89K units in its first month of sales. That’s an attach rate of less than 1% for what is the highest-rated Nintendo DS game ever.

Nintendo itself took the unusual step of coming out and making excuses for the title’s poor performance:

‘Chinatown Wars’ is performing in line with AAA titles that have come to our platform like ‘Spore‘ or ‘Lego Star Wars,” Steve Singer, vice president of licensing and the man who manages third party relations for Nintendo of America, told me in a phone interview. “Those games went on to have very different life-to-date sales numbers.” A Nintendo rep pointed to sales of “Call of Duty 4” on the DS, which had sales of 36,000 units in its first month and went on to sell more than 500,000 copies.

I actually buy that analysis to a point. GTA: Chinatown Wars definitely has the potential to perform very well over the long-term and generate significant profits for Take-Two. However, Best Buy (BBY) decided to screw things up by tossing Chinatown Wars into the bargain bin:

Perhaps Best Buy merely over-ordered relative to competitors, but its low price for Chinatown Wars will pull customers away from rivals. That means more price cuts from more mass-market retailers like Wal-Mart (WMT) and Target (TGT), though I assume GameStop (GME) is less likely to cut price in the near-term.

Now take a look at this little piece of information from Take-Two’s last 10-K filing:

Price concessions may occur at any time in a product's life cycle, but typically occur three to nine months after a product's initial launch. In fiscal 2008, 2007 and 2006, price concessions to retailers amounted to $52.3 million, $68.1 million and $73.9 million, respectively.

Chinatown Wars is being discounted less than two months after release, which is below the range Take-Two lists as a typical time frame. You can be sure that retailers will be demanding price concessions for Chinatown Wars, especially since it is probably overstocked at the store level. So when reorders do happen, they’ll be at lower prices.

I’m tempted to dip into Take-Two because of the potential for another takeover, but I’ll take a wait-and-see approach due to the heightened earnings risk.

Disclosure: No positions in stocks mentioned

Comments

[Mick Weinstein:]

Great work finding the Best Buy markdown, Michael. Definitely an important data point for TTWO investors.

Apr 28 10:01 AM

[Gaucho420:]

I don't think its that great of work, as anyone can look that up on the net at any time...and anyone should , if they're serious investors in the videogame world.

Nice, but obvious column to an obvious outcome.

Shouldn't the writer be more concerned with the cancellation of Bioschock, the movie? Here's some inside info on that...the $160 million quoted budget is being minimized, it was actually much, much higher...SIGNIFICANTLY HIGHER. So the studio got cold feet, as an unknown property, a Rated R property in this market maybe a huge gamble.

But the postponning of that movie is much more important than GTA Chinatown Wars, which is important on its own...but not like a huge promo to TTWO in movie form being cancelled. This could've put Bioschock in the huge game category, as my inside sources tell me the movie was looking damng good...they spared no expense and hence, it got postponned.

Too bad.

Apr 28 11:52 AM

[Michael Comeau:]

The Bioshock franchise is alive and well with our without the movie - hardcore gamers will ensure that Bioshock 2 will be a mega-hit. It doesn't need a movie to be a success given the success of the first game.


On Apr 28 11:52 AM Gaucho420 wrote:

> I don't think its that great of work, as anyone can look that up
> on the net at any time...and anyone should , if they're serious investors
> in the videogame world.
>
> Nice, but obvious column to an obvious outcome.
>
> Shouldn't the writer be more concerned with the cancellation of Bioschock,
> the movie? Here's some inside info on that...the $160 million quoted
> budget is being minimized, it was actually much, much higher...SIGNIFICANTLY
> HIGHER. So the studio got cold feet, as an unknown property, a Rated
> R property in this market maybe a huge gamble.
>
> But the postponning of that movie is much more important than GTA
> Chinatown Wars, which is important on its own...but not like a huge
> promo to TTWO in movie form being cancelled. This could've put Bioschock
> in the huge game category, as my inside sources tell me the movie
> was looking damng good...they spared no expense and hence, it got
> postponned.
>
> Too bad.

Apr 28 11:57 AM

[Gaucho420:]

Bioshock needs to get into a slighly higher sales ranged to be a true hi...its a mediocre hit. A movie certainly would've help AND the big thing is TTWO was going to make money on that movie.

Given that the director of Pirates of the Carribbean is directing it...to me its a big loss. TTWO went out of their way to state they had set up this arrangement as a big money making endeavor in the future, although no profits were scheduled as part of guidance.

Losing a movie for a B popularity hard-core game is a very big deal and I for one hope they bring it back soon.

GTA: Chinatown Wars, I didn't expect much from...but a profitable movie tie in, with what was to be a blockbuster movie with a huge budget...that's a big loss, all around.

Its thinking past Bioshock the game and thinking into Bioschock the franchise...I'm not so sure Bioshock is a solid franchise at this point...I don't even think it sold very much on the PS3 at this point...did it even chart?

Apr 28 03:26 PM

[Michael Comeau:]

Bioshock didn't do as well on the PS3 as it did on the 360. That's because it was a year past the 360 version's release date and thus it didn't have the same kind of buzz.

But don't underestimate Bioshock 2, ESPECIALLY since it will have multiplayer. The original's single-player campaign was unbelievable but some people were turned off by the lack of online play.


On Apr 28 03:26 PM Gaucho420 wrote:

> Bioshock needs to get into a slighly higher sales ranged to be a
> true hi...its a mediocre hit. A movie certainly would've help AND
> the big thing is TTWO was going to make money on that movie.
>
> Given that the director of Pirates of the Carribbean is directing
> it...to me its a big loss. TTWO went out of their way to state they
> had set up this arrangement as a big money making endeavor in the
> future, although no profits were scheduled as part of guidance.<br/>
>
> Losing a movie for a B popularity hard-core game is a very big deal
> and I for one hope they bring it back soon.
>
> GTA: Chinatown Wars, I didn't expect much from...but a profitable
> movie tie in, with what was to be a blockbuster movie with a huge
> budget...that's a big loss, all around.
>
> Its thinking past Bioshock the game and thinking into Bioschock the
> franchise...I'm not so sure Bioshock is a solid franchise at this
> point...I don't even think it sold very much on the PS3 at this point...did
> it even chart?

Apr 28 05:41 PM