Q2 2024 Take-Two Interactive Software Inc Earnings Call
Greetings and welcome to the take two interactive second quarter fiscal year 2024 earnings call.
At this time all participants are in a listen only mode.
Question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
I'd now like to turn the conference over to your host Nicole Chevron's Senior Vice President of Investor Relations and corporate communications.
Good afternoon. Thank you for joining our conference call to discuss our results for the second quarter of fiscal year 'twenty 'twenty. Four ended September 32023, today's call will be led by Strauss Zelnick take two's, Chairman and Chief Executive Officer, Carl laid off a precedent and Lena Goldstein, our chief financial officer will be available.
To answer your questions during the Q&A session. Following our prepared remarks before we begin I'd like to remind everyone that statements made during this call that are not historical facts are concern.
Forward looking statements under federal Securities laws.
You mentioned 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 filings with the SEC, including the company's most recent annual report on Form 10-K.
And quarterly report on Form 10-Q, including the risks summarized in the section entitled Risk factors.
I'd like to note that unless otherwise stated all numbers, we will be discussing today are GAAP and all comparisons are year over year additional details regarding our actual results and outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Our press release also contains a reconciliation of any non-GAAP.
Financial measure to the most comparable GAAP measure.
To our website, a slide deck that visually presents our results and any SLAPP law, our press releases and filings with the FCC may be obtained from our website at take two games Dot Com and now I'll turn the call over to stress.
Thanks, Nicole good afternoon, and thank you for joining us today.
We delivered another consecutive quarter of excellent results highlighted by net bookings of 1.44 billion, which.
Which was at the high end of our guidance and manager met results that exceeded our plans.
While we expect continued macroeconomic uncertainty we believe that we're well positioned for the holiday season and are reiterating our fiscal 2024 net bookings guidance of $5 45 to $5 $55 billion.
Looking ahead, I am exceedingly optimistic about our company's multiyear growth trajectory and our ability to deliver long term value to our shareholders. Our development pipeline is robust and diverse and we're getting closer to delivering the groundbreaking titles or audiences throughout the world have been anticipating eagerly.
Our unwavering commitment to being the most creative the most innovative and the most efficient entertainment company gives us great confidence that our offerings will surpass our players' expectations and set new standards of creative excellence in our industry.
Now turning to the performance of our titles during the quarter.
Last I've thought about five and Grand theft Auto online continue to surpass our expectations and outstanding achievement for two titles celebrating their 10th anniversary.
Today's Grand Theft Auto five has sold in approximately 119 million units.
Grand Theft auto online experience continued momentum due to the rollout of new gameplay and items from the San Andres mercenaries updated with new seasonal events vehicles modes clothes and weapons driving sustained engagement and that bookings.
Our GTA plus membership program continued to grow and we're deepening our relationships with our player communities through new offerings, which now include access to a rotating assortment of classics Rockstar games' titles.
During the quarter Rockstar games announced citizen FX the team behind the five of them and read them roleplaying communities for Grand Theft Auto five and Red Dead redemption, two officially joined the label.
With their immense passion and creativity citizen FX has been pivotal in expanding the possibilities of user generated content around rock stars leading titles. We're excited to see them continue to build these creative communities and help them thrive into the future.
We're also thrilled by today's announcement from Rockstar games founder Sam Houser that the eagerly anticipated first trailer for the next Grand theft Auto will be revealed this coming December.
The label approaches its 25th anniversary next month, we congratulate Rockstar games on their constant innovation and the pursuit of the highest quality interactive entertainment.
Red Dead redemption, two surpassed our plants and is sold in more than 57 million units to date Fox.
Our games continues to support Red dead online with new content, including bonuses for the naturalist and bounty hunters and new free realm missions in Nevada. In addition, Rockstar games expanded the audience for the franchise with the launch of Red Dead redemption, and under a nightmare for Playstation four and Nintendo switch.
Okay.
On September eight two K and visual concepts once again redefine the number one M. B a stimulation experience in our industry with the successful worldwide launch of NBA <unk> 24.
With exciting new features and next generation enhancements. The title is off to a great start and to date has sold in over $4 5 million units N V. H O. K 24 features new season pass options to provide players with the opportunity to earn even more rewards as well as the new seasonal progression the tracks and combines my career and my team into.
One linear reward system.
<unk> has been phenomenal with season pass and virtual currency bookings exceeding our plans and driving double digit growth in ARPA compared to <unk> 23.
Our franchise extensions continued to perform extremely well, including NBA Teekay mobile N V. H U K online in China, and the recently launched M. B a two K 24 Arcade addition on Apple arcade.
I'd like to thank two K and visual concepts for continuing to bring innovation and creativity consistently to our beloved franchise.
Okay continued to support Lego to K drive with its second drive past season, and the creators hub and PGA tour to K 23, with additional pros and gear. In addition, the label harnessed the power of our industry, leading catalog with the launch of the Borderlands collection, Pandora's box, which bundles together all six acclaimed borderlands game.
Ames in there previously released add on content into a single offering amazing value. We have great respect for the team at gearbox and we value deeply our long term relationship.
Zynga once again delivered solid results during the quarter and we remain pleased with its ongoing performance. We continue to benefit from Zynga has ability to create engaging new games, which is a distinguishing capability of our mobile business. For example, <unk> successfully launched power slab based on the world's first.
Regulated and sanctioned flat fighting promotion the tie.
It's highly entertaining and to date has experienced more than 1 billion slabs of cross training and matches with the launch of this new mobile game Rock has now had 22 titles reached the number one or two spot in the U S. Apple App store.
Like to thank the entire team over at Teekay, all and putting Ari Emanuel and Dana Weiss for their strong partnership as well as our colleagues have rolla created this title from inception to release just eight weeks.
Zynga also released.
They can also recently launched top troops and match factory, both of which delivered excellent kpis in soft launch and appear to have strong long term potential for our portfolio.
And Star Wars Hunters continues to hit important milestones as we approach its planned release date in calendar 2020 for Karl will discuss these titles in greater detail.
Other highlights from our mobile business. This quarter include our advertising bookings grew year over year driven by the addition of popcorn contributions from strategic partnerships and our efforts to increase of admin inventory in many live games.
We continue to make excellent progress on our profitability initiatives, including expanding the number of mobile games to leverage our direct to consumer platform.
As we convert additional players we're gaining new insights that we believe will better serve our players preferences.
We remain optimistic that over the next few years most of our mobile games will leverage this highly accretive owned distribution channel.
In addition, we continue to enhance the profitability and performance of our hyper casual business with multiple new games scaling rapidly and several games generating revenue from in App purchases. In addition to ads.
Our live games portfolio also continued to deliver social casino maintained steady performance coming off a great first quarter driven by new bold beat features which drove strong results, particularly in Zynga poker. Additionally, we implemented new updates and events across many games, including top 11, and Dragon City, which drove order.
<unk> growth as well as increased engagement and core systems, leading to better retention and monetization.
We stand at an exciting time in our company's history with numerous growth opportunities ahead of us as we deliver on our strategic priorities, we have the potential to create unparalleled entertainment experiences engage broader audiences throughout the world and ultimately enhance our scale and <unk>.
Margin profile I'd like to thank all of you for your continued support and we look forward to delivering our next phase of growth.
I'll now turn the call over to Carl.
Thanks, guys.
I'd like to thank our teams for delivering another strong quarter and adding to the ongoing positive momentum of our business.
Now I'll turn to our recent and upcoming launches for fiscal 2020 or India.
On October 3rd Zynga, Social point studio successfully launched top trips a new mobile games that blend strategy RPG and marriage mechanics to create a thrilling medieval fantasy adventure a combat and conquest.
This is mark the studio's first worldwide launch under Zynga. Following our combination last year. The game has seen positive player reception with an average rating of 4.38 on Google play and $4 five on the Apple App store.
Engagement has also been fantastic with over 2 million hours played in over 70 million battles thought since its worldwide launch date.
So you can't gearbox software expanded the audience of our beloved borderlands franchise with the October six release of Borderlands three ultimate edition for Nintendo switch.
The game now allows players to make the mayhem at home or on the go and a thrilling high Stakes adventure silver genre defining shooter looter action.
On October 20th two Cam visual concepts launched the WWE UK twenty-three bad Bunny edition across all platforms.
Global phenomenon bad money is featured on the cover of the edition, which also includes a new playable version has is in game character, wherein the apparel that Hayward WWE backlash 2023 live event.
I think as peak game studio the makers of two blast and toy blast released match factory, a new puzzle game for mobile where players connect identical items sort tiles and clear the board and a mesmerizing three day environment.
In soft launch, we observed strong engagement and monetization metrics as well as very positive player response as indicated by App store review scores, which gives us optimism about the long term potential for this new mobile title.
Private division has several exciting releases planned for this fiscal year.
On November 28th Wells, seven will released their critically acclaimed and wildly imagine if third person shooter skater roller drone for Xbox series X and S. N P C.
As well as Xbox game pass for both platforms.
Also during the fourth quarter evening Star founded by industry veterans behind Sonic Mania, well launched Penny Big breakaway kinetic Yoyos three D platform or a Playstation five Xbox series X and S. Nintendo switch and PC.
Okay and visual concepts are hard at work on WWE <unk> 20 for the next installment of our popular wrestling series, which were launched during the fourth quarter.
Looking ahead, we continue to see great engagement and feedback commodity enjoying star wars hunters in soft launch across multiple territories. There are several exciting new elements that we are working hard to get into the game, causing us to move the titles by wide launch window to calendar 2024.
Private division is working with why don't workshop on tails of the Shire a game set in the Middle Earth Universe, and inspired by the Bulks of Jay our token.
The team recently released a teaser trailer showing fans a glimpse of the project, which is planned for release in calendar 2024th during our fiscal year 2025.
Also zynga plans to globally launch game of Thrones legends and all new RPG puzzle oriented Marvel title.
In addition to a full game releases our labels will continue to provide new content and experiences that drive engagement and recurrent consumer spending across many of our key offerings.
Highly optimistic about what we believe to be the strongest and most exciting development pipeline and our company of history.
And now I'll turn the call over to Linda.
Thanks, Carl and good afternoon, everyone today I'll discuss the key highlights from our second quarter before reviewing our financial outlook for the full year and third quarter of fiscal 2024.
Additional details regarding our actual results and outlets are contained in our press release.
We delivered another great quarter, which demonstrate the enduring strength of our catalog and our ability to deliver a deeply engaging post launch content and our commitment to disciplined execution.
At the same time, our teams continued to make excellent progress advancing our development pipeline, which gives us confidence in a multiyear growth trajectory I'd like to thank our incredible team worldwide for their hard work and passion for our business.
Now moving onto our results, we achieved naphtha, Inc. A $1.44 billion because at the high end of our guidance range.
Appointment reflects the better than expected results from Grand theft out of five and grant up that are online and Red dead redemption two during.
During the quarter, we released MBA Teekay 24, Red dead redemption in an effort to hedge and Playstation four Borderlands collection, Pandora's box and para flat.
Our current consumer spending declined 7% for the period, which was in line with our outlook and accounted for 78% of net bookings.
GAAP net revenue decreased 7% to one $3 billion, our cost of revenue increased 24% to $884 million driven by an impairment charge of $220 million and $190 million the amortization of acquired intangible.
Operating expenses increased by 3% to $959 million and included $165 million, the long term and representing a partial impairment of pointed out we're putting in.
On a management basis operating expenses are flat year over year, which is favorable to our guidance. This was driven by lower marketing expenditures some of it shifted to later this year.
Turning to our guidance I think you meant therefore fiscal year expectations as Jeff mentioned, we are reiterating our net bookings outlook range of 5.45 to 5.55 billion dollar.
The largest contributors to net bookings are planned to be N D. ATK Grand theft auto online and grant that certified hyper casual novel portfolio empires, and puzzles Sandblast Red dead redemption, two and Red dead online, whereas at friends merge Dragons and Zynga poker.
We expect the net bookings breakdown from our labels to be roughly 49% Zynga, 31% U K, 18% Rockstar games and 2% other.
And we forecast our geographic Napa insights to be about 65%, United States and 35% International.
We are projecting the current consumer spending growth of 4% compared to fiscal 2023.
<unk>, an increase of MBA teekay as well as anger since you've owned the business for a full 12 months of this year will grant us out of my mind, Brecksville condensate and <unk> plus membership is expected to be flat Rcs is expected to represent 78% of net button.
We plan to generate approximately $100 million and non-GAAP adjusted unrestricted operating cash lap and we deploy approximately $150 million for capital expenditures, primarily to support our office build outs and larger footprint.
We continue to forecast GAAP net revenue to range from five to seven to $5 $47 billion.
Total operating expenses are now planned to range from 3.53 to three point by $5 million as compared to $3 $45 billion last year.
On a management basis, we continue to expect operating expense about approximately.
14% year over year due to a failure of syngas and increase in personnel and marketing expenses and higher depreciation of office Buildout and capitalized it expenses, which have been partially offset by the realization of synergies from our combination with zynga and savings from our cost reduction program.
We remain vigilant in our efforts to optimize our cost structure and reduce discretionary costs, where possible while still investing for growth now.
Now moving onto our guidance for the fiscal third quarter, We project net bookings to range from one $3 billion to $1.5 billion compared to $1 $4 billion in the third and last year.
I would say for the quarter includes two mobile titles, Pat chips and mass factory as well as borderlands three ultimate edition all of which have been released.
The largest contributors to net bookings are expected to be NBA T K Grand theft auto online and Grand theft, Edified hyper casual novel portfolio.
Empires, <unk> puzzles, sandblast Red dead redemption, two and Red dead online, whereas at Fang merge Dragons and Zynga poker.
Project with current consumer spending to decrease by approximately 5%, which assumes a modest decline in our mobile business, which is being partially offset by expected both an M. B a T K.
Grand Theft auto online virtual currency in GTA pass membership is expected to be up we project GAAP net revenue to range from one $9 billion to $135 billion.
Operating expenses are planned to range from $826 million to $836 million on a management basis operating expenses are expected to grow by approximately 7% year over year, driven by higher personnel and depreciation expenses actually have been partially upset by the zynga synergies and our cost savings initiatives.
In closing there are many exciting upcoming catalysts that we believe will enable our company to achieve new record levels of financial performance.
Powered by our incredible talent, we believe that our projects in development of that new standards for creativity and engagement in our industry. While also significantly enhancing our financial profile wed like to thank all our stakeholders being on this journey with us and we can't wait to share more details with you. Thank you I'll now turn the call back to Seth Thanks, Lenny and Karl on behalf.
Of our entire management team I'd like to thank our colleagues for enabling us to achieve our goals and to deliver another strong quarter and to our shareholders I want to express our appreciation for your continued support we will now take your questions operator.
Thank you, ladies and gentlemen, if you'd like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue you.
You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys.
And our first question comes from the line of Andrew Your courts with Jefferies. Please proceed.
Great. Thank you for taking my questions.
The first one and I just have one follow up the first one.
And in the last quarter U.
You reiterated your fiscal 'twenty six in 'twenty or 'twenty, five and 26 guidance you I think you announced I'm sure Sam Houser mentioned, we'll get a trailer for Grand theft Auto I think in December how are you feeling about those two years and any reason why that.
You didn't mention those two years and the reiteration of guidance.
It is shifting our pipeline our expectations are that net bookings are now be below 8 billion, but not materially. So it really isn't a big change and we expect left in 26 as well.
Got it. Thank you and then kind of just turn into high level.
High level question the acquisition of five M seems super interesting.
And that it could allow you guys to maybe learn more about user generated content and and find ways to monetize that and expand your audience well, what's what's the broader thought of.
Making an acquisition like that and how it fits not just with Grand theft auto, but maybe the company as a whole.
We're really excited about it I mean to be clear. This is a small economic opportunity right now a small cost to us.
We want to be where the consumer is and what's going on in role playing in.
Uh huh.
It really in two ways number one that people are actually playing role playing servicing number to the people who are watching what theyre doing on twitch.
Both are really interesting the actual people playing as a relatively modest audience. It's in the hundreds of thousands.
But the people watching that's a huge audience and we're interested in first of all making sure that our intellectual property is protected.
We're also really interested meeting the consumer where the consumer is and for certain consumers bonding is really important activity and finally, you know people are consuming our intellectual property, we would like to monetize it. If we can we think this gives us an opportunity to do all of the above.
Got it thank you.
Our next question comes from the line of Eric Handler with Roth and Kam. Please proceed.
Good afternoon, thanks for the question.
Wonder if you could talk a little bit about what you're seeing with players who are engaged with G. T. H plus are they you know are there different no.
How they interact with the game versus someone who is not a subscriber.
We don't see materially.
Different behavior or we think it's a great addition, we're thrilled to engage with our consumers in this way.
And.
It's a learning experience, but it's also gratifying that GTA plus continues to grow and be more and more relevant to more and more consumers.
Great and then leaning maybe you can just do.
So a quick clarification.
At least on a GAAP basis advertising was down is there a difference between.
GAAP revenue for advertising and advertising bookings.
Yeah.
And yes, and there is in the gap there is some deferral of some of the advertising. So that's the difference between as being up in the quarter versus the gap showing flat.
Got it okay. Thank you.
Our next question comes from the line of Doug Kurtz with TD Cowen. Please proceed.
Yes.
Hey, Thanks, I'm just wondering if you could give any more color on the write down you took in the quarter I'm guessing that had to do with some of your mobile assets, but whatever whatever other color you'd give on that would be helpful.
Uh huh.
We recorded an impairment charge of 202009 related to intangible assets and $165 million of goodwill representing a partial impairment of one of our reporting one of our reporting units and this is as a result of an updated long term projection for that reporting unit, but we're not giving any more details other than that.
Okay. Thank you.
Okay.
Our next question comes from the line of Andrew Morocco with Raymond James. Please proceed.
Hi, Thanks for taking my questions. So over the last couple of weeks and months that trying out some different additions of content for GTA plus subs thinking about the trilogy in particular, I guess kind of what learnings have you had from the different types of content included in the subscription and how it drives uptake.
That's the kind of detail that we typically leave to our labels. So we probably don't have much more to add today, except what I said earlier, which is we're thrilled that rockstar is offering a subscription to avid consumers wherever we think that bodes really well for the future.
Alright, I appreciate that and then one more if I could.
I heard a lot about.
Some of the the coming titles and mobile kind of a greater prominence of licensed IP with things like Star Wars game of Thrones Lord of the rings, just any difference in thinking as to the value of license IP on mobile versus console and PC. Thank you.
So.
Mr. Carl The fact is we do value both of those can be very very valuable obviously owning the IP and any context and also mobile.
Margin potential is much higher because you own it full an outright obviously with license I think you have to pay royalties, but the mobile market is tough to break new IP, it's tough to get attention and it turns out if you can't argue with the fact that having unknown.
<unk> out there is a way for you to get attention. So it's a give and take I would say our perspective hasn't changed.
In a perfect World, we would focus exclusively on owned IP, but the truth is when we see a good license that we think we have we have a great idea for a game for and I think I first wanted to take it to market. Then that's something that we're going to continue to pursue.
Alright much appreciate it thank you.
Our next question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed.
Thank you so much for taking the questions maybe one bigger picture one for sure Strauss you've seen a lot of media inflation in increases in subscription prices broadly broadly in the media landscape. How do you think about striking the balance between pricing and attracting a wider array of audience. When you think about the content pipeline youre going to bring to market.
Over the next couple of years to capture the right mix between those two dynamics and then second question would be are there any guardrails, we should be keeping in mind in terms of the evolution of the DTC platform and what piece of cadence that might.
Continuing to evolve as a percentage of the mix. Thank you.
Yeah, I mean, you don't Wanna [laughter], sorry, you don't want to generalize.
To our business.
Too much from what's gone on in linear at.
Entertainment because the increase in subscription pricing in linear entertainment is really a reflection of the fact that too many streaming services, we're underpricing to acquire customers and then they realize those customers were not durable and the ltvs were upside down. So they were basically adjusting their pricing to make sure that the ltvs are.
Really positive and I think there's still more pain to come for some of those services and I can wax eloquent. If you want although it has nothing to do with our business in terms of pricing for any entertainment property basically the algorithm is the value of the expected entertainment usage, which is to say that the per hour value.
New times, the number of expected hours plus the terminal value, it's perceived by the customer and ownership.
It was actually islands, not say rented or subscribed to and you'll see that that bears out in every kind of entertainment vehicle by that standard are our frontline prices are still very very low because we offer many hours of engagement the value of the engagement is very high.
So.
I think the industry as a whole offers a terrific.
Nice to value opportunity for consumers.
That doesn't necessarily mean that the industry has pricing power or wants to have pricing power. However.
There is a great deal of value offered and look it's our strategy here to deliver much more value than what we charge consumers. That's always been our strategy here. We wanted to make sure. The experience is first class and the nature of the experience is not just the quality of what we offer is also what you pay for it and everyone knows that anecdotally.
So that's how we look at it you know there'd been precious for your price increases in the business.
The price increase for example to $70 for certain frontline products was the first price increase in many years after many generations.
So again I think we offer a terrific value to consumers.
On the second question is.
Regarding the <unk>.
Direct to consumer platform. We think there continues to be a great deal of upside there again for consumers and also for our margins.
It's still a relatively small part of our business, there's a great opportunity for growth to be clear, we will always work with third party retailers, we want to be where the consumer is we value our third party retailer relationships. They do provide marketing support there that's important to US there are times when consumers want to have a direct relationship. We can we can do both we can do all the above.
It is not our strategy to bring everything in house.
Thank you.
Our next question comes from the line of drew Crum with Stifel. Please proceed.
Okay. Thanks, Hey, guys. Good afternoon. So Strauss you mentioned that the business is well positioned for the holiday season, what's driving that confidence and how would you assess the health of your consumer.
And then separately I know, it's just a subtle changed rcs, but what's behind the adjustment to that figure for the second half given your fiscal <unk> was in line. It looks like just based on the commentary around the net bookings mix at Zynga, but just want to confirm that thanks.
So.
Speaking to the confidence of our holiday season, I guess look simply I think it's the strength of our catalog and the strength of our products and a lot of our releases are must have releases and anytime you are heading into the holiday season, I think everyone around the table and on the phone is hopeful that we're going to have a very strong hardware season. The season this year.
We do have a lot of titles that we think are sort of don't two titles for people.
To engage with.
And also you're obviously worse. We're also we're paying off of the results that we've had to date, which are very strong. So the momentum feels positive and we've got a great lineup in place and it looks like it's going to be pretty good holiday season from a consumer perspective, particularly in the gaming space.
And for the RC asked the main driver is the reduction in Zynga business for the remainder of the year. So it would be a forecast that some of our titles.
Including a more muted expectations for the holiday based on the current trends and we're also continuing to focus on profitability and hyper casual which is reducing our topline, but enhancing our margins and then there's also some shifts in the pipeline, including Star Wars hunters.
Got it helpful. Thanks, guys.
Our next question comes from the line of Omar <unk> with Bank of America. Please proceed.
Hi, Thanks, so much for taking the question.
I just wanted to get a little bit of clarification on what you said about shifts in your pipeline.
Causing your your fiscal 'twenty five guide to be not not materially below $8 billion is that because of shifts in your very largest AAA games in the pipeline.
Smaller AAA games in the pipeline or your mobile games. If you could provide some clarity on that I'd. Appreciate it and then I have a follow up thanks.
Yeah, we havent even issued initial guidance for the year, we do that in the spring of the new year and that's why we'll give a lot more specificity around the release schedule. However, I want to reiterate we are going to be shy of 8 billion in fiscal 'twenty, five but not materially so.
Okay, all right no problem.
So then the other question is you know obviously super happy to see Sam Hausers message about the Grand Theft Auto sixth Grant next Grand theft auto trailer coming soon.
You know on September 26, the Sag Aftra voted to approve strike authorization for video game performers covered under the unions Interactive media agreement.
Now they haven't actually strikes yet, but there are negotiations and I wanted to know whether you know if voice actors and motion capture actors were to go on strike.
Would it slow down the production of the next Grand theft auto at Rockstar.
It does Rockstar have the type of employment contracts that would allow the workers the actors to work through a strike.
Negotiations are expected to resume next week, we're optimistic we value all of our talent greatly.
We value excellent labor relations and we're looking forward to reaching an agreement that serves everyone well.
That's always been my approach I've been involved with labor negotiations in every entertainment industry. There is in my career I've always worked out just fine in the event that they don't work out just fine now we are completely protected.
Thank you.
Yeah.
And our next question comes from the line of Mike Hickey with benchmark. Please proceed.
Okay.
Charles Cali cool great quarter, guys. Thanks for taking my questions two questions. The first one.
Strauss I'd be curious what are you.
Your updated thoughts on it.
It seems like that the technology is.
Yeah, Mark here is accelerating some of the use cases.
That we're seeing in terms of product.
And productivity.
Really remarkable so just curious what.
What you're thinking there.
And then the second question.
On the trailer and early December curious, what sort of impact do you think.
You think that might have.
On the other rocks are part of catalog product, obviously, you call that had been strong but.
I'm curious if that would be up.
Catalyst Booth, who was for your catalog and I'm curious on Grand theft Auto online this only the <unk>.
T T value.
Of that live service given the vitality it has into the release of GTA next others see that the set up for you.
We haven't experienced before thanks guys.
Thank you Mike.
Look we've been in the AI business since the dawn of this industry.
Our our entertainment properties are created largely in hand.
By computers, and we value tools, when we create those tools internally and we license external tools tools as well in the new developments in AI are really exciting and I've said.
Publicly and repeatedly but I believe they will help create efficiency and in certain instances allow us to do things that we haven't been able to do before.
But it's going to allow that for competitors as well. So I think the tool sets that come out of these recent developments will be commoditized quickly and the efficiencies that we see others will see do I think that generative AI is going to make hit games no do I think.
The need for creative people will go away absolutely not.
I think if anything better tool sets just raise the bar they give us the opportunity to do more and do better. So the the changes will be menial work, probably has reduced or eliminated high level work is enhanced.
And importance.
So I think youll see shifts in what we can do with our games. So you mentioned product I think youll see some shifts in product positive ones I hope.
And you mentioned productivity and I think you will for sure see some shifts some productivity, but I'm not sure those shifts will drop to the bottom line because typically when we've now generated productivity with tool sets. We've just set our sights higher and you know that's our story our strategy is to be the most creative the most innovative and the most efficient company in the business and AI.
I think probably ticks all three boxes.
But don't don't expect the price tags to go down just expect everything to get better and competition probably to become more intense.
For people, who are not able to avail themselves of the resources that we can afford.
With regards to the expected trailer that Sam Houser posted about today, we're as excited as anyone else and do I think there'll be an impact on our catalog revenue potentially things already going really well in that space and with regards to GTA online I mean.
It's one of the Amazing story that here. We are 10 years later after the initial release and GTA online is growing strong wiser, calling strong because it's phenomenal because rockstar continues to supply content and updates and engage consumers and.
And entertain them more effectively than frankly anyone else in the business as long as we keep doing that we'll be very well positioned indeed.
Okay.
Ladies and gentlemen, as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
Our next question comes from the line of Clay Griffin with Moffat Nathanson. Please proceed.
Yeah. Thanks, good evening.
Couldn't help but notice that Nintendo announced a live action film Zelda film, Chris Ralph I know this question comes up all the time and I guess maybe.
Because this way.
You know, what's your relative willingness and perhaps even rockstar willingness to partner and find ways to extend <unk>.
Red Dead redemption, IP Grand Theft Auto IP you just just because it is it has been so successful from a near term perspective, just wanted to get your updated thoughts on that thanks.
We've spoken about this many times.
If we were willing to use the country.
But if we're willing to use the company's balance sheet to make you know a movie or a TV show than in the event of great success, we would benefit from it but we're not prepared to use the company's balance sheet that way because the risk reward profile is unappealing to us out of those are very difficult businesses I've been in.
<unk> successfully they're super challenging their novel, we do we'd much prefer the risk reward profile of the business. We're in so that means that the only way we can be in that business is through a licensed arrangement with a third party.
And you.
Let's put it in context, Mattel announced they said that their profits expected profits from licensing the bar VIP for a movie.
It would be about $125 million now Barbie is a massive massive shift and it's extraordinary.
So you don't want a positive a massive hit and look at the numbers that way even in a really good news scenario the license fees would be a fraction thereof for many of our properties not really enough to be meaningful here and you know we have to weigh that two against the risk of failure.
The the hit ratios in the motion picture business are vastly lower than they are in the interactive entertainment business, our hit ratios for console properties here.
In the eighties or 90%.
The hit ratio for a well run movie studios around 30%, which is to say theres, a 70% chance there.
That we license could fail and so in success the number.
In terms of the benefit to our bottom line as it.
It's not de Minimis, it's not zero, but it's not really material to what we do around here.
And in failure, we run the risk of compromising the underlying intellectual property.
It's a high bar, we have licensed two properties we have.
Since borderlands to lines getting this picture coming we've licensed Bioshock, we're looking forward to that as well.
And we have other titles in discussions not not anything ready to announce but we're going to be very very selective and very careful.
Okay.
Makes sense. Thanks.
And our next question comes from the line of Brian Fitzgerald with Wells Fargo. Please proceed.
Thanks, It's stuff we've been seen more discussion of intrinsic in game advertising things like in game Billboards and it seems like brand advertisers are getting more and more comfortable with in game advertising what are your thoughts on the broader opportunity there beyond mobile beyond games within games and maybe as well.
Your outlook for <unk> business, and how that evolves.
Thanks, and congrats on the quarter.
Thanks, I mean do you understand what we're already doing in mobile. So I don't think you want me to cover that you alluded to that with regard to console titles, we have advertising when it makes sense creatively and feels organic to the title. So for example, an NDA. If you go to a basketball game youre going to see advertising in the arena.
So its perfectly reasonable to see the same kind of advertising in our game, but we're not going to do product placement, where it's inappropriate. So that we can create a small amount of revenue first of all the numbers arent huge but secondly, anything that we do that it takes it a consumer out of the experience is problematic so years ago.
And I don't mean to take a pie chart, but I'll do it anyhow years ago, there was a bond movie and.
And James Bond, everyone knows he only drives an Aston Martin he's only ever driven an Aston Martin I don't know, which generation. It was but there was one iteration, where they clearly made a deal with BMW and all the cars in the movie where BMW and look everyone. The movie for me because to me every time I saw BMW I was like Wow.
Look a little bit of product placement right, there a little bit of an advertisement.
That's a disaster so it's perfectly fine basketballs perfectly fine and WWE.
It's not perfectly fine and that title where advertising doesn't fit as a result, I don't think you should expect that the numbers will be really material. Although again, we do have an advertising business when it makes sense.
That's completely separate again at the risk of being repetitive.
From the mobile advertising business, that's a growth category for us our mobile advertising was up year over year, we feel really good about that.
Thanks, Joe.
I think those are all the questions. We have I just wanted to say thank you again for everyone joining us today.
We're thrilled with the results and the results are driven by the creativity and passion and commitment of our colleagues saw 12 5000 of them all around the world. They work really hard everyday and we get to talk about it here, but the work to work is done at the studio level at the label level at the corporate level.
This is a company of a great commitment to our strategy of creativity.
Innovation and efficiency and we have a culture of ambition hard work excellent seeking unkindness and I'm really proud of that it was a really unusual place.
If we pursue our strategy and we and we do it in a way that's consistent with our culture, we seem over and over again to do well.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Okay.
Yeah.