Image source: Take-Two Interactive.
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Take-Two Interactive's (NASDAQ: TTWO) Grand Theft Auto series is one of the biggest franchises in video games, and the company has done an incredible job of seeing that it delivers continued growth. A recent report from a Niko Partners analyst estimates that the series generated $700 million in revenue from September 2015 to September 2016,an especially impressive performance given that the last version of Grand Theft Auto Vlaunched in April of last year.
Even more impressive, the game did more sales in its third year than its second, and probably at higher margins thanks to greater contribution from downloadable content purchases.This type of staying power is virtually unheard of in video games, and the series' successful formula looks to generate ongoing advantages for Take-Two, some of which might also extend to the company's recently announced Red Dead Redemption 2.
Playing the long game
While the biggest software releases from video game rivals Activision Blizzard (NASDAQ: ATVI) and Electronic Arts (NASDAQ: EA) are built around annual release models, Take-Two has taken a more staggered approach to Grand Theft Auto releases that has helped preserve the series' relevance and stave off franchise decline. The company's massive development investments in its core property have helped keep quality sky-high, and this has translated into sustained sales and an ongoing strengthening of the GTA brand.
As of the end of October, Grand Theft Auto V had shipped more than 70 million copies, and the game's nearly unmatched sales life is still not close to being finished. In fact, with the exception of Nintendo franchises including Pokemon and Mario, no other gaming property has managed to remain at the forefront of industry popularity to the same extent as Grand Theft Auto and moving away from more regular releases looks to be making the franchise more profitable.
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The series launched in 1997, but its blockbuster success really kicked off with the release of Grand Theft Auto III in 2001. Grand Theft Auto IVcame out in 2008, followed by the release of the series' most recent mainline installment in 2013. Before Grand Theft Auto V, Take-Two followed up mainline series releases with semi-sequels and paid downloadable content expansions that focused on adding new single-player experiences, but the company now appears focused on releasing one big series installment every four to five years and continuing to generate revenue through evolving online modes.
GTAis a digital sales juggernaut
In April, a lawsuit filed against Take-Two revealed that Grand Theft Auto: Online had generated at least $500 million in digital revenue, and with strong continued engagement and the addition of new features, it's likely that this sum has climbed substantially higher.
The 2016 fiscal year saw Take-Two achieve record digital content revenue of $698 million -- representing 55% year-over-year growth from 2015. Much of this momentum came from the ongoing success of GTA: Online. Compared with the expenses needed to develop a major series update, the dramatically lower cost of producing virtual goods and new game modes and scenarios to keep players involved means that Take-Two is generating massively improved sales margins. Despite development and marketing costs north of $265 million, GTA V will probably wind up as the most profitable entry in series history.
GTA's online model can be extended to other titles
In an industry climate that has increasingly come to revolve around annualized releases, GTA: Online is keeping the series fresh and relevant and bolstering Take-Two's performance in the years between major releases in its most important franchise. This successful model is also being applied to some of the company's other big franchises, including the upcoming Red Dead Redemption 2. The continued digital-content push looks to unlock earnings potential in the years to come.
The Red Dead and GTA series have significant gameplay elements in common, and early indications suggest that Red Dead Redemption 2 will include an online mode that's similar to GTA: Online. While the Read Dead series has a much smaller player base than GTA, it's still big in its own right. The series' last installment shipped over 14 million copies, and a successful mirroring of the high-quality experience and persistent online gameplay component seen with GTA V would probably create another sustained earner for Take-Two.
With GTA V still moving copies at an impressive clip and driving high-margin in-game purchases, Red Dead Redemption 2 set to receive a similarly styled online mode, and a mainline GTA sequel a fair bet to arrive as a huge success in 2018, Take-Two investors can look forward to strong earnings drivers on the horizon.
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Keith Noonan owns shares of Activision Blizzard and Take-Two Interactive. The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool recommends Electronic Arts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.