Take-Two Interactive (NASDAQ: TTWO) recently announced a new publishing label called Private Division, which will focus on bringing to market titles created by leading independent game developers. The number of indie games available has exploded in recent years as major game publishers like Activision Blizzard (NASDAQ: ATVI), Electronic Arts (NASDAQ: EA), and Take-Two have focused more on producing fewer, bigger games in order to maximize returns.
Independent game makers, which don't have the backing of major publishers, have struck out on their own to offer gamers something different. By nature of being independent, these smaller studios don't have the massive marketing budgets to work with, but that hasn't stopped several indie game makers from creating some of the most popular games on the market.
Given that Take-Two has been very reliant on one franchise, with Grand Theft Auto V still selling strongly after four years, Private Division makes a lot of sense as an economical way to diversify its franchise portfolio.
Chasing that lucrative (and elusive) next big hit
Private Division is a way for Take-Two to differentiate its offerings, keep a steady flow of games rolling out for players, and remain creative and on the cutting edge of game making, especially given that major game companies typically get somewhat stale by making the same, formulaic games over and over.
Games can cost as much as blockbuster movies to make. Therefore, major game companies have to focus on the sure things to make the economics work. So gamers get a new version of Madden, Call of Duty, and NBA 2K every year; and every five years or so, Take-Two throws out a new version of Grand Theft Auto.
These big franchises sell millions of copies every year, and are a large reason why video game stocks have performed so well for shareholders. But just as lovers of music, TV, and movies can get bored with the same formulas reworked over and over, gamers also crave something different every now and then.
The Private Division label is a way for Take-Two to cast a wide net with the hope that it lands the next big hit game without investing a lot of capital. Indie games require relatively little development cost compared to big-budget games like Activision's Call of Duty, which often consume huge amounts of marketing money in addition to development costs. If a new title from Private Division becomes a big hit, it could provide Take-Two a much higher return on investment.
Many of the best-selling PC games today are made by independent game studios. Steam -- a popular digital distributor of PC games -- recently released its top sellers for 2017, and nine out of 12 of the biggest sellers were made by independent studios. One runaway hit that came out of nowhere was PlayerUnknown's Battlegrounds, which was developed by a likewise unknown studio called Bluehole based in Seoul, South Korea.It's a simple, highly addictive, multiplayer survival game that has reached more than 30 million players since launching in March 2017.
Take-Two would obviously love to stumble onto a similar success story from its Private Division label.
Take-Two is positioning to get bigger and more diversified
Take-Two already has several games under development through its new label, and these games are being developed by industry veterans who have years of experience working on some of the best-selling franchises in the industry, including Assassin's Creed, Fallout, and Halo.
Michael Worosz, senior vice president and head of independent publishing at Take-Two, said, "We have spent more than two years laying the groundwork for Private Division, building an experienced publishing team and signing projects with some of the most respected and talented creative leaders in our industry."
Private Division is described as "a developer-focused publisher that empowers independent studios to develop the games that they are passionate about creating, while providing the support that they need to make their titles critically and commercially successful on a global scale."
Take-Two stated, however, that other than new content expansions for Kerbal Space Program, there are no new titles from Private Division scheduled for release during fiscal years 2018 and 2019, which end in March.
All in all, Private Division is another step by management to build Take-Two into a bigger, more diversified game publisher to bring it in line with larger archrivals Activision and EA.
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John Ballard owns shares of Activision Blizzard. The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.