During Take-Two’s financial conference call, executives of the publisher behind Red Dead Redemption 2 discussed different business models, including free to play, which has jumped right back under the spotlight with Electronic Arts’ release of Apex Legends and the continued success of Epic Games’ Fortnite.
Chief Executive Officer Strauss Zelnick mentioned that Fortnite’s success came about in a roundabout way, with the game first developed as an AAA game, with the free to play option that has become a huge hit was originally simply a mode of that.
“I think that’s sort of a stand-alone experience and I think that it’s hard to replicate. It would probably be ill-advised to try to replicate it.
The truth is that when you deliver an amazing thriple-A experience, consumers show up for it.
You’ve seen it for us over and over again, and you see it in the extraordinary results of Red Dead Redemption 2, the continued exceptional results of Grand Theft Auto V, and the the results of our catalog which sells pound-for-pound better than anyone else’s catalog, which is to say units sold per SKU. We’re the best in the business.”
“What we found is, you give consumers what they want — and that’s often reflected in reviews and metacritic scores. Red Dead Redemption 2 is tied with Grand Theft Auto 5 with a 97 score — they’ll show up and they’ll show up in quantity.
So I’m not worried at all about someone else establishing a free to play approach, as long as our quality continues to be stellar. That’s a very big “as long as” that we have to execute against every day.”
Zelnick continued by explaining that consumers aren’t usually too worried about pricing.
“Consumers aren’t actually super price-sensitive for entertainment. To say it in another way, if we put out something that people don’t want, you can price it whatever price you want, but they’re not gonna show up for it.
It’s not like selling groceries or commodities. When you give someone something that’s phenomeanal, it’s our job to deliver vastly more value than what we charge, but price sensitivity declines.
So I think that’s all about quality. That’s our approach, and that’s why we’re delivering these extraordinary results.”
Later in the call, he was asked to comment on the competition provided by Fortnite and mentioned that Take-Two continues to deliver “stellar results” despite the existence in the market of competing titles including Epic Games’ free to play juggernaut.
“There is no one-for-one comparison and I don’t believe for a minute that our results when great or our results when they’re less then great, are being influenced positively or negatively by another title in the marketplace. It’s just not the way entertainment works.”
“If you have something great, people will show up for it. If you don’t have anything great, they’re not gonna show up for it.”
Zelnick also mentioned that it’s almost certainly a good thing when there are multiple hits in the market, as they bring in a bigger and perhaps more diverse audience. He also continued to stress on the importance of quality.
“We’re not concerned about competition. We’re very concerned about what we do every day. […] We’re utterly focused on quality and we’re really proud of the qualuty of our titles and our recent releases, because frankly, they’ve been very good for quite a long time.
We’ve had very few, if any, disappointments that I can think of. “
In response to a different question, he elaborated further on providing customers with value.
“With regards to in-game spending, which really speaks to free-to-play games, I don’t think we’re seeing any kind of cap. I do think that consumers always pay attention to what they’re getting and what they’re spending. They’re always paying attention to value.
You never, ever want to be in the position of charging more than you deliver. You want everyone to leave the experience feeling great.
Speaking anectdotically, if you have a really great experience, but you feel you were charged too much for it, your emotional experience overall is not good, even the thing itself was good.”
“We want to make sure that our consumer always feel that we’re taking great care of them. And consumer understand that we have to pay our folks who deliver content, but we always want to deliver more than what we charge.
And I do think that certain of our competitors have gotten that upside down, and they even say it: “we’re data-driven businesses and we’re trying to maximise our revenue.” And then they back into the entertainment experience.
We’re an entertainment company. We’re trying to build incredible experiences. We’re trying to be the most creative company on Earth. We believe we have the best creative teams on Earth, and we encourage them, in fact require them to pursue their passion and not work on anything that they’re not passionate about.
As a result we think we have the best creative properties in the business, and people will show up for those. But we have to be totally respectful of our customers. That means delivering more than what we charge.”
Another analyst on the call followed-up by asking if it wouldn’t be possible to charge more than the usual sixty dollars for games like Red Dead Redemption 2, which deliver exceptional value.
That’s not really how consumers tend to see entertainment. They expect to pay the same price point for front-line entertainment, and their expectations are that it’s high quality.
In the video game business, because there’s metacritic scores and reviews, they have some paths to know typically what they’re getting, more so than in any other buinesses.
So it seems as though your frontline pricing kind of has be within that range regardless of the properties that you develop, especially because we never want the consumer to feel as we’re taking advantage of them. That includes even if there’s a lot of demand.
The second part of the question flipped it around, asking of releasing a game for free wouldn’t succeed in involving twice the amount of players or more.
“On your second point, your question resonates in great success.But when you don’t have any knowledge on where you’re going to be, it’s very difficult to pursue the model that you said.
The model works great retroactively, but it doesn’t work at all prospectively. Because prospectively you could be in a terrible position where monetization levels are exceedingly low, as they are for free to play games, typically under 10% of the audience pays. And yet you went and spent the money to create an enormous frontline experience.
So we think we have to find a middle path, which is charge a reasonable amount to get people in the door, and give them phenomenal quality for that.
Then for the people who choose to continue along with your additional content […] you want to make the friction for that low as well.
Of course, over time there is typically discounting of a frontline product, and that will reduce the threshold for people who don’t want to initially participate at the higher price.”
If you want to learn more about Take-Two’s financial performance, you can read our dedicated article from a few hours ago.
You can also read about the publisher’s stance on the next-generation of consoles, streaming, and subscription services.