GTA VI & Nintendo

Techspot article regarding Matthew Ball's report

Maybe Matthew Ball is an actual analyst that went to school for economics and isn't just an executives kid that needed a job, but I have read a lot of analyst reports for the video game industry that read like they were written by an executive's kid and not an actual professional.

The "industry hoping that GTA VI comes out at $100" idea sounds like an idea that somebody's kid would have. The industry wants to make as much money as possible. This is always true. The industry is not hoping for a crash. It just hopes that GTA VI performs really, really well.

To define what "well" means, we have to put it in the perspective of what 2K is willing to communicate with investors and what investors react to. Video games give very limited information related to individual projects or bookings, usually only units sold. Performance is then based off of a last quarter, same quater last year, and once a year they do Last FY (fiscal year) vs  Current FY Earnings before Tax and Interest. This is a small hurdle to jump for 2K, a company that has had limited releases, but has performed well enough to offset the money spent on GTA VI (usually part of capital expeditures or capital projects). 

So what does 2K really need to do to perform well? They need to show overall growth and they need to come close, but still beat, internal guidance (where an actual analyst that works for 2K predicts how much money they will make).

2Ks problem is that Grand Theft Auto is a major data point for the health of the overall industry. GTA VI unit sales will undoubtedly be compared to GTA V unit sales. More than likely the amount of total EBIT increase will be considered in relation to unit sales. 

In other words, making the same EBIT by selling less copies at $100 will not translate to "the industry is growing". Making more EBIT while selling less copies at $100 will still not translate to "the industry is growing". It will instead force investment advisors to consider the market as a whole and determine if consumers bought less games at higher prices. 

The trickiest thing about GTA is that it has a history of being separated from Nintendo. If this continues with GTA VI, the likely conversation that investment advisors will have is "Does the GTA VI performance show that growth has moved from home console to mobile/mobile console hybrid".

2K does not want to sell a $100 game that encourages investors to leave their industry. The industry does not want 2K to sell a $100 game that encourages investors to leave their industry. Like Atari's E.T., it doesn't matter what the profit per unit is if the units don't sell.