By now it is pretty common place knowledge that Microsoft will be paying Take-Two Interactive $50 million for the exclusive rights to the Grand Theft Auto 4 downloadable episodic content. The deal, which was agreed upon well over a year ago, doesn’t apply to just one downloadable episode, but the first two episodes. Take-Two will receive the first $25 million once the first episode is released, and then another $25 million when the second episode is released. Ever since I first heard about this deal a year ago something about it struck me the wrong way. Now that it’s a year later and the game is finally out I am really starting to wonder what exactly Take-Two was thinking.



From Microsoft’s perspective I can see that they did exactly the correct thing. The GTA series is not just a great collection of games; it is also a cultural phenomenon. It doesn’t matter if the game came out to outstanding reviews (which it did), or if people thought the game was just horrible. This game was going to sell millions of copies. By guaranteeing that the episodic content is exclusive to their system they are helping to surge the sales of XBOX360 version of the game as well as the sales of the XBOX360 console itself.

It is very well known that the adoption rate of the new generation of systems is only at a mere fraction of what the previous generations’ adoption rate was. Simply put, people are not buying XBOX360’s or PS3’s. A game like GTA 4 though is the type of game that will make people take notice at the new systems and finally purchase one or the other. If you hear that the XBOX360 version of GTA 4 will have future episodic downloadable content available exclusively to it there is a very high likely hood that is version of the game you want and the XBOX360 is the console you will purchase. It is very simple to see why Microsoft is going to benefit extremely will from this deal.

Take-Two on the other hand does not have as much to gain from the deal as Microsoft does, and this is what leaves me scratching my head. Let’s simply take a look at the math and see whether this deal is lucrative for Take-Two or not. We already know that Take-Two is getting paid $50 million by Microsoft to deliver 2 different episodic content packs that will NOT be available on the PS3. If the $50 million is more money then Two-Two would have made selling this downloadable content on the PS3, the deal is lucrative for them. However if the company stands to make more then $50 million from selling the content on PS3, then the deal was a poor one.

Now let’s make some conservative educated guesses. Let’s assume that GTA 4 will end up selling around 10 million copies on the PS3 in the next fiscal year. Let’s next assume that only 50% of these owners will purchase the downloadable content, so that’s 5 million copies of the DLC sold. Let’s next assume that the content will cost $10 an episode. Now let’s do the math. If my numbers are correct that means that Take-Two could gross $50 million alone from just selling the very first episode of downloadable content on the PS3. Microsoft is only paying them $25 million to not sell the first episode on the PS3, but Take-Two could be making $50 million if they were to sell it. Now I have an engineering degree, not an MBA, but even this makes absolutely no sense to me what-so-ever.

Please keep in mind that I tried to stay very conservative with the numbers that I used for my math. Now let’s be a little more realistic. Most likely the DLC will sell for more then $10. It will probably sell for $20. If that’s the case then Take-Two could stand to make $100 million from just the first episode of content on the PS3. If I got my adoption rate wrong, and 75% of the people who bought GTA4 will buy the DLC at $20 a pop, then they stand to make $150 million for just one episode. If all of these people buy the second episode as well that’s $300 million. Microsoft paid Take-Two $50 million, and they could be making $300 million from sales on the PS3.



After doing this math I have to wonder what was Take-Two thinking. It makes absolutely no logical sense to me at all why they would agree to sell the downloadable content only on the XBOX360. I can understand if the Microsoft paid them an exuberant about of money but they did not. Even with my conservative numbers Take-Two has the potential to make twice the amount of money from the sale of the content on PS3 then what Microsoft paid them. Where is the economic sense in this?

Now let’s get something clear right now. Take-Two is in the business of making money and nothing else. Rockstar might love to make games and that is their passion, but Take-Two is in it purely for the money. They are not a bunch of XBOX or Playstation fanboys. They are fanboys of Mr. Benjamin Franklin and his $100 bills. They don’t care which system they sell their games on. They only care that their games make them money. So knowing this I am left wondering what was going on in the Take-Two offices when they signed this exclusive rights deal a year ago. Were their accountants all on vacation in Fiji when they made this deal? Did all of their business calculators brake at the same time? Where their families abducted and their lives threatened at gun point? What in the hell was going on that would cause them to make this horrible economic decision?

My numbers and my math however could be way off. Only time will truly tell if Take-Two made the right economic choice or not. Until then I will continue to wonder why Take-Two made the decision they did, and what the driving force behind it was. Until then I will also continue to play my XBOX360 version of the game, since that’s the version I bought to guarantee I would get the downloadable content. Looks like Microsoft won this time.