Take-Two Interactive

• 1. Introduction

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  Take-Two Interactive began with a 21-year-old chief executive and a calculation about age. Its founder, Ryan Brant, explained his reasoning in his own words: "I wanted to get into a business where I could raise capital as a younger guy. In technology, people expect you to be a younger person." The company was incorporated under Delaware law on the 30th of September 1993, funded by his family and private investors. Three decades later, the New York City firm stands behind Grand Theft Auto, BioShock, Borderlands, Civilization, NBA 2K and WWE 2K. It also owns half of a professional esports league. How did a start-up with no hits grow into one of the largest publicly traded game companies? Why did its founder leave while under investigation? And what stopped a much bigger rival from simply buying it?

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• 2. Film Stars on Disc

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  In May 1991, Ryan Brant went to work for his father, the media executive Peter Brant, as chief operating officer of the illustrated-book publisher Stewart, Tabori & Chang. Peter was also a co-owner of Interview. Ryan stayed until August 1993, having graduated from the Wharton School in May 1992 after attending the Hotchkiss School. Wanting a path of his own, he chose video game publishing. John Antinori and Mark Seremet helped with the launch, though Seremet sold his stake in 1998.

  The young company's first base was Latrobe, Pennsylvania. By June 1994 it had absorbed InterOptica, a software publisher owned by Wan Chai. InterOptica's head, Catherine Winchester, who later became Catherine Heald, turned into Take-Two's first president. Later that same month, a deal with GameTek had that company distributing five Take-Two games around the world.

  Star Crusader, released in September 1994, started a pattern. Take-Two filled its games with full motion video of recognizable actors, copying the approach of Mechadeus, whose The Daedalus Encounter had starred Tia Carrere. Hell: A Cyberpunk Thriller, also from 1994, hired Dennis Hopper among others. It sold over 300,000 copies in the following year and gave the company a profit. Ripper followed in 1996, with a portion of its budget spent on Christopher Walken, Karen Allen and Burgess Meredith.

  Those results brought partners. Acclaim Entertainment agreed to publish Take-Two's titles and handle overseas distribution, while Sony Computer Entertainment licensed the company to publish on PlayStation consoles. In February 1995, GameTek bought a stake, tying Take-Two to its Alternative Reality Technologies studio. By July 1995 the head office sat in the Silicon Alley district of New York City. In September 1996, the Latrobe operation took over a whole second floor of its building, a space that had belonged to the Chestnut Ridge Chapter of the American Red Cross.

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• 3. Wall Street and Rockstar

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  Around 1996, Brant made his first purchase, Mission Studios, and published its game JetFighter III. He wanted to buy much more, which required cash, so he decided to sell shares to the public.

  The initial public offering took place on the 15th of April 1997, with the stock listed on the NASDAQ exchange under the ticker TTWO. Peter Brant was the largest shareholder at 25%, held through Bridgehampton Investors LP, where Ryan served as general partner. The proceeds bought GameTek's European operations and its Alternative Reality Technologies studio, later renamed Rockstar Toronto. They also bought rights to Dark Colony, The Quivering, The Reap, Jeopardy! and Wheel of Fortune. Kelly Sumner, a GameTek executive director, joined Take-Two as part of the purchase. Three distribution firms, Inventory Management Systems, Creative Alliance Group and Alliance Inventory Management, gave the company a route into retail.

  That same year, Take-Two became publisher of Monkey Hero. Its developer, Blam!, was in financial trouble because BMG Entertainment, a unit of Bertelsmann, had shut down the original publisher, BMG Interactive. In March 1998, Take-Two bought all of BMG Interactive's assets for 1.85 million shares, worth 16% of its common stock.

  The real prize was Grand Theft Auto. The United Kingdom studio DMA Design and BMG had released it the year before. It earned money but did not impress critics in Europe, and its violence drew a loud attack from United States Senator Joe Lieberman. Brant saw a chance to capture that attention. He pursued the BMG deal to get the property, then contacted Sam and Dan Houser, Terry Donovan and Jamie King, who had all been central to getting the game to market. Together they founded a new Take-Two label named Rockstar Games.

  Years later, Electronic Arts chief John Riccitiello said that Rockstar made Take-Two the inventor of the corporate label structure, which EA copied in 2008. Each label is its own incorporated business with separate management, infrastructure and profit strategy, an arrangement in place since 1997-1998. With the Grand Theft Auto rights in hand, Take-Two expanded into North America, and the game passed 1.5 million copies sold.

  Distribution grew alongside publishing. In August 1998, Take-Two bought the American distributor Jack of All Games and later gathered its outlets under that name. A purchase of DirectSoft Australia covered Oceania. In 1999 the company acquired Triad Distributors and Global Star Software, founded in 1993 by Craig McGauley and Damian Cristiani. It also invested in Gathering of Developers and Bungie. Take-Two's 19.9% share in Bungie went to Microsoft Game Studios after its purchase of the studio in June 2000. In exchange, Take-Two received the Myth and Oni properties and a license to use the Halo engine in two new games.

  In 1999 Take-Two also acquired DMA Design, which was eventually renamed Rockstar North. Grand Theft Auto 2 arrived that year, then Grand Theft Auto III in 2001, Vice City in 2002 and San Andreas in 2004. The last of these would soon draw a very different kind of attention.

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• 4. The 2K Label

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  In January 2005, Take-Two bought the studios Visual Concepts and Kush Games from Sega. Both made yearly sports simulations in the ESPN line, using a 2K tag to separate editions, as in ESPN NFL 2K5. Take-Two had agreed in 2004 to help Sega publish them. Shortly before the sale, Electronic Arts announced exclusive rights to NFL video games and a fifteen-year branding deal with ESPN. That killed Visual Concepts' own NFL game and cut the value of its other titles. Sega gave up on sports games altogether.

  Take-Two gained the studios and the 2K brand, and it negotiated exclusive video game rights with Major League Baseball. A day after announcing the purchase, it created the 2K publishing label, shifting several planned games over from its budget label, Global Star. The existing studios Indie Built, Venom Games, PopTop Software, Frog City Software and Take-Two Licensing were reorganized under the new structure.

  More studios followed. In 2004, Take-Two had paid Infogrames for the Civilization series, and in November 2005 it bought Firaxis Games, which it had already helped by publishing Civilization IV. Around January 2006, it acquired Irrational Games, including studios in Boston and Canberra. Irrational already had a deal to publish its upcoming BioShock with Take-Two. The company also bought PAM Development from the Gaia Capital Group, which brought the Top Spin tennis series.

  In early January 2007, 2K's headquarters moved to Novato, California, into 65,000 square feet at Hamilton Landing. That office park reused hangars from the former Hamilton Army Airfield. In September 2007, a partnership with Nickelodeon launched 2K Play for family-friendly games. It joined 2K Games and 2K Sports and took over what remained of Global Star. In December, Take-Two founded 2K Marin, named after the county where Novato sits.

  Sports licenses kept arriving. In January 2013, as THQ was being dissolved, it sold the WWE wrestling rights to Take-Two, and 2K Sports has released a WWE 2K game every year since. In February 2017, Take-Two and the NBA announced the NBA 2K League, billed as the first esports league run by a professional sports league. Existing NBA teams would partly sponsor squads, giving each of the thirty teams an esports counterpart. The first season was planned for May 2018.

  In January 2019, the two signed a seven-year license extension for NBA 2K. Analysts estimated it took at least 15% of Take-Two's revenue from sales of those games, unusual among license deals, because the series had grown so popular. March 2020 brought a publishing agreement with the NFL, with games from 2021. Madden would stay the NFL's official game, so 2K called its releases "non-simulation football game experiences".

  In March 2021, 2K bought HB Studios, which came with the PGA Tour game rights. It also signed Tiger Woods as an executive director and consultant, and licensed his likeness. Woods had previously been a key figure for the competing EA PGA Tour series.

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• 5. Fines and Falsified Records

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  In February 2001, Brant gave up the CEO job to become chairman, and Kelly Sumner took over. The company then employed 658 people. Trouble was already building. Complaints filed from 2001 argued that Take-Two's earnings did not match the game sales figures reported by NPD Group.

  The Securities and Exchange Commission examined the books. Its formal complaint described a "parking transaction", in which products were sold to distributors for a quarter to inflate revenue for investors. The agency estimated this was fraud. A lawsuit in December 2001 accused Take-Two of lying to shareholders. In February 2002, the company restated seven quarters of earlier results, and in January 2004 it restated five years. Brant gave up the chairmanship in March of that year, and Richard Roedel succeeded him.

  After the commission issued its complaint in 2005, Take-Two agreed to pay a fine, and Brant and other executives paid fines of their own. Brant stayed on in the non-executive role of Vice President of Production. He resigned in October 2006, after a four-month disability leave caused by a bad back.

  A second inquiry came in 2007, during an industry-wide sweep of options backdating. That practice means receiving shares when the price is high while dating ownership to a time when it was low. Investigators found Brant had received backdated options on over 2.1 million shares, though he had given up all his options when he resigned. He pleaded guilty to falsifying business records and agreed to cooperate. Instead of facing up to four years in prison, he was fined and barred from "control management positions" at any publicly traded company. Brant died of cardiac arrest in March 2019, aged 47.

  A separate crisis centered on the Hot Coffee mod for Grand Theft Auto: San Andreas. This user-made modification unlocked a hidden graphic sex scene buried in the game. Politicians and consumers said the scene contradicted the game's ESRB content rating. The Federal Trade Commission investigated for deceptive advertising, and in 2006 Take-Two and Rockstar settled, agreeing to fines for any future rating violations. Class-action suits from 2005 over the mod, together with a shareholder class action over the backdating fraud, were settled in September 2009.

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• 6. Shareholders Take Control

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  Ahead of the board meeting in March 2007, investors holding 46% of Take-Two's stock moved to oust long-standing managers. The group included OppenheimerFunds, S.A.C. Capital Management, Tudor Investment Corp., D.E. Shaw Valence Portfolios and ZelnickMedia. They wanted ZelnickMedia's Strauss Zelnick as chairman. Revenue targets had been missed, with money lost in 2006.

  Zelnick had a history with the company. As head of BMG's North American division, he had opposed the sale of BMG Interactive to Take-Two, believing BMG could do more in games. Earlier he had been chief operating officer of 20th Century Fox and chief executive of Crystal Dynamics. In 2001 he founded ZelnickMedia, a private equity firm focused on media and interactive entertainment.

  Analyst Michael Pachter backed the takeover. He said the management had "completely abdicated any responsibility for the oversight of the options-granting policy. A more responsible board would have committed hari-kari." CEO Paul Eibeler tried to find a buyer once the investors filed with the SEC, and Electronic Arts was among those approached. No deal came together in time. On the 29th of March 2007, shareholders approved the takeover, and Zelnick named Ben Feder, a ZelnickMedia partner, as CEO. Zelnick is the largest single shareholder by voting power.

  A major restructuring followed in mid-2007. Executive, management, distribution and sales functions were reorganized by business discipline instead of geography. The company let go roughly 5 to 15% of its 2,100 or so employees, closed some European offices and consolidated them in Geneva. It also began looking for buyers for Jack of All Games. In September 2008, an outsourcing agreement with Ditan Distribution, then owned by the Canadian disc maker Cinram, moved all distribution work off that unit. In December 2009, Take-Two sold Jack of All Games to Synnex and left the distribution business entirely.

  In mid-February 2008, Electronic Arts offered an all-cash bid for the whole company, then raised it after a rejection and made it public. Riccitiello said EA had considered a deal the previous year, when Eibeler approached it. Activision's purchase of Vivendi Games in December 2007 pushed EA to act. Zelnick and the board rejected the offer, with Zelnick saying, "We didn't slam the door, we just said look, the price is not right and the time is wrong."

  Take-Two offered to talk after Grand Theft Auto IV came out on the 29th of April 2008, which many saw as the property EA really wanted. A purchase would also have removed EA's main rival in sports games. EA kept extending its bid through 2008. By September it let the offer lapse, as Take-Two kept calling the cash price inadequate. In 2010, Feder stepped down and Zelnick took the CEO job himself, and he still holds it.

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• 7. Blockbusters and Courtrooms

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  Around 2013, Take-Two began buying back about 7.5 million of its own shares, roughly 10% of the total. That included around 12 million shares held by Carl Icahn, about 11% of the company. Icahn had been seen as favoring a sale, and three board members he had recommended resigned afterward. Analysts read the buyback as confidence in Grand Theft Auto V, which came out in September 2013. By 2018 it had sold nearly 100 million units, one of the most successful games ever. The stock gained more than 600%.

  On the 9th of March 2018, S&P Global added Take-Two to the S&P 500, alongside EA and Activision Blizzard. The company again bought back stock, about 2.5% of the total, expecting Red Dead Redemption 2, due in October 2018, to repeat the boost. A day earlier, Zelnick had attended a White House meeting with President Donald Trump and members of Congress on video game violence, following the Stoneman Douglas High School shooting. Early that year, the headquarters moved from NoHo to more than 61,000 square feet in Bryant Park. Dan Houser said Rockstar needed room to grow in the shared building, so it asked Take-Two's executives to relocate.

  In December 2013, the former Marvel editor-in-chief Bill Jemas joined to build a graphic fiction imprint. Double Take Comics launched in October 2014 and closed in November 2016 without success.

  Leslie Benzies, the former president of Rockstar North, took a sabbatical on the 1st of September 2014 and was announced as departed in January 2016. On the 12th of April 2016, he sued Rockstar and Take-Two over $150 million in claimed unpaid royalties. On the 29th of March 2018, the companies won dismissal of 12 of his 18 claims. The court still ruled that Benzies "remains entitled to receive certain royalties". During 2018, Take-Two warned his new company, Royal Circus Games, that its acronym RCG resembled Rockstar's RSG. In October 2018 he renamed it Build a Rocket Boy Games. Take-Two also objected that hiring Rockstar North staff was a deceptive way to suggest an affiliation. On the 7th of February 2019, the parties signed a confidential settlement, each bearing its own costs.

  Take-Two has also guarded its names. It has used trademark dilution complaints to block registrations involving "rockstar", "bully", "2K" and the capital letter "R". It challenged Hazelight Studios over the title It Takes Two, forcing the studio to drop its trademark application and making the game harder to promote.

  Modders have faced similar pressure. Take-Two has blocked mods for Grand Theft Auto games. Some used original game assets, which gave it a clear copyright reason. Others came from legal reverse engineering, which made its claims contentious. The company says it has no objection to legally made single-player mods, but will act against other kinds.

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• 8. Mobile Bets and Cuts

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  Since 2016, around half of Take-Two's revenue has come from digital distribution, whether through downloads of games or spending inside its computer, console and mobile titles. That shift explains a run of mobile deals. In July 2016 the company invested in the developer Scopely, and today it holds an undisclosed minority interest. On the 1st of February 2017, it bought Social Point for about an undisclosed sum, to enter mobile gaming.

  On the 31st of May 2017, Take-Two bought Kerbal Space Program. On the 14th of December 2017, it announced Private Division, a label to fund and publish games by mid-size independent studios, with four planned games from separate developers. In February 2020, it set up Intercept Games in Seattle to build Kerbal Space Program 2, hiring over a dozen former Star Theory Games staff, including Jeremy Ables and Nate Simpson.

  In August 2020, Take-Two announced it would buy Playdots, maker of Dots, Two Dots and Dots & Co., for $192 million in cash and stock. In October 2020, it acquired Dundee-based Ruffian Games, known for Halo: The Master Chief Collection and Crackdown 3. Ruffian became Rockstar Dundee.

  In November 2020, Take-Two offered to buy Codemasters. Electronic Arts trumped the bid in December, and Take-Two formally withdrew in January 2021. The Public Investment Fund of Saudi Arabia bought 3.9 million Take-Two shares in February 2021.

  In June 2021, the company made what was then its largest purchase, paying $378 million for Nordeus, developer of Top Eleven. Its mobile division has been called T2 Mobile Games since July 2021. Then in January 2022 came the biggest deal of all, a cash-and-stock acquisition of Zynga valued at $12.7 billion, at $9.86 a share. Take-Two said it saw "tremendous untapped potential to bring Take-Two's renowned console and PC properties to mobile". Shareholders of both companies approved the merger on the 19th of May 2022, and it closed on the 23rd of May 2022.

  Some of the new mobile pieces did not last. In October 2022, Take-Two announced Playdots would close, with Two Dots moving to Zynga. In March 2023, it bought the mobile games subscription service GameClub, and layoffs hit Private Division and 30 people at Firaxis Games. In March 2024, it agreed to buy The Gearbox Entertainment Company from Embracer Group for $460 million, completed on the 12th of June 2024.

  In April 2024, Take-Two announced layoffs of 5% of its workforce, or 579 employees, plus the cancellation of several unannounced projects. In July 2024, SAG-AFTRA began a strike against several publishers, Take-Two among them, over protections against artificial intelligence replicating actors' voices and likenesses.

  By November, Zelnick confirmed the sale of Private Division to an undisclosed buyer for an undisclosed sum, so the company could concentrate on AAA and mobile games. Roll7 and Intercept Games were closed. Take-Two kept supporting the Private Division game No Rest for the Wicked, while five other titles passed to the buyer.

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