As retailers pull games from shelves and eat the cost of used copies, money gets left on the table...or goes to other games.
As retailers count up lost revenues that would have been made from sales of Grand Theft Auto: San Andreas this summer, some business writers are suggesting Take-Two is privately reveling in the publicity the "Hot Coffee" controversy has brought it. "After all, nothing says 'buy me' to a 15-year-old quite like a message that this product is too racy to sell at Circuit City and GameStop," Business Week columnist David Kiley wrote. "In my opinion, censorship and uproar will only make San Andreas and future GTA games more appealing to teen gamers, Take-Two's target audience," said Motley Fool editor Nathan Alderman.
Cheeky theorizing aside, it's clear who the losers on the front line are. Almost every major retailer in North America, including Wal-Mart, Target, Best Buy, and the aforementioned Circuit City, has pulled the game from its shelves. GameStop yesterday said it would lose more than $1 million just from not being able to sell used copies of the game.
Take-Two itself said in a statement that it's lowering guidance for the third fiscal quarter (which ends July 31) to $160-$170 million in net sales. "Accordingly," the company said, "guidance for the fiscal year ending October 31, 2005 is also being lowered to $1.26 to $1.31 billion in net sales and $1.05 to $1.12 in diluted earnings per share."
But when the new M-rated San Andreas is released--sometime in the next six to eight weeks--it may still be hard to find. The New York Times today is reporting that some retailers, including Wal-Mart and Best Buy, have said they might decline to carry even the "cleaned-up" version of the game.
Given that San Andreas was the best-selling game of 2004, the losses could be staggering. Even six months into this year, the franchise has demonstrated continued selling power. The Xbox version of San Andreas was June's top-selling game, according to NPD Funworld.
One analyst's math? Starting with the numbers Take-Two put out yesterday--lowered guidance of about $40 million--and figuring that number to be 80 percent of the retail sales (assuming a markup of 20 percent), the analyst's estimate of lost retail sales could go as high as $50 million. "Specialty stores stand to lose more, as they had to pull their more profitable used titles off the shelves also," the analyst added.
But it's not just front-line retailers that stand to suffer. Renters of games are also reacting to the rerating. In an e-mail to its customers, GameFly said, "Due to the ESRB's new AO (Adults Only) rating for Grand Theft Auto: San Andreas, GameFly has decided to temporarily suspend rental and purchase of the current version."
Are there any winners in this game industry controversy? Maybe other publishers.
Another analyst told GameSpot that "maybe as an offset, more people go to the stores looking for the game--given all the publicity--and then buy something else." In a memo to investors yesterday, Shawn Milne of Friedman, Billings, Ramsey & Co. echoed those thoughts. He said that while "retailers are obviously upset with Rockstar/Take Two," given that the AO rating "blocks big box retailers, such as Wal-Mart, from selling the game," it opens the field up to other games. "We believe that the removal of GTA could benefit other publishers, such as Activision, with more shelf space (there is the possibility that True Crime 2 could be pulled forward)," he said.
And then there is the entertaining logic of Kiley to revisit. "Perhaps Take-Two should consider shrink-wrapping the game with a 16-ounce can of malt liquor and a pack of Luckys... In the long run, it might increase sales even if the company is taking it on the chin in the short run."
Yes, perhaps.
