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Why Take-Two Needs Red Dead & # 39; to stay alive



So far, the autumn's biggest video game is on a strong start. But in today's game industry it's just not enough.

Notice how investors responded to the two biggest launches of the year.

Activision Blizzard


ATVI -12.39%

released "Call of Duty: Black Ops 4" on October 12, and the publisher's stock price has crumbled by 29% since then.

Take-Two Interactive Software


TTWO -5.11%

unleashed "Red Dead Redemption 2" on October 26th, and the stock price has since slumped almost 6%. "Red Dead 2" and "Black Ops 4" generated a sale of $ 725 million and $ 500 million, respectively, over their opening ceremony. By comparison, Hollywood's biggest ever movie shootings are just over $ 250 million.

Selling the news is not uncommon to follow a big edition. However, part of the reaction this time can be traced to some significant concern of investors over the longevity of these new games. In today's video game market, major launches are now just a starting point for a sustainable stream of revenue from game sales, expansion content, subscriptions and advertising. And the market has grown even more competitive lately, with "Fortnite" still paying great attention to the player despite the signs that popularity may have peaked.

Activision also has to do with other issues that have made their selloff worse. The company's third quarter report on Thursday afternoon included a disappointing view, such as weakness in other major games such as "Destiny 2" and "Overwatch" can compensate for some of the winnings delivered by "Black Ops 4." Analysts are also concerned that the company's Blizzard device will see no growth next year, as the only major launch so far planned seems to be a mobile version of the division's Diablo franchise, instead of a full sequel to the popular PC game. Activision shares went 12% on Friday after the report.

For Take-Two, longevity is an urgent question given the publisher's addiction to a relatively smaller portfolio of games. The company launches its "Red Dead Online" later this month, and the strong successful success of "Redemption 2" provides good results for that service. Take-Two also has a strong track record since its "Grand Theft Auto Online" service continues to be a major source of income, even five years after the last major sequel to the franchise.

But Take-Two continued to be a conservative tone in its fiscal quarter's earnings call Wednesday, with CFO Lainie Goldstein describing "Grand Theft Auto" as "definitely an unusual circumstance." Analysts have followed that management and predict that while Take-Twos adjusted net revenues will jump 50% for fiscal year ending in March due to the "Red Dead 2" launch, the figure will fall by 4% the following year.

They are probably too careful, but since Take-Two should be able to keep "Red Dead" alive for a while.

Write to Dan Gallagher at dan.gallagher@wsj.com


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