Take-Two Interactive Software Inc (TTWO) 2008 Q3 法說會逐字稿

Greetings, and welcome to the Take-Two call.

(OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms.

Cindy Buckwalter, Executive Vice President for Take-Two Interactive.

You may begin.

Thank you.

Welcome and thank you all for joining us for our third quarter conference call.

Today's call will be led by Strauss Zelnick, Chairman of Take-Two; Ben Feder, our CEO; and Lainie Goldstein, our CFO.

Our team will be available to answer questions following prepared remarks.

I'd first like to review our Safe Harbor statement by reminding everyone the statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws.

These forward look statements are based on the beliefs of our management as well as assumptions made by and information currently available to us.

We have no obligation to update these forward looking statements.

Actual operating results may vary significantly from these forward-looking statements based on a variety of factors, including the risks associate with our process to evaluate strategic alternatives.

These important factors are described in our press release today and our filings with the SEC including our 10-K for the fiscal year ended October 31st, 2007, and our 10-Qs for fiscal 2008.

These documents may be obtained from our website at www.taketwogames.com.

Now, let me turn the call over to Strauss.

Thanks, Cindy.

Take-Two's third quarter results beat expectations by a wide margin.

This clearly demonstrates that our Company is in terrific shape and that we're position to create even greater stockholder value in the future.

We are performing well in all aspects creatively, operationally and financially.

From a product perspective our industry leading creative teams are building a diverse portfolio of interactive entertainment brands that are massive winners with consumers.

Our strong third quarter performance was driven by a broad range of franchises from our powerhouse Grand Theft Auto to Civilization to newer brands like Carnival Games as well as sports titles led by Top Spin 3, and Major League Baseball 2K8.

In an industry where strong content is a critical determinant of success, we have made increasingly formidable advances.

Operationally, our ongoing efforts to drive increased efficiency have gained significant traction over the past 16 months.

We have now implemented all of our previously implemented cost savings measures, both in terms of higher productivity and the ability to reinvest the savings to grow our business.

On the financial front, our third quarter results continue the trend of dramatic performance improvements that we've consistently delivered throughout this fiscal year.

Our top-line revenue and non-GAAP EPS results once again outperformed our guidance and exceeded even the most optimistic analyst estimates.

Before I turn the call over to Ben, I would like to do a brief update on our strategic review process.

Electronic Arts agreed to a presentation by our management team consistent with our process following the expiration of their tender offer.

At the same time we're actively continuing other formal discussions as we've previously disclosed.

Our Board and management team have at all times conducted this process in a deliberate, focused, and reasoned manner with the goal of pursuing the path that will create the greatest possible value for our stockholders.

We'll continue to do.

So now Ben will discuss the third quarter results in more detail and provide us additional detail on our creative and operational progress.

Thanks, Josh.

Our third quarter results were in a word "fantastic." This marks the fifth quarter in a row that we've beaten our own guidance as well as consensus expectations.

Strauss and I have urged our team to remain focused on the business despite the considerable potential for distraction and their ability to do so is reflected in our strong earnings -- strong performance.

Net revenue for the quarter was $434 million, more than double the $206 million we reported in Q3 last year.

Earnings on a non-GAAP basis were $0.93 per share compared with net loss one year ago and also was sharply higher than consensus.

The quarter's results were driven by better than expected performance of Grand Theft Auto IV which shipped in Q2 and also our newly released titles Top Spin 3, Civilization Revolution, which both shipped in the third quarter.

Our strong performance is reflected in our increased cash position.

We had nearly $339 million in cash at the end of the quarter, well over $4 per share, and paid off the balance owed on our credit line.

To be clear, the Company is debt free.

I would like to expand on Strauss' point about our creative performance.

Thanks to the efforts of nearly 1,400 development team members worldwide and a disciplined product investment review process we now have the strongest and most diverse portfolio in Take-Two's history.

Both Rockstar and 2K contributed to this quarter's outstanding performance and the proven franchises of Grand Theft Auto, Civilization, Carnival Games, Top Spin, and Major League Baseball were powerful revenue generators.

Grand Theft Auto IV is once again the largest single contributor to revenue in the quarter.

We have continued to see increases in the sell-through, which rose by approximately 1.5 million units since we last spoke to you in June.

We expect the continued growth of GTA IV sales will be driven by several factors.

First, Rockstar is launching a new marketing and PR campaign, which will start in the fall and extend into the holiday season.

Also, as a must have game for all fans of interactive entertainment, GTA IV we believe should receive a boost from the ramp-up in hardware sales during the upcoming holiday season.

In addition, our hardware partners continue to be excited and are planning to support GTA IV in a major way through early next year.

The Japanese version of Grand Theft Auto IV is set for release on October 30th and the PC version is due out in November, both of which will open new chapters in the phenomenal performance of the game.

A new GTA title, Grand Theft Auto Chinatown Wars, will be released for the Nintendo DS platform in Q1 fiscal 2009, combining the world's largest interactive entertainment franchise and the world's largest installed base.

Finally, the release of episodic content for XBOX360 in fiscal 2009 will further energize sales of the original GTA 4.

The Grand Theft Auto franchise has extremely long legs.

Grand Theft Auto San Andreas sold 12 million units in the first four months alone following launch, then approximately 11 million units over the next three years for a lifetime total sales of nearly 23 million units.

In fact, more than 1 million units of previous GTA titles were sold in the third quarter of fiscal 2008 alone.

Based on GTA4 sales to date and the factors that I just mentioned, we believe the lifetime Grand Theft Auto sales will ultimately track well ahead of any previous Grand Theft Auto title.

Our creative teams have shown tremendous ingenuity in maximizing the value of our AAA franchises by extending hit titles to new platforms.

Specifically, Bioshock will make its debut on PS3 in October with all new content that will attract new audiences to the smash hit franchise.

We recently launched Carnival Games for DS, where its been a solid hit, building on its earlier success on the Wii.

We are pleased to announce that sales of Carnival Games on Wii and DS have topped two million units to date.

In June we announced plans to bring NHL 2 K 9 to the Wii, making it the first NHL licensed hockey game on the platform.

Our experience with Sid Myers Civilization Revolution is a striking example of our ability to raise the value of our intellectual property to new levels.

Sid Myers took a franchise that was originally built around the PC and transformed it into a breathtaking console and handheld title.

We're so proud of that, that I want to pause for a moment and quote from a story from the "New York Times" on the title, which quoted "Mr.

Mier and his team at [Fracksis] game, with the support from Take-Two, have succeeded in translating the classic elements of Civilization series into a form that performs gloriously in living rooms on the Xbox 360 and PlayStation 3 and even in handheld form on the Nintendo DS." That's fantastic endorsement.

We're really, really proud of it.

On the topic of new creative properties we have announced a partnership with [Cryptic Studios] for their upcoming massively multi-player online title, Champions On-line.

This is our first venture into the MMOG field, and reflects a toe hold into the broadband world, which we see as a very important strategic initiative.

I would also like to mention our recent deployment of Gary Dale as Chief Operating Officer.

Gary has played many valuable roles with the company and is highly experienced in publishing, global markets, sales and distribution, all of which are critically.

This is another example of our determination to operate the company as effectively, as and even as we explore strategic alternatives.

We're approaching the holiday season and the balance of this fiscal year with great confidence and enthusiasm.

The titles that have powered our growth throughout this year should be on many shopping lists this season, and we also have many strong new titles, including MidNght Club Los Angeles, the PS3 version of Bioshock, the Japanese and PC versions of GTA IV, Grand Theft Auto Chinatown wars for DS, our NBA 2K9, NHL 2k9 titles, Carnival Games MiniGolf for Wii, Sid Myers Civilization Four Colonization, as well as an assortment of Nickelodeon titles.

We're in the process of finalizing our fiscal 2009 release schedule and will provide an outlook for the full year, when we've completed this vital component of our budgeting process.

We believe that our success in building a diverse portfolio of AAA titles, while improving our operations and strengthening our financial position have given the company a solid platform for profitable growth.

We are delivering on our pledge to make Take-Two the most creative, innovative and efficient company in the industry.

We look forward to further accomplishments in the future.

With that, I thank you and will turn the call over to Lainie.

Thanks, Ben.

Good afternoon.

Today I will review our third quarter results, which were terrific, and detail our outlook for the balance of fiscal 2008.

Let's look at our Q3 results.

Net revenue was $434 million compared with $206 million a year ago.

Non-GAAP net income was $71.5 million compared to non-GAAP net loss of $44.9 million last year with earnings per share of $0.93 compared to a loss of $0.62 last year.

Please see today's press release for reconciliation of our non-GAAP numbers.

We are pleased that we exceeded guidance for the fifth quarter in a row.

Strong sales of GTA4, Top Spin 3, and Sid Myers Civilization all surpassed expectation and were the primary drivers of our better than expected performance.

Our GAAP results for the third quarter for net income were approximately $51.8 million or $0.67 per share compared with net loss of $58.5 million or $0.81 per share in third quarter 2007.

Our GAAP results included $12.6 million in stock-based compensation expense and a total of $7.2 million in professional fees and legal expenses related to unusual items, as well as business reorganization costs.

Our leading title in Q3 was Grand Theft Auto IV which continued to perform extremely well.

Other top titles in the quarter were Top Spin 3, Civilization Revolution and Carnival Games.

Jack of All Games business also grew led by strong (inaudible) specifically for the Wii and PlayStation 3 and increased Xbox 360 and PlayStation 3 hardware sales.

And looking at our consolidated results our non-GAAP gross margin for the quarter was 41% compared to 19% last year.

This is primarily due to our revenue mix as publishing was 88% of total revenue and top three titles in the quarter are all high margin, internally owned and developed titles and were a significant percentage of publishing revenue.

Our split between North America and international revenue was 54% to 46% in Q3, compared to 78% to the 22% in Q3 last year.

Excluding our sports and distribution businesses, North America and international revenue for the trailing 12 months was about 55% to 45%.

Non-GAAP operating expenses in the third quarter were approximately $99 million, up from last year's third quarter for the following reasons.

Sales and marketing expenses accounted for the largest increase, primarily due to advertising for GTA4.

R&D expenses increased as a result of lower software capitalization rates following the release of Grand Theft Auto IV.

We continue to invest in our development studios, including the three additional studios we have opened or acquired this year, [2K Check, 2K Marin] and Rock Star New England.

Also, G&A expenses increased compared to last year due primarily due increased incentive compensation and professional fees, and the G&A costs related to our three new development studios and newly established Asian operations.

These increases were partially offset by approximately $2 million of cost savings initiatives.

Our tax expense is primarily for our earnings and international territory.

Moving on to our balance sheet, at the end of Q3 we had over $338 million in cash or approximately $4.37 per share.

During the quarter we paid down $18 million on a line of credit and we currently have no borrowings.

Our accounts receivable reserve is about $58 million at the end of the quarter, which represented approximately 35% of gross receivables.

Inventories at the end of the quarter were approximately $72 million down slightly from this time last year.

The increase in our software development costs and licenses from year end is primarily related to key titles planned for release over the next 12 to 18 months.

We currently have approximately 35 titles in various stages of development.

Now to our outlook for the balance of fiscal 2008.

We are raising our fiscal 2008 guidance to reflect a better than expected performance in Q3.

We now expect $1.5 billion to $1.55 billion in revenue and $2.08 to $2.12 in earnings per share on a non-GAAP basis.

This excludes stock based compensation expense of $0.59 per share and expenses related to unusual matters and reorganization costs of $0.21 per share.

For Q4 we are revising our guidance slightly to reflect the following factors: the movement of Midnight Club Los Angeles to late October, which we believe is a more favorable market window for the title.

Although the title is still shipping in Q4 we will be capturing only a week of sales in the quarter.

We also moved the DS and Wii versions Don King Presents Prize Fighter along with the 360 platform for certain international territories from the fourth quarter to fiscal 2009 to allow additional development time.

Additionally, since the sales volume for Grand Theft Auto IV is already substantially ahead of our expectations year to date we are maintaining conservative outlook for Q4.

For Q4 we expect non-GAAP net income per share $0.01 to $0.05 on $285 million to $335 million in revenue.

This excludes stock-based compensation expense of $0.18 per share and expenses related to unusual matters and reorganization costs of $0.03 per share.

For Q4 our remaining key releases are Midnight Club Los Angeles, Bioshock for PS3, MBA 2K9, NHL 2K9, Sid Myers Civilization Four, Colonization, and Carnival Games MiniGolf for the Wii.

Our Q4 releases are more broadly distributed among the labels and included our licensed NBA and NHL titles so we expect gross profit margins to decrease to the low 30's in this quarter.

On a non-GAAP basis, we expect overall operating expenses to trend up in Q4 as compared to Q3, primarily for the following reasons.

Selling and marketing expenses are increasing significantly driven by higher marketing spend for Grand Theft Auto IV, release of Midnight Club Los Angeles, as well as the launch of our key sports and other 2K titles.

We also expect R&D expenses to increase from Q3, as we continue to invest in our studios.

Looking ahead we're building a strong line up of fiscal 2009.

Ben already mentioned our holiday titles, and in addition to those releases we will have sequels to some of Rock Star's AAA brands.

2K's key AAA titles will include Borderlands, Mofia 2, Bioshock 2, Champions Online and a full roster of sports titles.

2K Play will publish additional Nick junior products.

We'll be expanding on downloadable content business as well as other revenue streams and expect to see growth in the Asia Pacific market as a result of our entry into that region.

Fiscal 2009 will also reflect the first full year of our cost savings initiative.

We're optimistic about our future and the opportunities to further build stockholder value.

Now I will turn the call back to Strauss.

Thanks, Lainie.

Fiscal 2008 continues to be a transformative year for Take-Two.

We have broadened our portfolio with truly creative and innovative products, we've streamlined and strengthened our operations, while adding to the depth of our management talents.

We've demonstrated our ability consistently to deliver outstanding financial results.

We continue to work diligently to translate these accomplishments into increased stockholder value as e move ahead.

We will now take your questions.

Operator?

Ladies and gentlemen, we will now be conducting a question-and-answer session.

(OPERATOR INSTRUCTIONS).

Our first question comes from the line of Tony Gikas with Piper Jaffray and Company.

Please proceed with your question.

Good afternoon, guys.

Congratulations on a good quarter.

Just a couple quick questions.

Maybe you could just give us a quick comment on the inventory levels of Grand Theft Auto IV at retail.

Are you expecting -- it sounds like your guidance might be implying fewer shipments in the fourth quarter than maybe we were expecting.

And second question, could you just maybe outline a little bit in your view where the up side was in the quarter -- there was a considerable disconnect on the EPS relative to your guidance.

Where was the up side relative to your expectations or guidance?

Thanks, Tony.

Second question first.

I think the upside was really across several titles.

Wasn't -- GT A IV obviously outperformed, but Top Spin 3 outperformed especially in Europe.

Carnival Games turns out to be the gift that keeps on giving since we launched DS.

It's only improved the value of that franchise in sales.

Civilization Revolution also outperformed, so I think if you look at our release schedule, just about all of our titles have outperformed expectations.

And so I wouldn't hang too much on GTA IV although obviously that contributed a lot to what's going on.

And then finally, and you also have to look at our cost savings and initiatives.

While we will take some cost savings and reinvest it in other parts of the business, overall I think we're operating much more efficiently than we were a year ago and those benefits -- that benefited us during the quarter.

So all of those factors together contributed to the outperformance of the quarter, and obviously we're very proud of our performance.

With respect to inventory levels we don't disclose inventory levels in the channel.

I know there are people on the call that do channel checks, and you can probably get that it way.

But we're comfortable with where inventory levels are, and we're comfortable that going into the holiday season, to the fall and into the holiday season, sales of GTA IV will pick up.

Thank you, guys.

Thank you.

Our next question comes from the line of Mike Hickey with Janco Partners.

Congrats on the quarter.

Doing some quick math, frightening at times, but it looks like based on midpoint of new guidance stock trading 11 times.

You strip out 440 in cash, turning about nine times.

That compares to a market about 14 times.

Group trading at 21 times.

You ex out yourself, the group is trading 24 times.

So the question is what do you do to get a more adequate multiple for the economics you're generating, and due think at some level the expired tender from EA is creating a cap to your stock price?

You know, Mike, we really do focus on our knitting, and it is our belief that ultimately markets really do reflect reality.

I have spoken about this before.

The company has a history of having some inconsistency in its results, and while, when you have the biggest title in the industry, and a huge title here, you can always expect volatility, and, of course, any hit driven has volatility.

We said we feel it's really incumbent on to us build a Company that can be profitable year in and year out.

I don't think it's inappropriate for investors to say, oh this is great performance and we want to see more of it.

So our view, we focus on what we can control, which is we're trying to make and our creative people are trying to make the best products anyone makes in the interactive business.

We're trying to cover a wide array of genres, distribute them better than anyone else, all around the world, open new territories and open new channels for our products and make this the most compelling place in the entertainment industry today to work.

If we achieve all that, the results follow, and if the results follow, the market follows the results.

As for the technical calculations, I think you're a pretty smart guy, and we are all entitled to our own views.

But, we're not here to argue about what the market says about us.

We figure if we keep delivering the market will be there.

Strauss, I would just add to that, I want to make the point about what's gone on in the last five quarters.

Yes, we are in a volatile business, you will expect to see volatility so we don't apologize for that, because of the nature of the business, on the one hand.

On the other hand this company has outperformed five quarters in a row.

It's not just what the bottom line is this quarter.

It's consistent performance.

That is what we aim for.

Yes, there will be volatility quarter to quarter, but these are the results that are new to this company and we're quite proud of them.

Great, thanks guys.

Our next question comes from the line of Daniel Ernst from Hudson Square Research.

Thanks for taking the call.

Two questions, if I might.

Looking at the benefits you hope to reap from the restructuring efforts, specifically on sports, since you have consolidated some of the studios in the sports franchise, which arguably affected quality over some of the titles, do you expect to have a turnaround and reap the benefits on that consolidation both in terms of quality and margins next year, or could you see some incremental benefits more linear rather than stair step as you launch the next round of sports?

Then secondly, on GTA Chinatown, for the DS, now that is in the works, working with Nintendo more and more, any opportunities to bring the franchise to the Wii?

Thanks, Dan, for your questions.

It's Ben here.

With respect to the sports titles, let me be clear.

There are some titles that are quite profitable, some titles that are less profitable.

The ones that are less profitable tend to be volume dependent.

Which is to say out of the install base grows, we expect those to get more profitable.

We expect the install base will grow this Christmas.

We are very bullish on this Christmas.

Microsoft's price cut, we expect that to help things as well.

So we expect to see -- your question about margin, we expect that certainly to improve.

The question about quality will also, I believe, will improve.

We have -- we have the team on board has committed to a highly competitive product for next year.

We've had lots of internal discussions about it.

We're confident that we will deliver a product that is -- that's AAA and is everything that we and the market expect from 2K and PC.

So we're quite bullish on the sports business, understanding the challenges that we all know are embedded in the business.

With respect to GTA Chinatown I will tell you that we have spent an enormous amount of time and effort working with Nintendo and developing that partnership.

We are very proud of the partnership that we have today.

We continue to build the relationship.

We think we have significant value to add to that partnership.

That's not a one-way relationship in any way.

GTA Chinatown War is not even the first step but certainly an important step in continuing to develop that relationship.

So without commenting specifically on whether GTA is coming to the Wii or not I will say that Nintendo and Take-Two work very well together.

Take-Two -- Nintendo and Rockstar are beginning to work well together and we continue to grow that relationship.

Fair enough.

Thank you.

Next question comes from the line of Ben Schachter with UBS.

Have you had the review with EA or is that still being scheduled?

Then going forward, when you are starting to think about your FY '09 budgeting process, do you think about it as including Rock Star and what would be the magnitude of how those numbers would change if the Rockstar contract were not to be renewed?

And then finally if you could talk about any new models or new things you're thinking about for the sports business.

Thanks.

Ben, we've disclosed actually that we're under an NDA vis-a-vis Electronics Arts and there's nothing else we can say.

In terms of your question about our budgeting process, which was, I think, a headline for a question about the Rockstar contract negotiations, first of all, we never talk about our discussions with individual employees and we don't -- we never have.

I think the answer is we look at this enterprise based on the budgets that are submitted, and we want to make sure that we're really comfortable with them going forward.

It's not related to any individual contract discussions.

Ben, on the sports business, you want to comment on that?

We're not restructuring the sports business in any way.

We think we have the best sports development team on the planet, and we have them on -- they're working on some of the more challenging sports titles that we have.

And so the issues that we have in sports, to be clear, again, are related to specific areas in the sports business, not the entire sports business, and those specific areas, the one thing -- the one driver that will improve profitability is the installed base and the size of the market.

And that in some ways is out of our control.

The question I was asking about sports is more if you could elaborate on any new models in terms of on-line subscription models, those kinds of things going forward.

We are looking at them, and some of them quite seriously, but I have nothing to announce today.

Thanks.

Thank you.

Our next question comes from the line of Doug Creutz with Cowen and Company.

Thanks, guys.

It looks to me like your international numbers have been quite a bit stronger than maybe you had had expected at the beginning of the year.

Can you comment on whether this is primarily a currencies some is it a function of better unit sales in international markets than you had expected or something else?

Thanks.

Doug, it's Ben.

Traditionally, if you net out our sports business, which tends to be a domestic business, the numbers you see for the quarter are consistent with what that would look like when you net out sports.

And so what happened in Q 3, because GTA is so large, and because it's summer, you know, the size of the sports business overall share of the total business is diminished so you begin to see a more normalized international versus domestic breakout.

Know what I mean?

Yes.

That said, we remain focused on building our international business and making it a bigger percentage.

We haven't talked a lot about our Asian expansion.

We have great hopes fort.

We're making a lot of progress and we'd expect to continue to see progress on the Asian front.

Could you also confirm -- it sounded like, you're implying this, but is GTA China town scheduled to launch before Christmas?

We didn't say that.

We're not implying that.

Thank you.

Our next question comes from the line of Edward Williams with BMO Capital Markets.

Please proceed with your question.

good afternoon.

Just a couple of quick questions for you, looking more towards next year, if I could.

One is, can you give us an idea as to what the economics will be for the GTA downloadable content at this point?

Second question is, looking at the Cryptic relationship, are you going to share on the subscription side, or is that more of a distribution to the consumer packaged goods component?

Thirdly, following up on that, what is your plan, what are your thoughts with regard to the space with regard to Take-Two owned properties?

The fourth question is, can you just give us an idea as to what the NOL is at this point?

Lainie, maybe you could answer the second and fourth questions.

For the episodic download question, we have not determined the pricing at this time, so we don't have that information for you but we can tell you we will be pairing our revenue with capitalized software amortization, our internal royalties expense and any associated marketing expense for the title.

Okay.

And the fourth question.

The NOL.

We haven't disclosed our NOLs on a quarterly basis to date but you can get a rough estimate by looking at the year end balance in our 10-Q and adjusting it by our nine-month cumulative change, and you it will be disclosed in our third quarter 10-Q scheduled to be filed by tomorrow.

Finally, Ed, with respect to on-line and Cryptic specifically, you can imagine the deal with Cryptic is again, under confidentiality.

We're not prepared to disclose anything about the economics and any -- share, if any, of subscription revenue as opposed to box revenue but we are pleased with Cryptic as a partner and we have great hopes and expectations for the title.

With respect to M M.O.

and Take-Two-owned properties, I think we've said privately the way we expect to get into the Asia markets is to use our Take-Two owned properties and to partner so that we mitigate the risk, and that is our stated strategy.

We don't have anything specifically to announce.

I would also say that Cryptic should give you indication that we are -- where we see an opportunity we will be opportunistic.

We may divert.

We intend to gain institutional knowledge on the M MO market.

We think broadband is an important strategic initiative for this Company as well as frankly any company in the industry and any chance we get to learn and increase our presence profitably we will take that opportunity.

That said, we know that our titles -- we know we have one of the strongest IP portfolios in the business.

We know we're the envy of many companies, especially in Asia.

We will use those brands and very carefully judiciously so that we take maximum advantage of them.

Okay, great, thank you.

Thank you.

Our next question comes from the line of Eric Handler with Lehman Brothers.

Please proceed with your question.

Hi, thanks for taking my question.

Two questions for you actually.

When you look at the lineup of titles coming out in October, and obviously October is always very crowded, but it actually seems -- the October 7th release date you had, there's a lot fewer titles in the mix coming out that week relative to the 14th and around the 14th and the 21st.

So wonder if you could give a little color around that what you saw that you said -- that desire to push the game back two weeks.

Secondly, given how strong earnings are for this year, and I know you're working on your budgets, but directionally speaking, is this the high watermark for earnings until GTA 5 comes out?

I'm going to take the second question first.

We are going to talk about our guidance when we have it ready.

We have tried very hard to be conservative and realistic.

One of the burdens of having beaten our guidance is that people begin to think that you're always going to beat your guidance, and we try to emphasize our goal is to guide realistically.

I wouldn't arrive at any conclusions yet.

We will tell you when we know more.

With respect to Midnight Club, your specific question, I think the folks around here will tell you the number one thing that we are concerned about all the time is what's the best thing for the title.

When we look at release dates, the answer is always what's the best thing for the title.

We try not to time it to well.

Your point about the competitive environment is well taken but on balance considering all the other aspects that go into the launch of a game we felt the right thing to do was to move the release date.

We don't think it's a big deal, and we don't think it will affect sales one way or another given that release date but we want to make sure the title is absolutely ready to go, best that it can be.

I saw a build of it today and it looks absolutely awesome.

Thank you.

Thank you.

Our next question comes from the line of John Taylor with Arcadia.

Please proceed with your question.

Got a couple housekeeping things here I guess.

The first one is, could you give us a sense of what the catalog was as a percent of published revenue in the third quarter?

Sure.

It was 13% this quarter.

Great.

And then specifically, what was GTA franchise as a percent of total published revenue?

The entire franchise was approximately 60%.

6-0, great.

You mentioned in your prepared remarks the sales and marketing budget going up to support GTA IV.

I wonder, is there a way you could characterize for us how you are going to pace yourself through the total budget, the advertising budget of GTA IV this year, kind of what percent, maybe what has been spent already and what percent has been reserved for the holiday time frame, and, I don't know, maybe even -- if you have the data, maybe not, but put that in the context of the -- your comment about San Andreas doing X number of units in its first year, then Y in its second year and kind of how the promotional strategy helps drive demand, you know, over the long haul kind of thing.

Well, J T, we don't really provide that level of detail on a title by title basis, but I can tell that you we definitely looked at the Christmas season as an opportunity to get back out there and really market the title for, you know, new owners of the hardware as they're buying it during Christmas season so we definitely looked at the different timing for launching in April and what the marketing would look like at different times during the year for the title.

So can you give us a sense kind of whether we're closing tore 50/50 or whether we're closer to 70/30 or 80/20 in terms of how much has been reserved for holiday?

No, I can't really share that, I'm sorry.

Okay.

Then are all the titles basically scheduled for -- of the titles scheduled for November and October release, are they all pretty much simultaneously releasing across all platforms?

Have you got all the SKUs together pretty much?

Pretty much.

So if we see a little bit of variance in a week or two we shouldn't draw too much into that?

No, I don't think so.

Thank you.

Our next question comes from the line of Mike Hickey with Janco Partners.

Thanks for the follow-up.

Curious on the theatrical side, obviously Bioshock is set, but you have Max Pain coming out in October, I believe you own that IP.

Are you set to generate, you know, any sort of economics from the net receipts of that movie at the box office?

And if you could walk us through maybe just kind of a generic model on how that works and maybe philosophically how you see that as an element of your business moving forward.

As it happens, max pain is a split rights deal and we don't share meaningfully in the motion picture's economics.

So it's not actually a good model going forward.

Our model going forward is that of owning our own intellectual properties and trying to make the biggest hits we can in the interactive entertainment space, then very selectively when it makes creative sense for the product when it will enhance the quality of the brand, and when we have sufficient creative control to mitigate the risk.

There are a lot of ifs built in.

We will selectively look at other markets and other media.

The reason that we were willing to turn Bioshock into a movie is because we're able to align ourselves with an A plus creative team, and an A plus studio, Universal Pictures, with a burning desire to make a movie that will stand on its own and be terrific, and that's what we think is going to happen, and we feel terrifically good about it.

What we're not going to do is make empty announcements about development deals that don't lead to motion pictures, and what we're certainly not going to do is compromise the quality of the extraordinary work our creative people do or in any way diminish their creative enterprise or motivation by treating interactive entertainment properties like Reese's cups, much as I love a Reese's cup every now and then.

So that's the focus.

We are going to be awfully selective.

Additionally, and it has to be said because we are in the business of business as well, when we do take something to another medium we expect to be able to make a whole lot of money doing it, but this is all in the future, not in our numbers currently.

Touchy subject with the Rockstar team but on the downloadable content for GTA IV, and how we think about your efforts in trying to remarket that game to the holiday period, is there a reason why strategically it would make sense to have the first downloadable release after the holiday period?

I think Ben answered it well before, which is we really focus on making extraordinary entertainment around here, and we're not Cavalier at all about our need and desire to manage a company that is routinely profitable, because we're in a growth business with good economics.

That said, when you start getting into individual release dates, you are always going to get the same answer which is we are driven primarily with making the best products out there.

And it's not just a creative desire, it's the right thing for business, too, because as this business matures, and you know how much investment is going on out there, you know how robust a business is as the business matures a lot of people start throwing stuff against the wall and see what sticks.

Since we got here we've diversified the product base but we said we would focus on a selective number of superb titles across all genres.

And that's our goal.

Think about.

We're now taking our number one franchise, and we're deviling into an uncharted area, which is episodic content.

We need to make sure consumers are absolutely thrilled and delighted by what they see.

If it needs to be said we and the Rockstar team see exactly eye to eye on this as we do on nearly everything.

Okay, thank you.

Thank you.

At this time there are no further questions.

I would like to turn the conference back to Strauss Zelnick for any closing commence.

Thanks so much.

Always a pleasure to share good news.

Thanks for joining us.

If I may, Strauss, it's been such a spectacular quarter I really do want to thank the team at Take-Two and our studios and corporate.

None of it could have been done without the extraordinary efforts of the very, very talented people in this organization in a period of time where we could have been completely distracted.

Everybody kept their heads down and delivered some fine results for the company.

I'm very, very proud of their work and I just wanted to mention it on the call.

Thank you very much.

Thanks, everyone.

Ladies and gentlemen, this concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.