Industry analyst reiterates 'buy' rating for Take-Two; calls $19.99 price point a brilliant maneuver. Holds no grudges, 'buy' rating also given to EA.
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McNealy explains his perception that Take-Two management looked to the price cut to grow the ESPN brand and increase the franchise's user-base, as well as shift investor perception that Take-Two is merely a one-franchise publisher (of GTA). And although Take-Two is calling this an investment year, McNealy predicts the publisher is likely to walk away from the year having generated over $51 million in revenue against $45 million in development and marketing costs spent for all the ESPN 2K5 games. McNealy's revenue figures include the busy holiday season yet to come. In addition, he reminds investors that ESPN NBA 2K5 has only one month at retail under its belt.
McNealy believes his findings have proved that the company's sports lineup can be profitable at a $19.99 price point--the likely sticker price for the current generation product next year as well.
McNealy closes his memo with a number of takeaway points. The following items all flow from his initial assessment that "the ESPN franchise has already overachieved even Take-Two's expectations," and that the ESPN brand has already proven its revenue-generating mettle.
1. Take-Two has established the ESPN franchise value at $20, meaning for current generation consoles, the ESPN 2K6 games next year will likely stay at $20 (although next gen versions may be priced higher). He explains the pricing will stay at $20 because the graphics capabilities of the games are close to maxed out at this point of the cycle and online game play has already been introduced.
2. Associations with the NFL are considerably stronger today than five years ago, with ESPN broadcasting Sunday Night Football and handling half-time duties for Monday Night Football.
3. If Take-Two keeps the game at $20, it would likely erode additional market share from EA and Madden. While Madden sales were up in August and September a combined 5 percent, September sales alone were down over 25 percent. The bigger Take-Two's market share is this week, McNealy says, the stronger the opportunity to grow that market share in a year.
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