SAN FRANCISCO (CNN/Money) -
In a recent column, I wrote that I needed to get more video games into my life. Investors who felt the same way -- and added companies such as Electronic Arts and Activision to their portfolios -- are now sitting slightly ahead for the month.
But Take Two Interactive, the New York video game company behind the wildly popular Grand Theft Auto franchise, the best-selling video games of the decade, is getting hammered after reporting a bigger-than-expected loss for its second quarter and warning investors to expect more of the same for the third quarter as well.
In the coming weeks, investors and video game enthusiasts should get their first peeks at the franchise's latest installment, Grand Theft Auto: San Andreas. How it looks -- and what the reaction to it is -- will be a big indicator of whether these troubles are passing or here to stay.
A first look
Though the title won't hit shelves until October, industry magazines are already giving readers screen shots of the game, and retailers and industry publications will get previews in the next couple of weeks.
Though tight control will accompany most preliminary screenings, you can bet that members of the gaming community will offer candid assessments of whatever morsels they manage to get. Take-Two investors will want to pay close attention to anonymous postings on gamer-centric message boards.
For Take-Two, the stakes this time around couldn't be higher.
"Take-Two continues to be in the position where it has to show it's not entirely dependent on Grand Theft Auto," says Paul-Jon McNealy, an analyst with American Tech Research.
That's a tough position to be in, considering that the Vice City edition for the Sony PlayStation 2 accounted for 68.1 percent of Take-Two's revenue in the first quarter of 2003.
The revenue percentage occupied by GTA has since dropped -- not unexpected given the cyclical nature of the game industry -- but the company's reliance on GTA is exacerbated by the tepid reaction thus far to Red Dead Revolver, a new title from Take-Two.
"If Grand Theft Auto: San Andreas doesn't sell well, it'll have a significant material impact on [Take-Two's] financial statement," McNealy says.
Moving beyond the franchise
A good initial reaction to San Andreas undoubtedly will mean good things for Take-Two investors -- especially those not particularly long on the stock.
To appease longer-term investors, however, the company needs to find more titles like its successful Max Payne series, and not rely so much on the storied Grand Theft Auto franchise.
The company showed signs of expanding beyond the hypermasculine niche with its acquisition of TDK Mediactive, a maker of children's games, but it has yet to offer investors a convincing cohesive strategy for future non-GTA growth.
A Take-Two spokesperson wouldn't comment on the company's diversification efforts, citing the quiet period before earnings announcements, but you can be sure it will be the topic of many analyst questions during today's earnings call.
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