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Take-Two's Latest Video Game Is on Track to Be One of the Most Successful Entertainment Releases Ever

By Keith Noonan – Updated Nov 13, 2018 at 8:33AM

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"Red Dead Redemption 2" is a massive hit, but one piece of its puzzle is still missing.

Take-Two Interactive Software (TTWO -1.42%) is still a smaller company than chief rivals Activision Blizzard (ATVI -0.85%) and Electronic Arts, but the video game publisher can now lay claim to two of the biggest entertainment releases ever. The company's Red Dead Redemption 2 (RDR 2) hit the market on Oct. 26 and generated a whopping $725 million in sales across its first three days on the market, good for the second-highest debut of an entertainment release ever and trailing only the record $1 billion in three-day sales delivered by the publisher's own Grand Theft Auto V.

RDR 2's launch was nothing short of fantastic, and subsequent data suggests very strong post-release sales and that Take-Two shareholders can look forward to the game's continuing to post impressive performance.

Two cowboys firing guns in front of an explosion.

Image source: Take-Two Interactive. 

Take-Two's latest surpasses big expectations

Dividing Red Dead Redemption 2's $725 million in opening weekend sales by the $60 price that's standard for most big games suggests that 12.5 million copies were sold across the stretch. However, Take-Two also offered a special edition of the game priced at $80, so it's reasonable to project that unit sales for the period came in somewhere between 10 million and 12 million. As per the company's third-quarter earnings release, published on Nov. 7, RDR 2 has now sold 17 million copies -- a figure that should thrill shareholders.

Red Dead Redemption 2 was always poised to be one of 2018's best-selling games. It's a new installment in a successful, highly esteemed franchise from Rockstar Games -- one of the industry's most respected developers and one of the few with brand strength that guarantees players will line up for its next project. However, Rockstar's latest game is now on track to easily surpass prerelease expectations.

Leading up to and immediately following Red Dead's launch, some analysts expected Activision Blizzard's Call of Duty: Black Ops 4 would claim the title of 2018's best-selling game. Black Ops 4 delivered roughly $500 million in sales across its first three days -- an impressive debut that was accompanied by news that the game had set franchise records for engagement.A report from TickerTags analyzing Twitter mentions for each game suggested that RDR 2 would fall short of Black Ops 4's sales, analysis from Piper Jaffray projected a similar outcome, and other analysts expected the titles to perform roughly in line with each other. 

Take-Two shares actually sold off following RDR 2's release, not unusual for a gaming company even after it has released big titles that go on to be very successful, but there were some suggestions that the game might fall a bit short of expectations. That's no longer the case. It's now almost certain that Rockstar's latest will go on to be 2018's top-grossing game and smash analyst targets.

Four cowboys on horseback under a full moon in Red Dead Redemption 2.

Image source: Take-Two Interactive. 

Red Dead Redemption 2 has already surpassed the roughly 15 million copies sold by its immediate predecessor and isn't far removed from the 20 million unit sales target that Piper Jaffray expected the game to hit by March. The title could feasibly hit that mark by the end of November and will likely clear it before 2018 is out. With a PC version still to be released and the potential for updated versions to be released on next-generation consoles, there's a good chance RDR 2 will sell more than 50 million copies. 

Red Dead moves into the black

Wedbush analyst Michael Pachter estimates that RDR 2 might have cost somewhere in the neighborhood of $170 million dollars to produce, though it's also possible that the development budget was substantially higher than that figure. Some reports suggest that the first versions of Grand Theft Auto V cost roughly $265 million to develop and market, and production costs have risen since the game debuted in 2013. Without official comments from Take-Two, there's a lot of guesswork involved, but the game might have cost somewhere in the neighborhood of $200 million to $250 million to produce and somewhere between $150 million and $200 million to market.

A development and marketing budget of roughly $400 million would make Red Dead Redemption 2 one of the most expensive games ever and put its budget roughly in line with movies from major film franchises like Star Wars or the Marvel Cinematic Universe. Using that budget figure, the title would already be profitable. RDR 2 has likely generated somewhere in the neighborhood of $600 million in sales for the company after backing out cuts taken by console platform holders and retailers, so the game would be in the black even if its budget had been substantially higher. 

Red Dead's next big test

With fantastic sales and near-unanimous critical acclaim, the core Red Dead Redemption 2 package is already a hit, but at least one big variable remains. Like Take-Two's hugely successful Grand Theft Auto V, RDR 2 was designed with a multiplayer mode that's intended to keep players engaged and spending long after they've completed the single-player content. The Western-themed action game's online mode has yet to launch, but management has indicated it will likely debut at the end of November.

The pull of GTA V's online mode helped keep the game relevant and push its overall unit sales north of 100 million copies, and it has generated a steadily increasing stream of high-margin revenue. Take-Two is looking for RDR 2's multiplayer to have a similar effect. Without knowing specific details about the game's online content, it's too early to proceed with strong expectations that it will be a phenomenon like Grand Theft Auto Online. However, Red Dead's already-impressive installed base and well-received core gameplay experience give its online multiplayer mode a good chance of being successful. 

Some fans and reviewers have rightly pointed out that RDR 2's gameplay has a slower pace than that of GTA V. That makes sense given that the new game is partially aiming to replicate the feel of the Western film genre, while Rockstar's modern-day crime series is known for crazy scenarios and fast-paced action. A slower pace might reasonably be expected to narrow the appeal of Red Dead's online mode, but the differentiation could also help minimize cannibalization between the two online modes.

If RDR 2's online mode proves to be an engaging experience, investors can look forward to the game's essentially being half a Grand Theft Auto V from a sales perspective. That would be a fantastic, expectation-crushing performance for Rockstar's Western epic and make it one of the most successful entertainment products ever.

Keith Noonan owns shares of Activision Blizzard and Take-Two Interactive. The Motley Fool owns shares of and recommends Activision Blizzard and Take-Two Interactive. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.

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