On second thought, Take-Two Interactive (NASDAQ:TTWO) should have jumped on this summer's Electronic Arts (NASDAQ:ERTS) buyout offer of $25.74 a share.

Take-Two delivered a sluggish end to what started out as a stunning fiscal year, and then made things worse by thoroughly hosing down its prospects for fiscal 2009.

Revenue climbed 11% to $323.4 million in its fiscal fourth quarter. The reported deficit doubled to $0.20 a share, but several legal charges and a business reorganization hit are baked into those numbers. Strip those out, along with stock-based compensation, and one arrives at earnings on a non-GAAP basis of $0.02 a share for the quarter and $2.08 a share for all of fiscal 2008.

Grand Theft Auto IV was the company's blockbuster title this year, though recent leaders in its release library include Midnight Club: Los Angeles, the NBA 2K9 basketball game that has given EA Sports some worthy competition, and additions to the Carnival Games franchise that have sold briskly on Nintendo's (OTC BB: NTDOY.PK) Wii.

Now let's bite down hard on the bullet, because fiscal 2009 won't be pretty. Take-Two sees revenue falling by 19% to 28% this new fiscal year, with non-GAAP profits clocking in between breakeven and $0.20 a share.

Wall Street figured that 2009 would be a challenge for the company, given the 2008 success of GTA4. The pros just never figured it would be this bad. Analysts were only looking for a 10% top line swoon, with projected profitability at a now laughable target of $1.26 a share.

Releases on the company's 2009 slate showcase the industry's gradual shift to digital distribution. A pair of GTA4 episodes will be available exclusively as downloads on Microsoft's (NASDAQ:MSFT) Xbox 360. Midnight Club will also be kicking in with digitally-delivered content packs for the Xbox and Sony's (NYSE:SNE) PS3. The one big in-store release should be BioShock 2.  

If you keep putting in bigger hard drives, console makers and companies like Take-Two will find ways to fill them up.

Take-Two is certainly not the first gaming company to spook investors. EA and THQ (NASDAQ:THQI) have also provided grim near-term outlooks in recent weeks. The key takeaway here is that EA's slashing isn't as severe at what Take-Two is now projecting. It certainly can't go back in time to revisit EA's offer. The buyout tender was pulled three months ago. However, now that both companies are struggling, it just makes sense that they find fair terms to hook up, if only to take on industry leader Activision Blizzard (NASDAQ:ATVI). Now that is a company that is actually holding up well in this environment.

That should give the industry hope.

Other games to play:

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