Like most other online games that are wildly popular upon release, Take-Two Interactive's (NASDAQ:TTWO) GTA Online suffered technical headaches when widely released. With around 20 million copies of GTA 5 already sold, the Oct. 1 launch of GTA Online saw servers overwhelmed and technical glitches such as infinite load times and rampant game crashes.
Take-Two subsidiary Rockstar Games is issuing an aggressive mea culpa and backing it up with cash. In a blog post, the company announced it was issuing a "special stimulus package" for all players who either have played the game, or will play it this month.
The "stimulus" is two deposits equal to $500,000 of the game's in-game currency, GTA$. With $500,000 GTA$ bundles selling within the game for $10 (in real-world dollars), this could be a $200 million giveaway by Rockstar. While this is a pretty generous offer, it could wind up being a savvy business move as well.
A troubled launch
Rockstar's offer comes on the heels of an especially troubling launch of GTA Online. Online games are frequently a nightmare when they debut. While games have soft "beta" launches to squash bugs and look for potential problems upon release, it's extremely difficult for games to handle launches where millions of players can suddenly overwhelm servers and dredge up unknown technical glitches.
The poster child for a broken online release was this year's Sim City from Electronic Arts (NASDAQ:EA). Prior to release, reviews for the game were largely positive. However, as hundreds of thousands of players tried logging into the game, servers were overwhelmed and the game became widely described as "unplayable."
GTA Online hasn't been quite the disaster Sim City was. Rockstar did its part to lessen expectations, warning in a blog post prior to the game's release to expect the usual problems for new online games during GTA Online's first couple weeks. Also, unlike Sim City, which required online access to play the game, GTA Online is essentially a free add-on to GTA 5.
Squaring up with its customers
As a single player game, GTA 5 is the best reviewed game of the year by a mile. Customers shelling out $60 for the game get more than their money's worth without any online play.
Yet, GTA Online could be the future of the franchise. As I described in an earlier article on GTA Online, the current version of GTA moving online feels like a large test from the company with an eye to something larger in the future. The wide open world of GTA, whether in Liberty City or Los Santos, seems built to be inhabited by thousands of real life gamers rather than one long single-player quest.
From that standpoint, Take-Two and Rockstar simply can't afford for buzz around the release of GTA Online to so low that it's considered a failure. Sim City reached that point after its release, and scathing reviews of the game have done immense damage to a very valuable franchise.
If GTA Online fails as a free add-on to GTA 5, it could torpedo momentum for a more ambitious -- and financially lucrative -- online game in the future.
GTA$ for all!
Offering 500,000 in GTA$ (again, an amount that sells for $10) has little "cost" to Take-Two. After all, it's a currency made up by the company. Yet, it has a high "opportunity cost" since many players would have purchased 500,000 GTA$ regardless of the latest "stimulus" offer.
Consider that EA's Simpsons: Tapped Out was highlighted by the company on a recent earnings call as a success story of the "free to play" model. The game was generating about $10 million a month in sales earlier this year. All of that success comes thanks to an average revenue per user (ARPU) estimated at roughly $5.
Take-Two is giving away around twice the ARPU of one of the most popular online games to all its customers, which on the surface could seem high. However, remember that ARPU isn't evenly divided by customers. One player ordering $50 of in game purchases while nine others never buy anything would lead to an ARPU of $5.
Offering $10 worth of in-game money will likely be a small percentage of the total in-game purchases for the game's heaviest users. If a user spends $100 in GTA Online, that $10 free offer is a small percentage of their spending. For a high number of users, they likely would have never purchased in-game dollars to begin with. Offering them free GTA$ didn't take away money they would have spent, and the offer of free money might get them playing a game they otherwise wouldn't have.
Such a strategy isn't foolproof. If it were, every game with "freemium" mechanics would copy it. Yet, in GTA Online's case, where it has a dedicated following that's already shown a willingness to pay for the initial game, doing right by its customers and bringing them back into the online game is a low-risk move.
Add it all up, not a bad move
When you add it all up, Take-Two's move seems pretty savvy. The offer of free in-game cash goes a long way to recuperating GTA Online's tattered launch. Also, it gets GTA's huge and very engaged user base back into GTA Online after Rockstar has had a chance to squash many of the bugs plaguing the game and get additional servers online.
The idea of an online GTA is far too valuable for Take-Two to take any risks. Their offer of free in-game cash is a clever move that will have the right long-term payoffs.
Eric Bleeker, CFA has no position in any stocks mentioned. The Motley Fool recommends Take-Two Interactive. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.