The closing of a gaming studio is rarely good news for the company overseeing its operations. This is especially true when the studio is responsible for two of the most critically acclaimed games of the last decade. Take-Two Interactive's (NASDAQ:TTWO) decision to shutter Irrational Games, the studio behind the most well received-entries in the multimillion-selling BioShock series, was met with loud outcries from fans of the series. It also prompted some to speculate that the broader gaming industry was in less than great shape. That said, the closing of Irrational Games is actually good news for the future of Take-Two.
A shock to the system
There's no denying that the two BioShock games from Irrational (the original and BioShock Infinite) were critical darlings. Unfortunately, both games had lengthy development cycles, and Infinite failed to generate the sales necessary to justify giving Irrational free reign to chase its creative whims.
Development of BioShock Infinite began in February 2008, but the game was not released until February 2013. Throughout the game's five-year production cycle, there was supposedly enough content cut to make five or six full-fledged retail releases. Upon its eventual release, the game debuted to rave reviews and solid sales, but Irrational's inefficiency had reached the point of inexcusability.
The development resources allocated to Irrational Games contributed to an unhealthy trend that saw Take-Two post losses in years that didn't see a major release in the Grand Theft Auto series. The incredible success of the Rockstar-developed franchise allowed Take-Two to remain viable. However, relying mostly on GTA to prop up operations amid other massive expenditures that failed to justify the investment could not continue.
If gaming has equivalents to film industry auteurs, Irrational's Ken Levine is one of a defining few. Hideo Kojima, creator of the Metal Gear series and current vice president of Konami (NASDAQOTH:KNMCY), could be listed as another example of a director who exercises extreme control over almost every aspect of a production. In Irrational's case, Levine's micromanagement and eccentric vision ultimately became problematic. His insistence on realizing the game exactly as he envisioned it drove key forces out of the project and led to a ballooning production budget.
Levine has proven his brilliance when it comes to creating a world and shaping a narrative in the interactive medium -- you just can't give him a blank check and expect it to be a good financial investment. Luckily for Take-Two, he'll be sticking with the company and heading up a smaller team. 2K Studios will take over development duties on the BioShock series, and a worthwhile franchise will live on with what will likely be a much tidier budget and development process.
Take-Two will outperform its smaller competitors
Even with the fantastic success of Grand Theft Auto over the course of the last console generation, Take-Two could be classified as a second-tier publisher. The company is not quite in the same league as Activision and Electronic Arts, in roughly the same ballpark as Ubisoft, and well ahead of Konami. A more efficiently run Take-Two has the opportunity to improve its market share, as the latter two companies look to stumble in this hardware cycle.
The company's share price is up approximately 42% from a year ago, and up approximately 10% since the announcement of Irrational's closing in February. Much of the company's gains in the past month can likely be attributed to increasing (and wholly believable) rumors that Grand Theft Auto 5 will be hitting the Sony PlayStation 4, Microsoft Xbox One, and PCs this year, but a more efficiency-oriented Take-Two still has to be enticing for investors.
How's that other auteur doing?
Hideo Kojima's Metal Gear Solid 5: Ground Zeroes, an entry in what is by far Konami's most important gaming property, has debuted to mixed reviews and is being widely criticized for lacking in content. The game is meant to serve as a prologue to the rest of the Metal Gear Solid 5 experience and was released at price points lower than a typical full-price retail release. Many fans will likely be disappointed by the short length of the game's main campaign, however.
Eurogamer recently posted a video that shows the game being completed in approximately 10 minutes. The paired-down nature of the most recent Metal Gear Solid release and the lengthy wait for the next full-fledged installment has the potential to damage the series.
Take-Two's big guns are strong
Take-Two's efforts to trim some fat should be encouraging for investors. That BioShock Infinite did not sell enough to justify keeping Irrational Games open is undeniably disappointing, but the company's response was the right one. Grand Theft Auto may very well be the most valuable property in gaming.
Grand Theft Auto 5 shipped 32.5 million copies across two platforms by the end of 2013, and the game's online mode brought in over $66.4 million from microtransactions across the same period. A more cost-conscious Take-Two will be less prone to find itself in Infinite situations, and better equipped to concentrate on other successful properties like NBA2k and Red Dead Revolver to achieve routine profitability.
Keith Noonan 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.