More Kinder, Gentler, EA

I am concerned about John Riccitiello. He gave a very eloquent speech about his great concerns for every company which is smaller than EA and wants to be in the game business. In his mind, and in his life in games, the world order is very simple. There is EA, and there is everyone else. EA was number one when he left, and when he came back. Then he woke up one day and it was not. That must be fixed. Worse than that, the new number one to be will have a game that is vomiting incomprehensible amounts of cash on a monthly basis and EA has nothing of that scale. The whole thing has put John into a bit of a state. His communications are about as internally consistent as those of a two year old on speed. It is clear he really has to work on the filter between the words coming out of the little angel and devil sitting on his shoulders, and the words coming out of his mouth. Unfortunately, much like Ted Knight, he is simply mouthing the things these little guys are speaking into his ears.

The angel is telling him to respect talent. Independent studios are good. Call of Duty, Medal of Honor, Grand Theft Auto, Bioshock, Tomb Raider and most other great games you can think of came from independent studios, so this makes sense. People who made those games like to be independent and tend to leave when they feel their voice is not heard. Here is the angel speaking in John's interview with Gamespot:

" For us, it's all about their studios and their intellectual properties, which we very strongly desire to have as part of EA. And we project it to be accretive for us, so it's a win for EA. We think we would make a great home for their studios. Our decentralized label model is in many ways inspired by conversations I've had over the years with Sam Houser, who runs Rockstar. We think it's that simple. It's great for their shareholders, it's great for our shareholders, and great for their studios."

Then the devil comes out and tells John there is no reason to pay attention to those creative prima donnas. All they ever want is more time, and money, and support and pixels and music and other various bullshitty non mba type things:

"We believe that our due diligence review would require limited access to a small number of senior executives of Take-Two and its legal, accounting and financial advisers. Importantly, no interaction with any of the studio leaders will be required until our other due diligence is completed and the material terms of a transaction are agreed to. "

Strauss Zelnick comes back and accuses him of being an opportunistic bastard, looking only capitalize on the GTA IV, or in more common parlance, the surest thing in the entertainment business. John's angel answered in Gamespot:

"The analysts that are forecasting Take-Two for just their fiscal year have between 8 million and 12 million units of GTA IV forecast. Frankly, the question is what comes after GTA, because that's already in the value of the stock. Realistically, we don't anticipate closing the deal before GTA ships. We're anticipating a transaction that would close certainly not before the GTA launch, so that feels very much like a red herring to me."

Yeah John, that would suck to get only 8 to 12 million units in sales on EA's balance sheets, while EA did not have to currently incur the development for the four years + that the title has been in development. But wait, what's that? Oh it is the devil talking. He has already said he has not spoken with studio heads to find out what they want, and has no idea what the upcoming line up is, or what they want to build. He also said his due diligence will last only two weeks. The devil thinks it has to close before the GTA release and is willing to threaten Take Two:

"Our strong preference is to conduct a private negotiation. If you are unwilling to proceed on that basis, however, we may pursue other means, including the public disclosure of this letter, to bring our offer and the compelling value it represents to the attention of Take-Two’s shareholders.

I am available to meet and discuss any and all aspects of this proposal with you and your Board. Again, we believe this proposal represents a unique opportunity to maximize value for Take-Two’s shareholders, and that the combined enterprise would be extraordinarily well positioned to build value for our respective customers, employees, developers and other business partners. We hope that you and your Board share our enthusiasm, and we look forward to hearing back from you by February 22."

Finally, the angel does not even have a chance to speak before the devil can throw out some threats and try to create uncertainty in the minds of shareholders and board of Take Two:

"We also believe that any delay in this proposed transaction works against the interest of Take-Two’s shareholders, because:

• There can be no certainty that in the future EA or any other buyer would pay the same high premium we are offering today. We place significant value on the ability to close the transaction relatively quickly so that EA’s strong publishing and distribution network, including our global packaged goods, online and wireless publishing organizations, can positively impact the catalogue sales of GTA IV and also the launch and sale of titles released later this year. We want to work with you and your team to complete the transaction in time to begin realizing its significant marketplace benefits in advance of this year’s holiday selling season.

• We believe Take-Two’s current share price already reflects investor expectations for a strong release of GTA IV as well as the longer-term issues that Take-Two faces. Once GTA IV ships, Take-Two will again be dependent on less-popular titles and face increasing challenges to compete with larger and better-capitalized competitors.

• With GTA IV shipping on April 29, development on this important title must now be essentially complete. We believe now is the right time to complete a transaction with minimal disruption for Take-Two."

If the Angel were given a chance to speak, he would probably explain, first, you just said the transaction would not close prior to the launch of GTA IV. But more importantly, if you think the company is worth 2 billion dollars today, how badly can we really fuck up in the next 8 weeks? Especially when we are releasing the biggest franchise in entertainment? Second, you are kind of saying that it will be business as usual for Take Two. Or more succinctly, it will be kind of like EA the month after Madden ships, so you can really feel our pain. Thank you for the empathy, it makes us feel kind of warm and fuzzy. Kind of like a good plate of meat loaf and mashed potatoes. Finally, did you really say that? What is that supposed to mean? If you are leaving the studios alone, they would not really notice when the companies merged anyways.

The angel has already read an interview with Bill Roper that ran on about why he and his team left Blizzard. Maybe John should read what Bill said in that interview, it is after the jump:

"GG: So why on earth did you decide to leave Blizzard in 2003?

Bill Roper: We weren’t really looking to leave, to be honest, we were more interested in trying to find a way to work within the structure at Blizzard. There was a lot going on at that time, rumours about the sale of Blizzard. It was totally unclear what was going to occur, we were getting mixed signals. Our guys would come to us and say: “We’ve heard that we are gonna bought by Microsoft”. Or “we will be sold on the stock market”. We basically approached Vivendi and said: We need to know what’s going on! The problem was that we were getting nothing back, so finally, in an effort to show how serious we were about this, we send in letters of resignation: “We will resign if you do not include us in that process!”. And all we wanted to was to be able talk to someone in France! But they decided not to tell us.

GG: 'We' would be Blizzard North at that time?

Bill Roper: It happened to everyone, but those of us who sent word were Dave Brevik, Erich and Max Schaefer and myself, bascially the management of Blizzard North at that time.

GG: What was the answer of Vivendi?

Bill Roper: We never got one directly from Vivendi, that was part of the problem. So even with the resignations, the answer came back through the usual channels. So we heard from Mike Morheim down south that he had been told by the guys from New York who had been told by the guys in France...

GG: That really gives you the impression that you’re important for the company."


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