Take-Two Backtracks, Next-Gen Game Development Will Be “Costly”

Strauss Zelnick Take-Two Interactive CEO

During an earnings call with investors and analysts yesterday evening, Take-Two Interactive (the parent company of 2K Games and Grand Theft Auto developer Rockstar Games) warned that they are expecting game development for the next-gen PlayStation 4 and Durango (Xbox Infinity) to be both “complicated” and “costly.”

Take-Two CEO Strauss Zelnick revealed the not-so-shocking news, saying:

“There’s nothing straightforward about making what we hope will be the standard bearers of the industry. And there’s no question that developing for what will be next-gen will be complicated and for the type of titles we do, will be costly.”

Zelnick later added that the increased next-gen development costs may eventually come down as development efficiencies are discovered, however, it is “too early to say” when, or if, that will happen.

While it is not surprising to hear that the more powerful next-gen hardware will increase software development costs, this statement from Zelnick represents a complete 180 degree turn from what he told investors just six months ago during Take-Two’s November 2012 earnings call. At that time Zelnick stated the following:

“We don’t have a ramp-up of operating expenses for next-generation… Do we believe that titles to be a whole lot more expensive to make for next-gen? The answer is we do not. In many instances we believe that it may be somewhat easier to make titles for next-gen depending on how the technology comes together.”

It is unclear what prompted Zelnick’s about face on next-gen development costs, however, his new position is likely much more in line with the reality of the situation. Development costs tend to go up for every new generation of consoles, largely due to the increase in resources needed to take advantage of the more powerful hardware. Considering the types of games that Take-Two tends to publish/develop, these added costs are sure to be significant.

The real question here is, are these additional next-gen development costs going to result in a price increase for consumers? Neither Sony or Microsoft has put out a definitive statement on that just yet, so we can’t say for sure. If the answer is “yes” (and it most likely will be), I’m expecting that this will be one of the very last pieces of the next-gen puzzle to get an official confirmation.