Dominoes, anyone? And we don't mean pizza. With each day bringing a new piece of bad news, it seems like there is a domino effect at play in the Hot Coffee scandal surrounding Take-Two and Rockstar Games. Consider this week, and it's only Wednesday:
-Monday: the House of Representatives votes overwhelmingly to request that the FTC investigate the scandal
-Tuesday: the FTC announces it has already begun investigating
-Tuesday: Senator Sam Brownback (R-KS) jumps in with his own call for FTC action
-Wednesday: a class-action lawsuit is filed on behalf of a grannie who bought San Andreas for her grandson
What happens tomorrow? Who knows, but we're sure it will be something juicy. So does this ripple effect spell ultimate doom for Take-Two? Are they in the throes of an Enron-like death spiral?
Hardly.
GP traded e-mails on the topic with well-known video game industry analyst Michael Pachter of Wedbush-Morgan earlier today. The conversation went something like this:
GP: Michael, was something like Hot Coffee inevitable, what with content continually pushing the acceptability envelope?
Pachter: The patch isn't news, the content isn't that outrageous. What was inevitable was Congressional grandstanding. No comment from them about violence in games, but pixelated sex? Outrageous.
GP: If something like this was going to happen, is it surprising that it was Rockstar?
Pachter: Not surprising that Rockstar tried it, but it was an inappropriate risk given the value of the franchise.
GP: We're seeing a domino effect now - FTC investigation yesterday, class-action lawsuit filed today. Something new & negative almost every day. Is Take-Two in mortal danger?
Pachter: Only venial danger for Take-Two. The appropriate remedy IF THE FTC FINDS DECEPTION is to replace the "defective" games with appropriately labeled M rated games. That costs $2 - 10 per copy (depending on whether Sony waives the royalty). How many copies do YOU think will be turned in? First, I don't think the FTC finds anything. Second, in the EXTREMELY unlikely event that it does, fewer than 100,000 suckers will return the cool version for the sanitized version. No harm, no foul. The class action lawsuit is a joke. Grandma bought little teenage Johnny a game with cop killing, and is only upset now because of simulated sex? Damage is negligible.
GP: Will the Fall release of Bully be more problematic for Take-Two and Rockstar, coming as it does on the heels of Hot Coffee?
Pachter: Bully will be a stupid game, and will rock in England. Doubt it sells well in the U.S.
GP: Take-Two's stock price (TTWO) has dropped about 2 points but seems to be holding steady. Is that a good sign?
Pachter: Investors shouldn't have punished the company for this. It reflects poor management oversight, nothing more. I don't think it will happen again, so it's a waste of time to fret about its impact on the company's value.
GP: Should somebody at the executive level be fired over this? Will they?
Pachter: Nobody should or will be fired, because the "inappropriate" content was created as a trial, rejected by management, and locked under long-standing industry practice. The fact that it wasn't discovered until 8 1/2 months after the game was released is consistent with my belief that it wasn't intended to be discovered. If there was no intent to expose people to sex, then I can't see firing anyone.
GP: Did you catch Take-Two's statement when the ESRB ruling came down? Here is what they said:
"We are deeply concerned that the publicity surrounding these unauthorized modifications has caused the game to be misrepresented to the public and has detracted from the creative merits of this award winning product," said Mr. Eibeler. Take-Two is exploring its legal options as it relates to companies that profited from creating and distributing tools for altering the content of Grand Theft Auto: San Andreas. "
They haven't responded to a request to clarify what exactly they mean by that. The modders? Not much money there, one would guess. Datel, who makes Action Replay? But hasn't the legality of cheat devices long ago been affirmed? Or possibly download sites that hosted Hot Coffee? I know some commercial site like File Planet had it...
Pachter: Don't know. It's a free country, everyone should explore their legal options.
GP: Thanks, Michael! Good stuff...
While everyone seems to be buzzing about Bully of late, at least one respected financial analyst thinks sales of the game won't match the hype. Bully is scheduled for October release on the PS2.