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THE BENEFITS OF EMBRACING THE RISE OF INTERCONNECTIVITY 1
The Benefits of Embracing the Rise of Interconnectivity
Take-Two Interactive Software, Inc. (TTWO)
Corpus Christi College of Business

Prepared by: Alexzandria Hancock, Christina Vela, Peyton Larkin, Samson Salas, Justin Vu
Nguyen, and Stephanie Becerril

Table of Contents
I. EXECUTIVE SUMMARY
II. BACKGROUND
III. EXTERNAL ANALYSIS
A. Macro Environment
B. Competitive Analysis
IV. INTERNAL ANALYSIS
A. Finance
B. Value Chain
C. VRIO Analysis
D. SWOT Summary
V. STRATEGY FORMULATION
A. Vision, Mission, Goals, and Objectives
B. Market Demands
C. Strategy Formulation Options
D. Recommendations
VI. STRATEGY IMPLEMENTATION
A. Metrics and Histories
B. Implementation Issues
REFERENCES
APPENDIX A
APPENDIX B
APPENDIX C

EXECUTIVE SUMMARY
Key Elements:
This research paper is intended to analyze the external and internal environment of the US video
game production industry as well as formulate recommendations for the firm Take-Two
Interactive Software Inc. (TTWO). Specifically this report aims to answer the following
questions:
 What is the external environment of the US video game production industry?
 What is the internal environment of the US video game production industry?
 What are the recommendations; and implementation issues for Take-Two Interactive
Software, Inc.?
The U.S market is influenced by “big deltas” such as changing face of America,
Interconnectivity increasing and increased dominance of Asian power. The big delta has affected
the U.S market for over 3 to 5 recent years; and they continue to show effects in today life. The
U.S. has seen an increase in internet usage, urban households, customer expenditure on leisure
and recreation, and women in the workforce. The U.S. video game industry is part of an
attractive and highly competitive market with low to moderate entry barriers posing threats to
larger companies. This leads to high competition in product differentiation, brand name, and
multiple distribution channels. Suppliers are not critical to a firms’ survival and a high amount of
buyers play a vital role in the success of the companies within the industry. International video
games and move theatre tickets are attractive product substitutes. The rivalry in the industry are
relatively heterogeneous with moderate fixed costs, switching costs and a low exit barrier.
Electronic Arts, Inc. being the largest U.S. game producer ahead of Take-Two Interactive, Inc.
Activision-Blizzard Inc. and Glu Mobile Inc. has strategies that help developers keep gamers in

mind and to focus on game development for mobile platforms. Activision-Blizzard Inc. is widely
known for the success of leading franchises such as Call of Duty and World of War Craft. The
smallest competitor, Glu Mobile Inc. develops and publishes its games to online mobile
platforms such as tablet devices and smartphones.
A value chain is offered in this paper, showing primary activities ranging from negative to
positive. The Resource-Based View Analysis (VRIO) consists of the Grand Theft Auto
franchises, library Top “Hit” franchises, relationship with NBA, and other game franchises. The
SWOT table consists of Internal and External environments and its strengths, weaknesses,
opportunities, and threads. In the strategy formulation, the Take-Two Interactive Inc. mission
statement is stated, comparing its consistency to the SWOT table. An elastic market industry
with a narrow market breadth and a focused low cost generic strategy leads into the critical
issues the firms must face in the industry. Several strategic alternatives are offered in addition to
the Take-Two Interactive Inc. current strategy with implementation issues, strategic
recommendations, and the metric measures and histories of the firm.

The Benefits of Embracing the Rise of Interconnectivity
Take-Two Interactive Software, Inc. (TTWO) Background
Headquartered in New York City, Take-Two Interactive Software, Inc. (TTWO) is a leading US
video game producer for customers around the world. It creates, markets, and sells its video
games through its entirely owned labels Rockstar Games and 2K. Take-Two is an active
participant in the US video game production industry alongside Electronic Art, Inc. (EA),
Activision Blizzard, Inc. (ATVI), and Glu Mobile, Inc. (GLUU).
The company’s mission “is to capitalize on the popularity of video games by developing
and publishing high-quality interactive entertainment experiences across a range of genres”
(Take-Two International Software, Inc., 2015). Take-Two creates, markets, and distributes
popular video games to consumers with the help of a highly skilled workforce.
Take-Two sprouted in 1993. Its founder Ryan Brant, is the son of Peter Brant, co-owner
of Interview magazine. Ryan attended Wharton School of Business and earned a degree in
economics May 1992. “Through family and private investors the 21-year-old entrepreneur was
able to raise $1.5 million and establish Take-Two in the fall of 1993” (International, 2002). It
began as a video game producer in search of a hit. “In March 1995, Take-Two was established
enough to negotiate a four-year licensing arrangement with Sony, allowing it to develop games
for Sony's popular PlayStation game console” (International, 2002). Take-Two went public April
1997 with stock priced at $5 per share and netting approximately $6.5 million. In 1999 it began
building an online presence. Take-Two currently has 84,368,648 common shares outstanding
with a price of $24.93 as of February 2, 2015.
The firm generates its revenue by leveraging top selling titles cyclically throughout the
year. This creates spikes and dips in their revenue from year to year depending on the select title

its marketing, funding; and sculpting to fit the current demand from consumers and suppliers.
According to Take-Two Interactive Software, Inc.’s Securities & Exchange Commission Form
10-K, “revenue is primarily derived from the sale of internally developed software titles and
software titles developed by third-parties for our benefit” (Take-Two International Software,
Inc., 2015). Gross profit for the firm as of March 2015 is $288,071,000.
Discussion
The findings of the study will be presented in four categories: external analysis, internal
analysis, strategy formulation, and strategy implementation.
External Analysis
Trends that have defined the world within the last three to five years are
interesting to note. Some major effects are recent spending cuts; this paper focuses on America’s
public debt, education spending, and military spending. US public debt is slowing down while
disposable income and customer expenditure on leisure and recreation is increasing. Technology
continues to grow as observed in the continued growth of internet subscribers and possession of
broadband enabled computers. America’s disposable income is growing to support a change in
sociocultural trends such as households, urban households, and higher education. The
demographic makeup is changing as well with narrowing baby boomer population and growing
Generation Y. Globally, external debt is declining while market capitalization and internet
subscribers is increasing.
Environmental drivers suggested by the previous data are an increase in interconnectivity,
an increasing dominance of Asian powers, and the changing face of America. The subsequent
data will present the average change in the growth rate between 2008 and 2011 as well as

between 2011 and 2014 as a percent CAGR over a three year period for six categories: political-
legal, technological, demographic, sociocultural, global, and economic which will serve to
further analyze the impact of the major environmental drivers “big deltas.” See Appendix A for
data on 6 categories.
Macro Environment
Political-Legal. The average change in the growth rate of US public debt between 2008
and 2011 was 18.3 percent CAGR, 9.3 percent CAGR between 2011 and 2014 over a three-year
period. US education spending increased at a rate of 0.7 percent between 2008 and 2011 and
decreased 0.8 percent from 2011 to 2014. Also, the average change in growth rate between 2008
and 2011 was a 4.6 percent increase for US military spending and a decrease of 5.1 percent from
2011 to 2014.
Technological. The technological category in the macro analysis shows that US internet
subscribers grew from 2008 to 2011 3.2 percent CAGR and from 2011 to 2014 increased 2.9
percent CAGR. US possession of broadband enabled computers grew 6.5 percent between 2008n
and 2011, 3.9 percent between 2011 and 2014 CAGR over a three-year period.
Demographic. The demographic segment of the macro analysis covers elements such as
population size, age structure, and geographic distribution. The average change in the growth
rate of US baby boomers, age 39 to 57 measured between 2008 and 2011 was -0.3 percent and
between 2011 and 2014 was -0.5 percent CAGR. The demographic segment also covers
elements of ethnic mix. For US generation Y, Age 21 to 38 there was an increase in 2008 to
2011 of 0.4 percent and then in 2011 to 2014 an increase of 1.3. When it comes to US
generation Z, age 3 to 20 between 2008 to 2011 there was no available data but between 2011
and 2014 there was a decrease of -0.3 percent CAGR. Lastly the demographic segment

discusses income distribution. The US annual income growth rate had an increase in 2008 to
2011 of 1.8 percent and an even bigger increase between 2011 to 2014 of 3.5 percent CAGR.
Sociocultural. The sociocultural segment of the macro analysis covers elements
regarding women in the workforce, workforce diversity, and attitudes about the quality of work
life. The average growth rate of US households between 2008 and 2011 was 0.5 percent and
then grew in 2011 to 2014 to 1.2 percent CAGR. The result of US urban households was 0.9
percent from 2008 to 2011 and then grew 1.5 percent in 2011 to 2014 CAGR. The US higher
education growth rate was 4.8 percent in 2008 to 2011 and then suffered a major decrease in
2011 to 2014 of 0.5 percent CAGR.
Global. In the global segment of the Macro Environmen,5y3 the critical markets from
around the world include the United States, China and India. China has no external debt showing
0 from 2008-2011 and remaining 0 from 2011-2014. The US external debt showed a 4.7 CAGR
from 2008-2011 and decreased during 2011-2014 to a 3.0 CAGR. India’s external debt had a
14.5 CAGR from 2008-2011 and decreased to an 11.9 CAGR from 2011-2014.Market
capitalization also showed significant changes in the macro environment. The US market
capitalization for 2008-2011 had a 10.9 CAGR and increased to a 19.0 CAGR 2011-2014.
Chinas market capitalization for 2008-2011 had a 20.9 CAGR and increased during 2011-2014
22.5 CAGR. The usage of internet subscribers also increased around the world. US internet
subscribers had small growth in 2008-2011 with a 3.2 CAGR which decreased during 2011-2014
to 2.9 CAGR. Chinas internet subscribers had tremendous changes in 2008-2011 with a 19.4
CAGR but decreased during 2011-2014 to a 9.3 CAGR. India also showed tremendous growth
with its internet subscribers from 2008-2011 with a 20.3 CAGR and also showed a decrease in
growth during 2011-2014 to a 5.4 CAGR.

THE BENEFITS OF EMBRACING THE RISE OF INTERCONNECTIVITY
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Economic. The United States disposable income during 2008-2011 had a 2.3 CAGR and
increased during 2011-2014 to 3.5 CAGR. The United States external debt for 2008-2011 had a
4.7 CAGR and decreased during 2011-2014 to a 3.0 CAGR. The United States consumer
expenditure on leisure and recreation during 2008-2011 had 0.5 CAGR and increased to 4.0
during 2011-2014.
Big Delta. “Big Delta” which can be defined as patterns cross at least three
environmental driven categories like demographic, economic, political/legal, sociocultural,
technological and global, drives macro environment. “Big Delta” ‘s effects need to be occurring
from three to five years period, and still happening to today. “Big Delta” produces and is
produced by large ripple effects. In today’s U.S market, changing face of America
Interconnectivity increasing and increased dominance of Asian power are the “Big delta” drive
the U.S’s macro environment.
Interconnectivity increasing is a big delta, which resulted from the increasing percentage
of people using the Internet, urban household and customer expenditure on leisure and
recreation. Usage of the Internet increased and is an outstanding technological trend, which
resulted from an increase of 2.9 percent of people using the Internet in 2011 to 2014 [Passport
GMID], compared with an increase of 3.2 percent in 2008 to 2011. Another technological trend
is possession of broadband enabled computers, which is documented by a 3.9 percent increase
from 2011 to 2014 [Passport GMID], versus a 6.5 percent increase from 2008 to 2011.
Urbanization is a sociocultural trend in the United States, which resulted in the number of urban
household increasing by 1.5 percent from 2011 to 2014 [Passport GMID], versus 0.9 percent
from 2008 to 2011. Customer expenditure on leisure and recreation grew 4 percent from 2011 to
2014, versus 0,5 percent from 2008 to 2011.

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Changing face of America is demonstrated by the increasing number of women in the
work force displayed by a 1.55 percent increase from 2011 to 2014 [Passport GMID], versus a
negative 1.44 percent from 2008 to 2011. In the demographic sector, a change in disposable
income between males and females is evident by a 2.6 percent increase in male’s disposable
income from 2011 to 2014 [Passport GMID], versus a 2.9 percent increase in female’s
disposable income from 2011 to 2014. Increase government expenditure on Healthcare is an on-
going political topic, which resulted in an increase of 1.6 percent over the course of 2011 to 2014
[Passport GMID], compared to 4.5 percent increase from 2008 to 2011.
Figures suggests a growing dominance of Asian powers. From 2011 to 2014 US gross
domestic product rose 3.4 percent with a previous 1.8 percent rise from 2008 to 2011. India’s
gross domestic product increased 12.4 percent from 2011 to 2014 and 16.7 percent from 2008 to
2011. China also experienced growth in their GDP with an increase of 9.6 percent from 2011 to
2014 and another 15.2 percent increase from 2008 to 2011. Interconnectivity increased, US
Internet users went up 7.9 percent, India users increased 21.0 percent, and China’s increased 9.4
percent from 2011 to 2014. From 2008 to 2011 US internet users went down 1.1 percent, India
users increased 34.2 percent, and China’s increased 19.8 percent. Defense spending as a
percentage of GDP increased 4.5 percent from 2011 to 2014 in the US, India increased 7.6
percent, and China increased 3.8 percent. From 2008 to 2011, US defense spending as a
percentage of GPD increased 0.9 percent, while India increased 6.3 percent and China 10.1
percent.
Industry
Porter's Five Forces of Competitive Position Analysis suggests the US video game

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production industry is moderately competitive and serves an attractive market. The industry has
low to moderate barriers to entry, which pose a threat to the big players in the industry. Capital
costs necessary to enter the industry are $19,555,000 for the smallest competitor. Product
differentiation and brand loyalty are very important for the success of industry companies.
According to company SEC 10Ks, brand name is important to 4 out of 4 of the top firms in the
industry. Access to distribution channels is high with 3 out of 4 firms in the industry distributing
gaming content through unique multiple distribution channels. The client firm delivers its
products through physical retail, digital download, online platforms and cloud streaming
services.
Supplier power is moderate in the US video game production industry. Product
significance is moderate subordinate to suppliers not being critical to a firms’ survival. Relative
concentration consists of 4 firms versus moderate suppliers noted in 4 of 4 10Ks. The console
suppliers in this industry are: Nintendo, Microsoft, & Sony as well as third party digital
platforms: Stream, Microsoft’s Xbox live & Sony entertainment. The threat of forward
integration is moderate with $19,555,000 capital costs. Switching costs are low, none noted in
Take-Two’s 10k.
The power of buyers in this industry is high. There is concentration of 10 buyers in the
industry who purchase high volumes of the industry’s total outputs. Large retail customers
include GameStop, Wal-Mart, and Best Buy. According to Take-Twos 10K, the five major
buyers GameStop, Microsoft, Sony, Steam and Walmart contributed to 64.6 percent of its net
revenue 2015. The threat of backward integration is high with a low $19.5 million in capital
costs. The larger retailer buyers are perfectly capable of entering the industry by purchasing the
clients firm or one of its 3 competitors.

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Threat of product substitutes is low to moderate. Attractive product substitutes are the
international video game production industry and the movie theatre industry. The average cost of
and international video game is $80 compared to a US video game priced at $60. The average
movie theatre ticket is $8.40 as of 2014. The higher price alone makes the international video
game less attractive in turn decreasing the threat of that substitute. The U.S Video Game
Production Industry has an industry growth rate of 3.4 percent between the years 2011 to 2014.
International video game production has slowed down from 2011 to 2014 with an industry
growth rate of -17.2 percent. The movie theatre industry is a moderate attraction for US video
game customers, movie theatre industry rose 4.0 percent from 2011 to 2014. The inflation rate
within the same set of years is 1.7 percent for the US.
Rivalry among existing firms is moderate in the industry. Revenue range between firms is
18.5 percent with the industry compiled of relatively heterogeneous firms. The 3.4 percent
industry growth rate is much higher than the 1.7 percent current inflation rate. Fixed costs are
moderate, Take-Two Interactive Software, Inc. has a reported 48 percent of their finances as
fixed costs. Customer switching costs are moderate and strategic stakes are low because 4 of 4
firms are growing. Exit barriers are low, none were noted in the 10k.
Competitive Analysis
Electronic Arts, Inc. is the largest US video game producer ahead of Take-Two
Interactive, Inc., Activision Blizzard, Inc., and Glu Mobile, Inc. Ceteris paribus competitors
attract their share of the market through innovative marketing and developing “hit” titles. The
following analysis provides a brief overview of the industry’s competitive dynamics.
Electronic Arts, Inc. Electronic Arts, Inc. (EA) develops, markets, publishes and
distributes video game software and services for game consoles such as Sony’s PlayStation 3 and

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PlayStation 4, Microsoft’s Xbox 360 and Xbox One; and personal computers, mobile phones and
tablets. EA generated $3,575 million in 2014. They currently have a market cap $21.4 billion
granting them 50.4 percent of the market. EA follows three core strategies (1) players first, (2)
commitment to digital, and (3) one EA. The first strategy is to help developers keep gamers in
mind. The second strategy is to focus on developing games for the emerging digital mobile
platform. The third strategy is to remind EA to remain flexible and able to evolve in the rapidly
changing industry.
Activision Blizzard Inc. Activision Blizzard, Inc. (ATVI) is a developer and publisher of
games for PCs, video game consoles, smartphones and tablets. Activision generated $4.4 billion
in net revenue 2014. Currently Activision has a market cap $18 billion allowing it 42.3 percent
of the market. Activision’s strategy is to focus on proven game franchises and genres, cost
discipline, and to capitalize on the development of online digital revenue. A large part of their
success is due to its leading franchise Call of Duty generating $11 billion since its launch in
2003. Activision is currently developing sequels and additional content for the Call of Duty
franchise.
Glu Mobile, Inc. Glu Mobile, Inc. (GLUU) is the smallest competitor in the US gaming
industry. It develops, publishes, and markets a library of games for mobile platforms such as
smartphones and tablet devices. The games are sold through digital storefronts such as the Apple
app store, Google Play store, and Amazon app store. Glu’s 10K states the company claims to
have the leading position in four online tablet gaming genres: action, casual, racing and sports.
They generated $223.1 million in total revenue for 2014. They currently have a market cap of
$746.1 million permitting Glu 1.8 percent of the market. Glu Mobile plans to continue their
strategy of developing and publishing games for smartphones and tablets.

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Internal Analysis
Take-Two Interactive Software, Inc. (TTWO) is a leading video game developer. Revenue is
primarily derived from the sale of internally developed software titles and software titles
developed by third-parties for their benefit. The leading firm in the industry, Electronic Arts, Inc.
(EA) will be used as a comparative firm throughout this paper.
Finance
Take-Two Interactive Software, Inc.’s financial performance is affected by the timing of
its product releases and of the commercial success of those titles. The firm earned revenue of
$1,537,530,000 in 2008 and fell 9.6 percent in 2011 to a revenue of $1,136,876,000, in 2014 the
firm shot back up 27.4 percent to $2,350,568,000. The US video game production industry
generates revenue cyclically due to the schedule of game releases. The following ratios were
found using financial statements of the client firm found on Mergent Online, see appendix C.
Capital provided by owners and lenders to the firm does not make up an amount too great for the
firm to handle, the firm’s debt to equity ratio at 1.2 versus a 1.4 ratio for the leading firm in the
industry, Electronic Arts, Inc. which we will use as a comparative firm throughout this paper.
The client firm has a proportionate amount of income that can be used to cover interest expenses
in the future with a times interest ratio of 11.1 versus 0.3. The client firm’s short term liquidity is
expressed with a quick ratio of 2.9 versus 1.3. Its ability to pay short term obligations is
expressed in a current ratio of 2.9 versus 1.3. According to financial management ratios, Take-
Two is successful at managing the firm’s finances, assets, and debt. Average tenure of top 5
executives is 9 years versus 10 years. One amendment to their SEC 10K has been discovered
within the last three years versus two amendments found within the last three years for
Electronic Arts. Take-Two’s top management has not been recently fired or jailed. According to

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the Wall Street Journal, “For fiscal fourth quarter 2015, GAAP net revenue grew 54 percent to
$300.1 million, as compared to $195.2 million for fiscal fourth quarter 2014. GAAP net loss was
$242.8 million, or $2.99 per diluted share, as compared to $30.8 million, or $0.40 per diluted
share, for the year-ago period” (Business Wire, 2015). Barron’s Best Hedge Funds reports their
number two spot going to Richard Mashaal of Senvest Partners “who registered an annualized
gain of 44 percent on the strength of selections like DepoMed (DEPO), which makes pain-
management drugs; videogame maker Take-Two Interactive Software (TTWO), publisher of
Grand Theft Auto; and Howard Hughes (HHC), a real estate developer whose portfolio includes
the South Street Seaport in New York” (Uhlfelder, 2015).
Take-Two Interactive Software, Inc. has been steadily growing the past few years and
will continue to grow. The firm’s SEC 10K states that “Growth is expected to be
driven by continuing increases in the installed base of traditional consoles, along with the
growing popularity of games played on emerging platforms such as tablets and smartphones, and
online including through social networks” (Take-Two International Software, Inc., 2015).
Value Chain
A value chain analysis of Take-Two Interactive Software, Inc. versus Electronic Arts,
Inc. follows.
Primary activities for the client firm range from weaknesses to strengths for the firm. A
strong primary activity for the firm is outbound logistics with inventory being turned over at a
rate of 62.9 versus 12.9. Operations are healthy, operation costs for the firm is 82 cents per dollar
versus 99 cents per dollar for EA. Marketing & sales is another strength for Take-Two with
money invested in advertising generating a 9.8 percent return versus 8.7 percent return for
Electronic Arts, Inc. Inbound logistics and service are neutral due to a lack of data. The

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following figure illustrates the results of the value chain analysis.
Figure 1. Value Chain Analysis. Source: Original
Support activities for the client firm are largely helpful for Take-Two. Its infrastructure
(finance, organization, culture) is relatively healthy. According to Value Line, Take-Two’s
financial strength is a B plus. Capital provided by moneylenders for the firm is relatively
proportionate to their equity, the firm’s debt to equity ratio at 1.2 versus a 1.4 ratio for the
leading firm in the industry, Electronic Arts, Inc. Take-Two has a fair amount of income
available for interest expenses in the future with a times interest ratio of 11.1 versus 0.3. The
firm’s quick ratio of 2.9 versus EA’s quick ratio of 1.3 displays the firm’s decent liquidity. Take-
Two’s current ratio of 2.9 versus EA’s 1.3 current ratio demonstrates its respectable skill of
meeting its current financial obligations. The average tenure of top 5 executives at Take-Two is 9

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years versus 10 years at Electronic Arts. Within the last three years 1 amendment was discovered
on Take-Two’s filings with the SEC versus 2 amendments for Electronic Arts. Recently, there
have been no significant legal issues with the firm’s management. Human Resource
Management is an asset, Take-Two employs approximately 2,840 full time employees and each
employee produces around 828,664.79 versus Electronic Arts, Inc. employees generating
$425,595.24. Its technological development is a strong point. For every dollar the client firm
invests in research and development it generates $17.40 in revenue versus Electronic Arts, Inc. at
$3.28. Take-Two’s weakness in procurement of materials is demonstrated by every dollar of
revenue creating 60 cents per dollar for COGS versus 38 cents per dollar at Electronic Arts. This
indicates that EA spends less on procuring materials giving them a competitive edge and the
client firm’s weakness.
Resource-based View Analysis (VRIO)
Grand Theft Auto Franchise. The Grand Theft Auto franchise is a valuable resource
generating 28percent of the client firm’s 2015 net revenue. The franchise is rare because no other
firm in the industry has a similar storyline game as successful as Grand Theft Auto. The resource
is not costly to imitate because a competitive firm can imitate the Grand Theft Auto franchise
within 3 to 5 years with the expectation of a reasonable return. The Grand Theft Auto franchise
is incessantly exploited by the client firm because it is the client firm’s top revenue generating
game. The Grand Theft Auto franchise offers a temporary competitive advantage for Take-Two
Interactive Software, Inc. bringing in above average to average returns.
Library of Top “Hit” Franchises. The client firm’s library of top “hit” franchises
includes a number of highly praised, multi-million unit selling franchises such as: “BioShock,
Borderlands, Carnival Games, Evolve, Mafia, NBA 2K, Sid Meier's Civilization, WWE 2K and

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XCOM Enemy Unknown, Grand Theft Auto, L.A. Noire, Max Payne, Midnight Club, and Red
Dead” (Take-Two Interactive, 2015). These franchises alone do not generate as much revenue as
the Grand Theft Auto franchise. The “hit” franchises can be bundled together to create a strong
valuable resource accounting for approximately 69 percent of Take-Two’s net revenue for 2015.
This library of “hit” franchises is rare because all games in this library are licensed and are also
considered to be “hit” franchises. These games are “internally-owned under copyright, patent,
trademark and trade secret laws as well as through contractual restrictions on disclosure, copying
and distribution” (Take-Two Interactive, 2015). Other competitors can create a library of top
“hit” franchises within 3-5 years and expect a reasonable return. Take Two’s library of top “hit”
franchises represents a temporary competitive advantage and could bring in above average to
average returns.
Relationship with NBA The client firm’s relationship with the NBA is a valuable
resource. NBA 2K has been one of the highest ranked NBA basketball video game for a
consecutive 14 years (Take-Two Interactive, 2015). This resource is rare because this
relationship allows our firm copyright, patent and trademark licenses to use the NBA name in the
client firm’s game. Take Two Interactive Software Inc.’s wholly owned franchise 2K has
secured a multi-year license with the NBA. The resource is not costly to imitate and competitors
may have similar games within 3-5 years and expect can be able to expect a reasonable return.
Take Two’s relationship with the NBA represents a temporary competitive advantage and brings
in above average to average returns.
Other game franchises. This resource is valuable because it allows the client firm to
experiment with different genres of games and maybe produce the next “hit” franchise. This
resource is not rare because competitors also have numerous amounts of video games that they

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produce and sell but are not considered “hits”. Other game franchises are exploited by the firm
because without the sales and revenue generated from the sales of these franchises the company
could experience a significant loss in revenue and sales. This resource provides a competitive
parity and brings in average returns.
The following diagram (Figure 2) depicts the results of the resource based view analysis
Figure 2. Resource Based View Analysis. Source: Original
Strengths Weaknesses Opportunities Threats (SWOT)
Strengths. Take-Two Interactive Software, Inc. has many strengths. The firm’s
infrastructure; Finance, organization, and culture are a few. Capital provided by owners and
lenders is low with the firm’s debt to equity ratio at 1.2 versus a 1.4 ratio for the leading firm in
the industry, Electronic Arts, Inc; which we will use as a comparative firm throughout this paper.

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The client firm has a proportionate amount of income that can be used to cover interest expense
in the future with a times interest ratio of 11.1 versus 0.3. The client firm’s short term liquidity is
expressed with a quick ratio of 2.9 versus 1.3. Its ability to pay short term obligations is
expressed in a current ratio of 2.9 versus 1.3. The organization of the firm has a positive effect
on the firm. Average tenure of top 5 executives is 9 years versus 10 years. One amendment of
their 10K has been discovered within the last three years versus 2 amendments. Culture of the
firm is a strength. Take-Two’s top management has not been recently fired or jailed.
Human Resource Management is a significant environmental driver. Take-Two employs
approximately 2,840 full time employees, with each employee producing around 828,664.79
versus Electronic Arts, Inc. employees generating $425,595.24. Technological Development is a
strength. For every dollar the client firm invests in research and development it generates $17.40
in revenue versus Electronic Arts, Inc. at $3.28. Operations have a positive effect on the firm.
The client firm’s operating costs per revenue is 82 cents per dollar versus Electronic Arts, Inc. at
99 cents per dollar. Outbound Logistics are healthy. The client firm sells and replaces its
inventory at a rate of 62.9 versus Electronic Arts, Inc. at 12.9. Marketing & Sales generates a
healthy portion of revenue. For every dollar the firm invests in advertising it generates $9.75 in
revenue versus Electronic Arts, Inc. generating $8.75.
Resources. Take-Two’s strongest resources include the valuable Grand Theft Auto
franchise which generated 28 percent of the client firm’s 2015 net revenue. The franchise
brought in approximately $303.2 million and offers a temporary competitive advantage. The
resource plays a critical role in the survival of Take Two. A library of top “hit” games is also a
strong resource when bundled together. The bundle accounted for 69 percent of Take Twos 2015
net revenue generating $747.2 million. It offers a temporary competitive advantage critical to the

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client firm’s survival. One of the “hit” games in the bundle is the NBA2k video basketball game.
The client firm has established a multiyear contract with the NBA and has developed an award
winning game 14 years running. The relationship with the NBA has offers’ a temporary
competitive advantage and is critical to the success of the client firm.
Weaknesses. Take-Two shows weakness in the procurement of materials. For every
dollar of revenue the firm generates $.60 goes to COGS versus $.38 at Electronic Arts. This
indicates that EA spends less on procuring materials giving them a competitive edge and the
client firm a weakness that needs to be addressed.
Opportunities. Some of the big deltas are opportunities for Take-Two Company.
“Changing face of America” is one them, which resulted from the U.S’s growing disposal
income, increased 3.5 percent from 2011-2014, compared to 2.32 percent from 2008 to 2011.
Another opportunity is distributed from “Interconnectivity increase” – one of the big deltas. This
opportunity allows Take-Two access to new customers, which can be reflected by its revenue,
increased 21.50 percent from 2011 to 2014, compared to 10.59 percent increased from 2008 to
2011.
Some opportunities come from the U.S video game itself. Low to moderate level of
rivalry with industry growth rate 3.4 percent compared to current inflation rate of 1.72, and
moderate customer switching costs, low strategic stakes, exit barriers create an “not so cutthroat”
competitive environment of the U.S video game industry. Low to moderate level of substitutes
with attractiveness of substitutes from International video game production -17.2 percent and
movie theatres 4.0 percent, is an opportunity for Take-two. Consumers have the tendency to
choose video games over the other types of entertainment.
Threats. Big deltas can bring threats to the company. “Changing face of America” is an

23
opportunity; yet also a threat. Competitors are able to take advantage of the growing income to
increase sales and revenue. Revenue of Electronic Arts increased 2.83 percent from 2011 to
2015. “Interconnectivity increasing” is another threat which allows competitors’ access to
consumers. “Increased dominance of Asian power” creates threats from oversea competitors.
The industry comes with some threats itself. Low to moderate level of entry barriers with
a low capital costs $19,555,000 makes it easier for new competitors to enter the industry. It is a
condition for creating threats, which is from new firms. Another threat is from high level of
backward integration from buyers since there are major buyer’s purchases of a large number of
the industry output. Buyers increase competition within an industry by forcing down prices,
bargaining for improved quality or more service; and playing competitors against each other.
The following SWOT chart identifies the firm’s strengths, weaknesses, opportunities, and
threats. See Figure 3.
Figure 3. SWOT Analysis. Source: Original
Strategy Formulation

24
Vision, Mission, Goals, and Objectives
As stated in Take-Two’s mission statement, “Our core strategy is to capitalize on the
popularity of video games by developing and publishing high-quality interactive entertainment
experiences across a range of games” (Take-Two International Software, Inc., 2015). When
compared to the SWOT analysis, Take-Two’s strength in technological development has shown
that its mission statement is consistent. The Grand Theft Auto Franchise, which has generated 28
percent of the company’s net revenue in the fiscal year ended March 31, 2015. Top “Hit”
Franchises such as Grand Theft Auto V, NBA 2K, and WWE 2K14 has proven that the company
develops and publishes high-quality interactive entertainment by an increase in Net revenue of
$1,136.1 million for the fiscal year ended March 31, 2014 in comparison to the previous year.
The increase was due to the Grand Theft Auto franchise popularity by accumulating an increase
of $1,481.5 million in sales and higher sales of 139.5 million from the October 2013 release of
WWE 2K14 and higher sales of the NBA 2K franchise.
Market Demands
The Market Elasticity in the industry is considered to be Elastic. This is because of a
fixed price of $60 per video game and most consumers will buy the game and it will be high in
demand. So in order to increase revenue, companies must increase quantity. Market Breadth for
Take-Two is narrow because gamers are a small segment of an entire population. The elastic
market and narrow breadth determines a focused low cost generic strategy. Because the industry
is highly competitive, many firms must face critical issues that can affect business operations.
Electronic Arts, Inc. is the first mover in the mobile platform market with a mobile revenue of
$524 million in 2015 and $452 million in 2014.
There are also large and small competitors such as Electronic Arts, Inc. and Glu Mobile, Inc.

25
who have become established in the industry, bringing in competition with more resources and
market share. In order to stay competitive, firms must be able and willing to adapt to rapid
changes in technology, which can affect the development of future software.
Strategy Formulation
Strategy Formulation Option 1. The first proposed option is “maintain status
quo.” Maintain status quo means to keep things the way they are. Take-Two will continue to
engage in what they have been doing all along; their strengths will remain unchanged as well as
their weaknesses. The advantages to maintaining status quo is that it would continue to leverage
its Rockstar Games and 2k franchises. Next advantage is this option has minimum risk and
minimum investment. The disadvantages to maintaining status quo is that it does not address
increased competition from substitutes.
Strategy Formulation Option 2. Take-Two Interactive Software, Inc. will leverage
technological development to exploit interconnectivity which will increase sales and profit. Pros:
It expands its position in the emerging mobile platform market. “Games played on emerging
platforms such as tablets, smartphones, and virtually (including social networks) is projected to
bring in annual sales of approximately $87.3 billion in calendar year 2019” (Take-Two
International Software, Inc., 2015). Cons: Take-Two may not be successful due to a high level
of competition in the virtual gaming arena. The firm would incur higher costs and risks
associated with the transfer of software from console-friendly to virtual delivery. In addition,
there is no guarantee that Take-Two will be able to attract a sufficiently large sum of customers
or recover the costs incurred from developing and marketing these new products and services.
Strategy Formulation Option 3. The client firm will leverage its marketing and sales as
well as technological development to address growing Hispanic marketing to increase sales and

26
profit. According to Simmons, Hispanics are 32 percent more likely than non-Hispanics to
consider video games their main source of entertainment. In addition, Hispanics are 54 percent
more likely to buy a video game the day it’s released than non-Hispanic gamers. Take-Two
Interactive Software, Inc. should target Hispanic gamers by leveraging marketing and sales as
well as technological development. This option also comes with a down side in the long run. By
focusing on better marketing and creating games toward to Hispanics audience, the plan will not
address increased competition from substitutes. Substitutes like domestic movie theater and
international video game industry are not included in this strategic plan. The company would
need to create another strategic plan solely for the threat of substitutes increasing.
Recommendations. Our analysis supports strategy formulation option 3. Take-Two
Interactive Software, Inc. will leveraging technological development to exploit interconnectivity
in order to increase sales and profits. The console market is decreasing and the firm should
implement a strategy that addresses as well as seeks to exploit the rise of interconnectivity by
delivering its products virtually. With this strategy, the client expands its position in the
emerging digital platform market as well as increase its revenue. This strategy will impact the
client in ways that can benefit and create drawbacks that might affect the value of the company.
The client must face the challenge to deliver its content digitally by transferring software from
console-friendly to online. This includes access to skills and services necessary to transfer the
software from a physical format to digital delivery. Moving into the digital market will benefit
the client in ways that an increase in revenue will ensue and keeping a competitive advantage by
staying in the forefront of the industry.

27
Strategy Implementation
Metrics & Histories
When reporting financial results, Take-Two Interactive uses metric measures such as an
Income statement in addition to other financial statements to determine the financial performance
of the company. For the fiscal year March 31, 2015, net revenue decreased $1,267.6 million in
comparison to the previous year. This decrease was caused by a decline in sales ($1,315.3
million) from the Grand Theft Auto franchise, which also includes previous year's results when
Grand Theft Auto V was released on Sony's PS3 and Microsoft's Xbox 360 console platforms.
For digital online channels, net revenue increased to 42% of total net revenue for fiscal year
March 31, 2015 in comparison to 15.8% for fiscal year March 31, 2014. For fiscal year March
31, 2015, Net revenue that was earned in other countries accounted for 42.5% of the total net
revenue in comparison to 53.5% the previous year.
The following table shows the income statement within the last three fiscal years (in
thousands of dollars)
Stock trade is another metric measure used by Take-Two interactive (TTWO) to determine the
financial performance of the company. The company symbol is listed as “TTWO” on the
NASDAQ Global Select Market.

28
The following table shows the Highs and Lows of Take-Two's sale prices for common stock
in fiscal years
March 31, 2015 and March 31, 2014.
In January 2013, the Board of Directors permitted the repurchase a limit of 7,500,000
shares of common stock. During the fiscal year March 31, 2015, Take-Two did not repurchase
any shares of common stock as part of the program. This program “permits the company to
purchase shares from time to time through a variety of methods, including in the open market or
through privately negotiated transactions, in accordance with applicable securities
laws....repurchases are subject to the availability of stock, prevailing market conditions, the
trading price of the stock, the company's financial performance and other conditions.” (pg. 26
Take-Two 10K) During the fiscal year March 31, 2014, the company repurchased around 4.2
million shares of its common stock in the open market for around 73.3 million.
This includes $0.04 million in commissions as part of the program.

29
As of March 31, 2015, up to 3,283,000 shares of Take-Two's common stock is available to be
repurchased under the share repurchase authorization.
Implementation Issues
With the rise of digital distribution services such as Steam and Amazon Digital Services
in the video game industry come many challenging issues concerning implementation of the
recommended strategy. A few challenges faced by implementing strategy formulation option 3
are (1) it is challenging to transfer to new market; challenging to transfer software and
challenging to transfer into a highly competitive market, (2) challenging to market and sell in the
new market. One challenging issue is a great number of data formats that are incompatible
through which the content is delivered. This can restrict the device being used or data
conversion. By requiring an internet connection to gain access to the content through streaming
services such as Steam, there may be some restriction to be able to store content locally. This
issue can be addressed by coordinating with third party distributors and acquire the rights
necessary to avoid many complications within this strategy.
There is also a challenge with entering a highly competitive market where there are
already established players. Companies who have already entered the digital market are typically
first-movers and are usually the ones who profit the most. In 2014, Entertainment Arts, Inc had
non-GAAP net revenue of $1,793 million in digital downloads. This includes Full-game
downloads, extra content, subscriptions, advertising, and mobile. This issue can be addressed by
being a fast follower. Sometimes, a company can gain an advantage by allowing the first-mover
to invest in the high cost of developing digital content and the 2nd-mover can follow after.

30
References
Business Wire. (2015) Take-Two Interactive. Wall Street Journal. Retrieved from
http://www.wsj.com/articles/PR-CO-20150518-910199?cb=logged0.4059083385155796
Cannon, William. (2014). Hispanic buying power: Study finds group purchases and plays more
video games than general market. Retrieved from
http://www.latintimes.com/hispanicbuying-power-study-finds-group-purchases-and-
plays-more-video-games-general-203557
Euromonitor International. (2015). Passport GMID. Retrieved from
http://www.portal.euromonitor.com/portal/magazine/homemain
Gamboa, Ana. (2015). Why the Gaming Industry should care about Latinos. Retrieved from
http://newamericamedia.org/trending/2014/08/why-the-gaming-industry-should-care-
about-latinos.php
Harland, Bryant. (2014). What you need to know about diversity in the US video game industry.
Retrieved from http://www.mintel.com/blog/technology-market-news/video-game-trends
Hispanic Gamers. (2015). Retrieved from www.hispanicgamers.com
International Directory of Company Histories, Vol. 46. St. James Press, 2002. Retrieved from
http://www.fundinguniverse.com/company-histories/take-two-interactive-software-inc-
history/
Mergent Online. (June 2015). Company Analysis. Retrieved from
http://www.mergentonline.com.manowar.tamucc.edu/companydetail.php?compnumber=
91266&pagetype=synopsis
Passport GMID. (June 2015). Statistics. Retrieved from

31
http://www.portal.euromonitor.com.manowar.tamucc.edu/portal
Saylor, Erica. (2012). Latinos drive video game sales. Retrieved from
http://blog.viacom.com/2012/11/latinos-drive-video-game-sales/
Take-Two International Software, Inc. (2015). Form 10-K 2015. Retrieved from
https://bb9.tamucc.edu/bbcswebdav/pid-1441135-dt-content-rid-
19878197_1/courses/50702.201506/TTWO.pdf
Uhlfelder, Eric. (2015). Barron’s best 100 hedge funds: 2015 List. Retrieved from
http://online.barrons.com/articles/barrons-best-100-hedge-funds-2015-list-1431743877

32
Appendix A
Macro Analysis Data
All data presented in Compound Annual Growth Rate (CAGR) unless otherwise noted
Table 1A
Political-Legal Macro Analysis
Political-Legal 2008-2011 2011-2014
US Public Debt 18.3 9.3
US Education Spending 0.7 -0.8
US Military Spending 4.6 -5.1
Source: Passport GMID, 2015, Statistics
Table 2A
Technological Macro Analysis
Technological 2008-2011 2011-2014
US Internet Subscribers 3.2 2.9
US Possession of Broadband
Enabled Computers
6.5 3.9

33
Table 3A
Demographic Macro Analysis
Demographic 2008-2011 2011-2014
US Baby Boomers, Age 39-57 -0.3 -0.5
US Generation Y, Age 21-38 0.4 1.3
US Generation Z, Age 3-20 N/A -0.3
US Annual Income 1.8 3.5
Table 4A
Sociocultural Macro Analysis
Sociocultural 2008-2011 2011-2014
US Households 0.5 1.2
US Urban Households 0.9 1.5
US Higher Education 4.8 0.5

34
Table 5A
Global Macro Analysis
Global 2008-2011 2011-2014
US External Debt 4.7 3.0
Germany External Debt 1.7 0.6
China External Debt None None
India External Debt 14.5 11.9
US Market Capitalization,
US$
10.9 19.0
Germany Market
Capitalization, €
4.6 16.3
China Market Capitalization,
CNY
20.9 20.2
India Market Capitalization,
INR
19.4 20.2
Germany Internet Subscribers 1.8 0.4
China Internet Subscribers 19.4 9.3
India Internet Subscribers 20.3 5.4

35
Table 6A
Economic Macro Analysis
Economic 2008-2011 2011-2014
US Disposable Income 2.3 3.5
US External Debt 4.1 3.0
US Consumer Expenditure on
Leisure and Recreation
0.5 4.0

36
Table 7A
Asia Pacific Macro Analysis
Asia Pacific 2008-2011 2011-2014
US Gross Domestic Product 1.8 3.4
India Gross Domestic Product 16.7 12.4
China Gross Domestic
Product
15.2 9.6
India Internet Subscribers 20.3 5.4
China Internet Subscribers 19.4 9.3
US Military Spending as a
Percent of GDP
-1.4 4.5
India Military Spending as a
Percent of GDP
6.3 7.6
China Military Spending as a
Percent of GDP
10.1 3.8

37
Appendix B
Industry Analysis Data
Table 1B
Entry Barriers Industry Analysis
Capital Costs Low, $19,555,000
Product differentiation/brand loyalty Moderate
Access to distribution channels Moderate
Overall threat Low to Moderate Power
Source: Take-Two International Software, Inc. (2015). Form 10-K 2015.
Table 2B
Suppliers Industry Analysis
Video game hardware systems critical to
industry
High
Relative concentration Moderate
Threat of backward integration
$19,555,000
Low
Switching costs, none noted Low
Overall threat Moderate Power

38
Table 3B
Buyers Industry Analysis
Relative concentration
10 Buyers
High
Threat of backward integration
$19,555,000 capital costs
High
Purchase of output
Buyers purchase large portion of outputs
High
Overall threat High Power
Table 4B
Substitutes Industry Analysis
Switching costs, none noted International Video Game
Production Industry
Movie Theatre Industry
Costs of substitutes
Cost per unit $60 per game
Low, $80 Moderate, $8.40
Attractiveness of substitutes
Industry 3.4% (11-14) CAGR
Low, -17.2 Moderate, 4.0
Overall Low Moderate
Overall threat Low to Moderate Power

39
Table 5B
Rivalry Industry Analysis
Size and homogeneity Revenue range 18.5, relatively heterogeneous
Product demand growth Attractiveness of substitutes
Industry 3.4% (11-14) CAGR
Inflation rate 1.72%
Relative portion of fixed costs 48%
Customer switching costs Moderate
Strategic stakes Low, 4 of 4 firms growing
Overall threat Moderate Power

40
Appendix C
Value Chain Analysis
Ratios Calculated with Mergent Online Financial Statements for Take-Two International
Software, Inc. & Electronic Art, Inc. (2014)
Table 1C
Operations
Take-Two International Software, Inc. Electronic Art, Inc.
Operating Costs/Revenue Operating Costs/Revenue
.82 .99
Source: Mergent Online, 2015, Company Analysis.
Table 2C
Outbound Logistics
Total Revenue/Inventory Total Revenue/Inventory
62.85 12.90
Table 3C
Marketing & Sales
Revenue/Advertising Revenue/Advertising
9.75 8.72

41
Table 4C
Procurement
COGS/Revenue COGS/Revenue
0.60 0.38
Table 5C
Technological Development
Revenue/Research & Development Revenue/Research & Development
17.43 3.28
Table 6C
Human Resource Management
Revenue/Number of Employees Revenue/Number of Employees
827,664.79 425,595.24
Net Income/Number of Employees Net Income/Number of Employees
127,325.70 952.38
Inbound logistics neutral due to lack of data
Service neutral due to lack of data

42
Table 7C
Financial Management
Debt to Equity Debt to Equity
1.24 1.36
Times Interest Expense Times Interest Expense
11.08 0.27
Quick Ratio Quick Ratio
2.88 1.29
Current Ratio Current Ratio
2.94 1.31
Table 5C
Organization
Tenure of Top 5 Eecutives Tenure of Top 5 Eecutives
9 years 10 years
1 amendment of Form 10-K within last 3 years 2 amendments of Form 10-K within last 3 years

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