Take-Two Interactive Software Inc (TTWO) — Q1 2024 Transcript

Good afternoon. Thank you for joining our conference call to discuss our results for the first quarter of fiscal year 2024 ended June 30, 2023. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer; Karl Slatoff, our President; and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q&A session, following our prepared remarks. Before we begin, I'd like to remind everyone that statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the SEC, including the company's most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, including the risks summarized in the section entitled Risk Factors. I'd also like to note that, unless otherwise stated, all numbers we will be discussing today are GAAP and all comparisons are year-over-year. Additional details regarding our actual results and outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. Our press release also contains a reconciliation of any non-GAAP financial measure to the most comparable GAAP measure. In addition, we have posted to our website a slide deck that visually presents our results and financial outlook. Our press release and filings with the SEC may be obtained from our website at take2games.com. And now, I'll turn the call over to Strauss.

Thanks, Nicole. Good afternoon, and thank you for joining us today. I'm pleased to report that fiscal 2024 is off to a strong start, highlighted by first quarter net bookings of $1.2 billion, which was at the high end of our expectations, and management results were in line with our plans. Grand Theft Auto Online and Grand Theft Auto V, and NBA 2K23 exceeded our projections, illustrating the lasting benefits of producing high-quality offerings and building one of the most robust and diverse portfolios in entertainment. This quarter, we introduced new intellectual properties, advanced the development of our eagerly awaited pipeline, and maintained our focus on cost management across the organization. Now, turning to the results from our titles for the period. Grand Theft Auto V continued to outperform and to date, the title has sold more than 185 million units. On June 13, Rockstar Games launched San Andreas Mercenaries for Grand Theft Auto Online, which includes six new major story-based missions, new Los Santos operations, Hangar upgrades, Smuggler Source and Sell Missions, seven new vehicles, and more. The update also features various fan-requested experience improvements and the Career Progress feature, offering players a new way to track their progress across criminal careers and earn rewards. San Andreas Mercenaries continues to deliver high-value content post-launch using a phased approach that drives sustained engagement and recurrent consumer spending. This June, Grand Theft Auto Online recorded more players than any other June in its history, except during the height of the pandemic. GTA+, Rockstar’s premium membership service for GTA Online on PlayStation 5 and Xbox Series X and S, provides members with exclusive options for testing and purchasing a variety of vehicles, and we are seeing strong growth in GTA+ adoption with each quarter. We were pleased with the performance of Red Dead Redemption 2, which has sold more than 55 million units to date. Rockstar Games continues to support Red Dead Online with new bonuses and rewards, including free apparel inspired by the RedDeadFashion subreddit, and seasonal content like the Condor Egg Freemode Event in April. NBA 2K23 exceeded our expectations, having sold over 13 million units, representing an 11% year-over-year growth driven by higher demand, especially on Gen-9 consoles, and a more tailored promotional strategy. This remarkable performance marks the title’s second-largest sell-through to date, with only NBA 2K20 achieving higher unit sales. Engagement with NBA 2K23 remains strong, with approximately 2.6 million Daily Active Users contributing to recurrent consumer spending that surpassed our expectations. Our franchise extensions with the NBA continue to perform well, and NBA 2K23 Arcade Edition remains one of the top games on Apple Arcade. WWE 2K23, the highest-rated game in our wrestling franchise’s history and the second highest-rated sports simulation title of the year, showed strong engagement throughout the quarter, with players logging nearly 22 million hours of gameplay and participating in 170 million matches. 2K and Visual Concepts continue to support the title with a series of five downloadable content packs available individually or as part of a Season Pass. 2K also continues to support PGA TOUR 2K23 with additional pros, courses, and Clubhouse Passes. In May, 2K and Visual Concepts launched LEGO 2K Drive, the first game in a multi-title partnership between 2K and the LEGO Group. Following the launch, our teams released the first of four Drive Pass Seasons for the title, which features 100 levels and new content inspired by the Fast and the Furious Saga. Additionally, in May, Private Division and Piccolo Studio launched After Us on PlayStation 5, Xbox Series X and S, and PC, earning critical acclaim for its striking visuals and game world. Zynga had a solid start to the year, performing in line with our expectations, and we are pleased with the ongoing progress of our mobile business. Ad revenue grew approximately 11% year-over-year, bolstered by the addition of Popcore and our ability to open new inventory supplies in our portfolio. Toon Blast has been rolling out strong feature releases like the Toon Race event, which outperformed our forecasts and helped the game recently surpass $2 billion in lifetime gross bookings. We have made significant progress on our profitability initiatives in mobile. We expanded our offerings on our direct-to-consumer platforms and remain confident that, over the next few years, the majority of our mobile games will utilize our highly profitable proprietary distribution channel. We continue to enhance the performance and profitability of our hyper-casual business, with several new games scaling quickly and multiple titles generating revenue from in-app purchases in addition to ads. Some key highlights of Zynga’s live services during the period include: Empires & Puzzles had quarter-over-quarter growth, driven by the new Path of Giants battle pass featuring daily and weekly challenges to unlock rewards. Rollic’s Twisted Tangle achieved the number one Free Game spot on the U.S. Google Play store. Social Casino again delivered strong results, driven by Hit It Rich's best quarter in two years and Game of Thrones Casino’s second-best quarter in its history. Casual games continued to see improved participation and engagement, with Words With Friends launching a new Club Daily Puzzle and Harry Potter: Puzzles & Spells adding Bonus Levels and Special Delivery prize events. With numerous games in development and soft launch across Zynga’s studios, we are excited to begin delivering several new offerings in the coming months. Looking ahead, we are reiterating our prior guidance of $5.45 to $5.55 billion in net bookings for fiscal 2024. We remain optimistic about our future and our ability to achieve record results in the coming years. Lainie will provide more details on our outlook shortly. In closing, as we continue to implement our strategy, we believe we can significantly increase our scale and prominence within the industry, enhance margins, and pursue vast opportunities to engage larger audiences worldwide. With the passion, creativity, and innovation of our exceptional development teams, Take-Two is in a strong position to establish new benchmarks for our player communities, which we believe will drive long-term returns for our shareholders. I will now turn the call over to Karl.

Thanks, Strauss. I’d like to thank our teams for a strong start to the year. Turning to our announced launches for fiscal 2024. Yesterday, Rockstar Games announced that the beloved Western experiences, Red Dead Redemption and Undead Nightmare would be coming to the Nintendo Switch and PlayStation 4 for the first time in a new single package, arriving August 17. In a new conversion by Double Eleven Studios, the Switch and PS4 versions bring the two classic experiences together again for new players and original fans to enjoy across modern consoles, including backwards compatibility with the PlayStation 5. On September 8, 2K and Visual Concepts will celebrate the 25th anniversary of our industry defining NBA 2K series and once again redefine basketball simulations with the launch of NBA 2K24, featuring the iconic Kobe Bryant as the game’s cover athlete for the second time in the history of the franchise. Players will be able to celebrate Bryant’s legacy and replicate his skills in the brand-new Mamba Moments mode. Players in the U.S. and Canada can also purchase the WNBA Edition of the game exclusively at GameStop, featuring WNBA All-Star Sabrina Ionescu, as this year’s cover star. NBA 2K24 will introduce cross-play, a community requested feature for PlayStation 5 and Xbox Series X and S. Available in every multiplayer mode, players will be able to compete with or against others from around the world in dynamic co-op matches, thrilling online tournaments, or casual pick-up games between new generation consoles. The title will also introduce ProPLAY, a groundbreaking new technology that directly translates actual NBA footage into gameplay. 2K will have more to share on NBA 2K24 in the coming weeks. In addition, 2K and Visual Concepts remain hard at work on WWE 2K24, the next installment of our popular wrestling series, which set new creative and critical benchmarks with last year’s highly successful release. In June, Private Division and Evening Star announced Penny’s Big Breakaway, a new 3D action platformer from the team behind Sonic Mania. This kinetic yo-yo adventure is expected to launch in early 2024. Zynga’s Star Wars: Hunters, which offers players the opportunity to join the greatest hunters from across the Star Wars galaxy, is expected to launch later this fiscal year. Players will engage in thrilling third-person combat in a range of competitive game modes across battlegrounds from the iconic worlds of Star Wars. Also in mobile, Social point’s latest game, Top Troops, a medieval fantasy-themed title in the PvP merge genre is progressing well in soft launch and is expected to launch worldwide this fiscal year. In addition, our hyper-casual studios will release a steady cadence of mobile titles throughout the year, focusing on games that have the potential for enhanced retention rates and a mix of in-app purchases and advertising to drive higher monetization and profitability. Our labels will also continue to provide new content and experiences that drive engagement and recurrent consumer spending across many of our offerings, including Grand Theft Auto Online, Red Dead Online, WWE 2K, LEGO 2K Drive, PGA TOUR 2K, Kerbal Space Program 2, and Zynga’s mobile portfolio. Throughout fiscal year 2024, we look forward to launching additional releases from what we believe to be the strongest and most exciting development pipeline in our company’s history. I’ll now turn the call over to Lainie.

Thanks, Karl and good afternoon everyone. Today, I’ll discuss the key highlights from our first quarter before reviewing our financial outlook for the full year and second quarter of fiscal 2024. Our combination with Zynga closed on May 23, 2022, which affects the comparability of our results relative to last year. Additional details regarding our actual results and outlook are contained in our press release. We had a strong start to the fiscal year, powered by our portfolio of iconic, industry-leading intellectual properties. As we approach our next phase of growth, our teams continue to make excellent progress advancing our development pipeline and capitalizing on our revenue-driven opportunities and synergies. We also partnered together to maintain our focus on efficiency amidst the challenging macroeconomic backdrop and cautious consumer spending trends. I’d like to thank our incredible teams worldwide for their determination and passion for our business. Now, moving onto our results. We achieved net bookings of $1.2 billion, which was at the high end of our guidance range. In the current backdrop, many consumers are purchasing established franchises and those that offer great value, and our catalog stands at the intersection of these two trends. Accordingly, our performance reflects better-than-expected results from Grand Theft Auto Online and Grand Theft Auto V, and NBA 2K23. During the quarter, we launched Marvel’s Midnight Suns for Gen 8 consoles, Lego 2K Drive, and After Us. Recurrent consumer spending rose 38% for the period, which was above our outlook of 35% growth, and accounted for 84% of net bookings. The outperformance was primarily driven by Grand Theft Auto Online and NBA 2K23. GAAP net revenue increased 17% to $1.28 billion and cost of revenue increased 39% to $606 million, driven by $187 million of amortization of acquired intangibles. We also recorded an impairment charge of $18 million, related primarily to capitalized software and development costs for an unreleased title, which affected our management results compared to our guidance. Operating expenses increased by 25% to $883 million. On a management basis, operating expenses grew by 46%, which primarily reflected a full quarter of Zynga, higher personnel costs, and depreciation related to office buildouts and capitalized IT expenses. Turning to our guidance, I’ll begin with our full fiscal year expectations. As Strauss mentioned, our business is performing well, and we are reiterating our net bookings outlook range of $5.45 billion to $5.55 billion. Largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, our hyper-casual mobile portfolio, Empires & Puzzles, Toon Blast, Merge Dragons, Words With Friends, Red Dead Redemption 2 and Red Dead Online, and Zynga Poker. We expect the Net Bookings breakdown from our labels to be roughly 51% Zynga, 30% 2K, 17% Rockstar Games, and 2% Other. And, we forecast our geographic net bookings split to be about 65% United States and 35% international. We continue to forecast recurrent consumer spending growth of 5% compared to fiscal 2023, representing 78% of net bookings. Mobile trends are projected to remain stable, with Zynga’s ad business continuing to deliver growth. We expect to generate approximately $100 million in non-GAAP adjusted unrestricted operating cash flow, and deploy approximately $180 million for capital expenditures, primarily to support our office buildouts and larger footprint. We continue to expect GAAP net revenue to range from $5.37 billion to $5.47 billion. Our total operating expenses are expected to range from $3.38 billion to $3.4 billion as compared to $3.45 billion last year. On a management basis, our operating expenses are expected to grow by approximately 15% year-over-year, due primarily to a full year of Zynga, an increase in personnel and marketing expenses, and higher depreciation of office buildouts and capitalized IT expenses, which are being partially offset by the realization of synergies from our combination with Zynga and savings from our cost reduction program. As we announced previously, our teams are taking extensive measures to review our cost structure and reduce discretionary costs whenever possible to offset the current consumer backdrop and inflationary environment, while still investing for growth. Now moving onto our guidance for the fiscal second quarter. We project Net Bookings to range from $1.4 billion to $1.45 billion, compared to $1.5 billion in the second quarter last year. Our release slate for the quarter includes Red Dead Redemption and Undead Nightmare for Switch and PlayStation 4, and NBA 2K24. The largest contributors to net bookings are expected to be NBA 2K, Grand Theft Auto Online and Grand Theft Auto V, our hyper-casual mobile portfolio, Empires & Puzzles, Toon Blast, Words With Friends, Merge Dragons, Red Dead Redemption 2 and Red Dead Online, and Zynga Poker. We project recurrent consumer spending to decline by approximately 7%, which assumes modest declines in our mobile business; NBA 2K, driven by changes to its summer promotional cadence; and Grand Theft Auto Online; as well as a reduction in DLC revenue from several titles that were released in prior years. We expect GAAP net revenue to range from $1.26 billion to $1.31 billion. Operating expenses are expected to range from $811 million to $821 million. On a management basis, operating expenses are expected to grow by approximately 5% year-over-year, driven by last year’s acquisition of Popcore and higher personnel costs, which are being partly offset by the Zynga synergies and our cost savings initiatives. In closing, we are confident that the actions our teams are taking this year are preparing us for a strong trajectory of growth. Through our collective efforts, we continue to believe that we are positioning our business for a significant inflection point in fiscal 2025 that will culminate in us delivering new record levels of operating performance next year and beyond. We thank all of our stakeholders for their continued support, and we look forward to delivering on this exciting next chapter. Thank you. I’ll now turn the call back to Strauss.

Thanks, Lainie and Karl. On behalf of our entire management team, I'd like to thank our colleagues for delivering a strong start to the fiscal year. And to our shareholders, I want to express our appreciation for your continued support. We'll now take your questions.

Yeah. I just have one question. Lainie called out consumer weakness kind of continuing. Could you just give an update on where you think the consumer is at? Is there a particular segment that's weaker than others? Just kind of an update on where you think the consumers are today. Thank you.

Yeah. I mean I love that people are debating whether we're going to be in a recession. From the point of view of a digital entertainment company, we've been in a recession for the better part of 18 months. The market for interactive entertainment was down meaningfully in 2022, down for the first time in the history of the mobile business over 10%, pretty much across the board. Things are looking a lot better. The year-over-year comps have stabilized. We're seeing growth in the console market. It's early, but we are seeing some growth. Mobile is sort of flat, slightly down. We hope that will improve. I do feel like we're all seeing some green shoots across the economy. But it definitely is a mixed picture depending on the U.S. In the context of the entertainment business, live entertainment is doing great. But in the context of entertainment that people consumed at home during the pandemic, it's been challenging for a while. And again, I think it's beginning to normalize, but it's early days yet. When asked a couple of calls ago what I thought would happen in the economy, I said that I thought it would bottom out in June, July. And that by the end of calendar '23, we begin to see some good news and then we'd be in reasonably good position from an economic point of view in early '24, and I continue to believe that that's what will happen.

Got it. Just a quick follow-up on that regarding media. If Hollywood remains in a recession, what impact does that have on video games? Is it positive, negative, or does it not matter?

Look, we live within the entertainment ecosystem. So we would never wish for any other industry to have a problem. But if the strike means that new content can't be delivered, then I suppose it could be some small positive benefit for our business. But we aren't counting on that. We're certainly not hoping for it.

Got it. Thank you so much guys. Appreciate it.

Good afternoon and thank you for the question. Strauss, could you discuss how many of your games, aside from the hyper casual segment, have integrated advertising now?

Some, and we are moving in that direction selectively. Look, historically, for games where you could make in-app purchases, less than 10% of the audience actually spent. So we are fielding a game for 100% of the audience and monetizing 10% or so, perhaps a bit more often a bit less. And it's our view that we ought to be monetizing 100% of the audience. So if someone's going to spend, that's great. And if they're not going to spend, then we ought to be able to monetize through advertising. The question is how do you do that and create a high-quality experience. And I think the answer is we can do that. We can distinguish among those audiences. We're not there yet, but I think we're moving in that direction.

Thanks. As a follow-up, could you provide any specifics about how much of the mobile revenue is currently on the DTC platform and how that is progressing?

So we don’t actually give out that percentage. Some of our competitors do. And so one of our biggest competitors, I think, has gone on the record to say it’s about 25% and I think that’s a good number. We’re not remotely in that vicinity. There’s plenty of room for growth. I would note that Zynga’s advertising net bookings were up 11% year-over-year. So it’s really good news. And we’re really happy about the growth of our direct-to-consumer platform and what that can mean for consumers and also for us.

Thank you.

Good afternoon, Strauss, Karl, Lainie. I have two quick questions. Last quarter, we discussed aiming for over $8 billion in bookings next year and over $1 billion in operating cash flow. Are those still the targets for next year? Additionally, I apologize if I missed this, but are there any updates regarding this year's slate? I noticed the $18 million impairment charge, but relative to three months ago, is there any change to this year’s release schedule? Thank you.

So the answer to question one is, yes, and Lainie will answer question two.

Sure. So for question two, there has been some movements within the back part of the year within the slate, but we’re still able to achieve the same guidance for the year, so reiterating our guidance. So just some small changes within the slate, but it has nothing to do with the impairment charge. So the year is still the same.

Hi, everybody. Thanks for taking the questions. Maybe I'll start just by asking about mobile M&A. I mean that was historically a very big part of Zynga's business. It seems like the market may be starting to fall out there in terms of deal activity after the three for the past year or two. I guess do you see an opportunity to lean back into M&A at the Zynga business number one. And then number two is just, Lainie, you mentioned in the prepared remarks that some changes to the promotional cadence for NBA 2K. I was wondering if you could just give a little more detail about what those changes are and the size of the financial impact? Thank you.

So on the deal side, it's hard to know. In terms of our strategy, we think we're in a position to grow organically. We have a lot of new releases coming from Zynga. We're really excited about them. As you know, hit ratios are very low in the mobile business. So we're not claiming success until it occurs. But we do feel really good about some new launches.

For NBA 2K 24, we anticipate an increase compared to 2K23. However, 2K23 was less promoted this quarter compared to 2K22 last year, which is why we expect the title to be slightly down compared to last year.

Thank you.

Thank you. You mentioned earlier how challenging it is to launch a new mobile title these days. However, a few months ago, a competitor launched MONOPOLY GO, which quickly rose to the top of the App Store charts and has been quite successful. In light of that, are there any lessons you think could be applied to your upcoming games based on their success?

I believe it's a well-established intellectual property that has been recognized and cherished for a long time. When paired with a high-quality presentation, it has the potential to perform very well. We are not fully aware of their spending to achieve their current position, but we are very focused on profitability. Therefore, we are careful to ensure that our user acquisition spending corresponds to a high lifetime value for our customers.

Thanks so much. Maybe just one bigger picture question. As you continue to sort of integrate Zynga and move further away from the acquisition, curious your updated thoughts on how you're thinking about elements of AAA titles having sort of cross-promotion, cross-play across elements of console and mobile and how that might inform some of your development cycles in the next couple of years or some of the pipeline dynamics that fed back into some of the bookings longer-term framework from last quarter. Thanks so much.

We continue to believe there's an opportunity there. We do have titles coming that will offer an opportunity to engage on console and also in mobile. We don't think it's something that you have to offer; each title will stand alone. And a question you didn't ask, but we've also discussed the possibility of creating new mobile titles based on core Take-Two intellectual property. And that's something that we're also potentially excited about. In all instances, the consumer experience, the quality of the title is what governs, not the business model. So we have to create something great that consumers want. If we do, they'll show up, and if we don't, they won't.

Hey. Thanks for taking the question. The first one is on NBA 2K. You guys mentioned the upcoming cross-play feature was largely asked on by the community. So that being said, curious if there's any data points you could share in terms of how impactful this feature will be in terms of user engagement or recurrent consumer spending? And then is there any reason why it was not included on PC in the last June?

So this is Karl. We're really thrilled about cross-play. It's something our customers have been requesting and it fits naturally with NBA. We don't introduce new features to a game unless we believe they will significantly enhance the consumer experience. This is something our consumers will truly appreciate, which will lead to increased engagement. As we know, more engagement leads to more monetization, which makes everyone happy. All these decisions are based on economic factors, but they begin with prioritizing the experience itself. At this point, we are very confident that 2K is on track for cross-play experiences, and we're looking forward to it. Regarding PC, it's primarily about resource allocation and the decisions made there.

Got it. That makes sense. And then just on a separate note, in terms of the topic of charging a higher price for users to get access to a game like early access during the launch, I noticed it wasn't included in the NBA 2K preorder pricing. Is this an opportunity in the future or is just something you guys opted out of? Thanks.

Yeah. We have – most of – it’s funny you say a higher price because when we have some early access games in the market right now, we typically would offer them at a lower price because it would imply that there’s more to come in the game, and it’s not necessarily the final version. We have seen the early access models out there in terms of holding back access and making people pay more for earlier access – that’s not something that we’ve done to date. I would never say never. But honestly, that’s a marketing decision. And our priority is really making sure that the game comes out, comes out in a timely fashion as the best experience possible. That’s something that makes sense. So it’s down the line, we could experiment with it. But to date, that has not been something that we’ve looked at.

Thank you. Just on the bookings by label, I wanted to follow up on the guidance for Zynga. I think that's down slightly on the maintained bookings figure. So I wanted to see if you could walk through the adjustment there. And then sticking with mobile, you talked about hyper-casual focus on releasing games that retain better, have a higher mix of IP spend. Just wanted to see if you could unpack the thinking behind the strategy there, what the traction has been and maybe how that impacts the ad revenue potentially from Rollic and Bapcor. Thanks.

So for the bookings for Zynga for mobile, there are some game shifts within the year. So there was some reforecasting of some of the existing games, and that's what has changed within mobile.

In the hyper-casual business, we've observed some gains, particularly with the acquisition of Bapcor, which are proving to be more durable than what is typically seen in hyper-casual games. This acquisition allows for longer consumer engagement and creates opportunities not only for monetization through advertising but also through in-app purchases. We're beginning to explore this potential and believe there's a viable market for us. We're referring to this as the hybrid casual market, where we can monetize both through ads and in-app purchases due to the deeper and longer-lasting gaming experiences. We find this very promising. While it may not heavily influence the overall advertising opportunities, it certainly opens up new avenues for revenue through in-app purchases.

Thank you.

Hi, thank you for taking my question. You didn't change your full year guidance, and I wanted to know if your implied like-for-like guidance on mobile has changed since the last time you provided guidance. Additionally, do you expect advertising to grow on an organic basis, excluding Bapcor? I have one more question.

Zynga has undergone some changes due to adjustments in the release schedule and updates to our forecast. While we've made some alterations throughout the year, the overall guidance for the year remains unchanged. We performed strongly in the first quarter, but we have reiterated our outlook for the full year. Regarding advertising, we do anticipate growth for the entire year.

Organically?

Organically, yes.

Okay, great. The other part of my question is about your direct-to-consumer channel. Strauss mentioned that most mobile games in a few years will utilize that channel. You have a substantial number of games, over 100, but not all of them are your top performers. I’m curious if the largest games will be on your direct-to-consumer platform or if it’s mainly about the total number of games. I’d like to understand how much revenue could potentially be generated through that channel, if that makes sense.

Yes, I do understand what you mean. It really varies game by game. So if the game is not suited to direct-to-consumer and it may not be because of its style, it's the interaction that consumers have with the title, then there may not be an opportunity even though it's a big title, and then there are other titles where it's a terrific opportunity. Again, we haven't established a number that we're shooting for, but I did quote the number that a competitor has outlined. And I think that number is kind of the high end of the possibility.

Thank you.

Thank you, Strauss, Karl, Lainie. Great quarter, everyone. I appreciate you answering our questions. Strauss, looking at the bigger picture, I'm interested in your thoughts on film opportunities. I know you haven't been a strong advocate for jumping on the film bandwagon, but it's hard to overlook the success of Super Mario Brothers and The Last Of Us. Historically, Game IP has struggled to transition successfully into new mediums, but it seems that the right combination of creativity from the original game and strong storylines makes a difference. Considering your portfolio of IP, you have numerous opportunities, and it appears you possess both creative talent and great storylines. So I have two questions for you, Strauss. Are your creative teams enthusiastic about exploring new entertainment avenues like film or episodic streaming content? And do you believe that expanding IP into new formats like film could support your long-term growth strategy? Thank you.

Thank you, Mike. We believe that the financial opportunity is likely to be quite limited. We will not be using our balance sheet to invest in film and television projects, as these are generally difficult asset classes with which I am quite familiar. While there have been some notable successes, it's important to recognize that many investments have resulted in losses. Thus far, we have taken a very selective approach to licensing, and we have a Borderlands movie from Lionsgate and a BioShock movie in the works, which we are excited about. Moving forward, we could consider licensing selectively when there is a strong creative need and an economic opportunity. The recent successes have come from strong intellectual property paired with excellent projects, while past failures often stemmed from poor execution despite everyone’s best efforts. This business is challenging, and we will not risk our company's future or the value of our intellectual property based on external efforts in the entertainment industry. Therefore, we will continue to be very selective. Even if we were to adopt a broader strategy, without making our own investments, the economic potential in comparison to the much larger opportunities for our core business remains limited.

Thanks. Two quick questions. Strauss, you mentioned a phased approach regarding GTA Online. Is there anything different or new in how you're marketing and delivering incremental content, or is it just the usual approach? The second question concerns NBA 2K23 being added to PlayStation Plus as a game of the month. While this likely boosts engagement, do you also observe a significant increase in revenue per capita among those PlayStation Plus users? Are they waiting to play the game until it's available through the subscription service, and does that influence their tendency to spend in the game, or do you actually see an increase in revenue per capita from them as well?

So on the first question, by phased approach, I was referring to delivering somewhat smaller chunks of really high-quality content as opposed to waiting for a longer period of time to deliver something that's much larger. And both approaches can work, and of late, the phased approach has been working really well. However, there's not one right approach. It varies with what the team has in mind creatively at any given time.

In terms of subscription services or individual game purchases, we only pursue these options if we see a significant economic benefit. If you notice these services being implemented, it means we have assessed their viability. We are witnessing an increase in recurring consumer spending overall because we are attracting many new players, who are valuable as long as they remain engaged with the game. Engagement levels are high, and the conversion to recurring consumer spending is strong. This can vary by cohort and by game, but when we successfully drive engagement from new players, we are seeing very positive outcomes in terms of monetization.

Hey, guys. Thanks for the question. Just wanted to dig back into the revenue breakdown by studio. It looks like the percentage for Rockstar and other went up. And I'm just wondering if that's a function of sheer shift from the things you talked about with mobile or if your expectations for those segments that actually improved? And if so, could you talk a little bit more about that? Thanks.

So the update for Rockstar is based on the momentum in their current business. So there's some GTA 5 unit sales, some of the Red Dead updates, and some virtual currency with the GTA Online updating. So it's just overall reforecasting of the business.

Okay. Got it. And then just can you talk broadly about the competitive environment in the industry and whether you think it will be sort of at this level more competitive, less competitive, six months or 12 months from now?

I think it will be about the same. It's always hard to know. It's a very competitive business at any given time. But ultimately, we're really competing with ourselves because if there's a lot in the market that consumers want, generally speaking, they'll go consume it. And if there's nothing that they want, it's not like they consume the next best. They just stay away. So we have to deliver the highest quality properties. And if we do that, they'll show up in good times and in bad. I mean, you're seeing that even in a mixed economy. The best titles still pull big audiences.

I just want to take a minute to thank our teams again for delivering a superb quarter, and we're really thrilled with the way this year is unfolding. Our titles continue to be of phenomenal quality. We're really excited about our upcoming releases. And obviously, very excited about the future beyond this fiscal year. And we also want to thank all of you for attending the call for your great questions. And naturally, we're grateful to our shareholders for their continued support. So thanks so much, and have a great evening.