Take-Two Interactive gets lucrative monetary incentives to push microtransactions, subscriptions, and DLC into its biggest games.
A recent Take-Two SEC filing revealed some interesting info on why the company includes live services into marquee titles. Sure there's the obvious reason; live services in games like NBA 2K make hundreds of millions over time via microtransactions, which makes investors happy and raises the value of the company's stock. Take-Two earned roughly $300 million last quarter from recurrent consumer spending, or 24% of its total $1.249 billion net revenues. When handled right, live services are a boon for any publisher. But there's a ceiling, as EA and Activision-Blizzard are now learning.
But Take-Two's company is set up to directly award its biggest shareholder, ZelnickMedia (aka Zelnick Media Capital), for making a certain amount from microtransactions. ZelnickMedia is of course run by Take-Two CEO Strauss Zelnick. So the more money huge games like Grand Theft Auto Online and NBA 2K make from full sales and monetization, the more restricted shares Take-Two can issue ZelnickMedia.
It's a big compensatory reward for doing well in the industry's most important metrics: short- and long-term earnings.
This plan is working tremendously well. Grand Theft Auto Online has made over $1 billion to date via live services, and Red Dead Redemption 2 amassed an incredible $725 million in just three days of game sales.
Based on this success and according to the filing, Take-Two issued 223,772 restricted shares to ZelnickMedia just five days ago. These issued shares are restricted, meaning they don't actually have value until they're vested. The performance-based shares take three years to vest and can't be cashed in before 2021.
Now we see another important reason why Take-Two is so interested in live services.
This really isn't a surprise. Publishers like EA and Activision-Blizzard routinely reward high-level executives for explosive earnings. Sometimes these bonuses happen when companies like Activision-Blizzard fire nearly 800 personnel.
For example, EA CEO Andrew Wilson makes 371 times more than the average employee pay, and that number could rise based on the publisher's yearly success.
Below you can find a snippet of the SEC filing, but it's written in legalese so fair warning:
Performance-Based Award. On April 15, 2019 the Company issued to ZelnickMedia 223,772 performance-based restricted units (the "Performance Award"), representing the maximum number of performance-based units that are eligible to vest (with the target number of units of 111,886 based on $10,725,000 divided by the average of the closing prices of the Company's common stock for each trading day during the 10 trading day period immediately prior to April 1, 2019), which units have been divided into three categories of vesting as follows: (i) on April 13, 2021, a number of Recurrent Consumer Spending Performance-Based Units (as defined in the Restricted Unit Agreement) will vest equal to the product of (x) the target number of Recurrent Consumer Spending Performance-Based Units in such vesting tranche (13,986) multiplied by (y) the Recurrent Consumer Spending Vesting Percentage (as defined in the Restricted Unit Agreement) on March 31, 2021, which ranges from 0% to 200% (ii) on April 13, 2021, a number of IP Performance-Based Units (as defined in the Restricted Unit Agreement) will vest equal to the product of (x) the target number of IP Performance-Based Units in such vesting tranche (13,985) multiplied by (y) the IP Vesting Percentage (as defined in the Restricted Unit Agreement) on March 31, 2021, which ranges from 0% to 200% and (iii) on April 13, 2021, a number of TSR Performance-Based Units (as defined in the Restricted Unit Agreement) will vest equal to the product of (x) the target number of TSR Performance-Based Units in such vesting tranche (83,915) multiplied by (y) the TSR Vesting Percentage (as defined in the Restricted Unit Agreement) on March 31, 2021, which ranges from 0% to 200%.
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