24 May, 2022

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Strauss Zelnick - Chairman and CEO, Take-Two Interactive & ZelnickMedia Prior to forming ZelnickMedia, Zelnick was President and Chief Executive Officer of BMG Entertainment, served as Vice President of the International Television Division at Columbia Pictures, and spent three years at Vestron Inc., two as the company’s President and Chief Operating Officer.

Interview with Chairman and CEO of Take-Two Interactive, Strauss Zelnick

“Executive needs don’t matter… What matters is the consumer.”

Strauss Zelnick, a partner in ZelnickMedia since 2001, became Chairman of Take-Two Interactive in March 2007 and Chief Executive Officer in January 2011. Throughout his tenure at Take-Two, Strauss has been an inspiring, visionary leader, applying sound financial infrastructure and rigor to enable the industry’s top creative talent to pursue their passions and deliver incredible entertainment experiences for consumers around the world. Strauss has been instrumental in establishing a strong corporate culture that is diverse, inclusive, and respectful, and is driven by the Take-Two’s mission to be the most innovative, creative, and efficient entertainment company in the world. 

Strauss holds a JDMBA from Harvard University and a BA from Wesleyan University. He currently serves on the boards of directors of Starwood Property Trust, Education Networks of America, and the Entertainment Software Association. Additionally, Strauss served as Chairman of the Board for CBS Corp. from 2018-2019. Strauss is an associate member of the National Academy of Recording Arts and Sciences and is a Trustee Emeritus of Wesleyan University.

You can watch the full interview here: https://www.youtube.com/watch?v=M6NXkvBukBI

The following is a lightly edited transcript of the interview:

JORDAN: What initially drew you to focus your career on the entertainment industry?

STRAUSS: I was always interested in entertainment, even though I was never allowed to watch TV as a kid. I was excited about the notion of running a movie studio ever since I can remember. That’s initially what I pursued. At first I had just wanted to be in the movie business, and believed television was just a stop along the way. Entertainment had always captivated me, and like many others in the industry I started by thinking I’d be a performer – I thought about being an actor and I was somewhat of a musician, but I had the presence of mind to realize my true skills rested in determining other people’s talent.

JORDAN: You mentioned you were a musician – what instrument did you play?

STRAUSS: Guitar.

JORDAN: Oh, I play piano! You’ve spent an incredible amount of time in all these different sectors. What similarities (if any) have you found between them? Moreover, the interactive entertainment industry is the largest and fastest-growing industry in the world. What makes it so different?

STRAUSS: In terms of commonalities, it’s all about creating hits. Really big economic hits always drill down to ten or twenty at a time in any sector of the industry. If you can find the most talented people, and give them the resources to pursue their passions, you have the opportunity to create those hits. All of the businesses I’ve worked in were driven by our ability or lack thereof to make massive hits. Why is interactive entertainment so huge? Because it speaks to a very broad audience in a way that other entertainment sectors can’t. Interactive entertainment offers something for everyone. Games can speak to every demographic on the market. Interactive entertainment can also captivate consumers for a much longer period of time. An episode of a TV show might hold your attention for 30 minutes to an hour, but a single video game can engage you for hundreds of hours.

JORDAN: Absolutely. In 1993, when you left 20th Century Fox to helm Crystal Dynamics, some might have viewed that as a leap of faith (at least on paper). What allowed you to take that “leap” and break into this new industry?

STRAUSS: Well it was definitely a leap of faith! I sold my home at a loss and moved my family to northern California and invested all the money I had into Crystal Dynamics. I didn’t know much about interactive entertainment, but I had a strong sense that video games would become the next great entertainment boom. Having spent seven years running motion picture studios, I understood those economics well, and they’re not great economics. Anyone’s career can only be as good as the enterprise they’re in. An individual cannot be more successful than the industry they’re in. I understood that I wasn’t going to be special – I had a really good career in motion pictures and television, but if I wanted to make it to the next level, I knew I had to find a business that would be more reactive, that would grow more substantially with better economics.

The economics of the video game industry looked (and still look) like the economics of the movie industry pre-1955. It’s a studio system. If you want to distinguish between an economically viable entertainment business and those that aren’t, look to which ones have studio systems. It is much better to have the creative talent on the payroll of the enterprise, as opposed to the creative talent being independent contractors. With movies, if I want to make a film tomorrow, I just have to find the capital. I don’t have to work at a particular company or have specific resources – I just need the money. I then can hire any director, any writer, and any actor I want. They’re not beholden to any outside forces. If you want to make a great video game, all the top talent is connected to larger studios. If there’s someone you really want at Microsoft, it’s going to be very difficult to extract them from the team or project they’re working on. Secondly, games are made by hundreds or thousands of people. It’s really hard to create games as a singular individual, and therefore similarly hard to pry talent out of a team and build something around them. That creates barriers to entry and barriers to success which protect the incumbents. When I joined Crystal Dynamics and when our firm took over Take-Two, I set out to build incumbents. If you can do that, you can create a lot of protectable value. That’s much less true in motion pictures. I had some sense that economically, if we were successful, this was going to work out. And I did have a gut feeling that the video game industry was going to be huge. Thankfully, I was right about that.

JORDAN: Well, that is a level of foresight and intuition that I think everyone wishes they had. I’m glad you brought up the structure of the video game industry. A few years ago, the industry was composed of a relative balance between high quality, first-party studios controlled by Sony and Microsoft, and then a menagerie of independent publishers of various sizes. Sony owned (and still owns) renowned developers such Naughty Dog and Insomniac, and with Microsoft you popular franchises with Halo and Forza. Between those islands of exclusivity, is a sea of world-class third-party publishers/developers such as Take-Two that are creating amazing experiences for all platforms. Today, the industry landscape is looking very different. Some of the most prolific fish in that sea have been scooped up, with Microsoft’s purchase of Bethesda and Activision (pending), and Sony’s acquisition of Bungie. Even among the third-party publishers/studios we’ve seen some movement, most notably with Take Two’s pending combination with Zynga and EA’s purchase of Glu Mobile. You spent time leading a small studio (Crystal Dynamics) and now sit at the opposite end of the spectrum at Take-Two. What are your thoughts on these acquisitions and what they might mean for consumers and smaller studios going forward?

STRAUSS: Hopefully it’s good for consumers, in that the bigger companies have the resources to invest in better games and more exciting properties. Certainly we believe that having the force of capital and creativity aggregated in one place should ultimately be beneficial to consumers. In terms of smaller developers, these transactions are a reflection of the fact that life was already getting harder. They do not make it more difficult for smaller studios, it was already becoming more difficult and this is the result. More resources are needed to make big experiences, and even to make small experiences, the risk profile is such that you need to be incredibly well capitalized. Most of the time, new releases fail, and you need to be able to withstand that failure.

JORDAN: 100%. I think there’s this fear that as Sony and Microsoft continue to acquire studios, games will only increase in exclusivity, but there’s also hope that the inverse may happen and we could enter a world of complete cross-platform play. We’ll have to see what happens. Although Sony and Microsoft are making similar moves, there is a fundamental difference between their ideologies on the future of the industry. With the advent of Xbox and PC Game Pass, Microsoft believes in a world beyond the Xbox console. In buying these studios, their goal is to make Game Pass the premier place to play games, whether it be on their console or a PC. The driving metric for Microsoft is no longer how many consoles or titles they sell, but rather, how many users sign on to one of the best deals in gaming. And, while Sony has bolstered their subscription offerings, they haven’t created a comparable service – nor does it seem they want to. The biggest draw of Game Pass (the ability to get select titles Day 1 as part of the package) doesn’t seem to matter as much to Sony. Their exclusives sell incredibly well, with God of War 2018 and Horizon Forbidden West selling 20 million copies each, the latter within two months. Spider-Man PS4 sold 3.3 million copies in its first three days, making it the fastest-selling first-party game of all time. Their ability to rapidly churn out high-quality exclusive titles has been a powerful allure for consumers, and as a result the PS4 and PS5 outsold their Xbox competitors 2:1 in both generations. That said, how does Take-Two view these services and subscriptions? Do you envision Take-Two creating a standalone service whereby consumers could have access to both catalog and front-line releases? Or do the individual sales from titles, DLC and virtual currency make that unrealistic?

STRAUSS: I think it’s hard for any one company to have a broad-based subscription service, because in general consumers want their entertainment aggregated. I’m not sure subscription makes sense for interactive entertainment at all. Most people play the same game or games for 1-4 months, and to pay a recurring fee instead of making a one-time purchase simply isn’t worth it. There is a small percentage of the market who want to experiment with all types of games – you said yourself Game Pass is a great deal. If you’re a truly avid gamer, and you want to play a game released 7 years ago that you never bought and don’t want to buy independently, then Game Pass is really exciting for you. The notion of putting frontline products on a subscription service instead of selling it to consumers who will pay for it doesn’t make any sense at all to me. I think subscription can co-exist with the current business model of selling individual titles with downloadable titles, and of course free-to-play titles. If one believes that the entire business becomes a subscription business, and all games sit on a subscription platform from day 1, I think they’re being very unrealistic and there’s little evidence to support that perspective.

JORDAN: Yeah, even for me, although I admit Game Pass is a great deal, I don’t subscribe. Unless it’s one of those special “one-dollar-a-month” deals, I don’t think it’s worth it.

STRAUSS: Right – how many games do you play at a time?

JORDAN: Probably four or five, and of those one has been ongoing for five-plus years.

STRAUSS: See most people only have one or two. Do you really want to pay for a subscription if you’re playing fewer than five games? For most people it’s much more economical to just buy the games they want to play.

JORDAN: Exactly.

STRAUSS: I also think any offering has to first and foremost meet consumers’ needs. Executive needs don’t matter. Investor needs don’t matter. What matters is the consumer. You have to ask yourself, what does the consumer want? I think for a lot of the people building subscription services, they looked at what Netflix did and decided they wanted to be Netflix, without asking themselves that question. The analogy between what Netflix does and what Game Pass does is broken. They are very different things. The average American household watches over 150 hours of television a month. Paying $15 or $20 a month for that is a good deal for consumers. The average American household consumers 45 hours of interactive entertainment a month, and that’s only among 1 or 2 titles. Now that $15 or $20 price point is a lot less appealing. Trying to convince a consumer to do something that doesn’t come naturally is a really hard thing to do in business. If consumers want us to make that sort of a subscription, we will, and from time-to-time we have made deals to put our titles on other services, but from a consumer point of view, I don’t think this is going to be a mainstay feature with wide appeal. I could be mistaken, and if I am, we’ll be where the consumer is.

JORDAN: Well to an extent I think that answers my next question, but that philosophy of “the consumer’s needs have to come first” is a powerful one, and clearly it’s netted tremendous success. In that vein, Take-Two has an unbelievably diverse library of games. 2K is the undisputed champ of strategy games with Sid Meier’s Civilization, and next to Bungie is one of the pioneers of the looter-shooter genre with Borderlands. Rockstar has long been a leader in both single-player and multiplayer experiences with GTA and Red Dead, and last year Private Division blew every other roguelike out of the water with Hades. That kind of quality is only possible when world-class studios have a culture of collaborative productivity that values quality and developer health over release windows and microtransactions. At the same time, we have heard story after story of other AAA developers with severe crunch time, job instability, and an overall deeply toxic work environment. How has Take-Two managed to keep up this unbelievable streak without compromising developer work life?

STRAUSS: Well we certainly haven’t been perfect at it, and there have been moments where we’ve been criticized. In general, I’m really proud of our culture. It’s always been one of transparency, honesty, inclusion, and kindness, in service of very ambitious goals. We value eccentricity and don’t accept bad behavior. That’s always been the case. It starts at the top of the company and we live it every day. When tested, we make hard decisions. If you truly believe in your culture, you have to make decisions in service of that culture, which means certain people can’t work at our enterprise. I think crunch, for example, was common in the industry and in our company until relatively recently, and it changed when our colleagues came forward and said that they didn’t want to do that anymore. Our teams work really hard on an ongoing basis but didn’t want to pull all-nighters, and we restructured accordingly. I wouldn’t say we’re above reproach but we try really hard to create a rational, sound, and communicative culture. We’ve fallen short at times, but when we do we try, try, and try again.

There are certain specific things we do in service of that mission. We’re a very flat organization. Six people run Take-Two at the corporate level. We all sit in one hallway, in one office, and we have three assistants. That’s it. There are no layers underneath, no chief of staff, no one wandering around with earpieces. No private dining room, nothing. It’s a very thin corporate culture in service of everyone who makes the entertainment. That’s where the real work is done. We’re just there to serve and lead. We’re also highly accessible. All of our colleagues have our cells and personal emails – there are no barriers between any of us. Compensation is also very formulaic. People are paid in accordance with company performance. There are no subjective factors. Discretionary comp does not exist, and so people are encouraged to create more success and reduce operating cost. When you take our stated culture and combine it with economic incentives, that’s how we’ve been able to maintain success. Overall, my approach is to be very risk-forward creatively, and highly risk-averse financially.

JORDAN: How do you feel the gaming industry in general can improve opportunities for minority groups and create a more inclusive and respectful space overall?

STRAUSS: Well that’s something we’re really focused on. In many instances we’re the lead participant in programs that will bring underrepresented populations into the industry. We’re starting with high school students and even younger than that by supporting STEM education for women, and by backing arts and STEM for a wide range of underrepresented groups. We also have numerous inclusive opportunities at our own firm, with a legion of diversity officers committed to creating a diverse community at Take-Two and its affiliates. From a gender perspective, we’re highly diverse at every level. Ethnically we’re more diverse than other entertainment companies but we still have a long way to go. We’re not stopping with where we recruit and how we retain, we’re actually going back into communities and acting as a proactive force in training people so they’re able to enter the industry, even if they don’t end up at Take-Two.

JORDAN: Well that’s awesome. I just have one last question. As a longtime fan of the series and an avid gamer in general, I feel obligated to ask this. Is there anything you can tell us about GTA VI?

STRAUSS: Sure, Rockstar said that it’s coming, so stay tuned.

JORDAN: Alright! Well this has been absolutely wonderful, thank you so much for coming on.

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