As GamePolitics reported yesterday, EA may have called a cease-fire in its hostile bid to absorb Take-Two Interactive. That development, however, does not mean that the two game publishers are ready to share a hug.

The New York Post reports on snarky (and anonymous) barbs traded between EA and T2:

"To say that EA blinked is a huge understatement," said one source close to the Take-Two camp. "They finally came to their senses and realized this wasn't going to be done their way."

 

A source close to EA countered by suggesting that the company was miffed that it had to make the first overture to Take-Two. The source added that EA officials don't want to negotiate with Take-Two's current management team.

The Post also reports that, while the FTC is expected to bless the proposed merger, it will insist that Take-Two spin off some of its sports franchises, so as not to give EA a complete monopoly on sports games:

Though a deal would combine two of the world's largest video-game publishers, the Federal Trade Commission is expected to give the go-ahead to a potential combination by Thursday on the condition that it divest one or more of its sports gaming franchises, with basketball or hockey being the most likely.

GP: Great mashup (left) of GTA and T2 boss Strauss Zelnick accompanies the NY Post article...

As expected, Electronic Arts has once again extended its deadline for Take-Two Interactive stockholders to tender their shares at $25.74. The new deadline is August 18th.

EA is apparently beginning to make some progress in its bid to acquire T2. The game publisher says that 11,741,339 shares have been tendered under the offer, nearly double the amount turned in when the previous deadline expired in late June. That is almost certainly related to T2's sagging share price of late. The stock has been trading below EA's offer price, making the deal more attractive to shareholders. TTWO closed on Friday at 25.04

This morning's EA press release links the extension to the Federal Trade Commission's review of potential anti-trust implications:

Extending the tender offer allows the FTC review process to continue. The proposed transaction is still subject to certain conditions that include regulatory approval. EA retains the right to terminate the offer if the conditions are not satisfied.

Coming up later today: Take-Two's obligatory press release explaining why, in its view, EA's offer is a bad deal for shareholders.

UPDATE: Wow, that didn't take long. In a press release which followed EA's by less than an hour, Take-Two, as expected, slams EA's offer. T2 chairman Strauss Zelnick alludes to "multiple" suitors, but does not name them (Activision? Ubisoft?):

We are fully engaged in a formal process to evaluate strategic alternatives that have the potential to deliver greater value than EA's inadequate offer. As part of this process, we continue to engage in meaningful discussions with multiple parties, a number of whom have been conducting due diligence.

UPDATE: In a lively interview wiith VentureBeat's Dean Takahashi, EA CEO John Riccitiello touches on the T2 deal:

Having clever verbal sword play about Take-Two doesn’t really matter. I’m not really playing for a headline in the New York Times...

 

I don’t think we’ve played a poker hand. We have expressed our interest. We have made a public bid. We are in the Hart-Scott-Rodino antitrust review. All of the information has been disclosed. We’re playing it to the way we’ve said we would play it. There have basically been three moves and there have 6,000 articles on it. It’s sort of amusing. I feel a little bit like those strobe light things where it looks like a guy is moving a lot. The flash goes off but the body doesn’t move. Every time a flash goes off, somebody writes a story on it. To be honest with you, the last time there was news was a couple of months ago.

Earlier this week GamePolitics reported on complaints by UK watchdog groups that online auction sellers were selling 18+ games to underage buyers.

Now the Harrow Observer reports that some game retailers in that part of London have been caught selling mature-themed games in a sting conducted by Harrow Council Trading Standards and Which? Computing. The stores fingered in the report are Woolworths, Game and Maplin.

From the newspaper account:

All three shops have now launched internal investigations into the sales and will face legal action from the council if caught out again.

 

Woolworths sold Grand Theft Auto (GTA) - Vice City Stories.... to the [15-year-old] girl without question. In the Maplin store, the assistant asked the investigator's age, but did not refuse the sale of Hitman, even when she said she was 15.
 
The six other Harrow stores that were tested in the operation in May - Tesco, Argos, Debenhams, HMV, Currys Digital and Entertainment Exchange - all refused to sell the game to the teenager.

GP: While this smcall-scale study almost certainly wasn't conducted with the design rigor of the Federal Trade Commission's secret shopper survey in the US, its results (67% success rate in blocking the underage sale) aren't that far off from the 80% success rate that the FTC found here in the States.

Things are beginning to get ugly between Take-Two Interactive and the Federal Trade Commission.

Attorneys for Take-Two have strongly disputed the FTC's contention that the Grand Theft Auto publisher is stonewalling the government agency's investigation into antitrust aspects of the potential EA merger (see: FTC Hauls Take-Two Into Court Over EA Takeover Bid).

In a document filed yesterday with the U.S. District Court in Washington, D.C., Take-Two fires back at the FTC:

No one at Take-Two Interactive Software, Inc. (“Take-Two”) is seeking to thwart the proper investigation by the Federal Trade Commission (“FTC”) staff of Electronic Arts, Inc.’s (“EA”) tender offer. On the contrary, from the outset, Take-Two has fully cooperated with these efforts, already having produced more than 479,000 pages of responsive documents through the date of this Opposition.

 

The issue before the Court is how the seemingly boundless desire of a government agency for information can be contained in order to save a company from the ruinous costs of compliance with a subpoena that requires it to search virtually every electronic and paper document in its possession, and to make available most of its senior executives for investigational hearings (pre-complaint depositions) in a situation where the company is not even a willing party to any transaction being investigated and where it is quite possible that no such transaction will ever occur.

 In the lengthy filing, Take-Two claims that it has been bending over backwards to meet the FTC's demands, including keeping a team of attorneys working over the recent Memorial Day weekend in an effort to supply requested internal documents. Referring to the FTC's conduct as an "abuse" at one point, T2 goes on to assert:

The FTC fails to engage in any meaningful analysis, in either its negotiations or motion papers, of its specific requests. It refuses to acknowledge that compliance with all of its requests would require a comprehensive, company-wide review of Take-Two’s data and documents, which encompass a huge universe of information...

A seperate declaration from a Take-Two attorney claims that it costing the company $50,000 per day in legal bills to meet the FTC's requirements.

Take-Two also submitted a slew of exhibits to the Court. Although no trade secrets are revealed in the publicly-viewable documents, it's clear from their context that the FTC is probing the workings of the "pipeline" by which T2 gets its sports games to market. The company also provided data on its exclusive licensing arrangement with Major League Baseball (MLB 2K8 screen at left) as well as NPD sales data for its sports games from 2001-2007.

In our previous GamePolitics story we described how the Federal Trade Commission went to U.S. District Court in an attempt to force Grand Theft Auto IV publisher Take-Two Interactive to cooperate in an anti-trust investigation related to Electronic Arts' potential takeover of T2.

So, why would Take-Two thumb its nose in the government's face, even to the point of reneging on previously agreed-upon conditions?

We asked financial analyst Michael Pachter (left), who covers the video game sector for Wedbush-Morgan:

I think that the reasons range from A) being incredibly savvy and holding off the FTC as a tactic to slow the process to Z) being incredibly arrogant.

 

It's hard to know where Take-Two fits on the scale from A to Z.  Their general counsel is pretty experienced, and it surprised me that he would allow the company to deal with a subpoena this way.  The FTC's action of seeking a court order is pretty severe, and shows how seriously the FTC takes this slight.

 

I'm not sure what Take-Two hopes to gain from this, other than the obvious delay to the process.  However, the process won't be delayed if Take-Two's failure to comply with the subpoena results in the FTC granting approval without looking at these documents. There is NOT a presumption of anti-competitiveness, and if EA demonstrates that the combination would not be anti-competitive, Take-Two would be better served to provide evidence to the contrary if it wishes to remain independent.

 

It seems to me that they would be best served by cooperating fully with the FTC, and by pointing to records that show how competitive their business is with EA's business.  Apparently, they have reached a different conclusion.

 

 

UPDATE: So, what's to be gained by delaying? We put that question to Pachter as well:

I think it's always in their best interest to buy more time.  Management has an incremental 720,000 shares of restricted stock that vest if the takeover happens after March 31, 2009.  More time buys them a greater ability to prove the impact that they've had on the company, and they appear sincere in their belief that they have turned Take-Two around.  More time allows Activision to close its Vivendi deal and give Take-Two a look.  Ubisoft might be interested...

Reuters is reporting that the Federal Trade Commission has initiated proceedings in U.S. District Court to compel Take-Two Interactive to respond to the FTC's subpoenas in relation to Electronic Arts' ongoing hostile takeover bid.

As GamePolitics reported last week, Electronic Arts placed its takeover on hold pending the FTC's review to determine whether an EA-T2 merger would violate federal antitrust laws.

GP is currently reviewing court documents. An affidavit by FTC attortney Reid Horwitz alleges that Take-Two reneged on agreements to provide documents requested by the FTC.

Horwitz also writes that the federal agency is particularly interested in the files of Take-Two CEO Ben Feder and Visual Concepts president Greg Thomas, along with several sales and marketing execs, one of whom was formerly the marketing VP for 2K Sports.

Given the government interest in 2K Sports and Thomas, whose studio creates most of T2's sports titles, it's clear that the FTC investigation is centered around a possible monopoly in sports games should the EA takeover occur.

While it may appear odd that T2 would balk at the FTC request, according to FTC attorney Horwitz, T2's position seems to be that it should not be burdened with providing the documents since it was EA that inititated the uninvited takeover attempt. T2 claimed to the FTC that it spent in excess of one million dollars in providing a limited amount of info to the agency.

Horwitz relates that, while T2 agreed to give up some of the requested employee files, it refused to provide files from CEO Ben Feder or Visual Concepts' Greg Thomas. When the FTC asked why, a Take-Two attorney replied:

These individuals were "creative types" who would leave the company rather than allow their files to be searched...

UPDATE: U.S. District Court Judge Henry Kennedy has apparently been persuaded by the government's position, and has ordered Take-Two into court on June 24th to show cause why he shouldn't rule in favor of the FTC.

UPDATE 2: A document filed by Take-Two with the Securities and Exchange Commission provides its comment on the FTC issue:

Prior to the issuance of the FTC’s subpoena and CID the Company has been cooperating fully with the FTC with regard to their review of EA’s Offer to acquire the Company. The Company has already provided enormous quantities of data and access to key executives, and has offered to provide the FTC staff with additional documents and information. Nevertheless, the Company believes the FTC’s subpoena
and CID are unnecessarily broad and would entail unacceptable additional expense to the Company. To limit the inordinate expense and labor that the FTC’s demand would entail, the Company has sought to obtain reasonable limits on the scope of the information sought. The Company will continue to cooperate actively and produce documents in response to the FTC’s previous requests, and will of course attempt to seek an acceptable resolution to this matter as quickly as possible.

We've got additional reactions to yesterday's report by the Federal Trade Commission which gave high marks to the video game biz for its enforcement of ESRB ratings at point-of-sale.

A spokesman for State Senator Leland Yee (D), architect of California's contested video game law, remarked:
 

The Senator is pleased and commends retailers for significantly improving on the latest FTC study.  Clearly retailers are much more cognizant of the potential harmful effects of ultra violent video games and are not selling such games to minors in as great a number. 

With that said, it is imperative that the industry does more to prevent the sale of adult oriented games to children. Twenty percent of minors can still easily get their hands on games that are inappropriate for them. That equates to hundreds of thousands of children who are potentially in harm's way. The Senator looks forward to continuing his efforts and working with the various interested parties to end the sale of extremely violent video games to children.

Meanwhile, Gavin McKiernan, National Grassroots Director of the Parents Television Council, lauded GameStop for its 94% enforcement record, but said that, as a whole, the video game industry needs to do better:

The steep decline in sales of M-rated games to underage buyers reported this morning by the Federal Trade Commission is a clear victory for the video game industry on both the political and public relations fronts.

Taking a victory lap is the organization responsible for operating the video game industry's rating system, the ESRB. Via press release, ESRB president Patricia Vance commented on today's FTC report:
 

Video game retailers have clearly stepped up their efforts to enforce their store policies, and they deserve recognition for these outstanding results.  We commend and applaud retailers for their strong support of the ESRB ratings, and will continue working with them to help ensure that these levels of compliance are sustained if not further increased.

The ESA, representing US video game publishers, declined to comment, referring us instead to the ESRB.

Bo Andersen, president of the Entertainment Merchants Association, a trade group representing a number of video game retailers, also weighed in. For retailers, the report is a mixed bag. They scored superb numbers on game rating enforcement, but were criticized by the FTC for sales of R-rated and unrated DVDs to underage buyers. Andersen said:
 

Retailers don’t want children to be able to purchase or rent video games and DVDs that their parents do not want them to have. As a result, they have made real and significant investments in enforcing the voluntary video game and motion picture ratings in their stores. The FTC’s latest ‘undercover shopper’ survey demonstrates that these investments are producing strong results... While we are pleased with the progress that has been made in ratings enforcement, retailers still are not where they want to be as an industry.

On the consumer side, Hal Halpin, president of the Entertainment Consumers Association, remarked:
 

This is an extraordinary accomplishment from the nation's leading interactive entertainment retailers, as it clearly shows their increased commitment of keeping mature-rated games out of children's hands. Perhaps most impressive is the incredible reversal in their failure rate over such a short period of time and with a comparatively new rating system.

This is truly a vindication for video game merchants who have been falsely damned by anti-game advocates and special interest groups, who now don’t have a leg to stand on.

GamePolitics also offered several high-profile game industry critics and watchdog groups an opportunity to comment. So far we've not heard back from the Parents Television Council, the National Institute on Media & the Family or California State Sen. Leland Yee. There was one critic we did hear from, though...

Despite the eye-popping retail enforcement numbers, anti-game activist Jack Thompson refused to give credit to the video game industry. Instead, he credited... Jack Thompson:
 

I'm more than happy to take credit for the improvement. The threat of legislation has improved performance, not some altruism on the part of the Strauss Zelnick's [or] the industry. To America's parents: Jack Thompson is delighted to have helped.

Of course, Thompson would have been all over the FTC numbers had they been unfavorable to the video game industry. Classy, Jack...

UPDATE: Dr. David Walsh of the National Institute on Media & the Family has now weighed in. NIMF claims a bit of the credit as well:
 

The results of the [FTC's] latest undercover survey are good news for retailers and the [ESRB], but most of all for parents... With its consistent pressure on the video game industry, [NIMF] played a significant role in improving ratings enforcement and education. Similar to our... Video Game Report Cards, the FTC survey shows that specialty retailers, such as GameStop, continue to lead in enforcement and the rental companies need to step up their efforts...

Full Disclosure Dept: The ECA is the parent company of GamePolitics…

The results of the Federal Trade Commission's latest research into the marketing of violent entertainment to children is a major win for the video game industry.

Just-released numbers show that the FTC's underage secret shoppers were only able to purchase M-rated games 20% of the time, a massive improvement over last year's 42% success rate.

Amid heightened parental concerns following last week's high-profile release of Grand Theft AUto IV, the news couldn't come at a better time for the video game biz.

DVD sellers, on the other hand were spanked by the FTC for selling R-rated and unrated movies to underage buyers about half of the time. Theaters allowed the FTC's secret shoppers into R-rated movies 35% of the time, making the game industry's results all the more impressive.

New in this year's report are individual ratings for retailers. The FTC results indicate that GameStop is doing the best job of retail ratings enforcement, turning away 94% of underage buyers. Wal-Mart and Best Buy scored high marks as well, with 82% and 80% turn-away rates, respectively.

Listed below are the FTC's video game secret shopper results, listed by retailer (number indicated is successful purchases of M-rated games by underage buyers):
 

Game Stop/EB Games - 6%
Wal-Mart - 18%
Best Buy - 20%
Toys R Us - 27%
Target - 29%
Kmart - 31%
Circuit City - 38%
Hollywood Video - 40%

A graph posted on the FTC website (and seen at left) traces a steep decline in underage sales since 2000, when secret shoppers were successful 85% of the time.

 We'll offer reactions from the video game industry and other stakeholders as we receive them.

Sen. Sam Brownback (R-KS) has sponsored legislation in the United States Senate which would require the ESRB to play games in their entirety before assigning an age rating.

Brownback's Truth in Video Game Rating Act (S.3935) would appear to be the Senate version of a House bill of the same name proposed by Rep. Cliff Stearns (R-FL).

“The current video game ratings system needs improvement," Brownback said, "because reviewers do not see the full content of games and don’t even play the games they are supposed to rate. For video game ratings to be meaningful and worthy of a parent’s trust, the game ratings must be more objective and accurate.”

Brownback's measure would mandate the Federal Trade Commission (FTC) to administer the requirement for a complete play-through before rating.

“Game reviewers must have access to the entire game for their ratings to accurately reflect a game’s content," Brownback added.