According to the Dow-Jones Newswire, federal investigators charged four men with today insider stock trading. One of the transactions named in the indictments was EA's bid to acquire T2 earlier this year.

No one from either Take-Two Interactive or Electronic Arts has been charged and there is no indication that the publishers had any inkling of the illegal stock trades. If government regulators are correct, however, information leaks from the Brunswick Group, a P.R. firm working on behalf of Take-Two, contributed to the crime. From the Dow-Jones report:

Four people were charged criminally Thursday in an insider trading scheme involving information about mergers or stock buybacks obtained from a Lehman Brothers Holdings Inc. broker's wife who worked at communications firm Brunswick Group LLC...

 

According to court documents, they were among a group of clients and friends tipped by Matthew C. Devlin, a Lehman Brothers broker, about 12 planned deals before their public announcements between 2005 and 2008...

 

Devlin allegedly obtained the information from his wife, who worked at communications firm Brunswick Group, according to court filings. The deals included... Electronic Arts Inc.'s (ERTS) hostile bid earlier this year for Take-Two Interactive Software Inc. (TTWO)...

 

Devlin has been charged criminally and in the SEC case... [other defendants]... referred to Devlin or his wife as the "golden goose," according to court documents.

The Guardian reports that there is no suggestion that Devlin's wife, Nina, a partner at Brunswick, knew of her husband's alleged stock market manipulations.

Yesterday, GamePolitics pointed out the hypocrisy of indicted Illinois Gov. Rod Blagojevich, who publicly fretted about Grand Theft Auto's cartoon crime but himself managed to carry out what the U.S. Attorney alleges was a political corruption crime spree.

The Wall Street Journal's Deal Journal blog has come up with a different video game angle on the Blagojevich affair, remarking that the disgraved Guv should have paid more attention to this year's failed EA-Take-Two merger:

Before Illinois Gov. Blagojevich allegedly tried to auction off President-elect Barack Obama’s vacated Senate seat to the highest bidder, he might have taken a closer look at the state of deal making this year–which would have told him it never would have worked.

 

Deal Journal compiled some lessons from this year’s M&A market that might have kept Blogajevich from following temptation into a federal indictment.

Don’t assume you are the only game in town: If prosecutors are right, Blagojevich, accused of looking for either lucre or favors in return for Obama’s Senate seat, made an oft-seen mistake: he believed he had more leverage than he did. Take-Two Interactive Software–maker of the Grand Theft Auto videogame–made the same mistake when it pushed rival Electronic Arts to bid up, up, up for the company. But EA tired of being toyed with and walked away.

The WSJ also jokingly relates Blagojevich's relentless pursuit of graft to several other non-game biz deals.

It's a good thing that Strauss Zelnick is so good at running media companies.

Because he'd never make it as a financial analyst.

Reuters reports on the Take-Two head's somewhat obtuse view of the current global financial meltdown. Zelnick made his remarks at the Reuters Media Summit:

I don’t think we’re in a financial crisis.

 

The use of the word crisis — I’m loathe to be critical of the media since I’m every bit a part of the media — but I don’t think the word has been especially helpful. We’re obviously in a recession and these are very very trying times.

Zelnick then pushed the metaphorical envelope with this bit of imagery:

We’re still seeing the car crash, and the ambulances are still showing up at the scene. Maybe we’re in the emergency room, but we’re not even in the intensive care unit yet for a lot of these companies. But they will get there.

A separate Reuters report offers the Z-man's take on how the game biz is weathering the current financial crisis ...oops, "very, very trying times":

I think everyone was encouraged by Black Friday. It was better than expectations, but it's pretty hard these days -- being slightly down is the new up.

Say it ain't so, Houser Bros.

IGN reports that the upcoming PC flavor of Grand Theft Auto IV will install the dreaded SecuROM 7 copy protection on gamers' computers.

On an up note, however, the number of times that the game can be installed will not be subject to a limit. GamePolitics readers will recall that EA's much-awaited Spore came with a three-install limit. At least, it did until a gamer revolt prompted EA to relax the resrtiction.

Regarding GTA IV's SecuROM, an unnamed Rockstar spokesperson told IGN:

Having copy protection allows us to protect the integrity or our titles and future investments, but at the same time we have worked very hard to ensure that our solutions do not persecute the legitimate players of our games. Implemented correctly, SecuROM is the most effective form of disc based copy protection and allows us to manage authenticity on a global level for Grand Theft Auto IV...

 

GTA IV PC uses SecuROM for protecting our EXE until street date has passed, to ensure the retail disk is in the computer drive... Product Activation is a one time only online authentication when installing the game. GTA IV has no install limits for the retail disc version... and that version can be installed on an unlimited number of PCs by the retail disk owner... All versions of the game will use SecuROM for Product Activation. Downloadable versions of the game will have additional code if the vendor requires it, such as Valve's Steam program.

Rockstar also warned that pirated versions would not function properly:

Aside from the fact that warez are a great place to pick up a Trojan or key logger, using a cracked copy of GTA IV PC will result in varying changes to the game experience. These can range from comical to game-progress-halting changes.

Shortly before the April 29th Grand Theft Auto IV launch, the Chicago Transit Authority pulled ads for the game from its vehicles and facilities. Prompting the move was a rash of unrelated shootings in Chicago and a Fox News hit piece that linked GTA IV to the violence, even though the game hadn't yet been released.

Just a week later, Take-Two warmed the hearts of censorship opponents by suing the CTA in U.S. District Court for breaching its $300,000 contract. The case dragged on through the summer, but in late September GamePolitics reported that the parties were nearing a settlement.

Chicago Breaking News is now reporting that, as part of that settlement, GTA IV ads will appear on CTA buses for the next six weeks, which should give T2 a little boost for the holiday season. CTA spokesperson Noelle Gaffney explained:

The CTA made the earlier decision to remove the ads from the system following some violence in the city. The CTA felt that, based on the circumstances, it was in the best interest of our customers to remove the ads and further review the circumstances.

But wait - the CTA dropped some discouraging news as well, saying that it will accept no further ads for M-rated games once it works off its GTA IV debt. Here, the agency employs some highly questionable - read: highly political - logic:

Last week, the CTA board voted to ban advertising for video games rated "M" and above. The ordinance, which takes effect Jan. 1, cites a "demonstrable correlation" between intensely violent video games and violent or aggressive behavior.

Thus, Chicago joins Boston among major U.S. cities in which public transit systems will not accept M-rated game ads. Miami also yanked its GTA IV ads after now-disbarred attorney Jack Thompson raised a stink.

GP: Even though many M-rated games are fantastic examples of the creative arts, the transit agencies are essentially equating such games with smut. The industry needs to stand up for itself on this issue. Take-Two was right to sue the CTA over its GTA IV case, but the larger ban on M-rated games in general needs to be addressed by the ESA.

A U.S. District Court jury in San Francisco has awarded $28 million to a group of 2,062 retired pro football players in a class-action lawsuit against the National Football League Players Association. The NFLPA is the union which represents active NFL players.

The jury returned a $7 million verdict against the NFLPA and then piled on $21 million worth of punitive damages.

While Madden publisher Electronic Arts was not a party in the case, the NFLPA's negotiations with EA over licensing the images of retired players was a central piece of evidence in the trial, which lasted for three weeks.

As GamePolitics reported before the trial began, lawyers for the retired players uncovered several "smoking gun" e-mails which indicated that the NFLPA not only sold rights to the retired players at below market value, but deliberately undercut potential competition from rival sports publisher Take-Two Interactive.

Those critical e-mails include a message from former NFLPA exec LaShun Lawson to Madden producer Jeremy Strauser:

For all retired players that are not listed... their identity must be altered so that it cannot be recognized [by Madden players]... Hence, any and all players not listed... cannot be represented in Madden 2002 with the number that player actually wore, and must be scrambled.

In an apparent reference to Take-Two's failed All-Pro Football 2K8, an e-mail from NFLPA exec Clay Walker touches on how Take-Two lost out in the union's deal with EA:

Take Two... went after retired players to create an “NFL” style video game after we gave the exclusive to EA. I was able to forge this deal with [the Pro Football Hall of Fame] that provides them with $400K per year (which is significantly below market rate) in exchange for the HOF player rights. EA owes me a huge favor because that threat was enough to persuade Take Two to back off its plans, leaving EA as the only professional football videogame manufacturer out there.

At issue was the depiction of old school players on classic NFL teams included with Madden. The Los Angeles Times reports that each retired player involved in the lawsuit will receive $13,000. Lead plaintiff Herb Adderley, who wept when the verdict was read, told the L.A. Times:

If you look at the 1967 Green Bay Packers in that game, you'll know that the only left cornerback that year had to be Herb Adderley, but they scrambled my face and took the number off of my jersey. Yet, they had my correct height, weight and years of experience.

The San Francisco Chronicle reports that defense lawyer Jeffrey Kessler expects the jury's verdict to be overturned, calling it "unjust as a matter of law." An appeal to the 9th Circuit Court by the NFLPA seems virtually assured.

The Daily Mail reports that 19-year-old Ryan Chinnery (displaying bling at left) has been sentenced to an indefinite period of incarceration after pleading guilty to a series of sexual assaults in Kent. GamePolitics previously covered the start of Chinnery's trial in September.

As it does so often these days, Grand Theft Auto gets the blame:

[Chinnery] prowled streets in his car targeting innocent women he thought were prostitutes - imitating scenes from the controversial [Grand Theft Auto] game in which a man drives around and attacks call girls...  Officers found a copy of the 18-certificate Grand Theft Auto during a swoop on the home Chinnery shared with his girlfriend - and he initially insisted to detectives that he had been playing on his computer at the time of the attacks.

Prosecutor Eleanor Laws told a jury last month how Chinnery's obsession with Grand Theft Auto, which has sold some 35million copies, 'may go some way to explaining his attitude towards women'. Miss Laws added: 'Prostitutes in it can be exposed to violence. There may be some connection with the defendant admitting spending a lot of time playing that game.'

The judge, on the other hand, seemed to relate Chinnery's crimes to an obsession with porn, but did give GTA a mention. The Kentish Express reports:

Judge Philip Statman said: "What most troubles me is the mirror conduct between pornography and that which he later does. It is as if spurring on comes from the pornographic material.

"I know part of this case referred to something called Grand Theft Auto. While it appears the defendant does not accept it influenced his conduct on that particular evening, it could not have helped him, I would have thought, in all the circumstances of the case."

Strauss Zelnick is having an up-and-down week in the media.

Yesterday GamePolitics reported that Mad Money host Jim Cramer named the Take-Two Interactive chairman to his Wall of Shame for failing to accept EA's highly-publicized acquisition offer. Since EA bowed out, T2's stock has been in the toilet.

But the good news for Zelnick is that he's the cover guy for the latest issue of Men's Fitness magazine. At 51, the T2 head honcho is definitely buff. Check out this video for some of Zelnick's fitness philosophies and tips.

Frenetic money man Jim Cramer named Take-Two chairman Strauss Zelnick to the "Wall of Shame" on his popular Mad Money program yesterday.

Cramer blasted Zelnick and a pair of CEOs from other companies for failing to accept takeover bids and then seeing their stock values collapse.

As has been widely reported on GamePolitics and other sites, Zelnick rejected a $25.74 acquisistion offer from Electronic Arts earlier this year. EA eventually walked away from the deal. The Grand Theft Auto publisher's stock (TTWO) will open at 13.15 this morning. Among Cramer's trashing of the T2 boss:

[EA's offer was] an offer no sane man can refuse. But Strauss Zelnick, Take-two's chairman did just that...

Welcome to the Wall of Shame, Strauss Zelnick. You managed to take a sure thing, a $25 stock and turn it into a $13 one. That takes talent.

A former executive of  Take-Two Interactive filed a $50 million lawsuit against the Grand Theft Auto publisher in a federal court in Nevada last week.

Robert Alexander alleges that Take-Two breached an oral employment contract when, in 2004, former Take-Two CEO Paul Eibeler terminated a distribution deal with Alexander and his company, Game Ballers. Eibeler had taken over the reigns of T2 when CEO and company founder Ryan Brant ran afoul of the Securities and Exchange Commission. Prior to being forced out, Brant and Alexander apparently enjoyed a cooperative working arrangement.

The complaint is an interesting read, and provides insight into what appears to be the very big bucks business of video game distribution.

In his suit Alexander claims that he has been in the game biz since he was 16. He says that he built up a distribution company called Jack of All Games which he sold to Take-Two in 1998. After closing that deal he spent some time as a member of the T2 Board of Directors, leaving in 1999.

In 2003 Alexander formed a new distribution company, Game Ballers, and began negotiating with Ryan Brant and other execs to partner with T2 and Jack of All Games. Although Alexander began working with T2, his deal was never finalized before legal troubles forced Brant to leave the company in March, 2004. When Eibeler assumed the CEO post later in the year, Alexander apparently fell out of favor and alleges that he was not paid what he was owed.

If Alexander's complaint is accurate, the numbers involved are staggering. The distributor claims that Brant agreed to pay him $240,000 in annual salary with 20% annual raises, a $25,000 monthly expense allowance, 50,000 shares of T2 stock plus options and $.50 per game handled by his distribution company.

We have a request in to Take-Two for comment.

UPDATE: Take-Two has declined to comment. In fairness, I should point out that Strauss Zelnick's current management team had no involvement with T2 during the time frame about which Alexander is  making his claim.

Over at Gamasutra, Leigh Alexander serves up a revealing interview with John Riccitiello.

The Electronic Arts CEO dishes on the Spore DRM controversy, EA's abortive merger attempt with Take-Two, and EA's reputation in the gaming community.

Most noteworthy are Riccitiello's comments on the furor whipped up by Spore's much-maligned copy protection scheme:

I personally hate DRM. I don’t like the whole concept; it can be a little bit cumbersome. But I don’t like locks on my door, and I don’t like to use keys in my car... I’d like to live in a world where there are no passports. Unfortunately, we don’t – and I think the vast majority of people voted with their wallets and went out and bought Spore...

 

Everyone gets that we need some level of protection, or we’re going to be in business for free... [But it was] a minority of [anti-DRM] people that orchestrated a great PR program. They picked the highest-profile game they could find. I respect them for the success of their movement.

I'm guessing that half of them were pirates, and the other half were people caught up in something that they didn’t understand. If I’d had a chance to have a conversation with them, they’d have gotten it... There are different ways to do DRM; the most successful is what WoW does. They just charge you by the month.
 

Video game industry types are leaning Barack Obama's way.

That's the conclusion which GamePolitics cautiously drew a couple of weeks back based on our survey of campaign donations by game industry A-listers.

Kotaku spent some time rummaging through Federal Election Commission records, but took a more global approach, compiling data on a company-by-company basis. In a story posted today, they came to pretty much the same bottom line:

About seventy-five percent of game industry presidential campaign donations went to democrats, based on a sampling of developers and publisher donations over the past two years obtained from the Federal Election Commission.Kotaku looked at presidential campaign donations for nine companies from January of 2007 through the end of July, 2008. The companies included were Activision, Blizzard, Electronic Arts, Nintendo, Sony Computer Entertainment of America, Take-Two, THQ, Ubisoft and Valve...

 

 

The database showed that the nine companies donated a total of about $97,800 to ten candidates, about $61,000 of which went to democratic candidates, while about $36,700 went to republican candidates.

 

Kotaku also serves up a number of pie charts to support their conclusion. Mmmmm, pie...

Thursday was another bloody day on Wall Street and stocks of video game publishers did not escape the carnage.

As reported by GameSpot,  the likes of Activision, THQ, EA and Take-Two have seen their share price drop between 28-40% in recent weeks:

Worst off is Take-Two Interactive, which has lost 40 percent of its share price in a month, going from $21.77 to $13.01. Besides overall market woes, the decline was also in large part due to Electronic Arts' abandonment of its Take-Two takeover bid, which was $26 per share at its highest point...

 

Despite the apparent game-industry-wide drubbing, analysts are confident the game industry will fare better in a recession than other sectors. "If people aren't traveling and stay home, what are they going to do? They'll want relatively cheap home entertainment," David Gibson, senior analyst at Macquarie Research Equities, told the Wall Street Journal. "[And] core gamers will buy the titles when they come out, regardless of economics."

GP: If you're a T2 shareholder, we've gotta wonder how you're feeling about passing on EA's 25.74 takeover offer.

It was the gaming world's cause celebre of 2007.

Manhunt 2 was reviled by anti-violence activists, banned by the U.K.'s content rating organization, and criticized in Parliament and at No. 10 Downing Street.

After a protracted legal fight, England's High Court overturned the ban early in 2008. But, as Eurogamer reports, Manhunt 2 is just now being readied for sale in the U.K.

The street date is October 31st.

That's appropriate on two counts. Of course, it's Halloween. But it's also the one-year anniversary of the originally-scheduled Manhunt 2 launch.

With EA out of the picture, Take-Two has apparently decided to go it alone.

That word comes by way of a press release issued today by the Grand Theft Auto publisher. Citing "detailed discussions with various interested parties over the last five months," T2 has concluded that stockholders will be best served by the company staying its course.

Chairman Strauss Zelnick is quoted in the press release:

Take-Two’s Board of Directors and management have a clear mandate from stockholders to maximize value. We are strongly positioned creatively, financially and competitively to benefit from the opportunities we see in the fastest growing segment of the entertainment industry.

CEO Ben Feder invoked the success of GTA franchise and cited the rest of T2's catalogue:

Take-Two’s recent performance demonstrates our potential to create value for the long term. We have delivered solid financial results and expanded our portfolio of leading titles, which includes the powerful Grand Theft Auto franchise, as well as 15 other wholly owned brands with sales of more than one million units each.

A settlement has apparently been reached between Grand Theft Auto IV publisher Take-Two Interactive and the Chicago Transit Authority over the agency's removal of ads for the controversial game from its vehicles and facilities.

GamePolitics readers may recall that during GTA IV's launch week, the CTA yanked the ads following a Fox News report which sought to relate the popular crime game to a rash of local shootings.

Take-Two filed suit shortly thereafter, accusing the CTA and sales agent Titan Outdoor, LLC with breaching a $300,000 contract. A document filed by the defendants with the U.S. District Court in Manhattan last week indicates that a settlement is imminent, although no details are provided.

Take-Two declined to comment on the case.

Although Electronic Arts isn't a defendant in Parrish, Adderley et al vs NFL Players, Inc., the megabucks generated by its Madden NFL series are at the center of the legal dispute.

The case, which will go to trial next month in San Francisco, alleges that the National Football League Players Association and its marketing wing, Players, Inc., prevented retired players from earning their fair share of licensing revenue. Money generated by EA's enormously popular Madden NFL series is the primary bone of contention.

According to former Buffalo Bills safety Jeff Nixon, newly-uncovered documents in the suit reveal that EA Sports obscured identifying information of retired players to skirt licensing payments. Nixon writes:

The documents... make it is crystal clear that the NFLPA conspired with EA to “scramble” the images of retired players in their Madden NFL Video Games...

 

The Class Action lawyers have more than a smoking gun to prove this; they have the person shooting the gun in the form of a letter fired off by former Players Inc. Vice President of Multimedia LaShun Lawson, to Madden NFL Game producer Jeremy Strauser that was cc’d to Doug Allen, then President of Players Inc. In the letter LaShun says:

 

“For all retired players that are not listed... their identity must be altered so that it cannot be recognized. Regarding paragraph 2 of the License Agreement between Electronic Arts and Players Inc, a player’s identity is defined as his name, likeness (including without limitation, number), picture, photograph, voice, facsimile signature and/or biographical information. Hence, any and all players not listed... cannot be represented in Madden 2002 with the number that player actually wore, and must be scrambled."

 

In the 2007 version of Madden NFL alone, more than 600 retired players... had their images scrambled. They are not identified in the game by their names and numbers, but the game lists their exact weight, height, years in the league, and position they played...

 

When a substantial competitor to EA [Take-Two] began to emerge for use of retired players, EA and Defendants rushed to enter into a contract locking up the most valuable retired players’ rights in exchange for payments that were admittedly below market. PI’s Senior Vice-President, Clay Walker, admitted as much in the following email:

 

“Take Two [the EA competitor] went after retired players to create an “NFL” style video game after we gave the exclusive to EA. I was able to forge this deal with [the Pro Football Hall of Fame] that provides them with $400K per year (which is significantly below market rate) in exchange for the HOF player rights. EA owes me a huge favor because that threat was enough to persuade Take Two to back off its plans, leaving EA as the only professional football videogame manufacturer out there.”

In July GamePolitics reported that the Society for the Promotion of Community Standards, a watchdog group based in New Zealand had petitioned the government to reconsider its R18 rating for Grand Theft Auto IV. The SPCS hoped to see the controversial game banned, instead.

Kiwi game site Button Masher is now reporting that the group's effort has failed and that GTA IV will remain available to gamers in New Zealand:

In a victory for personal freedom (and common sense), the Film and Literature Board of Review has reconfirmed the earlier decision of the Office of Film and Literature Classification to grant the "uncut" version of GTA IV an R18 classification in New Zealand (contains violence, offensive language, and sex scenes). The Society for the Promotion of Community Standards had earlier this year applied for a review of the classification.

The contracts of Rockstar Games' Sam and Dan Houser expire early next year so many are wondering where the developer of Grand Theft Auto might end up.  Will the Housers stay with Take-Two, go independent, or hook up with another publisher?
 
According to Janco Partners analyst Mike Hickey, they’ll probably just stay where they are:

We find it unlikely that the Houser brothers would leave Take-Two Interactive for a competitor, as loyalty, compensation, culture and compelling IP should be sufficient in aggregate to leave employment alternatives unappealing.

Still, we’d be surprised if a few big name publishers didn’t make a bid for Rockstar when it becomes available.
 
AE: And what delicious irony it would be if Rockstar ended up with EA.

Via: Gamasutra

-Reporting from San Diego, GamePolitics correspondent Andrew Eisen...
 

Given this week's revelations that GTA Chinatown Wars for the Nintendo DS will feature a drug dealing mini-game, it was only a matter of time before criticism began.

Today's edition of British tabloid The Sun covers the story under the headline Fury Over Drug Deal Vid Game and includes a comment by Darren Gold of support group Drugsline:

Anything using drug-dealing as entertainment is sending out the wrong message. Glamorisation doesn’t help our work trying to educate kids of the dangers of substance misuse.

Rockstar, of course, seems to revel in such controversy.

Who remembers Snow?

Today's news that GTA Chinatown Wars on the kid-friendly Nintendo DS will contain a drug dealing mini-game reminded us that as recently as June, 2006 GTA publisher Take-Two Interactive put the kibosh on Snow, a drug dealing simulator for the more adult-centric PC platform. The game had been on the show floor at E3 just a month before.

What's different now?

• In June, 2006 Hot Coffee was still a big issue for T2 and the game biz
• GTA Chinatown Wars = GTA + the Housers. With their contract expiring in February, T2 is likely to be quite accomodating to the creative urges of the reclusive brothers behind the best-selling GTA series.

Here's correspondent Colin McIness 2006 report on Snow from the old-school GP.

In a move that is sure to spark controversy, the upcoming Grand Theft Auto: Chinatown Wars for Nintendo's handheld DS will feature a drug-dealing mini-game.

Although many grownups use the DS, it is widely regarded as a kid-friendly system. Citing a print story in Edge magazine, CVG reports:

Here's some news that's surely going to send mainstream newspapers (and Nintendo's PR department) mental. It's emerged that for DS features a full-on drug-dealing mini-game.

Revealed in the latest Edge magazine, the drug-dealing feature lets you flog heroine, cocaine, weed, ecstasy, acid and downers. Selling the six type of drugs makes you a ton of in-game cash and help you gain experience of market conditions, says the mag.
 

Rockstar exec Dan Houser is also quoted:

We wanted to have a drug-dealing minigame in lots of the GTA games. We played with it a little in Vice City Stories, because it worked really well juxtaposed with the main story. It works well with what GTA is, with driving around the map, and it gives you another thing to think about - another layer or piece of the puzzle to keep you motivated. It does intersect with the main story, and things you learn from it work with the story, but it mostly runs on its own.

GP: In the video at left (sorry for the poor sound quality) Nintendo exec Cammie Dunaway announces GTA Chinatown Wars at this year's E3.

As GamePolitics reported earlier this week, Take-Two Interactive's deal with Grand Theft Auto creators Sam and Dan Houser expires in February.

The brothers' free agent status is likely to produce a bidding war for their services, and Activision Blizzard CEO Bobby Kotick may have engaged in some advance recruiting, according to Silicon Valley Insider:

A second after telling Goldman Sachs’ Mark Wienkes at the company’s investor conference today that he couldn’t talk about the co-creators of the hit [GTA] franchise, Kotick had this to say:

 

We (Activision) really embrace the individual studio model. We know how to take studios and talented teams and appropriately incentivize them. We’ve definitely become the destination location for independently minded entrepreneurial talent.

 

Translation: Housers, come work for us
 

Following the collapse of a proposed merger between Electronic Arts and Take-Two Interactive, GamePolitics wondered aloud yesterday whether Take-Two might be the second coming of Yahoo. That is, a company which should have accepted a reasonable acquisition offer and saw stockholder equity plummet following its rejection.

Analyst Doug Creutz (left) of Cowen and Co. thinks not. Here's what he told GP when asked if T2 was following in Yahoo's ill-considered footsteps:

I’d say no. YHOO [Yahoo] is clearly a company in decline, with an entrenched management. TTWO [Take-Two] is a company with arguably improving business fundamentals and a management team that I believe was willing to deal at the right price. I also think that MSFT [Microsoft] shareholders were not excited by the prospect of a YHOO acquisition whereas most ERTS [Electronic Arts] shareholders wanted the TTWO deal to happen at a reasonable price.

Nor did Creutz believe that T2 Chairman Strauss Zelnick was in jeopardy in the wake of EA's withdrawal from negotiations:

I don’t think so. Any shareholders who wanted to get out of the stock at $26 (EA’s best offer) had ample opportunity. Anyone who was holding out for a higher price feels the same way as Zelnick – no deal at $26. As long as the business turnaround continues then I think Zelnick is safe.

In failing to accept EA's buyout offer, has Take-Two become the new Yahoo?

Is Strauss Zelnick's position as chairman in jeopardy?

Readers may recall that Yahoo spurned a series of acquisition offers by Microsoft over a five month period earlier this year. If that sounds familiar, Take-Two spurned several EA tender offers over roughly the same time frame.

Microsoft's' interest in Yahoo drove the search firm's stock higher, to the 30 range; Yahoo ultimately stunned Wall Street by refusing MS' 33 per share bid. EA's interest in T2 did the same, pushing TTWO at times into the 26+ range. EA's 25.74 offer remained on the table for months, ridiculed by T2 as undervaluing the GTA publisher.

When MS became frustrated and pulled out, Yahoo stock tanked. Today it wil open at 18.27. On Sunday's news that EA was bailing, T2 plunged 5 points yesterday. Admittedly, some of that might have been helped along by the most brutal day on Wall Street since the 9/11 aftermath.

So why would Zelnick's job be on the line?

It probably isn't - yet. But T2 investors who saw the value of  their shares jump nearly ten points on EA's offer have now given all of those paper profits back with EA's withdrawal. The stock is back where it started. Moreover, a sweetheart deal that would have enriched Zelnick and his management team in the event of an acquisition never sat well with EA. It actually caused EA to lower its tender offer by about 1/4 point and caused bad blood between EA and T2 execs from the get-go.

Now that EA is gone, Zelnick faces some challenges. GTA IV profits are slowing. The Houser brothers will become free agents in February. If they walk, T2 becomes less of a company than it is now. If they stay, T2 will have to pay them a bigger slice of the profits.

We asked Wedbush-Morgan analyst Michael Pachter whether Zelnick might be in jeopardy. His thoughts:

Jeopardy is a strong word. I think that shareholders may be upset that he didn't accept the $26 offer when he had it in hand.  He has some time to demonstrate that there are other interested parties; if he can produce them, I don't think he is in trouble at all.  If he can't, I think that the number of unhappy shareholders will increase.

Financial website The Motley Fool does not see T2 as the new Yahoo, however:

This isn't Microhoo revisited. Take-Two's fundamentals have actually improved since EA went public with its unsolicited offer for Take-Two at $25.74 a share. Grand Theft Auto IV broke records. The BioShock franchise has a sequel on the way, as well as Pirates of the Caribbean director Gore Verbinski on board to give the property the Hollywood theatrical treatment.

 

This is why I believe that Take-Two will bounce back from this a lot quicker than Yahoo! did after its prolonged courtship with Microsoft came up empty... Take-Two shareholders can't blame executives, because those investors perpetually turned down EA's tender offers. The company can also point to its improving fundamentals.

gamesindustry.biz reports that the uncertain status of GTA masterminds Sam and Dan Houser (left) may have played a key role in sinking an EA-T2 merger. The brothers' current contract with Take-Two expires in February.

Moreover, as GP has alluded to in the past, chemistry was lacking between EA and T2 execs. Along that line, gamesindustry.biz reports comments by analyst Doug Creutz of Cowen and Co.:

We think EA's decision to walk was motivated by some combination of the following: a desire to appear fiscally responsible after several years of capital misallocation, concern about EA’s ability to retain the development talent at Rockstar, personality conflicts between the management teams of the two companies, and scepticism about Take-Two's multi-year release lineup.

 

The main question mark is the status of Rockstar’s key talent [i.e., Dan and Sam Houser], with their contract due to expire in February 2009.
 

Meanwhile, in a note issued this morning, Wedbush-Morgan analyst Michael Pachter foresees a bidding war for the Housers:

While neither [Houser brother] writes game code, we believe that they are analogous to the director of a Hollywood film, instrumental in determining the final shape of the ultimate games released. We expect a bidding war for the Housers’ services in February 2009, and remain convinced that Take-Two faces two equally unpalatable options: either lose the Housers to another bidder, or pay more to retain them...

 

Should the Housers depart to Activision, Ubisoft, or even to EA, we think that Take-Two will suffer lower future sales of its GTA games. We draw an analogy to EA’s Medal of Honor brand, which saw sales decline by over 40% following the departure of key members of its development teams in 2003. Those teams produced Activision’s Call of Duty franchise, which has consistently outsold Medal of Honor since the departure...

 

On the other hand, should the Housers remain at Take-Two, the price of making future Grand Theft Auto games will go up...

Nor does Pachter anticipate any other publishers stepping up to acquire T2 - again, it's the Houser factor:

We do not think that any offers will come in from third parties. The risk of losing key talent is too great, and the Housers’ contract is up for renewal in February. Should a third party (including EA) be interested in an acquisition, we think that the first step is to secure the services of the Housers. Thus, we do not expect competing offers to materialize until after February 2009, when the status of the Housers’ contract is better understood.

Reaction has been swift to yesterday's report that EA was giving up on its quest to acquire Grand Theft Auto publisher Take-Two Interactive.

As GP predicted yesterday, Reuters is now reporting Take-Two's stock price has plunged. Indeed, from Friday's close just under 22, as I write this the stock [TTWO] has dropped to 16.44. On the other hand, the market as a whole is experiencing a broad sell-off today as shockwaves from the collapse of Lehman Brothers and the purchase of Merrill-Lynch ripple through Wall Street. At the same time, EA [ERTS] stock is also down from Friday's closing price of 44.99.

Reuters quotes UBS analyst Benjamin Schacter on the EA-T2 situation:

While (Electronic Arts) will not reveal details about its exact reasons for walking, the fact that it did not make any offer after further due diligence will certainly raise some eyebrows.

 

In our view, Ubisoft could be a logical buyer, but a deal would not be easy. Traditional media companies as well as Asian video game publishers-operators might also be interested, but we don't believe that these players are likely to even match EA's prior offer given that none would have synergies in the sports genre.

16-year-old secret shoppers were able to purchase knives and Grand Theft Auto in a retail sting operation conducted by Trading Standards officials in the U.K. city of Plymouth.

As reported by the Plymouth Evening Herald, five of nine game retailers sold GTA to the undercover buyers while only two of 25 sold them knives. Fair Trading Officer Lynda Braddock commented:

We’re disappointed that the games sellers concerned don’t seem to have taken their training on board or recognised the fact that these games are given a high age rating for a reason.

Councillor Michael Leaves, Cabinet Member for Streetscene and Environmental Regulation, added:

Parents will be worried about these test purchase results. The carrying of knives by some young people seems to be a plague at the moment. It’s vital for shops not to sell youngsters knives and I find it very disappointing that any in Plymouth have done so.

 

As for violent video games, I believe they must have a detrimental influence on any children who play them and I would not be at all surprised if there was not a connection with the knife crime issue. Everyone who sells these games must take extra care to ensure they only sell them to those who can legally buy them.

It's official - Grand Theft Auto V will not be released under the Electronic Arts brand.

EA has just issued a press release announcing that it has decided not to continue its lengthy pursuit of Take-Two Interactive.

The two sides have been talking, but those negotiations appear to have broken down. At this point it's unclear what made EA decide to give up its nearly seven-month long bid to acquire T2. From the EA release:

Electronic Arts... today announced that while EA continues to have a high regard for Take-Two's creative teams and products, after careful consideration, including a management presentation and review of other due diligence materials provided by Take-Two... EA has decided not to make a proposal to acquire Take-Two and has terminated discussions with Take-Two.

EA CEO John Riccitiello (right) commented:

EA is tracking toward a record breaking year. We're launching 15 new games including award-winners like SPORE, Dead Space and Mirror's Edge, great new titles from the Sims, new family titles with Hasbro, and the highest quality slate of EA SPORTS titles on this generation of consoles. We're also expanding beyond our core business with a series of direct-to-consumer launches including Warhammer Online.
 

UPDATE: Take-Two has issued a press release of its own, with chairman Strauss Zelnick (left) saying:

We remain focused on creating value for our stockholders and our consumers. This has been our goal since EA launched its conditional and unsolicited bid six months ago, a bid which was repeatedly rejected by our stockholders. As part of that commitment, we remain actively engaged in discussions with other parties in the context of our formal process to consider strategic alternatives. We're especially proud of the success we've enjoyed over the past eighteen months and we remain confident in our ability to generate value for stockholders.

GP: Expect T2 stock to take a big hit when the markets open in the morning. TTWO closed at 21.65 on Friday amid expectations that an EA-T2 deal would get done somewhere north of the 25.74 tender price that EA offered earlier. Prior to EA's expression of interest, T2 had been trading in the 17 range. With EA now out of the picture, T2 shares will likely be heading south.

A Jamaican man who claims that he co-wrote a pair of reggae songs featured on one of Grand Theft Auto IV's radio stations filed suit over the issue against Rockstar Games and Take-Two Interactive in July.

The suit was dropped yesterday in federal court in Manhattan.

In his complaint, Linton White alleged that he co-wrote Last Night with David Brooks, aka Mavado. White also claims co-authorship of Bullet Proof Skin with Rodney Basil Price, who performs as Bounty Killer. Like the plaintiff, Brooks and Price are also from Jamaica.

Both songs named in the suit appear on the playlist of GTA IV's reggae-themed Massive B Sound System 96.9 station, which can be heard as players drive around the game's expansive setting in an assortment of virtual vehicles.

White is listed as a producer on Mavado's 2007 Gangsta for Life album, which contains the disputed Last Night track. According to the suit, White alleges that his co-authorship of the disputed songs was not added to the Liberty City Guidebook which was packaged with GTA IV:

In the... Liberty City Guidebook... [Take-Two and Rockstar] designate D. Brooks and B. Konders as the writers of "Last Night." ...[Take-Two and Rockstar] designate D. Brooks and R. Price as the writers of Bullet Proof Skin." No designation is made of plaintiff as a writer.

Neither Brooks, Price or Konders are named as defendants. In his complaint, White demanded $150,000 plus punitive damages and other fees. In court filings, attorneys for Rockstar and Two-Two argued that White's claims lacked merit. It is unknown what - if anything - White received.

For its part, Take-Two refused to comment on the matter. White's attorney, Anthony Motta of New York, declined to say whether or not there had been a settlement.