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GTA ready to hijack top spot

From Tuesday's Globe and Mail

If Iron Man finds himself quaking in his metal boots this weekend, it won't be because of an approaching super villain bent on world destruction, but rather a smalltime crook named Niko Bellic.

Bellic is the main character in the latest instalment of the provocative Grand Theft Auto video game series, which launches Tuesday and is expected to be snapped up by eager gamers at a record pace. Some observers believe demand for the new game could affect the opening weekend box office returns for Iron Man, one of the most anticipated movies of the year.

Analysts are expecting GTA IV to sell more than six million copies before the week is out, netting a cool $400-million (U.S.) in revenue for the game's publishers, Take-Two Interactive Software Inc.

Such totals will make GTA IV the biggest entertainment launch yet, eclipsing the opening weekends of Hollywood blockbuster Spider-Man 3 and video game Halo 3.

But those record-breaking sales also underscore the pressure on the video game industry's top firms looking to build the next big franchise as they compete to lock up prized developers and maintain stringent anti-piracy security measures to ensure long lines outside stores at 12:01 a.m. on launch days.

“It's definitely going to outsell Halo 3, the extent to which it does remains the only question,” said Billy Pidgeon, an analyst with IDC who tracks the video game industry.

So far, the GTA franchise has sold more than 70 million copies worldwide and holds down three of the top four spots on the list of best-selling games of all time. Since October, 2002, only Electronic Arts Inc.'s NHL Hockey franchise has sold more games than the GTA stable in Canada, according to data from The NPD Group.

GTA's creator, Rockstar Games, has become the crown jewel of Take-Two's developer network and is at the centre of Take-Two's struggle to fend off a hostile takeover by game giant EA.

Rockstar's employees are considered among the best in an industry where the value of a company is defined by its developers. In order to keep the Rockstar folks happy and ensure the continued success of the GTA franchise, Take-Two has been extremely generous with its developers, offering them a share of the game's revenues, according to Wedbush Morgan Securities analyst Michael Pachter.

“No other company does that,” he said. “It's one of the reasons that it is very difficult to value Take-Two in light of the whole EA takeover … it's not like the Rockstar employees are regular employees who are going to go to work at EA for a salary, they're going to ask EA for an even greater percentage of revenues.”

Publishers such as Take-Two tend to get about 80 per cent of the revenue generated by games, with the other 20 per cent going to retailers. In the case of GTA IV, with Take-Two looking at $320-million in first-week sales, it will likely generate a profit of about $160-million. However, more than a third of that is earmarked for the Rockstar team, Mr. Pachter said.

Such deals are essential to keep prized developers under contract in an industry where, unlike Hollywood, franchises often get better and more lucrative with each sequel.

Successful franchise games – such as Halo, GTA and EA's Madden NFL Football – represent the holy grail of video game revenues; they create loyal fan bases that provide guaranteed revenue whenever a new edition is launched.

GTA also benefits from being a multiconsole game, with editions for both Microsoft Corp.'s Xbox 360 and Sony Corp.'s Playstation 3. With Sony finally triumphing in the next-generation DVD format war and recently cutting the price of the PS3, GTA could prove to be a big sales driver, iSuppli research analyst Pamela Tufegdzic said.

Although smaller developers often choose to sign exclusivity deals with a single console to ensure a return on investment, top franchises such as GTA tend not to limit themselves to a single platform.

“The economics of game development are such that if you have a blockbuster, you really cannot afford to make it an exclusive on one console,” Mr. Pachter said.

Unlike CDs and DVDs, the price of video games has remained constant, even as industry production costs have skyrocketed – Rockstar is estimated to have spent upwards of $50-million developing GTA IV, which will retail for about $60 (Canadian). One reason is that it is much more difficult to make and play an illegal copy of a video game than it is to listen to a ripped CD or watch a burned movie.

“You don't really hear much hype about piracy in the gaming industry at all,” Ms. Tufegdzic said.

Whereas pirated music and movies can be played on various commoditized media players, such as iTunes or Windows Media Players, video game consoles all have proprietary semiconductors with embedded security measures that prevent playing back illegal copies of games. While game consoles can be modified to play illegal games – using an MOD chip, for example – it is much less common.!!BY THE NUMBERS

Top selling games of 2007, by units sold: 360 Call of Duty 4, Activision, 1.47 million Wii Super Mario Galaxy, Nintendo, 1.40 million PS2 Guitar Hero III, Activision, 1.25 million Wii Play w/ Remote, Nintendo, 1.08 million 360 Assassin's Creed, Ubisoft, 893,700 360 Halo 3, Microsoft, 742,700 NDS Brain Age 2, Nintendo, 659,500 PS2 Madden NFL 08, Electronic Arts, 655,200 360 Guitar Hero III, Activision, 624,600 Wii Mario and Sonic, Sega, 613,000

Source: NPD

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