Greetings, and welcome to Take-Two Q4 FY 2018 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Hank Diamond. Please go ahead.
Good afternoon. Welcome and thank you for joining Take-Two's conference call to discuss its results for the fourth quarter and fiscal year 2018, ended March 31, 2018. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer, Karl Slatoff, our President, and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q&A session following our prepared remarks. Before we begin, I'd like to remind everyone that statements made during this call that are not historical facts are considered forward-looking statements under federal securities laws. These forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors.
These important factors are described in our filings with the SEC, including the company's most recent annual report on Form 10-K and quarterly report on Form 10-Q, including the risks summarized in the section entitled Risk Factors. I'd also like to note that all numbers we will be discussing today are GAAP, and unless otherwise stated, all comparisons are year-over-year. Additional details regarding our actual results and financial outlook are contained in our press release, including the items that our management uses internally to adjust our GAAP financial results in order to evaluate our operating performance. In addition, we have posted to our website a slide deck that visually presents our results and financial outlook. Our press release and filings with the SEC may be obtained from our website at www.take2games.com. Now I'll turn the call over to Strauss.
Thanks, Hank. Good afternoon, and thank you for joining us today. I'm pleased to report that during the fourth quarter, Take-Two delivered growth in net bookings driven by increased recurrent consumer spending, including better than expected results from Grand Theft Auto Online. Our solid performance marked the completion of another outstanding year for Take-Two, highlighted by growth in net bookings, earnings, and cash flow, along with margin expansion. Of course, our fiscal 2018 operating results greatly surpassed the initial outlook that we provided at the start of the year. During fiscal 2018 and first quarter fiscal 2019, we returned $308 million to our shareholders through the repurchase of 3.1 million shares of our stock at an average price of approximately $99 per share. At fiscal year-end, we had over $1.4 billion in cash and short-term investments.
Grand Theft Auto V and Grand Theft Auto Online continued to exceed our expectations in fiscal 2018, as they have every year since their release, with combined net bookings from the titles growing year-over-year. Grand Theft Auto Online broke monthly audience records in June, July, and December, added more new users than in the prior year, and delivered its biggest year yet for virtual currency sales. During the fourth quarter, Grand Theft Auto Online generated better than expected year-over-year net bookings growth. Rockstar Games achieved these results through the ongoing release of a wide array of free additional content, including, during the past fiscal year, four significant updates, coupled with a weekly schedule of new content offerings, and they have much more planned going forward.
Grand Theft Auto V has now sold in 95 million units worldwide, reflecting its status as the highest-rated title of the current console generation and the must-have game for purchasers of PlayStation 4 and Xbox One. The incredible ongoing success of Grand Theft Auto V and Grand Theft Auto Online underscores Rockstar Games' unparalleled skill at producing iconic entertainment experiences that attract and engage new audiences for years after release. We're confident that Rockstar Games will again set new benchmarks for creative excellence with the October 26th launch of Red Dead Redemption 2, which is their first title developed from the ground up for the current console generation. Turning to our flagship basketball series, NBA 2K18 continues to expand its audience and is now our highest-selling sports title ever, with sell-ins to date of over nine million units, up 17% over last year's release.
In addition, our NBA 2K series continues to benefit from growing engagement and recurrent consumer spending. During fiscal 2018, average revenue per user, revenue per hour, and unique multiplayer users all increased double digits, and recurrent consumer spending on NBA 2K grew 34% to a new record. We believe there remains substantial worldwide growth opportunity for NBA 2K, both through traditional and emerging platforms and business models. To that end, earlier this month, the NBA 2K League commenced its inaugural season, which Karl will discuss. Our fiscal 2018 results were also enhanced by a number of other recent releases and catalog titles, including WWE 2K18 and WWE SuperCard, NBA 2K17, Social Point's mobile games, Sid Meier's Civilization VI and its add-on content, and L.A. Noire. We remain highly focused on our strategy to deliver innovative ways to drive consumer engagement.
During fiscal 2018, recurrent consumer spending grew 48% to a new record and accounted for 48% of total net bookings. In addition to virtual currency for Grand Theft Auto Online and NBA 2K, recurrent consumer spending was enhanced by a variety of other offerings. In the free-to-play category, Social Point's mobile games contributed meaningfully to net bookings through its two biggest titles, Dragon City and Monster Legends. During the current quarter, we have significant updates planned for both. We view Social Point as an important long-term growth opportunity for Take-Two. Recurrent consumer spending on WWE SuperCard grew over 20%, and the game has now been downloaded nearly 17 million times. During the last fiscal year, 2K released the season four update, which enhanced our popular WWE card battling game with more than 250 new cards, additional tiers, and more.
NBA 2K Online remains the number one PC online sports game in China with over 37 million registered users. In addition, net bookings from add-on content grew more than 40%, led by offerings for Sid Meier's Civilization, particularly the Rise and Fall expansion pack, XCOM 2, particularly War of the Chosen, WWE 2K, and Mafia III. We expect fiscal 2019 to be another year of profitable growth for Take-Two, including both record net bookings and record net cash provided by operating activities led by the launch of Red Dead Redemption 2, along with new annual releases from NBA 2K and WWE 2K. We will also continue to support our titles with offerings designed to drive engagement and recurrent consumer spending.
A highly anticipated title from one of 2K's biggest franchises that had been planned for release in the current fiscal year is now planned for launch during fiscal 2020 to allow for additional development time. We remain as excited as ever about this title and expect it to enhance our results next fiscal year. I'd like to take a moment to acknowledge that this year marks the 25th anniversary of Take-Two. Over that time, we've built our company into a diversified and profitable enterprise. In particular, I'm extremely proud that Take-Two is home to our industry's best talent, whose passion and creative vision consistently captivate and engage audiences around the world.
Take-Two is exceedingly well-positioned to capitalize on the vast opportunities in our industry, including advances in hardware, the ability to drive ongoing engagement through connected experiences and additional content, and the continued proliferation of mobile platforms and emerging business models. As a result, Take-Two is poised to deliver growth and returns for our shareholders over the long term. I will now turn the call over to Karl.
Thanks, Strauss. I'd like to begin by thanking our teams for delivering another great year of creative and financial results for our organization. It's your passion and commitment that drives Take-Two and is reflected in our terrific fiscal 2018 operating results and record net bookings and cash flow outlook for the current year. Turning to our recent and upcoming releases. Last month, Rockstar Games released the Grand Theft Auto V: Premium Online Edition for PlayStation 4, Xbox One, and PC. This comprehensive offering features the complete Grand Theft Auto V story experience, the ever-evolving world of Grand Theft Auto Online, and all existing gameplay upgrades and content, including The Doomsday Heist, Gunrunning, Smuggler's Run, Bikers, and much more. In addition, purchasers receive the Criminal Enterprise Starter Pack, which provides access to a huge range of content, including properties, vehicles, weapons, and more.
On October 26th, Rockstar Games will launch Red Dead Redemption 2, the eagerly awaited sequel to one of the label's most critically acclaimed and beloved titles. Two weeks ago, Rockstar Games unveiled a beautiful cinematic trailer for the game that set the stage for what is shaping up to be another massive entertainment event. Player reaction to the trailer was phenomenal, and last month, Rockstar Games hosted select media outlets at their Rockstar North Studio for an extended look at the game. We have been delighted by their first impressions. We could not be more excited about the upcoming launch of Red Dead Redemption 2. Rockstar Games will have additional details to share about the game in the coming months. This fall, the next annual installment of NBA 2K will return to the hardwood court with the series' signature style and deep authenticity.
This year marks the 20th anniversary of our industry-leading basketball simulation, and we are confident that 2K and Visual Concepts will once again take the series to exciting new heights with the release of NBA 2K19. This fall, 2K's WWE series will be back with WWE 2K19, bringing gamers into the virtual squared circle with their favorite WWE superstars, gameplay modes, and a variety of hard-hitting in-ring action. Throughout fiscal 2019, we will continue to support our titles with additional content designed to deepen consumers' experience and drive engagement, including updates for Grand Theft Auto Online, WWE SuperCard, and others. In addition, Social Point and 2K will continue to broaden our offerings for mobile devices. Earlier this month, the NBA 2K League, our joint venture with the NBA, kicked off its inaugural season.
102 of the best NBA 2K players were drafted by 17 NBA teams and are competing in a 15-week season, which will conclude with NBA 2K League playoffs and finals in August. While each team is living and training together in their home market, all league play and tournaments will take place in New York City. In addition, the league has been steadily building its portfolio of partnerships and sponsorships with high-profile brands. Dell is the league's official PC hardware and monitor partner, featuring its elite gaming brand, Alienware. Intel is powering all PCs with its state-of-the-art eighth-gen processor. Throughout the partnership, Dell and Intel will work with the league to identify new opportunities to innovate and enhance gameplay as the latest technology evolves. Both companies have agreed to make significant marketing commitments, including sponsoring the league's halftime show.
Twitch has signed on as the league's official live streaming partner for games throughout the season, including weekly matchups, three in-season tournaments, playoffs, and the NBA 2K League Finals. This live stream includes various talent providing commentary, analysis, and additional league updates. Last week, the league announced two official sponsorships, Scuf Gaming Controllers and HyperX Gaming Headsets. We look forward to watching the continued progress and growth of the league, which has the long-term potential to enhance engagement and to be a meaningful driver of profits for our company. China remains another long-term emergent growth opportunity for Take-Two. Building on the popularity of NBA 2K Online, 2K and Tencent are teaming up again to co-develop and release the title's highly anticipated successor, NBA 2K Online 2.
This new game is based on the console edition of NBA 2K and features 2K's legendary gameplay, 27 customizable position types, new player trading systems, esports-optimized features, localized commentary, and more. NBA 2K Online 2 is currently in closed beta testing and is planned for commercial release this fall. In addition, we are pleased to expand our successful partnership with Tencent with last month's announcement that Kerbal Space Program will be released on Tencent's WeGame distribution platform as a premium PC game at a date to be determined. We are excited about Tencent's WeGame platform and the opportunity to grow our business in China. We are also very enthusiastic about the long-term potential for Private Division, our new publishing label that is dedicated to bringing titles from top independent developers to market.
Private Division currently has contracts to publish several upcoming titles based on new IP from renowned industry talent, including Panache Digital Games, The Outsiders, Obsidian Entertainment, and V1 Interactive. Private Division will seek to add to its already impressive roster of development partners throughout the world, and we look forward to its future announcements. Next month at E3 in Los Angeles, we will have a corporate booth on the show floor. We will not be showing any new products, but we will be holding business development, investor relations, media, and sales meetings throughout the show. Looking ahead, we have a strong development pipeline across our labels, which includes new releases from our popular series, along with groundbreaking new IP.
With our unwavering commitment to delivering the highest quality entertainment experiences that keep our audiences engaged, Take-Two is better positioned than ever to provide value to our customers and to generate growth and profits over the long term. I'll now turn the call over to Lainie.
Thanks, Karl, and good afternoon, everyone. Today, I'll discuss our fourth quarter and fiscal year 2018 results and then review our financial outlook for the first quarter and fiscal year 2019. Please note that additional details regarding our actual results and financial outlook are contained in our press release. As mentioned by Strauss, our solid fourth quarter results mark the completion of an outstanding fiscal 2018 for Take-Two, during which we delivered operating results that greatly surpassed the initial outlook we provided at the start of the year. These results were driven primarily by the sustained outperformance of Grand Theft Auto Online and Grand Theft Auto V, coupled with record results from NBA 2K. Starting with the fourth quarter, our operating metric total bookings grew to $411 million, and net cash provided by operating activities exceeded our expectations.
Digitally delivered net bookings grew 12% to $333 million and accounted for 81% of the total. Turning to some details from our fourth quarter income statement. GAAP net revenue decreased by 21% to $450 million and cost of goods sold decreased 40% to $189 million. Operating expenses increased by 19% to $173 million, due primarily to higher R&D expense and a full quarter of expenses from Social Point, which we acquired in January 2017. GAAP net income was $91 million, or $0.77 per share, as compared to $99 million, or $0.89 per share in the prior year period. Turning to our fiscal 2018 results, total net bookings grew 5% to $2 billion, driven principally by growth in Grand Theft Auto Online and NBA 2K, along with a full year of results from Social Point, partially offset by our lighter release slate.
Of this amount, 68% were digitally delivered net bookings, which grew 25% to a new record of $1.35 billion. Our digitally delivered net bookings were driven by record recurrent consumer spending, which was partially offset by lower full game downloads due to fiscal 2018's lighter release slate. Net cash provided by operating activities grew 19% to $394 million, which exceeded our most recent outlook of $300 million and was more than double our original outlook at the start of the year. We spent $62 million on capital expenditures. At fiscal year-end, our cash and short-term investments balance was over $1.4 billion. As a result of favorable market conditions, we were able to repurchase 1.5 million shares of our stock for $155 million during fiscal 2018 and an additional 1.6 million shares for $153 million during fiscal first quarter 2019 to date.
Turning to some details from our fiscal 2018 income statement. GAAP net revenue increased to $1.8 billion, and cost of goods sold decreased by 12% to $898 million. Operating expenses increased by 14%, $759 million due primarily to a full year of expenses from Social Point, as well as higher R&D, stock-based compensation, and reorganization costs, which are partially offset by lower marketing expense. GAAP net income increased by 158% to $174 million, of $1.54 per share. Now I will review the highlights of our fiscal 2019 financial outlook. Starting with the fiscal first quarter, we expect net bookings to range from $215 million to $265 million. The largest contributors are expected to be Grand Theft Auto Online and Grand Theft Auto V, NBA 2K18 and Social Point.
We expect GAAP net revenue to range from $345 million to $395 million, and cost of goods sold to range from $83 million to $109 million. Operating expenses are expected to range from $190 million to $200 million. At the midpoint, this represents a 12% increase over last year, driven by higher R&D and stock compensation expense. We expect GAAP net income to range from $62 million to $74 million, or $0.53 to $0.63 per share. Turning to our outlook for the full fiscal year. We expect net bookings to range from $2.67 billion to $2.77 billion.
At the midpoint, this represents a 37% increase over fiscal 2018, driven primarily by the launch of Red Dead Redemption 2 and expected growth from NBA 2K, which we forecast to be partially offset by lower net bookings from Grand Theft Auto V and Grand Theft Auto Online. We expect net bookings from recurring consumer spending to increase modestly and digitally delivered net bookings to grow by 15%-20%. The largest contributors to net bookings are expected to be Red Dead Redemption 2, NBA 2K, Grand Theft Auto Online, and Grand Theft Auto V, WWE 2K and Social Point. We expect the net bookings breakdown from our labels to be roughly 55% Rockstar Games, 40% 2K, and 5% Social Point and other. We expect our geographic net bookings split to be about 55% United States and 45% international.
We expect to generate approximately $710 million in net cash provided by operating activities, up 80% over last fiscal year, and we plan to deploy approximately $60 million for capital expenditures. We expect GAAP net revenue to range from $2.5 billion-$2.6 billion and cost of goods sold to range from $1.41 billion-$1.43 billion. Total operating expenses are expected to range from $885 million-$925 million. At the midpoint, this represents a 19% increase over the prior year, driven by higher marketing, personnel, and IT expenses. We expect GAAP net income to range from $180 million-$211 million, or $1.53-$1.80 per share. For management reporting purposes, we expect our tax rate to be 20%, down two percentage points from prior years due to the recent tax reform legislation. In closing, fiscal 2018 was another great year for Take-Two.
Our ability to deliver growth in net bookings, earnings, and cash flows despite an unusually light release slate reflects the strength of our core franchises and our ability to drive engagement with and recurring consumer spending on our titles for years after launch. We are very excited about our outlook for fiscal 2019, which is poised to be a record year for both net bookings and net cash provided by operating activities. Over the long term, our company has the creative assets, operational discipline, and financial foundation to generate growth and margin expansion for our shareholders. Thank you. Now I'll turn the call back to Strauss.
Thanks, Karl and Lainie. On behalf of our entire management team, I'd like to thank our colleagues for delivering another successful year for our organization. To our shareholders, I want to express our appreciation for your continued support. We'll now take your questions. Operator?
At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is with Michael Olson with Piper Jaffray. Please proceed with your question.
Hey, good afternoon. Did you say that GTA exceeded your expectations and grew year-over-year in the quarter, or was that the full year fiscal 2018? If you were referring to the March quarter where it was the GTA exceeded your expectations, given bookings came in at the lower end of the March quarter guidance range, was there something else within the overall mix that disappointed versus your internal expectations?
Yes, Mike. In fact, Grand Theft Auto Online was up year-over-year, was up in the quarter, had another record year, and we had previously expanded our guidance for the year. We guided up, and in the fourth quarter, NBA 2K Online didn't do quite as well as we expected when we had guided up.
Okay.
NBA 2K.
Got it. Okay. It sounds like there's not a new content drop for GTA Online in the June quarter. Would that explain maybe the difference between, obviously you're not in control of what consensus does, but the difference between your guidance and consensus? I guess, is that the right way to look at it, that you essentially have a tough comp off of GTA Online content that hit last year's June quarter?
Yeah, you asked and answered the question correctly, which is to say we had the Gunrunning update in last year's fourth quarter. It isn't a direct comp. We've said over and over again, it's very hard to look at this company from a quarter-by-quarter comping situation because we're driven by our content.
Now we're very fortunate that we have such a strong catalog and we have such strong recurrent consumer spending. Company certainly looks a lot different than it used to look, but even so, we are beholden to what content we create. Period to period is not often a good comp. That's really the reason we believe the consensus is off.
Thank you.
Our next question is with Timothy O'Shea with Jefferies. Please proceed with your question.
Yes. Thank you for taking my question. Just looking at the recurrent consumer spending, is it possible to quantify the impact you saw this quarter from Fortnite? Strauss, you mentioned NBA 2K Online didn't do as well. I'm just curious if you attribute any of that to Fortnite, and then maybe if you could just comment on GTA Online specifically, if there was anything that you noticed with respect to engagement or monetization as Fortnite started to gain steam through the quarter. Thanks.
Okay. You probably want to take the Fortnite part.
Sure. Tim, sorry. With regard to your question about the fourth quarter, first of all, I misspoke earlier. It was NBA 2K, not NBA 2K Online, that was not quite at our revised expectations for the quarter. In terms of what the competitive landscape was, there's no doubt there's a couple big hits in the marketplace, Fortnite and PUBG, and they're big hits. That creates a lot of benefits. We think it brings new players into the market, and it just shows what a robust industry that we operate in. Naturally, we would like to have all the hits. I don't think that's necessarily a realistic goal. It's pretty hard to determine what competitive landscape effects are, however, because entertainment properties compete with each other, with themselves, and with nothing at all. Entertainment is a nice to have, not a must-have good.
It's impossible to determine whether a particular title had an impact, although I think we've all observed that Fortnite has created a lot of activity around it.
Thanks.
In terms of your question around Grand Theft Auto Online, we had a record year, we had a record quarter, and the title continues to perform extraordinarily.
Our next question is with Eric Handler with MKM Partners. Please proceed with your question.
Thank you very much. Wonder if you could talk a little bit about Social Point. I remember in last year's guidance, based on the percentage of net bookings, you were sort of looking for about $100 million. I'm not sure if you ever updated it about where Social Point finished. Just sort of doing some back of the envelope calculations based on the midpoint of your net bookings guidance, you're looking at about $136 million of revenue. Maybe you could talk about some of the key drivers for Social Point this year. Are we getting more updates? Are we getting any new games, and what you expect there?
Social Point is doing just fine. Dragon City and Monster Legends are their two big hit titles in the market. Those will continue to drive the bulk of their results. In the fourth quarter, profits were up from Social Point. The drivers this year will be how those games perform and potentially how some upcoming titles perform, depending on the release schedule, naturally.
Also for Social Point and some of our mobile titles, we have some change in accounting where we need to gross up the accounting for it instead of showing it net. That's the difference that you're seeing in terms of the gross number for the net bookings.
Okay. Lainie, just as a follow-up for you. Just looking at your numbers and the guidance, you're projecting a record operating cash flow number. It doesn't seem like you're projecting a record EPS. I'm just curious, is there any accounting reversals or when you think of the puts and takes, the difference between EPS and operating cash flow, what's sort of impacting that?
Since our business mix is weighted a little bit towards the new releases, we're having some higher software development costs in the year, and also the marketing that's associated with it. It depends on the timing of the marketing and also the software development cost of cash behind us.
Got it. Thank you.
Our next question is with Justin Post with Merrill Lynch. Please proceed with your question.
Great. I'd like to focus a little on next year's guidance. It definitely seems to imply you might have some acceleration in recurrent spend after the first quarter, and a big, healthy number for Red Dead. Can you talk about if you think some of the recurrent spend growth is going to accelerate in your guidance? Besides the 55% of bookings from Rockstar, any other clues you can give us on kind of your expectations for Red Dead? Thank you.
For Red Dead, we don't share unit expectations. Looking at recurrent consumer spending, we usually have bigger quarters in our second and third quarters of the year. You would start to see that be in line with what you've seen in previous years.
Got it. When you think about the quality of releases for Grand Theft Auto Online, the quantity of releases, do you feel like this year is going to compare well to last year? How are you thinking about how much content's coming for that?
As you know, our labels comment on their upcoming releases and what they're going to look like, and we like it that way. That said, Rockstar Games has said they have much more content coming for Grand Theft Auto Online. They will continue to support it, and obviously, we just enjoyed another record year for Grand Theft Auto Online.
Thank you.
Our next question is with Chris Merwin with Goldman Sachs. Please proceed with your question.
Okay. Thank you. I had another one on the guidance for fiscal 2019. It looks like non-GAAP gross margin guidance was just below 50%, which I think is down pretty significantly year-over-year, and of course, you've got Red Dead coming out in the December quarter. Does the full year guidance just reflect the higher software amortization that you called out, or is it a higher SKU of physical revenue compared to last year? And maybe as a related question, what does your guidance assume for the digital download mix for Red Dead? And just a quick second one. Curious if Fortnite has caused you to maybe think about the potential for cross-platform gameplay, and which of your titles do you think might be well suited for the smaller screen, and then how long would it take to develop a game like that for mobile? Thanks.
Let me take the first one first. When you're talking about next year and our margin, you are correct that it is driven by the software development costs associated with a new title or a big new release. Also for our blockbuster titles, typically, they have had higher physical sales instead of digital, that's also going to move the margin as well.
Regarding cross-platform availability, we already make many of our titles available on multiple platforms, including over time, sometimes mobile platforms. It all depends on the title or VR platform. We take it on a case-by-case basis, but I wouldn't say there's anything about the Fortnite experience that would change our view about platforms, and we're obviously familiar with mobile platforms. We have plenty of games available on mobile platforms, most notably Social Point games as well as WWE SuperCard and some other titles that come from other of our labels, and Rockstar Games has made titles available on mobile platforms as well. It really depends on what the opportunity is title by title. I wouldn't say that our outlook about making titles available where consumers are has changed. Our strategy is to be where the consumer is.
Okay. Thank you.
Our next question is with Brian Nowak with Morgan Stanley. Please proceed with your question.
Thanks for taking my questions. I have two. The first one on the NBA 2K League. Appreciate the color on the sponsors and kind of the steps that have been taken. I'd be curious to think about how you all are thinking about the timing when you can really get a meaningful impact from monetization. What are the biggest drivers of monetization you see? Strauss, maybe kind of most recently, how do you think about the potential for esports gambling given the change in legislation? A bigger picture question around Fortnite. Strauss, what were your biggest learnings from kind of watching the Fortnite phenomenon sort of pop up about the way you think about the potential future for gaming and the way players come into the gaming ecosystem?
You have a number of questions there. With regard to the NBA 2K League, we're a couple of weeks in. We're excited by the early experiences. There are a lot of people watching on Twitch, and we think there's a great opportunity. We've said all along that our risk profile is exceedingly low, that the actual exposure if things don't work out the way we'd like is de minimis, certainly not material, and the upside, we believe, is substantial. However, we haven't included any of that upside in our outlook. That's sort of the way we tend to conduct business around here. We want to take exceedingly measured risks, and then we report back on them when we have results, and we don't like to over-promote in advance. In terms of where monetization can come from, I think your expectations would properly be sponsorship, which is going well.
It's early days, but it's going very well, media rights are also going well. Eventually, depending on the level of success, of course, you could imagine event-related revenue, merchandise, and the like. Again, it's early days, and we're gaining new experience as every day passes. In terms of the recent Supreme Court of the United States decision on the potential for sports gambling, this will now be left to the states. We certainly think it's a good decision. We think there may indeed be an influence and a meaningfully positive influence on our business. However, it's not in our current sights. We don't have any expectations right now. Simply observing that there are potential opportunities in the future, I'd be very surprised if sports gambling didn't intersect with the industry at some point in the relatively near future.
In terms of the learnings around Fortnite, look, as I said earlier, maybe the biggest learning is just reinforcement of the fact that big hits, by their very nature, are unexpected. What drives a big hit is innovation, not derivation. That's what we're proud of around here. We put out Red Dead Redemption. The conventional wisdom was that Western titles don't work in the video game business, Red Dead Redemption was a big hit, we have extremely high expectations for Red Dead Redemption 2. I think the fact that Fortnite surprised everyone, particularly given where Fortnite came from, after all, what is now in the market was based on a prior release that did not perform all that well. It's just a reflection of the fact that if you innovate and give consumers what they want, you can get an extraordinary result.
While we would love to corner the market in hits, we certainly see it as our job to do so, we don't have all of the hits, we shouldn't expect to. I don't think what one takes away from this properly is that a particular approach, a particular mode, has suddenly redefined the business. I don't believe that's the case. In fact, to the contrary, I think if one changed one's business to follow other people's big hits, you'd constantly be playing catch up, to say that you wouldn't be in second place is an understatement. You might remain in last place. It's our job always to innovate, more often than not, that has driven our success.
Great. Very helpful. Thank you.
Our next question is with Ben Schachter with Macquarie Group. Please proceed with your question.
Yes, a few questions. On Red Dead, should we expect that consumers will be able to access and purchase extra content immediately after release, or it will take time for that to evolve? On the NBA, Lainie, I think you said we should expect growth from that in FY 2019. What gives you the confidence that we should expect growth, and what happened in the March quarter that drove the underperformance? Also just on the NBA, on the league, anything that you can say that was sort of different or unexpected during the launch period? Sorry, one more on Lainie. Just in terms of amortizing the capital cost for Red Dead, given how successful GTA has been over the long term, should we capitalize those costs over a longer period of time for Red Dead than we've seen historically? Thanks.
Lainie, why don't you take the last question first, and then I'll dive in.
We don't usually share on a title-by-title case amortization. If you think about blockbuster titles and how Grand Theft Auto has performed, it would be something that we would look at in terms of how long we would amortize the title over. We usually look at what our estimated life of that title is going to be.
Ben, on Red Dead, obviously Rockstar will give clarity on content drops and the like in due time. We are very excited about the October 26th release. Everyone who has experienced the trailer is also excited. Obviously Rockstar will make further announcements in due time. In terms of NBA and recurrent consumer spending in the fourth quarter, we think there were any number of factors that affected the level of monetization of the title, and Visual Concepts has plans to address those factors in NBA 2K19. We think fiscal 2019 will be another year of growth for NBA 2K, including both unit sales and recurrent consumer spending. Our view is, look, we always have to get better. We pay attention to what the consumer says. We have had an amazing year for our basketball franchise, just amazing, and we expect it to get even better.
Our next question is with Ray Stochel with Consumer Edge Research. Please proceed with your question.
Great. Thanks for taking my question. Could you talk about the nature of the 2K property delay and anything that you could say to give us some confidence in that title after this delay? Of course, any quantification would be helpful. Also under the 2K label, can you talk about all the changes that are happening at Hangar 13, and what are your thoughts on that studio going forward? Thanks.
In regards to the 2K title, it is simply because it needs more time for development at this point. In terms of confidence level of when it is going to come out, we are highly confident that this title will certainly be coming out in fiscal year 2020, which is what we have said in our statements to date. Our confidence level is very high. In terms of Hangar 13, Hangar 13 is a longstanding studio for us, a very talented group of folks. We are constantly spending time figuring out where is best to deploy our resources on which projects. I see what you are seeing there is a reflection of that specifically. We are moving assets around from game to game all the time, and the movement that you are seeing is a reflection of just our view on where the best place to deploy our assets are.
Our next question is with Gerrick Johnson with BMO Capital Markets. Please proceed with your question.
Great. Thank you. In your 2019 guidance, are you planning any marketing spend in 4Q for the 2K new title release? Also on the NBA 2K League, is Twitch paying for streaming rights? If so, can you discuss some numbers there? Thank you.
For our marketing, we do expect to have the marketing in for the 2K release for fiscal year 2020.
With regard to the E League, our media rights are valuable, it's appropriate to assume that there's an economic cost to media rights. However, we're not talking about giving any specifics on specific media or sponsorship deals for the league.
Lainie, you cut out. I didn't hear the first part of your answer on the marketing spend.
Oh, sorry. For the marketing spend for the 2K release, we do expect to have some marketing in this fiscal year for the title's release next year.
Great. Thank you.
Our next question is with Ryan Gee with Barclays. Please proceed with your question.
Yes. Good afternoon. Thanks for taking my question. A quick question for Lainie. I think in your guidance, it's calling for your OI margins down a couple 100 basis points year-over-year, low 20s. That's down from mid-20s this year. I was hoping you can maybe update us on what you're thinking about the potential margins are for your company.
Ryan, we can't hear you.
You are breaking up.
Okay. Sorry. Hopefully, you can hear me now. This question is for Lainie on the specific on the OI margins. It looks like the guidance is for down a couple of 100 basis points year-over-year. I was hoping maybe you could just give us an update on what you think, for the company, the potential long-term operating margins are for you, maybe put a timeframe or some milestones how you're thinking about achieving that. Just a quick follow-up on the NBA 2K franchise. You mentioned the new NBA 2K Online 2 in China with Tencent. Anything you can say as to how significant the original NBA 2K Online is there for you guys financially? Once that does come out, sort of your expectations around that. Thanks.
Ryan, for our margins, we did talk about that for this fiscal year, it would be slightly down since we have a big release, so there's higher software development costs and marketing associated with the title. We expect our margins to expand over the long term and on a year-by-year basis, they're going to vary based on our release schedule.
In terms of the NBA 2K franchise, we have very high hopes for the NBA 2K Online 2 title. We're obviously in business with Tencent. They're a phenomenal partner. It's a great market. NBA 2K Online has been the number 1 PC online sports title for some time. We have 37 million registered users. We're phenomenally excited about the upcoming release. It's in closed beta now. It's planned for commercial release in the fall. Stay tuned.
Our next question is with Andrew Uerkwitz with Oppenheimer . Please proceed with your question.
Hey, thanks for taking my question. Strauss, I appreciate your comments regarding Fortnite and your strategy around developing new games. If you take a look at Fortnite and some of the other titles that have come out over the past couple of years, it seems that there's been an expansion of the market around casual gamers and getting casual gamers to play more and potentially spend more. It seems like the Rockstar titles tend to focus more on the harder core players. Has some of these recent titles shaped the way you've developed or think about developing games for a broader audience, and along those lines at all?
I'm not sure casual is the right term because I'm not sure people call Fortnite a casual title. I do think what you're alluding to is right in that the free-to-play revolution, if you will, whether that's mobile or fixed, has been transformative to the business. It's massively increased the size of the business. We're in the free-to-play business, whether it's a mobile platform or a fixed platform. We're in that business in China, we're in that business at 2K, we're in that business with Social Point. You're right. It's a huge growth business. What we like about it is some free-to-play games, some particularly free-to-play mobile games, speak more to an older demographic. Some speak more to a female demographic.
There are a lot of people who believe that Fortnite has welcomed into our industry people who didn't previously play video games. Some of that's anecdotal. It's hard to know, but I think that's right. This is all good news, and it is news that is not lost on us, hence the Social Point acquisition and our emphasis on free-to-play titles as we grow our core business. That said, what has historically been our stock and trade, the highest quality console games, deep, immersive, many-hour experiences that are available at a premium price, remains a terribly important business. While I think hardcore gamers are excited about what both Rockstar and 2K bring to bear, it's worth noting, and forgive me for maybe being immodest about it on behalf of our company and Rockstar Games, Grand Theft Auto has sold in over 95 million units.
According to others apart from us, it's the highest grossing, most profitable entertainment product ever made of any sort. It's not only exciting to a small core. It's exciting to a very, very broad audience. I think what Rockstar Games has uniquely shown the ability to do is to make a title easy to approach and difficult to master. You can approach Grand Theft Auto and Grand Theft Auto Online in any number of ways. If you're a hardcore gamer, you can find it super compelling. If you are somewhat more casual, you can find the experience super compelling. There is so much there now. You can very much define your own experience and create that for many, many hours of wonderful entertainment. Do I think that approach to the entertainment business ever becomes antique? I do not.
I think that's the nature of the entertainment business. This is sort of saying it's like in a multiple choice test, all of the above. That's how we view our obligations around here. We need to be where the audience is. That's one of the reasons that we did the Social Point acquisition. That's the reason that we started the Private Division group, which will bring independent titles to bear, we hope meeting another audience need. That's why we acquired Kerbal Space Program. That's why we find ourselves in the position that we're in today, with an incredibly strong balance sheet on the one hand, and an incredibly strong creative team on the other.
Got it. Thank you so much.
Our next question is with Brandon Ross with BTIG. Please proceed with your question.
Hi. Thanks for taking the questions. A couple. Another one on the margin side, can you get a little more granular on the % of, or give us any more color on the % of amortization you expect to take on Red Dead this year on a non-GAAP basis? Media's undergoing a pretty massive consolidation wave right now, and the video game publishers have not participated to date in that. Why do you think that is, and do you expect that to change in the coming months or year? Thanks.
On the margin for the amortization of Red Dead, as I said, we don't give that out on a title-by-title basis. If you think about larger titles and what the lifetime potential of them are and how long they would spread out, that's the best way for you to take a look at that.
On the consolidation point, I think the consolidation that you're seeing or expecting in so-called traditional media businesses has been driven by a lack of growth, frankly, and a need to create scale, reduce costs, find cost synergies, and the like. I think that just doesn't apply to such a high-growth business, the one we find ourselves in and our competitors find ourselves in. Historically, the media and entertainment businesses that have tended to consolidate are the ones where a massive portion of your revenue was driven by catalog that's already amortized and doesn't cost that much to continue to create value in. In our business, because of technological change and the importance of frontline releases, catalog is still a relatively small part of the business compared to other mature entertainment businesses.
I think you'll start potentially seeing consolidation if and when we reach a technological asymptote, and therefore, if and when catalog creeps up well over 50% year in, year out, including big frontline release years. Now, we perform particularly well on catalog, so our numbers aren't necessarily reflective of the industry as a whole, but I think the point stands. The other piece is in a business that is frontline driven, that means if you do consolidate, you are potentially arguing that you're going to have much greater exposure to frontline shelf space, whether that's digital or physical, than it may be realistic to assume. Of course, the day after you close, you still have to invest in frontline production and frontline marketing, which is costly.
As I said, I think you would look for entertainment consolidation as businesses mature and they're either not growing, flat, or even potentially declining, and none of that describes the interactive entertainment business.
Do you think there's any merit whatsoever to putting together traditional media assets with video game publishers?
Potentially. Although so far we haven't seen it. I definitely would've thought so. I think years ago I said I expected such consolidation, and it didn't materialize. The facts forced me to change my outlook. I think when you look at the quality of the intellectual property created and owned by ourselves and some of our competitors, it's hard to imagine that there wouldn't be opportunities in other forms of entertainment, and indeed, some of our competitors have entered other forms. If it makes sense to enter other forms of entertainment, at which some traditional media companies are already expert you would imagine that kind of consolidation could have some industrial logic. I would observe that not only has it not occurred, but that some legacy entertainment companies have in fact exited interactive entertainment of late.
Thank you.
Our next question is with Doug Creutz, with Cowen. Please proceed with your question.
Thanks. You mentioned that you had four major Grand Theft Auto Online content updates in the last fiscal year. I just wonder if you could talk about how you're thinking about the content pipeline shaping up for the next fiscal year. Can you match that kind of cadence? I think in the past several years, you typically had started the year assuming Grand Theft Auto Online would be down year-over-year. Did you build that kind of conservatism into your guidance as well this year? Thanks.
Yeah. In terms of content updates, Rockstar Games has said that much more content is coming for Grand Theft Auto Online, obviously they intend to continue supporting the title. Yes, our guidance does reflect an expectation that the results will moderate this year.
Thank you.
Our next question is with Stephen Ju, with Credit Suisse. Please proceed with your question.
Thanks. Strauss, did 2K or Tencent handle the development of NBA 2K Online 2, consequently, who will be handling the distribution of this title outside of the Chinese market? Presumably you may have plans to release the game in non-console territories. Secondarily, there's obviously now hits from studios not affiliated with yourself or some of your publisher peers. It says that there are content studios and IP out there that you may think about acquiring and bringing in-house, deals seem to be few and far in between. Has the M&A environment become more difficult? Okay, thanks.
Thanks for your questions. With regards to the development of NBA 2K Online with Tencent, that's obviously an arrangement between Tencent and 2K, and both companies are actively involved in bringing that title to market. Social Point is not involved with bringing that title to market. With regard to potential acquisitions, we acquired the Kerbal Space Program intellectual property. We're continuing to develop and release around that title. We're excited about it. We acquired Social Point, and over the years, we've made numerous other selective acquisitions, typically when we can acquire intellectual property and a team that goes along with it. I don't think the environment is any more challenging than it's been. I think it's been challenging for quite some time because this has been a growth business for quite some time, and there have been some hefty multiples paid.
I think we feel that our discipline has really paid off. There are a few things that have occurred that we feel like we missed the boat on, but precious few, and we much more often dodged a bullet than missed a boat.
Thank you.
Our next question is with Mike Hickey with Benchmark. Please proceed with your question.
Hey, guys. Thanks for taking my question. Congrats on another strong quarter. Curious, still, I guess a bit far away here, but there's been some speculation that we may have a new console from PlayStation in 2020. That's not something that you can talk to, I don't think anyway, but I'm just curious sort of your perspective on what it means to sort of have still a console cycle type opportunity or challenge. Also wondering how you released GTA V at the end of the prior cycle, then were very strategic and opportunistic to release the current gen shortly thereafter. How you think about that sort of strategic opportunity potentially coming into maybe a new PlayStation box in 2020? Thanks, guys.
Well, thanks, Mike. Always nice to hear from you. As you'd imagine, I think you know this already, we wouldn't have any ability to comment on another company's plans. You'll have to ask them about that. I think we've navigated transitions in consoles and console releases and other platform releases pretty well around here since we showed up roughly 11 years ago. We're actually really proud of that because historically, as you know, during a transition period, the challenges can be very significant if you bet wrong in terms of what you're up to, whether that's supporting something new or supporting something old. Again, what's driven that is less corporate cleverness and much more that our labels create the highest quality properties that defy normal behavior in console transition periods.
In the last transition period, for example, there was a lot of noise in the marketplace about how challenging it was for catalog product. This is going back some time, you've been in the industry a long time, you'll remember this as I do. We weren't challenged in the least. We did exceedingly well. Why? Because I believe the quality of our catalog was so high, and is so high. That's why, for example, our catalog sells more per SKU than I think any other company in the business. I think because we have a limited number of the highest quality releases, because our titles tend to do well as catalog titles, transition periods create somewhat less risk for us. We're not dealing with massive tonnage of SKUs that we have to make decisions about.
Because our titles are typically very high quality, they can continue to perform as new platforms are released. Obviously, Grand Theft Auto V was developed for the last generation, yet it remains the standard-bearer for this generation, which is extraordinary and something that we are grateful to Rockstar for and incredibly proud of. In the event that there are new platforms, we'll make decisions about what to support based on our view of potential success. I would observe that the PC platform has become a very important part of what we do, driven by digital distribution, that was not the case for so-called console titles 10 years ago, and it is the case now. Does that mean that the business is flattening out and everything becomes open, and we don't care what brand is on the box? Not in the least.
I wouldn't rule out the possibility of more generations. However, it does get us closer to a point where we truly can be platform-agnostic as an industry. I would say we're not there yet, but that day will come.
Thanks, Strauss. Good luck, guys.
Ladies and gentlemen, we have reached the end of our question and answer session, and I would like to turn the call back over to management for closing remarks.
Well, we've kept you all long enough. We're really proud of our results. We're grateful to our creative colleagues who drive these results. We're grateful to our business colleagues who keep the trains running on time. We're grateful to our marketing and distribution colleagues, who we believe are the best in the business. This company has a wonderful culture and enjoys terrific results on a consistent basis. We're proud of that. For those of you attending the call today, our shareholders, and those who follow us, thanks so much for your support and interest.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.