Greetings, and welcome to the Take 2 Second Quarter Fiscal Year 2014 Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer and will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Hank Diamond, Senior Vice President of Investor Relations in corporate communications of Take 2 Interactive.
Call to discuss 2013. Today's call will be led by Strauss Zelnick, Take To's Chairman and Chief Executive Officer Carl Sladoff, our President and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q and A session following our prepared remarks. Before we begin, I'd like to remind everyone that the 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 options made by and information currently available to us.
We have no obligation to update these forward looking statements. Actual operating results may vary significantly 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 annual 18, and Form 10 Q for the fiscal quarter ended June 30, 2013. I'd also like to note that unless otherwise stated, All numbers we will be discussing today are non GAAP. Please refer to our earnings release for a GAAP to non GAAP reconciliation and further explanation.
Our earnings release and filings with the SEC may be obtained from our website at www.take2games.com.
And now,
take to delivered record non GAAP revenue and earnings during the fiscal second quarter, driven by the unprecedented worldwide success of Grand Theft Auto V. Consumers and critics alike responded passionately to the title, enabling it to become the fastest selling entertainment release in history with retail sell through a more $800,000,000 in its first day spectacle and interactive entertainment. Grant Theft Auto5 received extraordinary reviews, including over 160 per scores. The title has already sold in nearly 29,000,000 units worldwide, exceeding the lifetime sell in of Grand Theft Auto Four on console, in less than 6 weeks after launch. And demand remains strong as consumers immerse themselves into the vast world of Grand Theft Auto Online.
We're immensely proud of and grateful to the team at Rockstar Games who consistently redefine what can be achieved in interactive entertainment. I'd like to congratulate them fitting a cultural phenomenon. I'd also like to thank our sales team for their critical role in making this launch one for the record books. In addition to Grand Theft Auto V, our 2nd quarter results benefited from robust demand for our digitally delivered offerings and renowned catalog titles. Revenue from digitally delivered content grew 85 percent year over year, driven primarily by full game downloads and add on content, along with smaller contributions, from virtual goods and and pack Sid Meier's Civilization5 BRAVE New World as well as the first add on content for a rational games bioshock infinite and additional add on content for border lands 2.
It bears noting that the phenomenal success of Grand Theft Auto V along with the strong performance of our other recent AAA releases continues to demonstrate consumers enduring appetite for groundbreaking interactive entertainment. During a challenging period for many in our industry, our past 4 most significant current generation releases, Borderlands 2, NBA 2K13, BioShock Infinite and Grand Theft Auto V, each sold in more units than any prior title from their respective franchises within the same period after release. We believe it's our unwavering commitment to quality, 1 of Take 2's core philosophies that has been and will continue to be our distinguishing pathway for success. The remainder of the year, we're increasing our financial outlook. Fiscal 2014 is poised to be a record year for our company, with projected non GAAP net revenue of $2,200,000,000 to $2,300,000,000 and non GAAP net income of $3.50 per share to $3.75 per share.
Looking ahead, we're highly enthusiastic about the opportunities presented by next generation consoles which we're launching in November. We have a robust development pipeline of new intellectual properties and offerings from our proven franchises including multiple unannounced titles planned for release during fiscal 2015. In addition, we'll continue to invest to enhance our profitability with innovative, digitally delivered offerings for both traditional and emerging platforms. Our company has all of the assets necessary for ongoing success. Including world class creative teams, the strongest portfolio of intellectual property in the business, cutting edge technology, and a sound financial foundation.
We're better positioned than ever to deliver returns for our shareholders and expect to be profitable on a non GAAP in fiscal 2015 and every year for the foreseeable future. I'll now turn the call over to Carl.
Thanks, Strauss. Today, I'll give an update phenomenal launch of Grand Theft Auto V, enhancing this incredible experience of Grand Theft Auto Online, which had its initial rollout on October 1st. This ambitious undertaking offers a dynamic and persistent online world and is available free with every copy of Grant Theft Auto V. It currently shares gameplay features, geography, and mechanics with Grand Theft Auto V, but will continue to expand and evolve over time with new features and functionality as well as new content created both for Grand Theft Auto Online to enhance consumer engagement with the series over time. Featuring MBA MVP Lebron James on the cover, NBA 2K14 launched on October 1st and according to Medicredit is currently the highest, highest rated sports game of 2013 on with PlayStation 3 and Xbox 360.
Idn.com remarked that NBA 2K14 is simply the best Hoop SIM ever. Incorporating the series signature realism, intuitive new controls, and unique game modes, this year's release cements NBA 2K's legacy as the industry's premier sports simulation experience. The title is being supported by NBA 2k Everywhere, our multi platform offering that gives fans the opportunity to enjoy NBA 2k via a mobile companion app, as well as a full featured version of the console simulation game for tablets and smartphones. NBA 2k14 will also be our first release for the PlayStation 4 and Xbox 1 on November 15th 22nd respectively. Built entirely from the ground up for next generation platforms.
NBA 2k14 features a revolutionary new ecomotion game engine and 4 entirely new experiences, including NBA today, my career, my GM and my team. Ign.com voiced their anticipation stating NBA 2K14 could end up being the most technically impressive launch game on either next generation platform. With unparalleled true to light visuals and a groundbreaking feature set, believe NBA 2K14 will define the standard for next generation sports simulations. I'd like to congratulate the teams at 2K and visual concepts for delivering 2 uniquely
vehicles.
On October 8, Borderlands 2 further expanded its audience for the release of the game of the year edition, which offers an outstanding value to consumers, including the full game, all of the season pass add on content, 2 additional character classes and more. Demand for portal ends too and its add on content remains strong for more than a year after its initial launch, and we remain committed to supporting the franchise with additional high quality content. On October 22nd, 2 k and gearbox released the first offering in the new headhunter series, Head Hunter 1 Teekay Baja's bloody harvest, with 2 more add ons planned for the release during 2013. Borderlands 2 has sold in over 7,500,000 units and counting and is on track to becoming the highest selling title in 2K's history. Today, 2k successfully launched WWE 2k14, the latest offering in the popular WWE video game franchise.
The title is being supported with a comprehensive selection of downloadable content options, which will be available next month through January. This add on content, which can be purchased individually or through the game season pass program, provides the ultimate WWE video game experience that is perfectly timed for the holiday season. On November 12th, For Access Game will launch XCOM enemy within. The expansion for our game of the year award winning strategy title XCOM enemy unknown. Excom enemy within provides players with an array of new narrative situations, abilities, weapons, maps, tactical, and gameplay and multiplayer content.
The title can be enjoyed with previously purchased copies of Xcom, anime unknown, on the PC and Mac, and will also be available as a standalone game for Xbox 360 and PS3 under the title XCOM enemy within commander edition. IGN called XCOM enemy within one of their most anticipated games of the year, and forbes.com stated Excom ending within is a fantastic expansion to 1 of 2012's best games. Also this year, will continue to release downloadable add on content to support BioShock Infinite and Sid Meier's Civilization V. These include BioShock Infinite burial at Sea, a 2 part add on campaign set in the underwater city of rapture before its fall. And the Sid Meier Civilization 5 scrambled Nations pack which will include maps from Canada, Australia, Japan, Scandinavia, Great Britain, France, Turkey, Italy, Russia, and China, and features randomized interiors with the start of each new game.
Looking ahead to fiscal 2015 and beyond, we have a strong development pipeline for both traditional and emerging platform including revolutionary new intellectual property and offerings from purchase the intellectual property for Evolve from THQ. This next generation title is currently in development at Turtle Rock Studios, the renowned creators of the innovative cooperative first person shooter left for dead. In addition, 2K recently opened a new Bay Area studio focused on developing the exciting next generation title. These represent consoles, which includes multiple releases planned for fiscal 2015. We understand and appreciate that both our are eager to learn more about Throughout the past year, we've demonstrated that success in our industry is achieved by mindfully balancing the passion to take creative risks with prudent business management.
The need to deliver to seek the most groundbreaking and immersive experiences as we enter the next generation for our industry. Tate II is well prepared to continue to raise the bar for creative excellence across all platforms that consumers choose to embrace. In closing, I'd like to join Strauss in thanking all of our employees for their dedication and hard work during the quarter. Thanks. And I'd now like to turn the call over
to Lainie. Thanks, Carl, and good afternoon, everyone. Today, I'll review our results for the fiscal second quarter and then discuss our updated outlook for fiscal 2014 and our initial outlook for the fiscal third quarter. All of the numbers I'll be providing today are non GAAP results from continuing operations and all comparisons are year over related to selling of the Grand Theft Auto Five game during the second quarter. As Grand Theft Auto Online, a free game available with every copy of Grand Theft Auto Five launched during the fiscal third quarter.
Our press release provides a reconciliation of our GAAP to non GAAP measurements. Starting with our results for the fiscal second quarter. Net revenue increased 3 40 percent to a record $1,270,000,000. This exceeded our outlook range of $750,000,000 5. Cadillac sales accounted for $118,900,000 of net revenue, led by Grand Theft Auto IV and offerings of Borderlands 2 and Civilization 5.
Revenue from digitally delivered content grew dollars of net revenue. The largest contributors with the Grand Theft Auto Series, particularly digital sales of Grand Theft Auto V, and offerings for Borderlands 2 civilization 5 and BioShock Infinite. Gross margin decreased 4.5 percentage points to 39 2% due primarily to higher software development costs and internal royalties. Operating expenses were approximately $159,000,000 up by about $47,000,000 due primarily to higher marketing expenses to support the launch of Grand Theft Auto V. Interest and other expense was $3,800,000 and non GAAP net income was $325,600,000 or $2.49 per share, as compared to $10,200,000 or $0.11 per share in fiscal second quarter 2013.
This result exceeded our outlook range of $1.20 to $1.35 per share. On a GAAP basis, we reported a net loss from continuing operations of $124,100,000 or $1.40 per share. Turning to some key items from our balance sheet at September 30, 2013, as compared to June 30, 2013. Our cash balance increased to $661,900,000. Our accounts receivable balance increased to $1,000,000,000, primarily reflecting the receivables associated with the release of Grand Theft Auto V near the end of the second quarter.
Inventory increased to $84,000,000, primarily for inventory on hand for replenishment orders of Grand Theft Auto5 and the launch of NBA 2k14 early October. And software development costs and licenses decreased to $233,000,000, reflecting the amortization development costs for our 2nd quarter releases. In August, we completed the redemption of our 4.375 percent convertible senior notes due 2014, which we had called for redemption on June 12. The company settled a 4.375% which were surrendered for conversion for approximately $166,000,000 in cash and 3,200,000 shares of common stock. In conjunction with the redemption, we unwound the call spread associated with the notes, which resulted in the company receiving approximately $29,000,000 in cash.
Now I will review our financial outlook for the full year third quarter fiscal 2014 which is all provided on a non GAAP basis. We are increasing our financial outlook for fiscal 2014 to reflect our strong second quarter results and positive outlook for the remainder of the year. We range from $2,200,000,000 to $2,300,000,000 and non GAAP net income to range from $3.50 per share to $3.75 per share. These would be record results for our company. Turning to the details of our full year outlook, Our expected revenue range assumes the on time release of the titles we have planned for launch during the remainder of fiscal 2014.
We expect the revenue breakdown from our labels to be roughly 70% from Rockstar, 30% from 2 K. We expect our geographic revenue split to be about 50% United States and 50% international. We expect gross margins in the low 40s. Total operating expenses are expected to remain flat. Selling and marketing expense is expected to be about 11% of net revenue based on the midpoint of our outlook range.
And we project interest and other expense of approximately $12,000,000 tax expense of about $16,000,000 and weighted average fully diluted shares of approximately $126,000,000. This reflects weighted average basic shares of approximately 91,000,000 9,000,000 participating shares for our unvested stock based compensation awards and 26,000,000 shares, representing the potential dilution from our convertible notes under the if converted method $50,000,000 to $700,000,000 and non GAAP net income to range from 1.20 dollars per share. The majority of and Borderlands 2. We expect 3rd quarter gross margins in the mid-40s. Total operating expenses expected to increase by approximately 15% from the prior year's third quarter, driven primarily by higher sales and marketing expense.
Selling and marketing expense is expected to be about 10% of net revenue based on the midpoint of our outlook range. Our third quarter outlook also reflects interest and other expense of approximately $2,000,000, tax expense of about $7,000,000 and weighted average fully diluted shares of approximately 131,000,000. This reflects weighted average basic shares of approximately 93,000,011,000,000 participating team shares of our invested stock based compensation awards and 27,000,000 shares, representing the potential dilution from our convertible notes under the if converted method of County. In closing, the consistent execution of our strategy, along with a disciplined approach to capital investment, has enabled Take 2 to achieve strong results. We are well positioned to capitalize on the next generation of consoles as well as emerging markets and platforms, and most importantly to deliver consistent profits and returns for our shareholders over the long term.
I would like to thank our employees for their tireless commitment to excellence and working together to bring continued success to our organization. Thank you. Now I'll turn the call back to Strauss.
Thanks, Carl and Lainie. On behalf of our entire management team, I'd like to thank our colleagues for their efforts in delivering a history making quarter for our company. And to our shareholders,
it may Thank you. Our first question comes from the line of Justin Post with Merrill Lynch. Please proceed with your question.
Of GTA, you obviously have a huge installed base growing record installed base. Can you talk a little bit about the gameplay activity that you're seeing either online or just in total relative to other huge hits like Call of Duty and Battlefield. And then how do you think about leveraging that activity into some digital sales next year? And then the second question is, as we enter the next generation transition, does that create any interruptions or disruptions with Rockstar's game pipeline or is it still possible to see a consistent like one release per year? Hi, Justin, it's Carl.
In terms of the online activity for GT, obviously, we haven't spoken about but needs us to say we've had a very, very positive response. And there are many, many, many players playing at this point. It's going very well. And we've gotten terrific feedback from the community, in terms of things that they really love about So we're very excited about the opportunity for GTA Online. It's something that we think is very special and unique, and is going to be with us for a very long time in the future.
In terms of monetization, Rockstar has talked about monetization and there will be there are cashbacks available. They're not available right now, but they will be turned on back again at some point in the near future.
And in terms of, this is Strauss speaking, your second question, look, we try not to pat ourselves on the back overly. I do think history says that we managed the the console cycle reasonably well in terms of delivering our products at the right time. And I think the release window for GTA5 was phenomenal. There's an enormous installed base, massive anticipation, and virtually no significant competitive releases. I was questioning an awful lot you may recall about the timing about that release.
And I think Rockstar made a great decision in, in putting it out when they did. And really optimized, the intersection of what a great game can do and what an audience wanted and when they wanted it. We now come to the end of our current general leases at exactly the right time at this company. And as we said today, we have more than 10 titles in development for Gen. And we're confident enough about that pipeline that we're calling for profitability on an ongoing basis, something that none of us around here does lightly.
And something that all of us around here are really proud about. So Rockstar and 2K both are operating with, within the reality that we have 2 platforms launching in November about which we're all really excited. And, we have great titles coming up.
Great. Thanks and congrats again on the unit number.
Our next question comes from the line of James Hardiman with Longbow Research. Please proceed with your question.
Hey, thanks for taking my call and congrats on some pretty unbelievable numbers here. Help me in whatever way you can sort of bridge the gap between a $1,000,000,000 in 3 days and 29,000,000 units sold life to date. How much of that $29,000,000 was 2nd quarter versus 3rd quarter? You know, how much was selling versus sell through? Can you give us a a sell through number at this point?
Can you help us out with the ASP And ultimately, I I guess one of the things that would be really helpful for us is just figuring out how much inventory is sitting at retail, as we sit here today of of grant
Hi, James. This is Lainie. We really can't give out additional information than what we've said to date, but I can just pointing to the $1,000,000,000 is a retail figure. The 29,000,000 units is a sell in number, and that's, what we've done to date. And the $1,000,000,000 was in the first three So there's big differences between those two numbers.
Right. I guess that's sort of the point. I guess let me ask you in a different way. Are you sitting on a bunch of inventory as we sit here today? Which would assume that the retail number isn't anywhere close to that $29,000,000 number or $29,000,000 unit number, I should say, or I guess asked it a different way as we think about your second quarter guidance, do you continue to assume that you're going to be shipping copies of GTA in the December quarter?
Yeah, it's a fair question. The industry in general has been, very tight on inventory as they have to the end of the cycle. We don't comment on our own inventory levels around here. And in terms of our expectations, go forward, yes, we fully expect to keep selling lots and lots of this game. And I think the fact that we've sold in more than 29,000,000 units to date in 6 weeks is pretty extraordinary.
Demand remains very, very strong indeed. I think it's fair question because I think some people have asked us to put a finer point than you did on your question. Is this just a reflection of all the demand being pulled current, but there's just no evidence that that's the case at all. It's not as though consumer say the NextGen is coming, so I have to buy title, and then I'm never gonna buy it again. It's not how they operate.
This this is a reflection of, you know, our, our fondest hopes coming through, which was was the intersection of a massive installed base with a massively popular title.
Very helpful. And then, lady, maybe you can help us a little bit with with just the accounting of how all of the development costs associated with with GTA, are gonna work What portion of those costs? I know you're not going to give us a number, a total budget, but can you help us with what portion of those costs have already been expensed and how we should think about the rest getting expense as we move forward. And then as we think about the DLC portion and I guess more specifically the online portion those development costs capitalized and are they going to be expensed along with development costs for the individual game? How should we think about all that?
So for the development costs, what we the way we'll look at it is on a non GAAP basis, it will be with the revenue. So we take the revenue for the period, and then we'll take what the estimated lifetime revenue is in the expenses will be spread over that period of time for a non GAAP basis. The online development costs also have been capitalized
alongside with the
online game and then, again, will be spread along with the revenue.
So I guess to ask you a different way. At what point, What's sort of your assumption with regards to the lifetime of the game? Or as we move forward, presumably margins get better, right, as as as we burn off the the majority of those development costs. When when does that sort of end? When when at what point in the future will are you projecting to have expense through all those development costs?
Yes. We actually don't guide that tightly. Basically, what Wilaney is saying is on a non GAAP basis, we aim to match the revenue and the development costs and the initial cycle of releases. And you're absolutely right. When something rolls off into our catalog, no longer amortizing development costs.
We typically don't have marketing costs, and therefore, the gross margin would indeed be higher, but we're not quoting any specific timing or today.
Yeah. Each quarter, we'll update our estimated lifetime for the product, and that can adjust what the cap software amortization is. But basically, it's over what that lifetime is estimated to be, and that can change over time.
But ultimately, as it hits your catalog, it hits your catalog and ultimately has no cost profile associated with it apart from the cost of actually shipping the goods on an ongoing basis.
But the profile of sales is based on what we know today as opposed to what you guys were projecting initially
for the game?
Well, we would update our estimates every time. So based on the way the title launched and where and are saying that it performs, better than our expectations, yes, the lifetime would probably also be adjusted each quarter.
Got it. Helpful. And congrats on some amazing numbers guys.
Our next question comes from the line of Ben Schachter with Macquarie. Please proceed with your question.
Hey, congratulations to everyone on truly unprecedented results. A few questions on digital and then one for Lania on the cash. On the digital, would you say that this is the biggest ever game download digital title? And, what was the split between PlayStation and Xbox? And then also, how does that, what does that mean for the margin of those digital titles?
And then just separately, thinking forward about the digital opportunity, I just want to make sure that I understand how to think about it correctly. I think about it in kind of three pieces. You have the full game downloads use the digital episodic content that potentially could come for GTA5 and then separately GTA online. Is that the correct way to think about it? And then one follow-up on for Laney.
Ben, do you mean by biggest download, the biggest size download, or the biggest number of downloads?
I guess either revenue or number of downloads for full games.
I don't think we actually know the answer to the first question. Suspect it probably is the biggest game that was ever downloaded.
It was certainly the biggest on the PlayStation Network on the day release. It was the biggest at first day on the platform, but other than But in
terms of the number of bytes, I suspect, it's also the biggest, but I could be wrong about that. And we've talked about margins before. We basically said our margins on digital distribution are somewhat higher than on physical distribution, but not meaningfully higher typically. And in terms of the way you parsed Digital digitally delivered revenues here, yes, you've got it correctly. And I suppose I'd add to that ultimately catalog but full game download DLC and in game payments that would all constitute digitally delivered revenue.
Okay. And Laney, if I just up on the cash. Based on the guidance you've given, where do you expect the cash balance to be by the end of 'fourteen? And if any of you want to update us on your thoughts about potentially returning cash to shareholders, that would be great.
For the for the cash
balance,
we don't provide cash flow projection. We are going to be cash flow positive for the remainder of the year from this point forward, as well as the whole year. And, and your last question was the use of cash. So, you know, as we said before, we've been investing in our business, looking at acquisition opportunities. If we think it makes sense, we have authorized a share repurchase program.
So if the opportunity presents itself and it makes sense for us, that could be an option for us as well.
Our next question comes from the line of Eric Handler with MKM Partners. Please proceed with your question.
Yes. Thanks for taking my question. A couple of follow ups to Ben's questions. First of all, what percentage of the 29,000,000 units sold for GTA were full digital downloads. Secondly, you know, when you look at your buyback looks like you haven't done any share repurchases yet, but given how strong your earnings were and your confidence in the business, is there a reason why you know, I would assume you think your shares are relatively inexpensive, why you're not buying back stock?
And then third, with GTA Online, as more people start migrating over time to the to the NextGen platforms, will NextGen players be able to access GTA online?
Yes. So, we said that in the quarter about 8 percent of our revenue was from digitally delivered offerings across the board. We're not talking specifically about GTA 5% related to digitally delivered revenue, but I think that gives you a certain amount of guidance, obviously. And, in terms of share repurchases, we didn't repurchase any stock in the fiscal order, we do have an authorized, stock repurchase outstanding. And, and we do have ample capital to pursue all the opportunities that Lainie outlined.
We are a very conservative management team. And as we head into a platform transition companies with meaningful strong balance sheets are well positioned, and that's very important to us. So 1st and foremost, we want to be rock solid around here. Secondly, we are looking at and always have looked at accretive M and A. And let me emphasize accretive We don't we accretive is not in the eye of the beholder.
It's actually math. And we're interested in accretive M and A that fits with our core business. And third, of course, over time, one must and should look at returning capital to shareholders in an appropriate way, and there are numerous ways that that can be achieved.
And Eric, in terms of GT online for, for next generation, I think, was your conversant was your question? Yes. Yes. We haven't discussed any plans for DTA at all related to next generation. So
nothing to say there.
Okay. Thank you.
Our next question comes from the line of Daniel Ernst with Hudson Square Research. Please proceed with your question.
Yes. Thanks for taking my call. Just looking again at the opportunity to monetize the large installed base of GTA5. I recall last time around with GTA4, when you released expansion packs, whether they were digital or offered on disc like lost in the damned? The one issue was that they came out significantly later than when the game did.
And I believe you made a comment at that time that that was kind of one of the lessons we're in to get those kind of expansion packs out sooner. And then since that time, a trend has emerged among other large games to sell sort of a season pass to a series of announced expansion packs, which many people have the opportunity to buy when they buy the the game in the first place. So you have, you know, a large installed base 17, 20,000,000 people who already have the game who didn't get that opportunity. Can you speak to I know you want to give the exact roadmap, but, you know, what the opportunity to sell add on content the single player campaign as opposed to the micro transactions, is that still in the cards or can you give us a little bit of color on what might we see there? Thanks.
So we always prefer that our labels talk about our marketing plans. And we don't tend not to discuss them on the call. I appreciate the thoughtful question. And we give a lot of thought to just the questions you raised. I think the biggest difference here is, than the last release is When when Rockstar came out with, downloadable content for GTA 4, this was groundbreaking stuff.
It had never been done before. And they took a big creative risk and delighted consumers and made money in the process. It was a it was really a great result. And we we at this company and our labels, the typically have learned a lot about what consumers want. What we find is when you have a hit product, there is an opportunity to continue to delight consumers with ongoing content.
And that always remains our focus Our focus around here does not start with how do we look at our consumers. They showed up in droves and how do we extract more money from their pockets? We genuinely don't. What we think about it is The reason our consumer showed up is we because we've delighted them in a way that they didn't expect. It was as high as our expectations were, we blew them out of the water and we did that because of the ordinary creative work done at Rockstar.
And then that's the way this company operates. And then having done that, we think, okay, now what is the appropriate way to price this experience? So that we can appropriately compensate all of our stakeholders, the people who create the products, the employees who work at this company, and, of course, our shareholders. And we've always looked at pricing all of our content with an eye towards, giving people more than they pay for, trying to over deliver. So GTA online is free with the game.
And, first time we've ever done anything like this, it's incredibly ambitious and taxing and challenging. And consumers love it. And they're showing up in great magnitudes. As Carl said, there is currency in the game. And there are plans some point to make that currency available for cash payments in addition to other ways that you can earn currency in the game.
We're going to let Rockstar talk more about that. We don't need to talk more about that today. But for sure, we're commercial folks, and we are in business. But where we start here is with a passion for what we do. Then we think about how what we do is going to delight consumers.
And then, and only then do we think about how we're going to monetize it?
Thanks. And a follow-up to that question perhaps for Wayney. Is the cost of maintaining GTA online, a material part of your OpEx going forward, or is that that sit in COGS and can you give us a scale of how big an ongoing cost maintaining the servers and systems around that platform, Mark? Thanks.
The cost would be included in our will be capitalized and then spread over the revenue stream. Included with the overall capitalized software for GTA. But it is a good question in terms of how much that's going to be going forward. There will be some of it, the server costs and things like that in the OpEx. But most of the time, an effort by the teams will be included in the CAPP software.
And let me just emphasize in one of our stated strategies is to be the most efficient company in the business. We did not go out and build a massive infrastructure to support something, before we understood where consumers were going to be. Where they were going to be, we are learning every day, how to this in a high quality way. And there will be some costs associated with it. We have zero doubt that the revenue will vastly exceed any operating expense.
Thank you.
Great. Thank you. I appreciate it. I'd like to congratulate all of you guys as well on the success. Most of my questions have been answered, just a couple of small ones.
1, as you talk about your next gen and the pen titles and development As you have now, a pretty clear picture of what the initial dev costs are gonna look like, in your in your plans, And directionally, I'd like to, just get some comfort level on how these costs are shaping up versus your expectations versus perhaps the last cycle, etcetera, any changes to your thinking? And then, lastly, just a quick, update on Asia and what's going on there. And I'll synergies that you see in the coming quarters and years? Thank you.
Yes. In terms of dev cost for the more than 10 next gen titles we have in development, we do spend meaningfully on our games. It's how we have the highest rated games in the business. We don't so far see meaningful differences in it's going to cost to develop for next gen versus what it's been costing to develop for current gen. And in terms of Asia, we've said is that NBA 2k online is one of the top 10 played games in internet cafes, according to QQ Games in China.
We're very happy with those results and continue to be closely engaged in optimizing and, contemplating, expanding that throughout other parts of Asia. We have our baseball game in Korea. That's operating as well. And we continue to develop, another game in Korea civilization online. So, which we've talked about previously, that's still in development.
So it remains a very, very interesting area for us, and it's nice to have 2 games in market.
Like, you know, there was talk about, consoles in China, recently. I wonder if you think that that is really an opportunity. I know this is just talk right now, but Do you really see that as an opportunity for you, in the future?
Well, you know, the so far consumers in China really haven't had the opportunity. They played online and they play very avidly online, but that is typically a free to play model where you monetize less than 10% of the audience. It remains be seen how consoles will do in China. It also remains to be seen what kind of intellectual property protection will be offered in in the country, that has been challenging. That doesn't come as surprise to anyone.
We'll be interested in both. If there's an economic opportunity and we can pursue it, while keeping our intellectual property secure, we have a presence there. We have a lot of people on the ground. We have multiple offices. We'd be just thrilled.
It's a great place to do business. Remains to be seen. Remember, our stated strategy is to be where our consumer is, without regard to a platform, without regard to type of game, without regard to genre, and without regard to business model. We're ecumenical on all of those topics. We're not rule driven around here.
Our goals are simple, be the most creative, the most innovative, and the most efficient company in the industry.
Mark Company.
Team for an incredible game. The I know you're sensitive to this, but obviously the online piece is pretty important, I would think, to your fiscal 2015 profitability. Can you give us any sense? And obviously, there's excitement and buzz from it, but it's also somewhat glitchy from the beginning, which think they rockstar did a pretty good job at kind of communicating that it's going to be a work in process. But any sense of just kind of general engagement that we can look as trusts.
We try to shape this sort of forward performance opportunity. In terms of player conversion, in terms of ARPU, in terms of maybe how you would look at game have performed versus an MMO in China?
Mike, I got, I think, half the question I'm going to ask you to 2nd half. In terms of, GTA Online as a financial contributor, this is new and untested so far, and we haven't assumed meaningful revenue very grateful if it comes along. What we're focused on is delivering a terrific experience and remains to be seen what kind of contributor is. So our expectations about profitability in 2015 and forward are not at all related to GTA Online to be specific. And your second question was?
I guess just some sort of engagement metrics? I mean, do you plan to provide us moving forward any sort of kind of like payer conversion or ARPU? Are those sort of considerations that are going to help us kind of shape with this thing to generate in terms of performance?
We try to be as transparent as possible. And if we have meaningful contributors, to our revenue and profitability, then we aim to provide transparency. So it remains to be seen. Right now, it's not a topic we need to us.
And then just curious on just general engagement overall. I mean initially people going into the online experience, are you seeing a drop off as there's kind of this continual balancing? And are people actively playing it? Is it growing? Any sort of insight there would be helpful.
Hi, Mike. It's Carl.
Like I said before, we're not discussing what the specific numbers around engagement at this point. But as I mentioned earlier in the call, right, there are many people playing it. The engagement has been very high and the feedback has been extremely positive. And we couldn't be more pleased where we're sitting right now with this, with this exciting opportunity. I just don't have any specifics to share with you right
Okay. And then for fiscal 2015, just thinking obviously you expect to be profitable here for a period of time. Just thinking about fiscal 2015, how much is that catalog performance cost control versus having to get new games to the market and outside of maybe the ones that are pretty easy to model. I mean, we're all trying to get an idea of the key drivers fiscal 'fifteen. I think it's pretty easy to know that MBA and WWE and some of these online experiences are going to be contributors.
But how much how important are the UN and ounce gains in terms of driving performance?
It's a great question. Our catalog does provide a nice backbone for our business. We have the high performing catalog per SKU in the business and that's driven by our very high metacritic ratings. Consumers keep buying our titles and keep buying the titles even after transitions of platforms. So we remain, optimistic about our catalog going forward and digitally delivered offerings, foot with that because one of the things that digital distribution does is make sure catalog more available.
That said, our plans for 15, in fact, reflect a robust release schedule of next gen titles. We've said that we have more than 10 in development. And, generally speaking, in order to be, to deliver the kind of results we hope to deliver and want to deliver, we do need, and expect to have new tenfold releases.
All right. Thanks guys.
Our next question comes from the line of Brian Fitzgerald with Jefferies. Please proceed with your question. Thanks
guys. Maybe a follow on to that last question. With your impressive catalog library, are there any unique dynamics you see to catalog sales as you roll through a hardware transition. And then on launches like GTA5, what kind of impact or positive pull through do you see on a GTA catalog with that type of event Thanks.
Hi, Brian, it's Carl. Your first question was about dynamics on catalog in the console transition. Yes. Is that correct? Okay.
We haven't really seen a lot of dynamics that we could specifically relate to a console transition. In terms of catalog. What we are seeing is catalog the amount of digital activity in our catalog is increasing over time. Said we stated that in the past. But to specifically say that this is related to a console transition, we can't really see that at this point.
And the second question, I'm sorry.
I apologize again. What was Just what the GTA 5 in catalog has to do with one other. GTA, the GTA series continues to sell extra early well. Years and years after it's released. I mean, in this past year, we put out the 10th year anniversary edition for GTA3 on tablet a great force.
We've talked about that before. And and console transitions don't hurt our catalog particularly. People keep playing old titles on old consoles that they still have even when they buy new consoles, if the titles are good enough. There's an element of nostalgia, but only for the best titles. So we have high hopes for our catalog and digital distribution obviously provides another opportunity.
And there are other platforms, whether that steam or whether that's any number of other, opportunities to release our catalog.
Mr. Zelnick, it appears we have no further questions at this time. I would now like to turn the floor back over to you for closing
Well, once again, thank you so much for joining us. I just want to take one last moment to express, our gratitude to all of our colleagues all over the world for the extraordinary quarter, our outlook for the year, and, and just how well this company is doing, we feel like we're firing on all cylinders and We're grateful to all of our colleagues for making that happen and thank you for joining us.
Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at time. Thank you for your participation, and have a wonderful day.