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UPDATE 2 - Microsoft paid a reported $50 million advance to secure exclusive Grand Theft Auto IV downloadable content for Xbox 360. Next-Gen spoke with Microsoft and analyst Michael Pachter about the deal.
Stock analysis site Seeking Alpha reports (via NeoGaf) that that Microsoft will be forking over a a $50 million advance to GTA IV publisher Take-Two in order to secure exclusive GTA IV downloadable content.
Speaking to Evan Wilson of Pacific Crest Securities, newly-appointed Take-Two CFO Laine Goldstein said in a recent earnings call that the first batch of downloadable content should be available in March 2008 followed by another episodic download later in the year.
“The first $25 million is for the first episodic content package that’s supposed to go out and that is in March of ’08. That’s why it moved into current because it’s in the next 12 months. The second $25 million will be for the second episode, and that will be later in fiscal ’08,†Goldstein said.
Goldstein was addressing Wilson's question regarding the "deferred revenue chunk" (i.e. the money Microsoft paid Take-Two in advance) as it relates to GTA IV's downloadable content.
Next-Gen contacted Wedbush Morgan Securities analyst Michael Pachter, who further explained the deal. "What Microsoft did was pay a $50 million advance," he said, much in the same way a big-name author receives a payment in advance of his or her next book.
In other words, he said, the $50 million is not a fee that Microsoft paid Take-Two solely to secure the rights for the content. Rather, Microsoft is confident that Take-Two's portion of the revenue generated by GTA IV content downloads will surpass the $50 million advance paid.
"Microsoft basically said that it's happy to pay [Take-Two] in advance $50 million in revenue that [Take-Two] is going to receive from GTA IV downloads," he said.
Microsoft takes about a 30 percent cut from Xbox Live Marketplace content sales, according to Pachter.
Taking that 70/30 split (publisher/Microsoft) and the $50 million advance into account, Microsoft is apparently confident that GTA IV download revenues over Xbox Live will be at least $70 million.
If revenues don't meet that figure, Take-Two will have to return some of the advance, according to Pachter. But he said that there's no reason to believe Take-Two would actually miss that revenue target.
He also stated, "By giving this advance, Microsoft did extract from Take-Two the promise to make [GTA IV content] exclusive. But there will not be any downloadable content for PS3, at least for some time. My guess is at least for a year."
Next-Gen also contacted Microsoft for comment regarding the exclusivity deal, but the firm opted not to confirm the terms of the deal. "The quality, depth and breadth of our Xbox 360 portfolio is a testament to the great relationships we’ve established over the years with our third-party partners," read a prepared statement from Microsoft. "Just as we recognize how important their video game titles are to driving an unrivaled gaming experience on the Xbox 360, they recognize the immense value of having their titles on our platform. Xbox 360 is easy to develop on, we have the largest online social network on television with Live and we’re in more homes than any other next generation console in the world.
"At the end of the day, our third-party publishers own their IPs and ultimately decide where they’re going to take their franchises, and we’re thrilled that they’ve made the choice to build for the Xbox 360. Microsoft does not comment on business arrangements with our partners."
Calls to Take-Two were not immediately returned as of press time.
