Summit Notebook

from MediaFile:

GlobalMedia-Ghosts of Atari haunt gaming sector dealmakers

The video game sector is often seen as being particularly ripe for consolidation, with some expecting old line media giants such as Time Warner to swoop in and scoop up a publisher to diversify their entertainment rosters.

But Strauss Zelnick, chairman of "Grand Theft Auto" publisher Take-Two Interactive, remains surprised by the lack of action on the consolidation front. “I think the legacy media companies have not been especially aggressive about interactive entertainment,” he said at the Reuters Global Media Summit in New York on Wednesday. His company, of course, fought off Electronic Arts' hostile takeover bid in 2008.

“I have to admit there are times when I’m surprised they’re not more exposed."

He said media world executives have long memories, which may explain in part their reluctance to buy a video game outfit. He said one name in particular, Atari, remains a cautionary tale. Warner Communications bought the iconic video game name in 1976 in what turned out to be a disastrous deal.

“The people who have run companies have all been around long enough to remember the Atari debacle that almost destroyed Warner Communications, and they just can't get it out of their minds. Never mind that we’re not in the cartridge business anymore, never mind that was a licensed product, never mind that that it was badly managed situation. They just can’t forget that it almost tanked Warner Communications and actually changed the balance sheet of the company.”

That kind of skittishness isn't warranted, he argued, maintaining the video game industry is "less volatile and less risky than their motion picture businesses.”

“If I were managing  one of the old media business, heaven forbid, I would be integrating heavily into interactive entertainment because it’s a growth business."

Mattresses and pillows, a diversified portfolio

With financial markets in turmoil and the U.S. economy in recession, we asked top entertainment and sports executives at the Reuters Media Summit for some investment advice.

Our question: “If we gave you $50,000, where would you invest?” One rule: They couldn’t pick their own company. But then we thought $50,000 was too little for well heeled executives, so we switched it to $50 million. But that seemed excessive. After all, we’re talking about personal investments — so we settled on giving them a cool $1 million.

Here’s what they said:

“In a pillow … You might look at the energy sector, you might see what happens with gold. I’ve got cousins who work in the banking industry. When I asked them, they told me put it in my pillow. That is your answer.” – Havas’s MPG Chief Operating Officer Steve Lanzano

“I would be in the most conservative mechanisms I could — treasury bills, whatever, absolutely. The old trite bromide about cash is king? Well, that is true and more true today than ever before.” – Major League Baseball Commissioner Bud Selig

“I’d put 40 percent of it into exceedingly high-yielding senior debt securities in a diversified array of businesses. I’d put 30 percent of it with a pretty diverse array of fund managers who have a strong track record of navigating choppy times in an array of strategies. And then I’d take the final 30 percent and buy Time Warner stock … I will tell you why I love Time Warner. OK, so it’s trading at 50 percent of book, and these are people who, post AOL, were incredibly aggressive about writing down their book value. So it’s trading at 50 percent of essentially tangible books, tangibles you are going to get for a media company. They are not especially exposed to advertising. A lot of their revenues are very sticky. They still own their cable assets. You are getting a free option on the value of whatever happens in the spin-off. They generate, I think, $13 billion in EBITDA right now, if I’m not mistaken. And all their debt obligations are laddered out well into the future so they have no particular financing risk. So if you figure we have three horrible years ahead of us — and I don’t believe we do, but if you do — they are perfectly fine from a capital point of view for the next few years. And even after all obligations, all repayments, all capex, they still generate loads of free cash flow. Even if you don’t think they are particularly well-positioned strategically — they are currently yielding 2.7 percent, and I see no reason for the dividend to go down.” – Take Two Interactive Inc Chairman Strauss Zelnick

“If I had a knife, I would probably put it in my mattress. No, seriously, I think if somebody gave you $1 million today, I think my gut tells me that the market would probably be a good place to put it … But there’s a little bit of hesitancy there. Have you reached bottom yet? Who knows. Do you actually have to actually reach bottom before it’s a good time to invest? Probably not. But this might be a good time to put money in the market if somebody just hands you $1 million … I would avoid the financial stocks for now because I’m not sure all the bad news is out. You know, you would think as low as some of those stocks are, that there would be buys, but some of them may not be around at all. So I would stay out of the financial sector. I probably would steer more toward durables and things that people are going to need year in and year out. They can be a bit volatile too, but you know that they are going to be around for years to come. I don’t think I would invest in domestic auto stocks today. You know, natural resources and products that are going to continue to be in demand, even some of the medical and drug companies.” – Regal Entertainment Group CEO Mike Campbell

Zelnick: Welcome to the emergency room

Strauss Zelnick, chairman of Take Two Interactive, has a bone to pick with the media: He doesn’t like the two words “Financial” and ”Crisis.” At least not when they are used to describe the current state of economic affairs.

“I don’t think we’re in a financial crisis,” Zelnick said at the Reuters Media Summit. “The use of the word crisis — I’m loathe to be critical of the media since I’m every bit a part of the media — but I don’t think the word has been especially helpful. We’re obviously in a recession and these are very very trying times.”

If not a financial crisis, then what? Well, Zelnick offers up a hospital metaphor. 

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

Call it what you like. Either way, It’s not pretty.

(Photo: Reuters)

Grand Theft Audio 4 seen as “work of art”, EA says

The spectacular debut this month of Take Two’s blockbuster video game Grand Theft Auto was no better than expected, EA’s head of international publishing, Gerhard Florin, told the Reuters Technology, Media and Telecoms summit in Paris.

EA on Monday extended its public offer for Take Two by a month after failing to win more shareholder support for its $2 billion hostile bid but did not up the price. Florin said he was surprised there had not been a more negative approach to the violent game, which instead was hailed as a work of art, even in Germany, which tends to shun violent video games.