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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: This is Wall Street Week. I'm David Weston, bringing you

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Speaker 2: stories of capitalism, putting new wine into old bottles. We

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Speaker 2: take a look at one company that has remade itself

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Speaker 2: successfully more than once, New Balance, and one that doesn't

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Speaker 2: seem to be able to make the turn Hurts, and

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Speaker 2: the whole world of gaming is waiting for the sixth

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Speaker 2: edition of Grand Theft. Auto straus Zelnik of Take two

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Speaker 2: explains why he left a successful career as a movie

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Speaker 2: mogul to get on the ground floor of video game creators.

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Speaker 2: But we start with the story about shock and awe,

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Speaker 2: something we hear about as a tactic in warfare, but

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Speaker 2: that usually doesn't come up in public exchanges. Among those

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Speaker 2: who have been allies for eighty years.

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Speaker 3: The EU treat us very very unfairly, very badly.

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Speaker 4: We have to rely on our own defense industrial base.

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Speaker 4: We cannot buy American products when it goes to defense,

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Speaker 4: because you know, there is a string attached. There is

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Speaker 4: a double key.

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Speaker 2: Zenny mitten Bedows is editor in chief of the Economist

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Speaker 2: and has a front row seat for the increasingly strained

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Speaker 2: relations between Western Europe and the United States and how

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Speaker 2: the Europeans are taking it.

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Speaker 5: This is the first time I've been in New York

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Speaker 5: since the President Trump took over, since the inauguration, and

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Speaker 5: I'm struck at how relatively little I think people here

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Speaker 5: are focused on, just how dramatically the perception of the

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Speaker 5: US actually around the world, but particularly.

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Speaker 6: In Europe, has changed.

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Speaker 5: But what's happened in the last few weeks has really

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Speaker 5: shocked Europeans because they have realized that a significant element

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Speaker 5: of this administration is outright hostile to Europe, doesn't like Europe,

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Speaker 5: particularly the European Union as a concept. One shouldn't exaggerate

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Speaker 5: too much from sort of individual moments of theater, because

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Speaker 5: this is an administration that loves moments of theater. But nonetheless,

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Speaker 5: that dressing down of President Zelenski in the Oval Office

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Speaker 5: had a visceral reaction in Europe because it was watched

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Speaker 5: by everyone I met had watched it, even people who

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Speaker 5: aren't usually interested in current affairs, and everyone had been

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Speaker 5: shocked at the treatment of this man, this brave man

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Speaker 5: speaking in his third language, by the President of the

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Speaker 5: United States. And those two some powerful examples of I

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Speaker 5: think a recognition in Europe that actually maybe the United

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Speaker 5: States is not a country that Europe can rely on.

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Speaker 5: And the country that created the North Atlantic, the NATO Agreement,

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Speaker 5: the country that built the post war order, the country

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Speaker 5: of the United States, there's always been the backbone of

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Speaker 5: this post war system.

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Speaker 6: I think Europeans have just been really shocked.

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Speaker 5: And of course things can change, and of course there

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Speaker 5: can be a change in the relationship with Ukraine and

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Speaker 5: all of those things, but even if things now go

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Speaker 5: to a more conventional place, Europe has been shocked and

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Speaker 5: shocked such that I think every single politician in Europe

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Speaker 5: is having to think about can we rely on the

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Speaker 5: United States? Can we really only think about a world

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Speaker 5: where we spend more and we have a NATO which

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Speaker 5: is the same except that we spend more, or do

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Speaker 5: we need to think about having a plan B in

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Speaker 5: case this really is a country that is hostile to

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Speaker 5: us and it is outright bent or not having our

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Speaker 5: interests at heart. And that's a really big shift for Europe,

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Speaker 5: and I think that it's something that is going to

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Speaker 5: the upside. I hope is that it will be one

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Speaker 5: of those moments that galvanizes Europe.

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Speaker 2: When you say Europe is shocked, I guess My question

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Speaker 2: is shocked into action. If you're Europe, what do you

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Speaker 2: do well?

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Speaker 5: That's always the question with Europe, that you can, you know,

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Speaker 5: you can have a lot of pearl clutching and then

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Speaker 5: nothing actually happens. But I think you've seen enough already

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Speaker 5: to take a view that this is different. If you

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Speaker 5: look at what's happened in Germany, and you know Friedrich Meltz,

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Speaker 5: the soon to be Chancellor of Germany, very clearly saying

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Speaker 5: it's five minutes to midnight.

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Speaker 6: We will do everything it takes.

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Speaker 5: And that's the phrase remember that as associated with Mario Dragi,

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Speaker 5: who was during the euro crisis president of the European

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Speaker 5: Central Bank, and he said they would do everything that

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Speaker 5: it takes to hold the euro together. The same language

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Speaker 5: Finich Melts very clearly signaling the Germany, which is of

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Speaker 5: course the biggest economy in Europe and the one that

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Speaker 5: has been obsessed with its you know, fiscal prudence and

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Speaker 5: its debt break, would do everything that was necessary to

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Speaker 5: increase defense spending. And you've seen other countries in Europe,

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Speaker 5: you know Poland talking about nuclear weapons. You've seen big changes,

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Speaker 5: and I think this could be one of those moments

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Speaker 5: where the European commissioners galvanized.

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Speaker 6: They're making it easier to you.

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Speaker 5: Know, find resources to pay for a very signficant increase

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Speaker 5: in defense spending.

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Speaker 6: And to give you a scale.

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Speaker 5: Of it, the European Union countries spend about one point

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Speaker 5: eight percent of GDP on defense, which is well below,

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Speaker 5: as President Trump would tell you, the two percent that

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Speaker 5: they're supposed to, and certainly nowhere near enough if they

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Speaker 5: can't rely on the United States. How much Europe needs

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Speaker 5: to spend depends on how you know, darker scenario you

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Speaker 5: want to paint in terms of the US turning its

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Speaker 5: back on Europe and the threat posed by Vladimir Putin.

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Speaker 5: But at the very least, it's the doubling of defense

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Speaker 5: spending three point five three point six percent of GDP.

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Speaker 6: That's a huge.

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Speaker 5: Increase in defense spending. And so one question is will

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Speaker 5: the Europeans actually do it? Because they're slow growing, they're indebted,

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Speaker 5: they're high tax economies. I think this German shift is

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Speaker 5: a very very big moment because I think it signals

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Speaker 5: that the one country that has the capacity to borrow

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Speaker 5: a lot more is intending to do so.

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Speaker 6: The European Union.

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Speaker 5: Can as it did during COVID actually issue joint bonds to.

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Speaker 6: Pay for this.

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Speaker 5: I think you will have more what you call safe

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Speaker 5: assets in Europe, more commonly issued debt, which investors actually

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Speaker 5: may well lap up because people will be looking for

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Speaker 5: a non dollar.

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Speaker 6: Asset that is a safe asset.

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Speaker 5: So I think you could see a big shift in

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Speaker 5: European financial markets.

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Speaker 6: If this money on defense is spent well and spent.

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Speaker 5: Effectively, you could see a kick starting to technological innovation.

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Speaker 5: Look at drone capability that's being developed in Ukraine. If

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Speaker 5: the Europeans work with the Ukrainians provide the financial wherewithal

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Speaker 5: to really kind of develop and scale up that capability,

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Speaker 5: That's an area where Europe is now at the cutting

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Speaker 5: edge of military infrastructure. That's one of the reasons why

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Speaker 5: European defense docks have been soaring, because there is the

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Speaker 5: potential in Europe.

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Speaker 6: To do that. Now, there's a lot there's a ton

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Speaker 6: of things that could go wrong.

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Speaker 5: Never you know, overest never underestimate European country's ability to

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Speaker 5: think about their parochial interests rather than.

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Speaker 6: What makes sense for Europe as a whole.

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Speaker 5: One of the consequences of what Donald Trump has done

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Speaker 5: may well be to unify Europe, to increase its defense

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Speaker 5: spending substantially, which is of course what he wants, but

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Speaker 5: actually also to kickstart Europe's economies and to kickstart its

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Speaker 5: capability of having a financial asset that would over time

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Speaker 5: be something which might be eventually become an alternative.

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Speaker 6: To the dollar.

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Speaker 2: Countries in Europe are under pressure to figure out how

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Speaker 2: to serve their individual interests while addressing a priority for

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Speaker 2: the whole union. We may, as you say, be seeing

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Speaker 2: the political will in much of Europe to move forward.

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Speaker 2: Is there the capacity, and particularly is the capacity in leadership.

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Speaker 2: You've got to make some tough decisions about where to

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Speaker 2: get the money and how to spend it you have.

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Speaker 5: And I think the easy answer to your question would

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Speaker 5: be to say, look around Europe and there are only

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Speaker 5: kind of political pigmies. But actually I think that's and

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Speaker 5: I've made that argument myself, but that's slightly unfair if

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Speaker 5: you look at, for.

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Speaker 6: Example, Meltz, who.

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Speaker 5: I interviewed before the German election, and I asked him

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Speaker 5: about some of these questions, what did Europe Germany need

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Speaker 5: to do on defense and so forth? And he was

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Speaker 5: unwilling to really sort of put his neck out he was.

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Speaker 5: He was quite cautious, and he's a man who's been

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Speaker 5: a staunch Atlanticist all his life. And you know, you

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Speaker 5: could forgive that, I suppose because it was just before

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Speaker 5: an election and he doesn't want to say anything terribly controversial.

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Speaker 5: But it made me think, made me worry exactly as

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Speaker 5: you suggest that is this man someone who can really,

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Speaker 5: you know, step up if needed. And frankly, what we've

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Speaker 5: seen since the election, in light of what the President

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Speaker 5: Trump has done, has actually been.

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Speaker 6: I think pretty remarkable.

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Speaker 5: Others have real constraints. Emmanuel Markran President of France, I

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Speaker 5: think loves grand, grandiloquent language and grand gestures and I'm.

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Speaker 6: Sure he wants did all of this.

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Speaker 5: In fact, to his credit, he was the man who,

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Speaker 5: you know, a few years ago said to us that

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Speaker 5: NATO was brain dead and that Europe needed more strictic autonomy.

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Speaker 6: He's worried about this for a long time.

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Speaker 5: His problem is that he's actually very weak domestically, and

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Speaker 5: he's the domestic politics within France make it harder for him.

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Speaker 5: Kiir Istama, Prime Minister of Britain, I think has come

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Speaker 5: out so far very well. He also is he's trying

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Speaker 5: to hwe a very difficult line because on the one hand,

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Speaker 5: Britain traditionally the special relationship with the United States. Our

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Speaker 5: military is particularly entwined with the United States, are intelligence

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Speaker 5: so forth, members of the Five Eyes, all of that stuff.

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Speaker 5: The Brits are very very keen to hug the US close.

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Speaker 5: But at the same time he has worked very effectively

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Speaker 5: with Immanuel Marquant in particular on Ukraine. He's very clearly

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Speaker 5: trying to shape a European response, and I think he's.

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Speaker 6: Risen to the occasion.

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Speaker 5: Again in the UK's case, in order to fund the

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Speaker 5: kind of defense expending that we need to do, he

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Speaker 5: actually needs to do the radical pro growth reforms which

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Speaker 5: he talked about, but again we worried that the Starma

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Speaker 5: government would not be sufficiently bold to do. If he

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Speaker 5: does that, he will also be deserving in the president

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Speaker 5: with him, we I think more in hope more than expectation.

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Speaker 5: We put on the cover just a couple of weeks

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Speaker 5: ago Winston Starmer and had him, you know, dressed in

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Speaker 5: dress like Winston Churchill its early days. Ask me again

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Speaker 5: in a few months whether.

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Speaker 6: They live up to it. But I think those would

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Speaker 6: be the three people I would look out for.

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Speaker 2: Defense spending is just one part of the bigger European

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Speaker 2: issue of remaining barriers among member states, including in financial

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Speaker 2: regulation and capital markets. I'm mindful of the name of

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Speaker 2: your publication the economists. Can Europe get to where it

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Speaker 2: needs to go without fundamental reform of the capital markets.

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Speaker 6: The simple answer is no in the medium term.

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Speaker 1: No.

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Speaker 5: Capital markets Union is a kind of you know, aspiration

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Speaker 5: that the European Union has had for a long time

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Speaker 5: and has made very little progress on. I think it's essential.

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Speaker 5: I think the creation of a safe asset that can

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Speaker 5: be a common asset for investors to hold in Europe

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Speaker 5: is essential. I think this stuff can come and will

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Speaker 5: come actually eventually, but you will not have a dynamic

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Speaker 5: European continent without that.

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Speaker 6: I think it's completely essential, but it's not the only thing.

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Speaker 5: You know, there's all kinds of other You need a

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Speaker 5: much more pro growth regulatory environment. You need to have

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Speaker 5: a European Commission which is much more focused on creating

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Speaker 5: the conditions for brisk taking, for innovation, for growth that

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Speaker 5: doesn't think that things needed to be regulated first. I

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Speaker 5: mean that the attitude towards tech has been very telling.

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Speaker 5: Right in Europe, where you know, the European Union has

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Speaker 5: probably got the most aggressive and encompassing tech regulation, but actually,

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Speaker 5: you know, no major tech company to speak of. That

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Speaker 5: kind of thing has to be changed, and I don't

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Speaker 5: want to appear of Panglossian.

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Speaker 6: I think it's perfectly.

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Speaker 5: Possible that Europe could fail to do what we've been

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Speaker 5: talking about. But I do think this moment, these last

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Speaker 5: few weeks have given Europe a sort of a shock

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Speaker 5: that has had a kind of consequence in Europe that

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Speaker 5: I wasn't anticipating. There is now a sense of urgency,

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Speaker 5: there's a sense of what's at stake, which could just

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Speaker 5: be the galvanizing moment that is needed for this to

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Speaker 5: really happen.

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Speaker 2: Coming up, we look at two companies that have been

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Speaker 2: around a while and decided they needed a reset, New

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Speaker 2: Balance which got the reset right, and Hurts, which didn't.

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Speaker 2: This is a story about renewal companies that have known

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Speaker 2: great success but face changing tastes and changing markets, companies

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Speaker 2: that have to rethink what they're doing to success.

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Speaker 1: Some do it well in Carol Company, New Balance really

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Speaker 1: continuing to expand the US manufacturing presence.

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Speaker 2: And some get it wrong.

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Speaker 3: A pair of finance veterans bought the bankrupt car rental

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Speaker 3: company Hurts in twenty twenty one and went all in

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Speaker 3: on electric and it turned out to be a bad bet.

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Speaker 2: It was not long ago that New Balance was known

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Speaker 2: for the ultimate dad sneaker.

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Speaker 7: What happened to your feet?

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Speaker 2: What do you mean?

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Speaker 8: These are my four oh sevens?

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Speaker 9: Oh?

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Speaker 7: The four oh sevens? Can I see them?

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Speaker 10: Yeah?

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Speaker 8: He's offered a lot of support, right.

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Speaker 2: Well, come on, and now it's a shoe worn by

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Speaker 2: celebrities and runway models. Joe Preston is the CEO who's

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Speaker 2: overseen the latest transformation of a company. Dating back to

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Speaker 2: nineteen oh.

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Speaker 11: Six, New Balance was the first athletic brand to have

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Speaker 11: an NBA player with a million dollar contract. By the

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Speaker 11: time the late eighties came along, New Balance was struggling.

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Speaker 11: All of our competitors had moved all of their production

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Speaker 11: from the US over to Asia, and that in part

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Speaker 11: put us at a little bit of a competitive disadvantage.

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Speaker 11: And then in the early nineties we retracted and just

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Speaker 11: focused on running. We wanted to make sure that we

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Speaker 11: could carve out a positioning with that new strategy. But

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Speaker 11: then around two thousand and eight, two thousand and nine.

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Speaker 11: We knew we needed to get younger, We knew we

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Speaker 11: needed to get back into sport, and we made an

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Speaker 11: entry into baseball, and we set this lofty goal of

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Speaker 11: being number one in baseball within five years. And in

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Speaker 11: the beginning there was a lot of doubt internally as

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Speaker 11: to whether whether or not we could do that.

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Speaker 2: It wasn't a straight ride up. As New Balance went

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Speaker 2: through its transition, its global sales fell from an estimated

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Speaker 2: four point five billion dollars in twenty eighteen, that's the

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Speaker 2: year Preston took over, down to some three point four

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Speaker 2: billion dollars in twenty twenty. But then they took off,

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Speaker 2: hitting seven point eight billion dollars last year, an approximate

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Speaker 2: seventy three percent increase under Preston's leadership. What caused you

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Speaker 2: to have a couple of years that were challenged.

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Speaker 11: I wouldn't say we were going south, We would going sideways.

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Speaker 11: We had a rapid growth that was happening internationally, specifically

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Speaker 11: in North Asia and in Europe and in that head flatline,

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Speaker 11: and we were not able to take truly advantage of

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Speaker 11: the brand here in North America, and so we reset

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Speaker 11: in twenty nineteen to try to put the company in

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Speaker 11: position for growth, and then obviously COVID hit, which kind

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Speaker 11: of stalled things a little bit, but we could see

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Speaker 11: in the back half of twenty twenty that the brand

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Speaker 11: was beginning to resonate and we've been able to grow

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Speaker 11: twenty plus percent for four consecutive years.

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Speaker 3: There's three key traps that I think are key to

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Speaker 3: understanding why some firms are better situated to reinvent themselves.

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Speaker 2: Ryan Raphaeli is a Harvard Business School professor who teaches

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Speaker 2: corporate reinvention.

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Speaker 3: The first trap is the trap that I call the

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Speaker 3: identity trap, and this is too tightly coupling the questions

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Speaker 3: around who we are with a very specific product or surface,

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Speaker 3: and get so tied to one product or service that

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Speaker 3: we sort of lose sight of everything else around us.

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Speaker 3: The second trap is one that I call the architecture trap,

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Speaker 3: and this is where we think about you have different

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Speaker 3: products and services on an S curve sort of at

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Speaker 3: different phases of maturity. And what often happens is in

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Speaker 3: organizations is they're designed where all the same systems and

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Speaker 3: structures and incentives are applied to early stage innovations versus

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Speaker 3: processes of innovation that may be needed for a later stage,

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Speaker 3: more mature products, and this can often kill out the

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Speaker 3: early stage. There's a third trap, the collaboration trap.

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Speaker 6: And this is a.

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Speaker 3: Trap or what you see is that individuals tasked with

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Speaker 3: innovation at different phases of an s curve often begin

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Speaker 3: to either not trust each other and you get this

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Speaker 3: internal resentment that can often kill off innovation for reinvention

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Speaker 3: that has to happen for the future.

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Speaker 2: New Balance successfully skirted those three traps, leading to a

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Speaker 2: revamp that's allowed the company to expand its footprint, sponsoring

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Speaker 2: both the New York City and London Marathons and hosting

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Speaker 2: athletic events at their own Boston track.

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Speaker 11: Today will mark the opening of the New Balance Nationals.

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Speaker 11: We'll have six thousand of the best track and field

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Speaker 11: high school athletes in the country that come to campus

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Speaker 11: here and come to this brand new facility.

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Speaker 7: But this is a revenue raiser for you.

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Speaker 2: Does is work?

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Speaker 9: Not really?

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Speaker 1: Now?

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Speaker 11: This is you know, this is an opportunity for us

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Speaker 11: to engage with these young athletes.

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Speaker 2: And the athletes are engaging back. Coco Goff Kawhi, Leonard

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Speaker 2: Bocayosaka and perhaps the biggest of them all Shohei Otani

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Speaker 2: all New Balance athletes.

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Speaker 10: This is all of show Hayes's collection. You can also

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Speaker 10: see those are his signature cleats.

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Speaker 2: Samantha Siciliano is the lead athlete insights researcher at New Balance.

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Speaker 10: The collaboration with the athletes is key for us. We

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Speaker 10: learn so much from them and it's stuff that we

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Speaker 10: can use for all of our pros, but it's all

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Speaker 10: the things that we can use for our community athletes

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Speaker 10: and make sure that those athletes are getting the best

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Speaker 10: product possible.

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Speaker 11: The reason why that we can enter into these sports

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Speaker 11: is twofold. One of them is that our product engine

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Speaker 11: is just so strong, the investment that we may continually

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Speaker 11: into product and innovation, and through our Sports research center,

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Speaker 11: we can go in and test any different type of

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Speaker 11: product for any of those sports. And the other element

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Speaker 11: is as the brand is becoming more widely known, we

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Speaker 11: have athletes coming to us from these various sports looking

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Speaker 11: to be part of the brand.

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Speaker 2: As you evolve the company, how do you retain some

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Speaker 2: of the basics and at the same time innovating go

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Speaker 2: into new places. How do you get that balance right?

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Speaker 11: It is seventy thirty seventy meaning making sure we are

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Speaker 11: retaining the culture that we have here because we believe

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Speaker 11: it to be a differentiator. Now we're a family owned company,

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Speaker 11: we're privately held, and how we operate is as important

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Speaker 11: as the result. And I think we have strengthened our

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Speaker 11: culture as we have grown.

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Speaker 8: But it's a challenge.

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Speaker 11: You continue to add people as you get larger, and

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Speaker 11: you just want to make sure that people are assimilating

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Speaker 11: and are also contributing to a strong culture that you have.

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Speaker 2: New balances sports and Innovation lab is a key part

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Speaker 2: of the company's architecture, giving it a recipe for some

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Speaker 2: of its greatest hits.

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Speaker 3: So when we think about technological changes most firms, we

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Speaker 3: can go back to these classic theories of like the

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Speaker 3: S curve, right, the idea that you have a technology

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Speaker 3: or a product associated with that it sort of starts

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Speaker 3: in its infancy, it then starts to move through a

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Speaker 3: period of growth, and then it eventually matures. And so

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Speaker 3: for many firms, they're managing these S curves within and

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Speaker 3: what often happens in processes of reinvention is what you

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Speaker 3: tend to see is that for established firms, they don't

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Speaker 3: have the luxury of just managing one of these curves

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Speaker 3: at a time, and so the challenge for them is

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Speaker 3: to try to figure out, well, how do you manage

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Speaker 3: multiple curves with product and services that sit at different

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Speaker 3: phases of those s curves simultaneously and keep the whole

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Speaker 3: thing running. It's one of the core components, right because

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Speaker 3: you're having to think about not only what do you

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Speaker 3: need to do to make yourself successful today and appease

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Speaker 3: your current customer base, but also what's the next thing

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Speaker 3: that will potentially drive growth and revenue in the years ahead.

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Speaker 2: If New Balance was a company that successfully appealed to

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Speaker 2: both its former and new customer bases, Hurts is far

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Speaker 2: from it.

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Speaker 9: Hurts has the largest ev rental fleet in North America,

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Speaker 9: charged and ready to go, Let's go.

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Speaker 2: The car rental company has gone through countless failed reinventions,

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Speaker 2: most recently making a bold move to replace much of

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Speaker 2: its fleet with Tesla electric vehicles.

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Speaker 8: We know our corporate travelers want electric vehicles to go

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Speaker 8: visit their clients and do business in We know our

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Speaker 8: leisure travelers want electric vehicles. It's a great way for

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Speaker 8: them to try a lot vehicle without committing.

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Speaker 7: As tonal attention to hers.

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Speaker 2: The rental call company misses its estimates as it sells

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Speaker 2: its fleet of Tesla EV's. The company lost two point

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Speaker 2: nine billion dollars in twenty twenty four on its failed

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Speaker 2: bet offloading thirty thousand evs. It's market caps slumping from

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Speaker 2: a peak of sixteen billion dollars in twenty twenty one

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Speaker 2: to sit at just over one billion dollars today.

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Speaker 12: The EV strategy actually was suggested by one of the

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Speaker 12: private equity partners who bought Hurts out of bankruptcy, and

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Speaker 12: at the time it seemed like a great idea.

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Speaker 2: Yale professor Jacob Thomas studied Hurt's failure to reinvent itself

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Speaker 2: time and time again. Some of the.

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Speaker 12: Reasons that worked against them, I think one of it

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Speaker 12: was just people didn't know how to drive the cars.

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Speaker 12: They've treated them badly. The repair, you know, was much

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Speaker 12: higher than expected. People complained about having not finding charging

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Speaker 12: stations and then having to pay Hurts for the cars

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Speaker 12: that were uncharged. The completely unexpected thing that happened is

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Speaker 12: that Tesla facing demand issues and they're worried about the

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Speaker 12: federal tax credit. They lowered the prices of their cars,

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Speaker 12: and so the new car prices fall. They used car

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Speaker 12: prices fall. It hurts is you know, is in trouble

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Speaker 12: because it has to make up the difference. So I

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Speaker 12: think it was just a combination of unexpected things. I

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Speaker 12: think it was worth I think it was worth trying,

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Speaker 12: but in hindsight, it was probably something that's going to

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Speaker 12: cost them a lot.

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Speaker 2: Ultimately. Thomas believes luck can contribute to a company's reinvention.

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Speaker 12: I think Hurts has had their share of bad luck.

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Speaker 12: They were doing really well until the pandemic hit. One

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Speaker 12: could argue that the ev strategy was a good one,

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Speaker 12: but it didn't work out.

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Speaker 3: Luck is about when opportunity meets preparation, and that is

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Speaker 3: the core to reinvention.

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Speaker 2: Pannels of business history are littered with bad luck stories

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Speaker 2: of corporate reinvention, but for the successful few, like New Balance,

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Speaker 2: the ability to strategize, innovate, and execute goes beyond just

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Speaker 2: good luck. As you look out, what do you examine

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Speaker 2: to figure out this will keep us going as opposed

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Speaker 2: to that one. I'm not sure that's going to get

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Speaker 2: us there.

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Speaker 11: But we're trying to make sure that the brand is

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Speaker 11: positioned from a premium standpoint, and when you do that,

446
00:23:27,680 --> 00:23:30,520
Speaker 11: you've got to be cognizant that you can grow, but

447
00:23:30,560 --> 00:23:33,280
Speaker 11: you've got to have controlled growth. So as we look

448
00:23:33,280 --> 00:23:36,400
Speaker 11: out into the future, you know, trying to maintain a

449
00:23:36,440 --> 00:23:38,520
Speaker 11: growth rate that we've had in the past few years

450
00:23:38,920 --> 00:23:40,520
Speaker 11: is not the first thing that we're looking at.

451
00:23:40,640 --> 00:23:41,960
Speaker 6: It's the quality of growth.

452
00:23:42,280 --> 00:23:45,240
Speaker 11: And so as we look forward, we know that sport

453
00:23:45,359 --> 00:23:48,600
Speaker 11: continues to be an area that we can develop. A

454
00:23:48,720 --> 00:23:51,240
Speaker 11: parel is a big opportunity, but all of it's under

455
00:23:51,280 --> 00:23:54,199
Speaker 11: this guise of making sure that we are following a

456
00:23:54,280 --> 00:23:55,480
Speaker 11: distribution strategy.

457
00:23:55,560 --> 00:23:57,280
Speaker 7: And today when you win.

458
00:23:57,200 --> 00:24:02,879
Speaker 2: That coming up, the two hundred billion dollar market of

459
00:24:03,000 --> 00:24:05,520
Speaker 2: video gaming is about to get a new version of

460
00:24:05,600 --> 00:24:09,919
Speaker 2: its most popular game ever, Grand Theft Auto six. We

461
00:24:10,040 --> 00:24:12,760
Speaker 2: talked to the man bringing it to you, Strauszelnik of

462
00:24:12,840 --> 00:24:27,480
Speaker 2: Take two. That's next on Wall Street reading. This is

463
00:24:27,520 --> 00:24:30,919
Speaker 2: a story about the power of play, how video games

464
00:24:30,920 --> 00:24:37,919
Speaker 2: can entertain us, connect us, and bring out our competitive side.

465
00:24:40,800 --> 00:24:43,280
Speaker 7: It's highly social, it's highly engaging.

466
00:24:43,760 --> 00:24:45,000
Speaker 6: I love video games.

467
00:24:46,600 --> 00:24:50,520
Speaker 12: Last of Us Part one and two, The Witcher, God

468
00:24:50,560 --> 00:24:50,960
Speaker 12: of War.

469
00:24:52,000 --> 00:24:54,520
Speaker 2: The video game industry has grown into a nearly two

470
00:24:54,640 --> 00:24:59,159
Speaker 2: hundred billion dollar global market, larger than film, television, and

471
00:24:59,320 --> 00:25:03,960
Speaker 2: music combined, and is projected to grow around six percent annually.

472
00:25:04,840 --> 00:25:07,200
Speaker 1: The really big hits of today, the Call of Duties,

473
00:25:07,280 --> 00:25:11,360
Speaker 1: the Fortnites, the esports football clubs, the Grand Theft Autos

474
00:25:11,400 --> 00:25:14,000
Speaker 1: like they just keep becoming more and more dominant.

475
00:25:14,640 --> 00:25:17,840
Speaker 2: In addition to being an avid gamer himself, Doug Krutz

476
00:25:17,920 --> 00:25:21,000
Speaker 2: is the senior Media, Entertainment and Gaming Analyst at t

477
00:25:21,119 --> 00:25:24,560
Speaker 2: D Cowen. He's been following the industry trends for decades

478
00:25:24,840 --> 00:25:28,840
Speaker 2: and has witnessed one game in particular, outshine the Rest.

479
00:25:28,960 --> 00:25:32,359
Speaker 1: GTA five has sold over two hundred million units life

480
00:25:32,359 --> 00:25:34,840
Speaker 1: to date, which is far and away the most at

481
00:25:34,840 --> 00:25:36,119
Speaker 1: any video game has ever sold.

482
00:25:36,119 --> 00:25:37,040
Speaker 7: It's not even close.

483
00:25:37,480 --> 00:25:40,560
Speaker 1: Has probably generated ten billion dollars in revenue Life to

484
00:25:40,640 --> 00:25:44,040
Speaker 1: date lines alone, but it's.

485
00:25:43,640 --> 00:25:48,080
Speaker 2: Pretty as Rockstar Games, a subsidiary of video game holding

486
00:25:48,119 --> 00:25:52,600
Speaker 2: company Take two Interactive, released Grand Theft Auto five back

487
00:25:52,640 --> 00:25:53,720
Speaker 2: in twenty thirteen.

488
00:25:54,640 --> 00:25:57,680
Speaker 7: Today, it's still the standard bearer for the industry even

489
00:25:57,680 --> 00:25:59,840
Speaker 7: though it was launched so many years ago, and that

490
00:26:00,000 --> 00:26:03,440
Speaker 7: it's kind of astonishing in a business where the technology

491
00:26:03,520 --> 00:26:05,600
Speaker 7: is continuing to change at a pretty steep rate.

492
00:26:06,560 --> 00:26:09,880
Speaker 2: Straus Zelnik is the chairman and CEO of Take two,

493
00:26:10,040 --> 00:26:14,320
Speaker 2: which is also behind successes like NBA two K, Borderlands

494
00:26:14,359 --> 00:26:17,960
Speaker 2: and Red Dead Redemption. But all eyes are on its

495
00:26:18,040 --> 00:26:22,160
Speaker 2: next installment of the Grand Theft Auto series, GTA six,

496
00:26:22,600 --> 00:26:24,359
Speaker 2: set to be released this fall.

497
00:26:25,200 --> 00:26:29,080
Speaker 7: The anticipation for that title may be the greatest anticipation

498
00:26:29,119 --> 00:26:31,399
Speaker 7: I've ever seen for an entertainment property. And I've been

499
00:26:31,400 --> 00:26:32,560
Speaker 7: around the block a few times.

500
00:26:32,600 --> 00:26:34,680
Speaker 2: It's been twelve years, now, why does it take that

501
00:26:34,760 --> 00:26:35,879
Speaker 2: long to come up with six?

502
00:26:36,560 --> 00:26:39,320
Speaker 7: We set an intention actually to rest our intellectual property.

503
00:26:39,400 --> 00:26:42,640
Speaker 7: So some of our competitors come to market very regularly,

504
00:26:42,680 --> 00:26:45,920
Speaker 7: maybe even annually. We think you need to create enormous

505
00:26:45,920 --> 00:26:48,159
Speaker 7: anticipation on the one hand, On the other hand, it

506
00:26:48,200 --> 00:26:52,879
Speaker 7: takes a long time to develop these big, robust experiences.

507
00:26:53,240 --> 00:26:55,320
Speaker 7: Rockstar Game Seeks perfection.

508
00:26:56,200 --> 00:26:59,280
Speaker 2: Take two is a major publisher and developer of Triple

509
00:26:59,359 --> 00:27:03,240
Speaker 2: A title, a classification used within the industry for high

510
00:27:03,240 --> 00:27:05,320
Speaker 2: profile games with high budgets.

511
00:27:06,160 --> 00:27:08,679
Speaker 7: Luckily we have the balance sheet for it. It's one

512
00:27:08,720 --> 00:27:11,280
Speaker 7: of the reasons that's standing up a company in a

513
00:27:11,320 --> 00:27:15,080
Speaker 7: garage today will be awfully difficult. So in a way,

514
00:27:15,320 --> 00:27:19,320
Speaker 7: the incremental costs have enhanced the barriers to entry to

515
00:27:19,359 --> 00:27:23,959
Speaker 7: benefit companies like ours, we have team sizes that are

516
00:27:24,000 --> 00:27:26,720
Speaker 7: as small as twenty people in the mobile space and

517
00:27:26,800 --> 00:27:29,280
Speaker 7: as large as thousands of people in the console space.

518
00:27:29,880 --> 00:27:33,240
Speaker 2: Even after spending all that money and time developing a game,

519
00:27:33,640 --> 00:27:35,560
Speaker 2: how does a company know if it will be a

520
00:27:35,680 --> 00:27:37,359
Speaker 2: hit or a miss.

521
00:27:38,000 --> 00:27:40,879
Speaker 7: You would look at the sales of the last iteration,

522
00:27:41,200 --> 00:27:43,920
Speaker 7: or in the case of new intellectual property, you sort

523
00:27:43,960 --> 00:27:46,560
Speaker 7: of get a sense of what you think that thing

524
00:27:46,640 --> 00:27:50,480
Speaker 7: looks like and compare it to other similar releases. We

525
00:27:50,600 --> 00:27:52,760
Speaker 7: have consumers come in and play the games along the

526
00:27:52,760 --> 00:27:55,360
Speaker 7: way and give us feedback. In the movie business, there

527
00:27:55,400 --> 00:27:57,280
Speaker 7: is testing, but what do you test. You can't really

528
00:27:57,280 --> 00:27:58,720
Speaker 7: test before you have a rough cut. To have a

529
00:27:58,800 --> 00:28:00,680
Speaker 7: rough cut, you've shot the entire thing.

530
00:28:02,359 --> 00:28:04,880
Speaker 6: I only wait then you get through.

531
00:28:04,880 --> 00:28:10,359
Speaker 7: This is by sticking together, being a team.

532
00:28:11,119 --> 00:28:14,640
Speaker 2: Like movie studios, gaming companies also market their product by

533
00:28:14,680 --> 00:28:18,679
Speaker 2: releasing trailers before game debuts. To date, the trailer for

534
00:28:18,720 --> 00:28:21,120
Speaker 2: Grand Theft Auto six has racked up more than two

535
00:28:21,240 --> 00:28:25,399
Speaker 2: hundred and forty five million views on YouTube. What's the

536
00:28:25,440 --> 00:28:27,720
Speaker 2: revenue stream look like? How do you get your money?

537
00:28:28,119 --> 00:28:30,160
Speaker 7: In the case of console and PC, there's a free

538
00:28:30,200 --> 00:28:32,880
Speaker 7: to play business, but that is largely a business where

539
00:28:32,880 --> 00:28:35,720
Speaker 7: you purchase a unit and then you often have the

540
00:28:35,800 --> 00:28:39,080
Speaker 7: opportunity to engage in an ongoing basis after the original

541
00:28:39,120 --> 00:28:42,960
Speaker 7: purchase through a multiplayer, for example, experience, and that would

542
00:28:43,000 --> 00:28:44,840
Speaker 7: be also monetized in game.

543
00:28:45,360 --> 00:28:48,040
Speaker 1: The question is how much in game revenue can it generate.

544
00:28:48,320 --> 00:28:52,760
Speaker 1: GTA five currently probably generates around half a billion dollars

545
00:28:52,760 --> 00:28:54,920
Speaker 1: a year in game revenue. Now that's a lot of money,

546
00:28:55,720 --> 00:28:58,560
Speaker 1: but it's less than half of what Call of Duty generates.

547
00:28:58,600 --> 00:29:02,360
Speaker 1: It's probably less than what EA Sports Football Club generates,

548
00:29:02,400 --> 00:29:06,240
Speaker 1: and it's maybe fifteen percent of what Fortnite generates. I

549
00:29:06,320 --> 00:29:09,200
Speaker 1: do think that GTA six online will be bigger and

550
00:29:09,320 --> 00:29:13,120
Speaker 1: better than GTA five, and it will probably be more successful.

551
00:29:13,120 --> 00:29:15,840
Speaker 1: And the only question is you know how much more successful.

552
00:29:16,640 --> 00:29:19,880
Speaker 2: But Strauss isn't putting all his eggs in one basket.

553
00:29:20,320 --> 00:29:23,920
Speaker 2: In twenty twenty two, Take two acquired mobile gaming giant

554
00:29:24,040 --> 00:29:26,600
Speaker 2: Zinga in an eleven billion dollar deal.

555
00:29:27,440 --> 00:29:29,800
Speaker 7: What was the most expensive acquisition that had been done

556
00:29:30,200 --> 00:29:34,200
Speaker 7: in the interactive entertainment businesses, eclipsed quickly by the Microsoft

557
00:29:34,240 --> 00:29:36,480
Speaker 7: Activision deal, but at the time it was a big deal,

558
00:29:36,480 --> 00:29:39,680
Speaker 7: and certainly a big deal for US. Mobile represents fifty

559
00:29:39,720 --> 00:29:42,920
Speaker 7: percent of our netbookings. It's a very successful business and

560
00:29:43,000 --> 00:29:45,880
Speaker 7: we have new hits. Our goal on the mobile side

561
00:29:46,080 --> 00:29:48,600
Speaker 7: is to have the number one market share mobile. We're

562
00:29:48,640 --> 00:29:51,360
Speaker 7: not there yet, we're heading in that direction.

563
00:29:52,200 --> 00:29:54,880
Speaker 2: About one hundred and ninety million people between the ages

564
00:29:54,880 --> 00:29:57,520
Speaker 2: of five and all the way up to ninety play

565
00:29:57,640 --> 00:30:01,760
Speaker 2: video games in the United States. Approximately three billion people

566
00:30:02,000 --> 00:30:06,440
Speaker 2: play worldwide. So how did the video game industry become

567
00:30:06,480 --> 00:30:09,560
Speaker 2: the behemoth in the entertainment sector that it is today.

568
00:30:10,440 --> 00:30:13,280
Speaker 1: It goes back in some ways to the nineteen sixties

569
00:30:13,280 --> 00:30:16,360
Speaker 1: when some people were fiddling around with electronic equipment and

570
00:30:16,400 --> 00:30:18,680
Speaker 1: seeing what they could do with it. From a commercial

571
00:30:18,720 --> 00:30:21,040
Speaker 1: point of view, it really started in sort of the

572
00:30:21,080 --> 00:30:25,480
Speaker 1: mid to late seventies with the Magnavox. The Atari twenty

573
00:30:25,520 --> 00:30:30,040
Speaker 1: six hundred was one of the first kind of mainstream consoles.

574
00:30:30,800 --> 00:30:33,600
Speaker 1: The next big thing was the launch of the Nintendo,

575
00:30:33,960 --> 00:30:36,800
Speaker 1: the original Nintendo entertainment system back in the mid eighties,

576
00:30:37,280 --> 00:30:41,040
Speaker 1: which really took off and made video games sort of

577
00:30:41,160 --> 00:30:44,800
Speaker 1: a permanent feature of the entertainment landscape. It's gone from

578
00:30:44,880 --> 00:30:48,400
Speaker 1: being sort of PC focused and then console focused, and now,

579
00:30:48,400 --> 00:30:51,120
Speaker 1: of course we've got the mobile game industry, which is

580
00:30:51,160 --> 00:30:53,760
Speaker 1: actually a majority of the industry now, in part because

581
00:30:53,800 --> 00:30:55,120
Speaker 1: everybody owns a mobile device.

582
00:30:55,960 --> 00:30:59,040
Speaker 2: In twenty twenty, the pandemic shut down the world, which

583
00:30:59,080 --> 00:31:03,120
Speaker 2: further fueled the market. And while lockdowns hurt businesses like

584
00:31:03,200 --> 00:31:06,800
Speaker 2: restaurants and tourist attractions, the video game industry got a

585
00:31:06,880 --> 00:31:09,200
Speaker 2: major boost, even for a short while.

586
00:31:10,600 --> 00:31:13,640
Speaker 1: The industry grew well over thirty percent in twenty twenty,

587
00:31:13,680 --> 00:31:15,840
Speaker 1: and there was some sort of residual growth in twenty one,

588
00:31:16,520 --> 00:31:18,600
Speaker 1: and then people came back out of their houses again.

589
00:31:18,680 --> 00:31:21,560
Speaker 1: It a lot of firms sort of saw the increased

590
00:31:21,560 --> 00:31:25,040
Speaker 1: demand and chased it. Maybe unwisely, people were chasing talent,

591
00:31:25,440 --> 00:31:28,400
Speaker 1: and again I think that that led to overinvestment, and

592
00:31:28,400 --> 00:31:31,040
Speaker 1: then when things moderated, you know, a lot of people

593
00:31:31,080 --> 00:31:32,000
Speaker 1: got caught off base.

594
00:31:32,800 --> 00:31:36,280
Speaker 2: It is estimated that globally more than fourteen thousand video

595
00:31:36,320 --> 00:31:39,440
Speaker 2: game workers were laid off in twenty twenty four, up

596
00:31:39,440 --> 00:31:41,680
Speaker 2: from roughly ten thousand the year before.

597
00:31:42,360 --> 00:31:44,320
Speaker 7: One of the things I'm probably most proud of in

598
00:31:44,400 --> 00:31:47,960
Speaker 7: my career, given I don't really have any creative talent

599
00:31:48,000 --> 00:31:50,400
Speaker 7: at all myself, is that I seem to have some

600
00:31:50,600 --> 00:31:55,200
Speaker 7: ability to figure out who's really talented and somehow convince

601
00:31:55,440 --> 00:31:58,719
Speaker 7: them to work within our system, and then most importantly,

602
00:31:59,360 --> 00:32:04,680
Speaker 7: then to pursue their passions. They're genuine creative passions. One

603
00:32:04,720 --> 00:32:07,920
Speaker 7: of the questions I'm often asked is does generative AI

604
00:32:08,160 --> 00:32:11,480
Speaker 7: mean that you know, someone sitting at home can ask

605
00:32:11,600 --> 00:32:17,080
Speaker 7: chat GPT fourteen to you know, make a GTA competitor

606
00:32:17,120 --> 00:32:19,720
Speaker 7: code at giving the marketing materials, you know, and more

607
00:32:19,760 --> 00:32:21,600
Speaker 7: off to the races. I don't believe for a minute

608
00:32:21,600 --> 00:32:24,120
Speaker 7: that that's going to happen. There's no evidence that tool

609
00:32:24,160 --> 00:32:29,160
Speaker 7: sets allow people to win creatively. To the contrary, I think,

610
00:32:29,520 --> 00:32:32,480
Speaker 7: you know, these are phenomenal digital tools and the more

611
00:32:32,600 --> 00:32:34,960
Speaker 7: mundane tasks will be done more automatically.

612
00:32:35,680 --> 00:32:39,440
Speaker 2: Still, thirty percent of game developers believe generative AI is

613
00:32:39,480 --> 00:32:42,400
Speaker 2: having a negative effect on the industry, according to a

614
00:32:42,440 --> 00:32:46,640
Speaker 2: recent report. But the Game Developers Conference. In contrast to

615
00:32:46,680 --> 00:32:50,680
Speaker 2: the Triple A gaming companies like Take two, independent developers

616
00:32:50,760 --> 00:32:55,040
Speaker 2: create their own games with significantly less funding. They flock

617
00:32:55,120 --> 00:32:58,560
Speaker 2: to the annual GDC in San Francisco to show off

618
00:32:58,600 --> 00:33:01,920
Speaker 2: their latest projects and maybe even attract some investors.

619
00:33:02,520 --> 00:33:05,160
Speaker 9: Feeling inspired by other developers is a big part of GDC.

620
00:33:05,280 --> 00:33:07,680
Speaker 9: For me, I think it is possible to take more

621
00:33:07,760 --> 00:33:11,000
Speaker 9: risks and smaller studios. The budget is smaller, so there's

622
00:33:11,200 --> 00:33:14,160
Speaker 9: less of a monetary risk. The folks that start these

623
00:33:14,200 --> 00:33:18,120
Speaker 9: smaller studios are usually looking to tell a story that's

624
00:33:18,240 --> 00:33:19,120
Speaker 9: unique and different.

625
00:33:20,000 --> 00:33:23,560
Speaker 2: Sharon Kahn is the lead producer at Visai Games, a

626
00:33:23,640 --> 00:33:27,280
Speaker 2: small independent studio that swept up awards last year for

627
00:33:27,360 --> 00:33:28,600
Speaker 2: its game Venba.

628
00:33:29,280 --> 00:33:35,160
Speaker 9: The winner is Venba Nba Vega, and the beftter goes to.

629
00:33:36,640 --> 00:33:40,000
Speaker 7: Venba.

630
00:33:40,080 --> 00:33:43,160
Speaker 9: I remember when we first started working on it, there

631
00:33:43,200 --> 00:33:45,120
Speaker 9: was a bit of a joke that, oh, maybe we'll

632
00:33:45,120 --> 00:33:47,800
Speaker 9: win the grand prize of the IGFs, but I don't

633
00:33:47,800 --> 00:33:51,840
Speaker 9: think anyone really expected it. You're essentially playing in the

634
00:33:51,960 --> 00:33:55,080
Speaker 9: role of an Indian immigrant mother. Her and her husband

635
00:33:55,080 --> 00:33:58,000
Speaker 9: come to Toronto and they start a new life. They

636
00:33:58,080 --> 00:34:00,640
Speaker 9: end up getting pregnant and having a kid right as

637
00:34:00,640 --> 00:34:03,880
Speaker 9: they're like about to think about going back because they're

638
00:34:03,920 --> 00:34:07,840
Speaker 9: struggling financially in Canada. And the story just goes through

639
00:34:07,920 --> 00:34:11,120
Speaker 9: the relationship Venba has with her son, and it's told

640
00:34:11,120 --> 00:34:14,600
Speaker 9: through food and cooking. It's probably going to get people

641
00:34:14,600 --> 00:34:15,840
Speaker 9: to call their mom.

642
00:34:16,200 --> 00:34:19,240
Speaker 2: The game has been quite successful, making over two times

643
00:34:19,239 --> 00:34:22,680
Speaker 2: its budget back in sales and exceeding one million dollars

644
00:34:22,719 --> 00:34:26,799
Speaker 2: in revenue. But before a game can thrive, independent developers

645
00:34:26,920 --> 00:34:30,000
Speaker 2: often need funding to bring their vision to life.

646
00:34:30,719 --> 00:34:33,319
Speaker 9: It was really difficult to get support at that time

647
00:34:33,400 --> 00:34:36,759
Speaker 9: because Venbo was considered too risky and too weird. We

648
00:34:36,840 --> 00:34:40,240
Speaker 9: made a trailer for this event called Wholesome Games Direct,

649
00:34:40,880 --> 00:34:43,000
Speaker 9: and the trailer ended up blowing up, and that's when

650
00:34:43,000 --> 00:34:48,160
Speaker 9: we started getting contacted by various publishers and funding sources.

651
00:34:48,320 --> 00:34:52,320
Speaker 9: We managed to get funding directly from platforms such as Microsoft, Xbox,

652
00:34:52,360 --> 00:34:54,840
Speaker 9: and Sony, and so we decided not to go with

653
00:34:54,840 --> 00:34:59,000
Speaker 9: a publisher, and that, along with an Ontario Creates Fund,

654
00:34:59,000 --> 00:35:02,799
Speaker 9: which is like a government brant in Canada, we were

655
00:35:02,920 --> 00:35:06,240
Speaker 9: good to go for the rest of production, whether it's.

656
00:35:06,080 --> 00:35:09,800
Speaker 2: A small independent release or a big studio one. Video

657
00:35:09,800 --> 00:35:13,360
Speaker 2: games do more than just entertain players. They help connect

658
00:35:13,520 --> 00:35:18,040
Speaker 2: users to other people, cultures, and even imaginary lens.

659
00:35:18,920 --> 00:35:22,080
Speaker 7: Our focus around here is to be of service to

660
00:35:22,160 --> 00:35:26,319
Speaker 7: our consumers, to engage them and captivate them and delight them.

661
00:35:26,320 --> 00:35:28,359
Speaker 7: If we get that right, then the numbers will take

662
00:35:28,400 --> 00:35:29,200
Speaker 7: care of themselves.

663
00:35:32,360 --> 00:35:34,200
Speaker 2: That does it for us here at Wall Street Week,

664
00:35:34,320 --> 00:35:37,160
Speaker 2: I'm David Weston. This is Bloomberg. See you next week.

665
00:35:37,200 --> 00:35:52,000
Speaker 2: For more stories of capitalism,