Strauss Zelnick - Playing to Your Strengths - [Invest Like the Best, EP.347]

23:58Anyone should who's in business or in sales. But the principle really is take a sincere interest in other people with emphasis on the word sincere. Stop thinking about yourself. Think about others. Put yourself in others' shoes first and foremost. If you want to get along in the world, draw other people out, care about other people, serve other people. So the title of the book really is against it because the title sounds like how to be the most popular boy in the class, right? It's not very compelling. But the content of the book really is how to sell and how to lead. And those principles are principles I try to follow to this day.

24:35And I did spend a lot of time in sales and I still do. We raise funds, for example, at DMC, I have to sell. And how do you engage people in a selling environment, you try to meet their needs. How do you know what their needs are? You ask them, you listen, you don't try to sell against them. You don't try to convince them to have other needs. You try to meet their needs. And it's true in leadership as well. And that took me to complete the diatribe for which I apologize, took me to working with creative talent because ultimately you're leading a particular kind of person to try to create hits. And to do that, you have to be of service to that person and you have to be of service to that person in the way that they need to be served so that they can bring their genius to the table.

25:21Just one more question on the Fox episode. So whose shoes did you most need to be in to fix that problem and play the right music and get through that bad first impression? Everyone's. There's no one I don't care about. I care about everyone. Well, I'd love to zoom forward and hear the investing story in 2007 to the beginning of your engagement with Take-Two. You said earlier it was a broken business at that time. So in what ways was it broken and why, with your investor hat on, was it an appealing project to work on before we get to actually what you've done there? Let's see. The chairman had been indicted.

25:57The CFO was under criminal investigation. The company was under criminal investigation. The company was also under investigation by the IRS, the SEC, and the New York DA's office. The company had fired its auditors, failed to file financial statements, canceled its annual meeting. It had one product than Bain Bunny, the Grand Theft Auto franchise. Everything else lost money. It had revenues the year that we took over of around$700 million in its core business. It was an ancillary business we sold. It was losing, I want to say around$100 million a year on that. It had$50 million in cash. It didn't have any debt, which was a good thing.

26:38And it was probably six months away from bankruptcy. Apart from that, it was in great shape. What was appealing was it was in the interactive entertainment business, a business I knew well because I'd gone to Crystal Dynamics as the pre-revenue CEO and that company had been successful. And I'd started BMG Interactive and that company had ultimately been sold to Take-Two. So I knew that business at least. And I understood the dynamics of the business. And I had a pretty good sense that interactive entertainment was well positioned for growth. Moreover, I had a sense that not only did this company own the Grand Theft Auto franchise, which was huge and I felt could be more huge.

27:13And I knew they had an iteration in the works that would generate a lot of revenue and cash. But I also had a sense that some other things that were going on that probably could be improved. For example, basketball, their sports business. And the business itself, the industry was dynamic enough that I was pretty sure we could create other intellectual properties that would be successful. There were things I didn't like too. At that time, the interactive entertainment business was still highly cyclical, driven by hardware replacement. Oh, sure. Console cycles and everything else. And I didn't like that part of it.

27:45It was still a seasonal business. It was primarily a holiday business. It had a lot in common with the toy business, which wasn't great. and there were still economic order quantity issues around some of the business less so than previously in the old days when it was a cartridge business that was a real problem so it wasn't like everything was great and the other thing i found compelling is i like doing turnarounds and when a company is out of trouble it's not like you think you can make it worse in other words i was pretty sure that whatever i did it couldn't be worse anything was going to be up from there that's what led us to take two in oh seven and maybe talk about the deal itself it sounds to me very much like a mismanaged gem.

28:24There was this sort of diamond in the center of this big rough, all the issues that you laid out. When you were approaching a situation like that with your investor hat on, how did you think about pricing and deal structure and the role and all those things? Well, we didn't really have to because the reason the deal was compelling to us was it had a plain vanilla Delaware unamended charter, which enabled one to show up at the annual shareholders meeting and take a floor vote. And in the event the floor vote went in your direction, you could fire the entire board and the management team and take over the company.

28:57And that obviously usually isn't an option, but the company had been so poorly managed, the stock had fallen into the hands of professional investors and hedge funds who were desperate for new leadership. And under SEC rules, we were allowed to go solicit up to 10 holders. And we did. We spoke to 10 holders and asked them to vote for us at the annual meeting. And we got 88 % of the vote. That's never happened before or since. So we didn't have to price the deal because we didn't write a check. We had to pay our legal fees. And had we not gotten the company, we would have eaten those legal fees.

29:31But we didn't actually own a share of stock. We couldn't because if we owned stock, we would have been running the risk of creating a group when we spoke to other shareholders. We didn't want to do that. So we didn't create a group until about three weeks before the annual meeting. And the group was only held together for about a month. As I said, we won with 88 % of the vote. And talk about the decision to slightly take your investor hat off and become chairman and CEO slowly over time. There's a lot of really interesting stories like this where investors become involved with the business and then ultimately end up operating them.

30:03It's a very famous ones, of course. But what was your thinking? What influenced the decision and the transition from one to the other? I remember I've been an operator my whole career. So I wasn't a professional investor who became an operator. I was a professional operator who became an investor. And when we started ZMC, the idea was that we would invest and operate. I had been CEO of the first company. We bought it at ZMC, which was Columbia Music of Japan. And I was executive chairman of other businesses inside ZMC. So it wasn't that much of a stretch. My then partner and co-founder of ZMC, Ben Federer, was the CEO of Take Two.

30:40I was the executive chairman, but I was not the CEO and I was not planning to become the CEO. And I only became the CEO four years later in 2011 when Ben decided to take a leave of absence for personal reasons for a year. And I, at that point, had to step in as CEO. Now I want to go back to that three-month chunk after your conversation with Greg. So what happened in those three months that made Greg check in and decide to stay on for 17 more years? Probably have to ask Greg. He didn't even remember the conversation last time I mentioned it to him. I promise it did happen. We went in and we started doing rational things.

31:13So we settled with whatever authorities we could settle with. In other instances, the settlements took longer. And we just started making sound decisions. And the prior management had made so many poor decisions that the difference was really night and day. and we were tested by the people who were at Take Two. We took over on a Friday morning and Friday night at 10 o 'clock, there was a huge crisis at one of the labels and I had to step in and solve that problem over the weekend. I think that crisis was largely manufactured to test whether I could and I did. What had happened was one of our labels had an interesting intellectual property that a Hollywood studio was about to infringe upon, basically try to steal.

31:58And the company that was trying to steal it in Hollywood were populated by old friends of mine. And I called up and said, you got to stand down. It's a fun story. I'm not going to tell you the name of the intellectual property, but they were going to infringe and make a movie and steal it and let us go fight them. You can't protect titles in Hollywood. Titles are not protectable. So they basically took the position, you can't protect the title. So we're going to make a movie based on this IP, which was legacy video game IP, because Take-Two owned a lot of legacy video game IP. Historically, what Take-Two did in those situations, they immediately filed lawsuits, they had lawsuits galore.

32:33I don't do that. Take-Two is now a 27,$28 billion enterprise. We literally have two lawsuits pending, and they're with patent trolls. I don't have a choice. So that's not how I operate. If I'm wrong, I settle. If I'm not wrong, I never settle. Generally, that keeps you from having to pursue much litigation, especially because we're not wrong most of the time. People know that if I'm not wrong and you want to sue us, you'll be in court endlessly. I will use every resource I have, including non-economically, because if I'm not wrong, I'm not settling. And once you make it clear that if you're not wrong, you're not settling, people don't bother you.

33:03The spurious lawsuits go away. At that time, they had zillions of lawsuits because it's not how they operated. So the team had actually called me at 10 o 'clock in front of saying, this is going on in Hollywood. Someone's going to steal this intellectual property. so we're going to file a lawsuit. I was like, well, no, we're not doing that. That doesn't make sense. Let me see if I can get them to stand down. So I called my friend who was at the studio and said, this is a bad idea. You really shouldn't do this. And they were like, we can do it and we're going to do it. I said, I'm really asking you not to do it.

33:30I said, well, that's very nice, but sorry, we're going to do it. And I said, I said, why don't you go think about it? Because it's a mistake. I went to law school. So I actually know something about copyright and trademark laws. It turns out oddly, and I'm not going to bore you with all the intricacies of law. But the bottom line is you can use any title you want, but if you use the underlying intellectual property, that's a violation. And it's hard to take a title of something and make something that's basically derivative and then claim it's not derivative. That's quite difficult to do. This studio was doing it because Take-Two was a laughingstock.

33:59To the extent anyone cared about Take-Two, it was a laughingstock of the business. This was the game that couldn't shoot straight, and they didn't think anyone serious would do anything about it. So they got a call from me. They, at that point, knew like someone serious was in charge at least. But then I called back the next day. And I said, listen, I'm really suggesting you don't do this. And they said, well, are you planning to sue us if we do? I said, actually, no, here's what I am going to do though, just so you understand. I'm going to let you go ahead and invest$75 million in the movie that you want to make on this.

34:25And about two weeks before you release the movie, I'm going to go to court and based on your infringement of the underlying intellectual property, I'm going to get an injunction and you won't be able to release it. That's actually what I'm going to do. Now, the people who were hearing this call had seen me in action before. They knew what I did and didn't do. They knew I don't threaten people. They knew I actually do know something about intellectual property law. And they knew that's exactly what I would do when I said it. And they knew that there was a really significant risk that we would win that injunction.

34:52And they stood down. So that was on Sunday. So on Monday morning, I was able to say to the label in question, we got that problem solved. Problem solved without litigation. Without litigation, without any money spent, without any press articles, without any noise. And the word sort of got around, oh, this guy maybe isn't a complete idiot. It was exactly the opposite of what I did at Fox. I didn't go in with, let me fix these 10 ,000 things. I went in and said, how can I help you? They had a problem. I solved the problem. And we did a bunch of that. We did a bunch of problem solving and we didn't do things that would annoy people unnecessarily.

35:25We had to reduce the cost profile of the company. I've done that many times. Most people, when they reduce cost profiles of companies, they take them over. What's the first thing they do? Just cut people. Yeah. They fire people. That's the first thing they do. That's the last thing we do. You know what the first thing we do is? We get a list of the top 10 vendors to the company because all companies have vendors who supply goods and services to them. We get the list of the top 10 and then we go to the top 10 vendors and we renegotiate their contracts 100 % of the time. We can usually save a material amount of money doing that.

35:55We go back to the team. We're like, look, we just saved 15 million bucks a year just by renegotiating contracts. And people are like, wow, that's pretty impressive. Oh, and by the way, we didn't fire a soul. and then we're like, let's go a little deeper internally and see what other efficiencies we can find. And then we find another whatever, five or$10 million in the case of a company the size of Take-Two. And we do that for a couple of months. And only after we've searched in every corner for every efficiency we can find, do we actually have to do the inevitable headcount reduction, which we do once, we're honest about it, and then we move on.

36:27By the time we got to the headcount reduction, most of the people at the company were like looking around saying, I can't believe you didn't fire that goofball yet. These are obviously a company that's failing, does not have a first class staff. And we were there long enough to know who was good and who wasn't as good. By the time we're actually doing the headcount reduction, people are like, thank God you're letting that person go. They shouldn't have been here anyway. And they're not looking over their shoulders wondering if their job is next because we tell them, look, we know enough to know we're like one and done.

36:52That's just typically how we go about cost reduction. We cut$40 million out of the annual expenses of the company in six months. I don't think we'd completed that in three months, but in six months we had. So it became clear to the Greggs of the world, there weren't many of them to take to that. Okay. They're not dumb. They're not terrible people. And they seem to be making pretty sound decisions. I don't think they said, oh my God, this is the A team. And I'm so glad. Wow. I just love stress. I can't wait to have a cocktail with them. And it was none of that. It was okay. On balance, these guys are not so terrible and they're making reasonably intelligent decisions.

37:27I think that's probably what people said. Do you think that most businesses, if you went through this same exercise of calling vendors and just looking for low-hanging fruit, could materially reduce? It seems just like a feature of businesses that this inertia builds up. And I'm curious if that's true and if so, why? It wouldn't be all businesses. Remember, we're talking about a failing business. A successful business? No. In the ordinary course, they're doing this. We're actually at ZMC. We just walked away from a deal because the company was pristinely managed and we didn't think there was much we could do to improve matters and it was fully priced.

37:59It was hard to create a return. We see companies all the time where they're well run and that includes their vendor management programs. And no, if I said to you, yeah, just give me any company and I'll fix it, that would be the height of arrogance. Actually, I think it's harder and harder to find turnarounds in a market like the US because private equity actually as an asset class has injected a lot of efficiency and a lot of best practices into enterprise. And in the 1960s, you could find incredibly sloppy businesses with very sloppy business practices. You don't really see that anymore. When I started my career, you would still see companies where they own assets that were off topic and their balance sheets were screwed up and some simple choices would clean things up.

38:44I looked at a company. Now, actually, I can say the name of the company. When I was at Vestron, actually, my boss, Austin First, was a wealthy individual. And he was interested in perhaps doing some private equity. We wouldn't call it that in those days. And so my corporate development team, John Eastburn and David Friedenson, found a really interesting asset, which was Dunkin' Donuts. It was a public company, but it was still controlled by the founding family up in Massachusetts. And it was ridiculously successful. And the family had gotten very undisciplined, I should say, about how they spent their money.

39:16And so they had resorts, planes, huge asset creep, and it was very lumbering and inefficient. It was a screaming bargain. The market cap of the company was like$350 million. And it was clear to us that you could triple the EBITDA essentially overnight. And we tried to take it private. We failed because we just weren't experienced enough to pull it off. But we did put it in place. Someone else bought it. And that's exactly what happened. And within a couple of years, it was worth$3 billion. You don't see deals like that anymore. They just don't exist. They've been driven out of the marketplace.

39:48It's fascinating to think back on my quantitative days. One of the hardest to explain empirical phenomenon was that companies that had the largest percentage growth of their assets were the worst performing companies in the market. And those with the greatest reduction in their assets were the best performing. And that was independent of all the other things that worked in quantitative investing. And it just goes to show like this asset creep thing. Maybe it's less true today because of private equities. I think it is less true. I think you don't tend to see really messed up companies anymore.

40:16We do now and then, and we still are happy to take those companies on, but it's relatively unusual compared to some of the stuff we saw at the beginning of ZMC. Coming back to the video game business, I remember a conversation I had with one of the best video game investors ever, Mitch Lasky from Benchmark. And he talked about this notion of it being this hit-driven business, but that in fact, when you really studied it, it was now dominated by what he called forever games, games like IP and games, which just lasted a really long time. And the franchises that drive Take-Two's enterprise value for sure fall in that category.

40:49These games have been around forever. And certainly it's hits-driven in the sense that GTA matters greatly to your business. But I'm curious what it's like running a business with such a key set of franchises underneath it. What is the tension between embracing the concentration of the portfolio, so to speak, and a desire or a want to diversify? How do you think about which strategy is better? What are the pros and cons of that spectrum? We think you need to do both. If you only focus on your winners, unfortunately, they are not forever. All hits eventually do degrade, all being a bit of an overstatement.

41:28I don't think Grand Theft Auto is ever going to go away. And I don't think James Bond has ever gone away, as long as they're treated well. But pretty much everything else has a decay curve. And so if you only bet on your winners in perpetuity, you run the risk of burning the furniture to keep warm. And that's a mistake because then you've nowhere to sit and eventually you're burning the siding of the house. We always invest in new intellectual property. And that's why today, I think we have 16 franchises at Take Two that have each sold at least 5 million units in an individual release. Then that's up from one when we took the company over in 07.

42:03The riskiest part of the business, it's costly when you get it wrong. And it's tempting for a management team not to do it because you could take the position that it's not going to matter on my watch. Now, I expect to live forever and I like what I do. So not expected on my watch does not a good rubric for me. I've been at this for 17 years and I want to keep doing it forever. But also, even if I did look at the world that way, I build all my companies for forever. And this is true at ZMC as well. We know we're going to sell a company within 10 years of buying it because our fund documents require us to do so.

42:39But we're building that company for 20 or 30 years. And we do that because it's the right thing to do. because our stakeholders are not just our financial investors. They include our colleagues at the companies. They include our customers who deserve the best and need the best if they're going to bring us their wallets. So we've always been willing to invest beyond our hold period. You, of course, do get paid for that too. If you deliver a buyer of a phenomenal company, you're going to get a multiple that reflects that. If you deliver solidity and permanence or something close to permanence, you're going to get paid for that.

43:14But it happens to be consistent with our DNA and how I like to look at the world. But it is true that if I were just cravenly selfish and said, you know what, I'm going to get out of Dodge in five years, no matter what, come hell or high water five years from now, and I just want to have the maximum share price when I get out, yeah, stop investing in new IP, period. Any guiding principles for what IP is good versus bad versus great? How do you think about the quality of IP as you explore those opportunities? Bottom line is derivative IP is generally speaking not going to be hugely successful, but could be moderately successful at certain times.

43:50I never liked doing derivative IP. That's when you notice in the film business, there are three movies being made about Robin Hood at the same time. All huge hits are by definition unexpected. Good example, interactive entertainment is Red Dead. Before Red Dead was released, conventional wisdom in the interactive entertainment of business was Westerns don't work, period, full stop, Westerns don't work. Red Dead comes along completely unexpected, spectacular production values, really something no one had seen - Beautiful games. Spectacularly beautiful and emotional. No one had seen it before and it was a huge hit.

44:24An example from my recorded music days was conventional wisdom when I was at BMG, which was one of the major label groups, was the boy bands don't work. and Clive Calder brought out Backstreet Boys. And conventional wisdom was that girl bands don't work. And then we had Britney Spears and Christina Aguilera and keep going. Conventional wisdom was that rock and roll was dead for a period of time. And then RCA Records brought out Dave Matthews, the list goes on. And in motion pictures, conventional wisdom was that comedy has to big stars and big concept. And then we brought out Home Alone, starring Macaulay Culkin, who no one knew.

45:07And that was the highest grossing comedy of all time. The biggest hits are by their nature unexpected, which means that you can't organize around them with AI. So I'm not worried about AI eating our collective lunches in the entertainment business. So the key is unexpected and original. You said something which gives me my excuse to ask you about the world of health and fitness, a shared passion of ours for sure. You wrote a book called Becoming Ageless, and you said just a minute ago that you expect to live forever. Talk me through the source of your interest in this area, because I've come to believe that a good foundation of health is actually one of the smartest things you can do if you want a great business career, because the energy that you bring to bear is a huge part of your success or failure.

45:50So tell me your story about getting interested in this. What was your entree? Why'd you write the book. I think my entree into this was just purely vanity. I started aging. I thought, I just want to keep looking good as long as I can. And then I think it just became a game. Can I do this thing at a high level, even as I age? And then it turned into a community and that made it just incredibly powerful. So it started from this very unimpressive place of vanity, got to a challenge, and then it turned into a big part of my social life, which is I have this tribe of athletes that I train with who are of all ages, but they skew very young.

46:29And I train highly competitively in that group despite my advanced stage. And I feel great. I feel like I'm 25. I know I'm not 25. I know I don't look 25, but I do feel that way. And I don't just feel that way physically. I feel that way emotionally, spiritually, and creatively. And I got really turned on to this notion of health span and fitness when I saw the effects of getting engaged in taking care of yourself by going to the doctor, taking care of yourself by eating reasonably well. I don't have a hugely strict diet, but I eat reasonably well and I'm not overweight. Taking care of yourself by getting lots of exercise and taking care of yourself by having a spiritual practice and a community.

47:12And all of those things together have brought me a really good life. and a life that I want to keep engaging in. I wrote the book because about seven years ago, because my good friend Dave Zizanko, who had been editor-in-chief of Men's Health, said, this is amazing. You're in your late 50s, knocking on the door of 60 at the time, and you're in great shape, and you look good, and you need to explain to people how this is possible. And becoming ageless really does not take the position that you're not going to age, or you're going to age in reverse, tempting as it would be to take that position, but rather that you have an opportunity to be your best self without regard to your chronological age and that you can do a lot of things for a really long time despite aging.

47:55I don't believe it's possible. I'm not one of the Silicon Valley guys who believes I'm going to live to 150. To the contrary, actually there's very little evidence that anything I'm doing really changes your lifespan much. Maybe you change your lifespan by about five years on the outside. There's a lot of evidence that you change your health span. Peter Atiyah was my doctor for four years. He wrote the forward to the book. He and I share a view that health span is what matters. And if Peter were sitting here, he would not say, oh, Strauss is in great shape. He's going to live to be 105. First of all, he'd acknowledge, he didn't know how long I'm going to live.

48:25Secondly, he would acknowledge that everything I'm doing and I do what he recommends maybe gives me five more years. And that's barring some kind of getting ALS or something that I could get without knowing I'm to get it or having a horrible accident. I could walk outside and get hit by a truck. I hope I won't, but I could. And I got really engaged in this. And I thought if I wrote a good enough book, then maybe I would help other people. And that goes back to my view that one of the most successful parts of my life has been driven by being of service to others. The book actually sold really well.

48:59It sold well over a hundred thousand copies. I continue to run into people who say, I read your book and I lost 30 pounds and I feel great. What has been the most surprising aspect of this part of your life? A lesson you learned or something counterintuitive about the way you now live your life with health span in mind that maybe you wouldn't have expected when you were 30 or 25 or something? I certainly wouldn't have expected at 30 that I would be 66 years old. And my primary training buddy is 24 and we train at the same level and he's a fitness model and that he choose to have me as his primary training buddy.

49:34That wouldn't have occurred to me. It wouldn't have occurred to me that this morning I trained with 10 incredibly fit people and I was right there with them. The oldest person in that group was probably 32. And it wouldn't have occurred to me that I could feel this way. When I was 30, 66 was really old. And it didn't occur to me that I could feel the way I feel at 66 or still be standing straight up and still be the same height I was when I was 18 and still be the same weight. I'm wearing the same size clothing I wore 30 years ago. And that I feel the way I do. I feel amazing. Do you think that that transfers in meaningful ways over into other aspects, maybe business most specifically?

50:11It transfers into leadership because I think showing up, feeling good and presenting yourself as the best version of yourself is compelling to other people. It helps you lead. Showing up, looking like you had some weird surgical procedure to look 30 years old is not going to be a benefit. My face looks my age. Give me a few years maybe. But you don't see me and say, oh my god, this guy's 30 years old. You see me and say, maybe I'm going to get really lucky and you say, maybe this guy's in his late 50s. That's how I ought to look. I'm not trying to look different than I am. And if I were, that would be terribly off-putting to people, as you would expect.

50:46But I think it is compelling when you show up and you're reasonably well-dressed and it doesn't mean you have to spend a lot of money in clothing, but you're together and your clothing is clean and it fits you and you have a haircut. Your skin is not gray and ashen. You don't smell bad. And all of that stuff actually does matter. And I think it's a sign of respect for yourself and respect for others to show up as your best self. And that does include how you present yourself physically. Who's the best leader you've ever seen? I'm really fortunate. I have a lot of mentors. They have different characteristics and it takes different qualities.

51:18There isn't one approach. The best I haven't seen, but I think many people would agree, was one of the great leaders of all time was George Washington and Abraham Lincoln, actually were great leaders. Washington particularly was known to be an amazing leader. And I've read a bunch of presidential biographies that I've seen. Dick Parsons was a great leader and he too truly cared about people. He's also super smart and he makes really sound decisions. Dick Parsons was CEO of Time Warner. He was one of those people who could synthesize huge amounts of information and arrive at the right conclusion, who was politically savvy without being a political person, have to get up really early in the morning to get over on Dick Parsons, but never had a negative word, always had a smile, always engaged with you as though you were the most important person in the room.

52:09He was a phenomenal leader, but there are so many of them. in the private equity business, Don Gogel. Again, a person of modest demeanor, quiet confidence, a brilliant person. He's got a great brain, a truly kind person. Barry Diller is a great leader, very different style and a very tough style and not to everyone's liking, very much to my liking. He was a pretty critical boss, but I'm really critical of myself. And I knew when I was 32 years old and I was president of Fox, I knew I didn't know anything. And I told you where I almost failed. I was not unaware of the fact that I was nearly failing.

52:39This was very obvious to me. So having a really smart boss who understood the entertainment business better than anyone else was prepared to teach that to me and would engage with me. He had the patience to engage in robust debate. It was amazing. And I used to say like I would argue with him all the time. And I don't know, 98 % of the time he was right, which is incredible because I am reasonably intelligent and well-versed in what I do. So what does that mean? Because I'm not insecure about my intellect and I was aware of my lack of experience. What it meant was I realized I was going to school and this person was willing to be my teacher.

53:15Not sure he'd see it that way. I imagine I caused him no shortage of frustration, but he was an amazing leader. He got the best out of me. He got the best out of a lot of people. He had flaws and has flaws. We all do. My style is quite different than his, but was his style and is his style effective? Highly effective. You bring him up makes me wonder what you think the role of boldness is in leadership. In the absence of intelligence, there is no good role for boldness. And we've seen that with people. I think having conviction when you know something and that something is rooted in the facts is valuable.

53:51I think having conviction when you don't know something, but you just believe it is magical thinking and it's very dangerous. We do need to, as leaders and decision makers, be willing to take in as much information as we can within reason, synthesize the information successfully and arrive at a conclusion. And then more often than not, we better be right. And in those situations, you do have to act with conviction. There was an executive who was brilliant. I'm not going to say his name at Fox. I think he understood the entertainment business better than almost anyone else. He was well known too.

54:25And certainly he was as brilliant about the entertainment business as Barry was and is, but he was a lawyer by training and he didn't like making decisions. So he would equivocate and he would at times just analyze and equivocate so much that the moment would pass. So what I learned is you do have to decide. You got to decide. That's what you're paid to do. And the hardest thing I do is make a decision when everything's unclear. What I'm willing to do is if you have been able to tell from this conversation is I'm open-minded. I want to listen to others. I care about their opinions. I have no trouble saying that I'm wrong.

55:01I have no trouble changing my mind when there's new evidence. But when we've agreed upon a course of action or in certain limited instances, I've decided on a course of action. I know you have to have conviction and you have to pursue it to the end. Decision-making under uncertainty is a fascinating topic area. And I'm curious how to zoom it in on Take Two specifically, how you've thought about technology's role through the introduction of new platforms? So you had the console cycle that you rode for a while, then there's mobile and obviously you own Zynga now, so you have a mobile free-to-play presence.

55:33There's other looming potential platform shifts right now, a couple of them that are fascinating. How do you think about and approach those things as both risks and opportunities for the business and the franchises? We stay away from huge pronouncements and massive shifts in the absence of market evidence. Because if you own intellectual property that matters, you can be late on a platform and still be just fine. You don't have to be the first to the party with a marketing idea or platform support, although we often are. You don't really get paid for that. If you're in the content business, you get paid for the content.

56:13I'm a believer that in business, if you don't have to vote, don't vote. If you don't have to make a choice, don't make that choice. Keep all your options open. And we try to be where the consumer is. We try to use every distribution method that we can. We try to be ubiquitous. We're not the kind of people who think about, if I shut down all of this over here and I have that, I can drive more margin there. I'll worry about how to get the consumer there. We think about, let's have the broadest possible business. Let's meet the consumer where the consumer is. let's drive margin where we can and acknowledge that in certain other instances, as long as the margin is acceptable, it may be a bit inferior to margin in other areas.

56:52But on balance, we want to have the largest possible pie. If you think about the whole business, what is something that people believe about Take-Two to be true that isn't true? I think these days, pretty much people have gotten the memo. I think there was a period of time where people believed that my stated desire to be a talent combined with our decentralized approach meant that I had no clue what our labels were doing and they would just tell us what they're doing and then we would have to live with it. And that completely misunderstood what actually goes on, which is we have a highly communicative and deeply intertwined senior management team across label and corporate.

57:34And we have a lot of creative independence at the labels. and frankly, independence among executives because people are given jobs to do and then we want them to do their jobs the way they see fit. But we have lots of communication. I'm a fan of saying I believe in delegation with communication. Among the most dangerous words you can say at a corporation are, I don't care how you do it, just do it. That's great. That's how you end up being non-compliant. That's how you end up tanking your company. That's how you over leverage your company. That's how you go bankrupt. That's how you go to jail.

58:06I do care how you do it. I really care how you do it. You have to do it in the right way. It has to be consistent with our strategy. It has to be consistent with our culture and it has to be legally compliant and ethically compliant. And everyone knows that. But I do believe in delegation. I just want to know what's going on. And when there's a problem, I want to be the first call. The first call. I am including the middle of the night. Even recently, I will occasionally have people inside the organization. Now we're a big organization. If you include ZMC, it's a very big organization. And I would people say, here's what's going on.

58:37I'd be like, when did this come down? And they'd be like, a week ago. And I was like, and I didn't know about it. And they were like, we didn't want to just show up with the problem. We want to show up with some solutions. I was like, that is a really great thing that you thought about. I want to know about the problem. You don't have to show up with a solution. I want to know about the problem. I need to know. I can't be surprised. The other thing is if you want to have that kind of communication in your organization, then you can't shoot the messenger. You can't be a screamer. You can't be hysterical.

59:00you can't react. I've gotten some really bad business news in my career, like really bad news. And I don't think I've ever raised my voice at bad news. I don't think ever. And I've gotten some really bad news. If you think about the video game production process, which now for something like Grand Theft Auto is an enormous multi-year, incredibly expensive, like a great feature film or something. What contrast would you draw from seeing that happen to also seeing other great big media things get built, whether that's a film or a show or a record or any other form of media. What to you is most interesting and distinctive about the production of one of these really big franchises?

59:42That so many people work on the project and that the project is largely created in a computer. Not entirely. We have motion capture, we have voice actors, we have physical actors. It's a multi-year project and the bulk of the creative work is digital. And that's very different than recorded music, which is, unless it's dance music, electronic dance music is really largely analog, converted to digital. And motion pictures and television, which is still entirely analog, unless it's an animated movie or special effect. That's very distinctive. It also makes it harder and it requires other skills.

1:00:16One of the reasons that Hollywood talent has been translated to interactive entertainment is you actually have to have a certain kind of technical education to work in interactive entertainment that you do not need to work in filmed entertainment or television or music for that matter. If you think across the business's history, when you've been a part of it, does a defining moment pop to memory? Oh, so many defining moments, but usually defining moments for me are when I've gotten it wrong. When I went to Crystal Dynamics, I didn't understand anything about the characteristics of the interactive entertainment business.

1:00:48So I've been recruited to go to this company and And Crystal Dynamics was started to make 32-bit games for a new platform called 3DO. And I didn't realize, and this is amazing to say, but it's true, that there were different platforms in interactive entertainment. I came from movies. When you've made a movie, it's not like you could put in Regal cinemas, but not national amusement cinemas because they had different equipment. Or worse, that you needed a license from Regal or National Amusements to actually exhibit a movie on their technology. but that's how the interactive entertainment business works.

1:01:21I show up in Silicon Valley, first day at work, thinking that we're making potentially the best hits because that was the story that I was told when I was recruited. I was like, we're going to make the highest quality stuff for this rapidly growing medium. And then I realized within a day or two that we were only making it compatible with 3DO. And then I was like, so tell me, what's the install base of 3DO? And the answer was, it's zero. I was like, oh my God, I've taken my entire career. You're looking at the only person on earth who's ever voluntarily stepped down from the job of president of a major film studio.

1:01:48I've done that. I didn't get paid or anything. I didn't get fired and get paid. I walked away without getting paid and walked away from my bonus that year. And then I took my entire net worth and invested it in Crystal Dynamics stock. I was the largest shareholder. I was a bigger shareholder than Kleiner Perkins. And I had taken our wealth, my family's wealth, which was de minimis, but it was a few bucks. And now you're telling me that we could put out the games we're working on now and no one might be able to consume them because they have the wrong equipment? Oh my God, first fail. This is like day three on the job.

1:02:18And I called up the folks at Kleiner Perkins and said, we need to become a multi-platform company. And they were like, no, you're going to make games for 3DO. I said, yeah, we're going to keep making games for 3DO. But if 3DO fails, I don't want us to fail. So we can't have that as dependencies. We're going to have to make games for other platforms. They didn't like that very much. By the way, 3DO did fail. It was strategically sound that we did this because I have two losses in a row as opposed to just one. And then my next fail. So then I was like, okay, great. I'm going to go see in those days, Sega and Nintendo and explain that we're going to make games for them, not knowing that they had to agree and understand that notion.

1:02:53So I go meet the president of Sega, who is an old friend of mine, luckily. And I said, we'd like to a license to make games for you at this point. I figured out day four, you need a license. Okay, we'll see. He calls me back the next day. He says, turns out you recruited one of your two co-founders from Sega. And so the team here really isn't very interested in letting you have a license? No. And we went to Nintendo and said, there's the other big platform player. They said, okay, thank you very much. They were Japanese. We'll get back to you in a couple of days. They call back a couple of days later.

1:03:21We just realized that all of your engineers have been recruited from Nintendo. So we don't think we're going to give you a license. So I'm like, oh my God, second fail. I'm stuck at 3DO. Very fortunately, Sony had decided they were going to get into the video game business right then. And they didn't have any third parties. Third parties are companies not owned by the hardware purveyor who make titles for the system in question. Luckily, the new head of Sony Interactive was an old friend of mine, Olaf Olofsson. This is like day six. I flew to New York meeting with Olaf, thankfully, and said, here's what we're doing at Crystal Dynamics.

1:03:54We'd like license to be your first third party. And he was like, you know what? This looks interesting. I trust you. We know each other. Done. I'm sending over dev kits. And by day seven, we were a multi-platform company. And thankfully we were because again, 3DO got launched. We sold a few units. We had a couple of bundles. We did okay, but we were a Sony supplier and obviously Sony's PlayStation's been hugely successful. What do you want the business to be? First of all, our strategy from the beginning has been and remains to be the most creative, the most innovative, and the most efficient company in the entertainment business.

1:04:27I wish I could say we were all those things. We're not. We still aspire to be those things. I think on On good days, we're the most creative, but not always. And certainly there are other very creative companies. On good days, we're the most efficient, but not always. We have work to do. And on very good days, we're the most innovative, but that's the area that probably needs the most work because innovation and efficiency don't necessarily go together. That's what we aspire to do. We would like to be the number one pure play in the space. We're now number three. If Activision gets bought by Microsoft, we will become number two by default.

1:04:58Still someone ahead of us, so we've got some work to do. And that's not just for bragging rights. You're number one, you probably enjoy a higher valuation, and you probably have even better access to talent. Why is there a difference between creativity and innovation? Innovation is being the first company to get into mobile, not the last. Why is that important? Because if you choose right, you create outsized value. We miss the boat. I miss the boat on that. Now, in fairness, when mobile business was coming about, we were really still doing a turnaround and we had to focus on our core business, which was console.

1:05:34But it's also true that I greatly underestimated the potential of the mobile business. I don't want to make mistakes like that. Combining that with your earlier answer, is the sweet spot, early recognition, wait for some evidence, and then be as early as you can be? Yeah, generally speaking. With creative matters, you have to be at the front of the line. With business matters, you don't have to be at the front of the line. With matters that sort of bridge the two, like AI, you have to be close to the front of the line, but maybe not at the front of the line. And efficiency, what does that mean?

1:06:05That can mean a lot of things. That means running a really tight ship. That means not having resorts and jet planes and private dining rooms and campuses and security guards and all that crap. We don't have any of that. I'm here today in your studio. I showed up. There's no downstairs with a little earpiece. with a notepad saying, Mr. Sound like it's time to go. I don't have any of that. It's a big company. It's a$28 billion enterprise. I don't have a staff with me today. I got dropped off and walked into my own power and carrying my own iPad. And that's how we operate. What are the things that motivate you?

1:06:39What gets you energetic? When I was in business school, they had a class that discussed motivation. At that time, they said, there are three things that tend to motivate people in business, money, power, and achievement. And I thought, oh, that's interesting. So money, I definitely was ambitious to make a good living. I didn't come from wealth and I wanted to have a nice life, but I didn't have a desire. And I knew this about myself for endless amounts of money. I didn't need to be the richest person in my class, nevermind on earth. And I didn't find money motivating as a thing of its own. I found money motivating in terms of being able to pay the bills without worry and educate my kids and live nicely.

1:07:15So I didn't think money was my motivation. And I was right about that in the fullness of time. It's not really something that motivates me. Power, definitely not. Because first of all, I don't think business executives are powerful. I don't enjoy exerting my will over other human beings. I don't enjoy being bossy. And when I found myself engaging in that behavior, I'm not proud of it. And thankfully, that behavior is long in the past. It was sort of adolescent behavior. So I'm not a power-focused person. But achievement very much. I like doing things. I really like doing hard things. I probably like doing hard things too much.

1:07:47And that speaks to my physical activities. It speaks to my friendships, speaks to my marriage, my relationship with my kids, and very much speaks to my business career where I chose to do turnarounds that other people would not touch, including take two. And I like to do hard things. I think there's an element of ego baked in there because it's kind of cool to say I took on this really huge challenge and succeeded. And my business career, frankly, does have a lot more success than lack of success in it. I've had plenty of stuff that went wrong, but never lost money on a deal. I've never failed to repay debt.

1:08:20I've always created value for shareholders and I'm really proud of that. And some of those deals have been incredibly hard. So I tend to be motivated by achieving hard things. What do you think of the notion of a masterpiece? Do you think you've had a masterpiece? I think I have enough, I would say humility, but it's simply just awareness of reality and to know that I'm not living in masterpiece land. I think some of the products that we put out are masterpieces, but they're not my masterpieces. There are creative folks masterpieces. And I get to tag along and enjoy the fruits of that labor, but they're not mine.

1:08:53And maybe if there were masterpieces in my life, it would be some of the relationships I have, which are so meaningful to me. And in certain instances, when I've been able to help people achieve their own personal or professional goals, and I wouldn't talk about them because they're private to those people. But probably the things, if I'm proud of anything, would be proud of pride in that. And that's probably where also I've been able to make a real difference. But some of the masterpieces, yes, there's some really cool deals that I've been involved with and really cool properties. But all that stuff's ephemeral and deeply ephemeral.

1:09:29Whereas the stuff that I've focused on that matters, I probably can't quote or wouldn't quote to you. And if I did, maybe it wouldn't even mean anything to you, but it does mean something to me. Helping other people achieve their potential, helping other people live great lives, helping other people do interesting things, helping other people become happy and productive. If I have something that was my own masterpiece, it would be that. And then I've done a couple of cool things along the way that I'm really proud of, but probably not going to talk about them. What are the most common things that people need in support in the way you just described?

1:10:04I'm not asking for the specifics, but when you think about what resources or whatever it is that somebody needs to attain their potential in the way you described earlier. Are there most common ways that people need a certain thing? There's this hackney term now, people want to be seen, but the truth is people want to be understood and people want to be acknowledged and people want to be cared for. And I actually really care about other people. I really care about my friends and my family and my teams, genuinely care about them. And people know that. And I will move heaven and earth to help them achieve their ambitions.

1:10:42And they know that too. And then I do that. I don't just talk about it. I actually do it. And I do it without noise or smoke or flourish or congratulations. I just take it on. It's my job. I do it. And I do it, I think, quietly and with a sense typically of grace and kindness. I have young kids of an age that has me thinking about this a lot. If I were to ask your kids what mattered most to you as a parent, what do you think they'd say? First of all, I have a great relationship with all three of my kids, but if they were candid, it's not like they would sit here and come up with a lot of superlatives, okay?

1:11:17I think they would say that excellence really mattered to me. And I think they would say that integrity mattered and pursuing their passions mattered to me. But I think they would probably arrive at the conclusion that excellence really mattered. Thinking back to Carnegie's book, you like my traditional closing question for everybody. What is the kindest thing that anyone's ever done for you? I lost both my parents when I was a kid and my aunt and uncle took my siblings and me into their home and raised us as their children. One of my very closest friends, his father lost his dad when he was 15 in Africa.

1:11:52And we had to make a choice to take over the family business, which was one of the early safari lodges. And so at 15, him and his brother took this thing over and effectively birthed, it's the Vardy family, birthed modern safari as it's known. And I'm curious if you're willing, I just would love to hear how that shaped you, because I've talked to Dave Vardy, person in question about this. And of course, it's two very different sides. There's very good things and very bad things. And I'm just curious how much you would attribute to having to sadly deal with that at a young age. I think great loss when you're little and I had multiple childhood losses all by the age of 10 lead to one of two things typically.

1:12:32One is a sense of victimization and that can really lead to a pretty failed life or a sense that I'm going to work really hard to overcome this or really hard so this doesn't happen again or really hard so I'm not at risk. And I think that's where it took me which is I was already a bit of a perfectionist and I think that that put a fine point of being a perfectionist, which was challenging for me personally, but frankly, professionally, a good thing. I hate to say it, but it's within reason. It stood me in good stead now with a lot of work. I think I've balanced that out. So for me, it was sad and a motivator.

1:13:05And I think it also caused me to see life as potentially temporary. I was in a hurry because I thought, wow, things could really change and not change for the better. And it also, So because I did come from that, I did err on the side of empathy for others. I think I was more inclined to feel empathy for other people. I think you could go in the other direction and feel like, hey, I got the short end of the sticks, so screw you. But that was not my way, I thought. Challenging things occur in people's lives. Most people have tough things in their life at some point, almost everyone. So I think it brought me to a place of great ambition and also turned me in the direction of empathy.

1:13:43But it took me a while to get there. The ambition and perfectionism loomed large for probably the first 35 years of my life. And then with some measure of success, because things came relatively early to me and a lot of personal work, I reached a point of bringing out probably some of my finer qualities and maybe mitigating some of the qualities that were driven by this childhood baggage in a negative way. Strauss, this has been such an interesting conversation. I'm really appreciative of your time. Thanks for sharing everything you did today. Thanks for having me. If you enjoyed this episode, check out joincolossus.com.

1:14:18There you'll find every episode of this podcast complete with transcripts, show notes, and resources to keep learning. You can also sign up for our newsletter, Colossus Weekly, where we condense episodes to the big ideas, quotations, and more, as well as share the best content we find on the internet every week.

1:14:47Thank you.