Greetings, and welcome to Take-Two Interactive's Fiscal Third Quarter 2012 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Hank Diamond, Senior Vice President of Investor Relations and Corporate Communications for Take-Two Interactive. Thank you, Mr. Diamond, you may begin. Henry A. Diamond: Good afternoon. Welcome, and thank you for joining Take-Two's conference call to discuss its results for the third quarter of fiscal year 2012 ended December 31, 2011. Today's call will be led by Strauss Zelnick, Take-Two's Chairman and Chief Executive Officer; Karl Slatoff, our Chief Operating Officer; and Lainie Goldstein, our Chief Financial Officer. We will be available to answer your questions during the Q&A session following our prepared remarks. Before we begin, I'm obliged to review our Safe Harbor statement by reminding everyone that the statements made during this call that are not historical facts are considered forward-looking statements under Federal Securities Laws. These forward-looking statements are based on the beliefs of our management, as well as assumptions made by and information currently available to us. We have no obligation to update these forward-looking statements. Actual operating results may vary significantly from these forward-looking statements based on a variety of factors. These important factors are described in our filings with the SEC, including the company's annual report on Form 10-K for the fiscal year ended March 31, 2011. These documents may be obtained from our website at www.take2games.com. And now I'll turn the call over to Strauss.

Thanks, Hank. Good afternoon, everyone, and thanks for joining us. Today we're pleased to announce results for our third quarter, which were solidly within our outlook range. Take-Two continues to execute strategically, creatively and operationally, and our long term outlook for growth and profitability is extraordinarily promising. For the third quarter, we delivered net revenue of $236.3 million, non-GAAP net income of $0.27 per share, and we ended the period with $453.3 million in cash. The strongest contributor to our third quarter results was the successful launch of NBA 2K12, which received the highest ratings in the history of our basketball franchise and 2K Sports. The quality of this title coupled with 2K's creative and well-orchestrated marketing campaign enabled us to sell in nearly 4 million units despite the NBA lockout during the initial launch. Sales of NBA 2K12 have accelerated since the start of the basketball season, and we believe that the title will continue to grow its audience throughout the year. I'd like to congratulate 2K's Visual Concepts studio and the marketing team at 2K Sports for taking an innovative approach to addressing this year's release and delivering an experience that once again raises the bar for excellence. As a result of their hard work, we expect fiscal 2012 to be another profitable year for 2K Sports. Our third quarter also benefited from robust holiday sales of our catalog, including the Grand Theft Auto franchise, Red Dead Redemption, Midnight Club: Los Angeles and Borderlands. In addition, L.A. Noire continues to be a key title for the company and has sold in nearly 5 million units worldwide since its launch in May. According to NPD sales data for the U.S., it was the top-selling new intellectual property in our industry during 2011. Our ability to create new wholly-owned intellectual properties and convert them into valuable franchises is a competitive advantage and an integral part of Take-Two's DNA. Rockstar's success with L.A. Noire is a prime example. Expanding our digital offerings remains an important component of Take-Two's strategy. Digitally-delivered content represented 11% of net revenue in the third quarter, led by offerings from our Grand Theft Auto franchise, Red Dead Redemption, Borderlands and L.A. Noire. Among these, our biggest seller was Grand Theft Auto III: 10th Anniversary Edition for our iOS and Android. This is our first title for Android and our highest-selling mobile release to date. It's just one example of how we're increasingly able to generate meaningful incremental income from our rich catalog of fantastic games by tailoring the experience to emerging platforms. At Take-Two, we focus on creating the most innovative and compelling interactive entertainment experiences that delight consumers with every new release. As we recently announced, Max Payne 3 is now planned for launch on May 15, joining our stellar lineup for fiscal 2013. Pre-orders for the title are strong, and the new trailers received significant attention from fans. We're confident that Rockstar will deliver another groundbreaking entertainment experience with Max Payne 3, which is shaping up to be one of our most exciting releases ever. I'd now like to discuss some of the strategic initiatives that we believe position Take-Two for even greater long-term success. We continue to invest aggressively in making our content available to consumers on all relevant platforms. Our 3 online projects in Asia are moving ahead as planned and are positioned to become important contributors to Take-Two's future performance. In particular, the online version of NBA 2K, which we're co-developing with Tencent in China, is in closed beta testing, and our initial user engagement with the title has been outstanding. Expanding our lineup for smartphones and tablets by leveraging our proven franchises and development expertise. In addition to GTA III during the third quarter, we released an iOS version of NBA 2K12. We have many other mobile projects in the pipeline, all with the goal of enabling consumers to engage with our franchises wherever and whenever they want. And in November, we raised $250 million through a convertible note offering. By taking advantage of a limited window of opportunity to raise capital on attractive terms, we've enhanced our ability to pursue acquisitions, invest in additional internal projects and take other actions to drive shareholder value. This cash, coupled with our improved renewed credit facility, bolsters our already sound foundation to grow our business. I'm extremely pleased that Take-Two has all the pieces in place to achieve long-term success and returns for our shareholders. We have a proven strategy focused on delivering the most innovative and compelling interactive entertainment experiences, the most talented developers and marketing team in our industry who set new benchmarks with every release, the strongest pipeline in the company's history, and ample resources to pursue our many growth opportunities across new platforms and regions. We expect fiscal 2013 to be one of our best years ever, with substantial revenue growth and non-GAAP net income in excess of $2 per share. Our entire team is focused everyday on maximizing and achieving the potential of our enterprise. I'll now turn the call over to Karl.

Thanks, Strauss. Today, I'll review our lineup of upcoming releases. Next Tuesday, 2K Games will release The Darkness II. Based on the supernatural comic book series, gamers will experience fast and intuitive combat throughout the game's stunning world. Two weeks ago, 2K launched a demo for The Darkness II, which has been well received by the media and consumers. On March 6, 2K Sports and 2K Play will usher in a start of the 2012 baseball season with the releases of Major League Baseball 2K12 and Nicktoons MLB for Nintendo 3DS. Major League Baseball 2K12 features Cy Young award-winning pitcher, Justin Verlander, of the Detroit Tigers. This title will once again be supported by the $1 million dollar Perfect Game Challenge, which will deliver even more excitement and intensity by staging a live 8-person final tournament that will determine our new $1 million champion. Nicktoons MLB for Nintendo 3DS takes a more lighthearted approach to America's favorite pastime by pitting an All-Star roster of Nicktoons characters against players from all 30 Major League teams. This title will be 2K Play's second offering for 3DS and will provide hours of 3D baseball action on the go. Beyond fiscal 2012, we have the most robust lineup of titles in Take-Two's history. On May 15, Rockstar plans to launch Max Payne 3, one of this year's most anticipated new releases. Bringing powerful storytelling back to the action shooter genre, Max Payne 3 will deliver an intense gaming experience. And a first for the series, the title's multiplayer offering brings the game's signature dark, cinematic feel and fluid gunplay into the realm of online multiplayer. Playing on themes of paranoia, betrayal and heroism, Max Payne 3 features a wide range of new and traditional multiplayer modes, all delivered with the same epic visual style of the single-player game. During the first half of fiscal 2013, 2K Games will launch Spec Ops: The Line, a fresh take on the military shooter, combining up close and personal combat with a thought-provoking story. Players assume the role of a U.S. Delta Force operative, leading a search and rescue mission set against the backdrop of a sandstorm-ravaged Dubai. Spec Ops: The Line is 2K's exciting foray into the modern military genre, with compelling action that moves players beyond the simplistic conflict of good versus bad. In addition to the single-player campaign, the title features an expansive, squad-based multiplayer experience. Irrational Games' BioShock Infinite continues to set the stage for the most thrilling offering yet from this hit franchise, which has sold in over 9 million units. Slated for release during calendar 2012, the title will include a number of innovative features, including the recently announced 1999 Mode, which will allow players to choose a more challenging experience with permanent consequences from their gameplay decisions. Set in an immense city in the sky, BioShock Infinite promises to take gamers to a new level of action and realism. 2K Games is now slated to offer 2 separate XCOM releases with unique creative visions. Firaxis Games, the team behind the iconic Sid Meier's Civilization franchise, is now hard at work on XCOM: Enemy Unknown. Arriving this fall, this action strategy game will allow players to control the operations of a secret paramilitary organization and lead tactical combat missions against a dangerous alien threat. In addition, 2K Marin is continuing to develop their shooter version of XCOM, which combines visceral gunplay with powerful sci-fi abilities as players face a vicious enemy from another world. Also coming from 2K Games in fiscal 2013 is Borderlands 2, the next installment in the critically acclaimed franchise that has sold in over 5 million units worldwide. Developed by Gearbox Software, this "shooter-looter" will be an experience of epic scale, featuring a story and characters that are larger than life and a world that's as beautiful as it is deadly. Through its action-packed single player and cooperative multiplayer experiences, Borderlands 2 will continue to define the role-playing shooter genre. And finally, Grand Theft Auto V is making great progress and promises to continue Rockstar's incredible track record of delighting fans by raising the bar in interactive entertainment. We look forward to updating you further on these and many other projects going forward. Thanks, and I'd now like to turn the call over to Lainie.

Thanks, Karl, and good afternoon, everyone. Today, I'll review our results for the third quarter and then provide some details, vendor outlook for the fourth quarter and full year fiscal 2012. Note that all of the numbers I'll be providing today are non-GAAP results from continuing operations, unless otherwise stated. Our press release provides a reconciliation of our GAAP to non-GAAP measurements. For the third quarter of fiscal 2012, we delivered net revenue of $236.3 million, driven by strong sales, NBA 2K12, catalog titles, digital offerings, L.A. Noire, and our Nickelodeon lineup. This compares to $334.3 million for the third quarter last year, which had benefited from the strong post-launch performance of Red Dead Redemption, the releases of Red Dead Redemption: Undead Nightmare and Grand Theft Auto IV: Complete, and the absence of the NBA lockout that affected sales of NBA 2K12. Catalog sales accounted for approximately 34% of our revenue during the third quarter, led by Grand Theft Auto franchise, Red Dead Redemption, Midnight Club: Los Angeles and Borderlands. The release of the Red Dead Redemption: Game of the Year Edition during the quarter was the key contributor to the continuing strong sales of Red Dead Redemption. Digitally-delivered content accounted for 11% of our net revenue for the period, led by downloadable add-on content for our key catalog titles and L.A. Noire. As mentioned by Strauss, our most successful digital title was Grand Theft Auto III: 10th anniversary Edition, which delivered high margins due to the relatively low incremental cost of tailoring the game for the iOS and Android platforms. Gross margin for the third quarter was 47%, up approximately 3 percentage points year-over-year. This increase was primarily driven by lower internal royalties resulting from a change in the mix of revenues and lower capitalized software amortization due to an increase in revenue from catalog titles. Operating expenses were approximately $79 million for the quarter -- for the third quarter, down about $13 million versus the prior year's period, driven by lower selling and marketing and performance-based compensation expense. Selling and marketing expense was higher in the third quarter last year to support the launch of Red Dead Redemption: Undead Nightmare and the post-launch performance of Red Dead Redemption. Interest and other expense increased year-over-year due to the inclusion of the coupon interest expense for the $250 million of convertible notes that we issued in November. Our strong revenue and margin performance enabled us to deliver non-GAAP net income of $29 million, or $0.27 per share, for the third quarter of fiscal 2012. GAAP income from continuing operations was $14 million, or $0.16 per share. Turning to some key items from our balance sheet as compared to the second quarter. Our cash balance increased to $453 million. Our accounts receivable balance increased to $53 million, reflecting higher sales during the third quarter. Inventory decreased to $23 million, primarily due to the release of NBA 2K12 in October. And software development costs and licenses increased to $303 million, reflecting the significant development efforts around our pipeline of upcoming releases. Now I'll review our financial outlook for the full year and fourth quarter fiscal 2012, which is all provided on a non-GAAP basis. For the full year, we are updating our previous financial outlook. We now expect revenue to range from $790 million to $840 million, and non-GAAP net loss to range from $0.60 to $0.75 per share. The change to our outlook primarily reflects the impact of Max Payne 3's planned release date moving into fiscal 2013. For the full year, we expect the revenue breakdown from our labels to be roughly 45% from Rockstar, 22% from 2K Games, 27% from 2K Sports and 6% in 2K Play. We expect our geographic revenue split to be about 60% North America and 40% international. Excluding our sports business, our geographic split is expected to be approximately 55% North America and 45% international. We expect gross margins in the mid- to upper 30s. We expect total operating expenses to remain constant year-over-year, with higher selling and marketing expense to support our new releases and lower performance-based compensation expense. And we project interest and other expense of approximately $10 million, tax expense of about $4 million and shares of approximately $83 million. Turning to our outlook for our fourth quarter of fiscal 2012. We expect to deliver revenue ranging from $112 million to $162 million and a non-GAAP net loss ranging from $0.50 to $0.65 per share. The majority of our revenue in the fourth quarter is expected to come from the upcoming releases of The Darkness II and Major League Baseball 2K12, along with ongoing sales of NBA 2K12. We expect fourth quarter gross profit margins in the mid- to upper 20s. Total operating expenses for the fourth quarter should increase by approximately 5% year-over-year, driven by selling and marketing expense to support our fourth quarter 2012 and first quarter 2013 releases. Our fourth quarter outlook also reflects interest and other expense of approximately $3 million, tax expense of approximately $1 million and an estimated share count of approximately $84 million. Looking ahead, we are incredibly excited about Take-Two's outlook for fiscal 2013 and beyond. As noted earlier, our development pipeline is the strongest in the company's history. We anticipate that fiscal 2013 will be one of the company's best years ever, including substantial revenue growth and non-GAAP net income in excess of $2 per share. With our industry-leading IP, world-class talent and ample financial resources, Take-Two is well positioned to deliver growth and profitability over the long term. Now I'll turn the call back to Strauss.

Thanks, Karl and Lainie. We're pleased with the quarter's results, and we look forward to sharing more progress with you in the coming months. I'd like to thank our colleagues for their dedication and hard work. Together, we're building an ever stronger Take-Two, with a commitment to delivering value to our consumers, business partners and shareholders. We'll now take your questions. Operator?

[Operator Instructions] Our first question is from Justin Post with Bank of America Merrill Lynch.

Could you maybe talk about Rockstar's ability to get more than one title out in a year? Is that something they've ever been able to do and something that you could see that could happen at some point? And then secondly, I don't know if you commented on this, but where do you think the long-term margins of this company could be headed once you get past the baseball contract? Do you think you can keep getting them higher as you transition to digital, which has been a big theme for some of the other big companies in the space?

Justin, it's Strauss. Yes, there definitely have been historical periods where Rockstar has put out more than a title in the year. And I also remember it's a bit misleading, because there's so much other content now that comes along with an initial release. When we put out Red Dead Redemption, it wasn't just about Red Dead Redemption. It was about all kinds of digitally-delivered content that came after Red Dead Redemption and kept that title alive and kicking to this very day. Right? The initial release was incredibly successful, and now we're up to about 13 million units, I believe, in terms of what's been sold in. So that's an extraordinary result, and it's a result because Rockstar doesn't just make one title, they make a title with an eye towards continuing to delight consumers with that title going forward. And it's a real view to building franchises. So yes, there's been times when we've had more than one tempo release in a year, and I think the team is eminently capable of doing that equally. The holy grail that we outlined was developing new franchises every year, we've been doing that at least once a year since 2007, and then creating ongoing engagement with consumers that's profitable for the enterprise with add-on content that's largely, but not entirely, digitally delivered. And actually, it turns out we're delivering that to retail as well. And I think that that's an extraordinary situation, and it's driven by Rockstar's commitment to quality. And that does take a lot of time and a lot of resources. In terms of margins, Lainie?

So for the margins going forward without the MLB business, we expect it to definitely come up. And we are happy that the agreement is over, so we'll be able to achieve higher margins. In terms of specific numbers, it would be based on what titles come out and what period. So it's very difficult to give an exact number that we would go after. But we certainly are shooting for a higher margin going forward.

Our next question comes from the line of Arvind Bhatia with Sterne Agee.

I wanted to see if you can help us a little bit more on the fourth quarter. One, I think the guidance seems quite a bit broad, given that you are halfway into the quarter, almost 1/3 at least done. Second, just wondering, as we look at fiscal '13, can you talk about all the various plans and DLC, et cetera in your mind that would contribute to digital? And what percentage of your business you think will come, say, in the next 12 to 24 months from digital?

So in terms of your fourth quarter question about the range of the guidance, we still have 2 new releases that haven't shipped yet for the quarter: Darkness II and Major League Baseball. So that performance could vary. So that's why we left the range on the larger scale.

Yes. And in terms of digitally-delivered content, it remains an enormous focus of the company, both in terms of supporting frontline releases and maintaining the life and building the life of a franchise and equally, catalog distribution. And this becomes -- this is a bigger and bigger area of focus for our company. We recently released Grand Theft Auto III: 10th Anniversary Edition for iOS and Android. And we continue to roll out iterations of our franchises for any number of platforms with an eye towards bringing our intellectual property to consumers wherever they are, whenever they want it and through whatever channel interests them. The effect of that is our digitally-delivered business has been somewhere between 9% and 25% of our revenue quarter-to-quarter, depending on what our frontline looks like. What that really tells you though is package goods still is the lion's share of our business. Retail is an important partner, but we're ecumenical. We want to give consumers what they want, where they want it. We've already disclosed that the margin difference is not that significant between digitally-delivered goods and packaged goods. So we're, in a way, indifferent. The goal here is to meet consumers' needs and delight them and find them where they are.

And the last one on digital. I guess the online projects in Asia, when should we expect to hear a little bit more? I know we've talked about this in the past, but is there anything else you can tell us in terms of the milestones we should be watching for? You mentioned the closed beta testing, good engagement. Any metrics to share with us today?

There obviously are plenty of metrics, and what's good about -- what's interesting about that business is you can actually measure it on an ongoing basis. And of course, your consumers guide you after you launch and, in many instances, before you launch. We're not sharing those metrics publicly. Obviously, we're watching them closely, and we feel pretty good about how it's going. We've also been updating the market and our shareholders every quarter on our progress, and it remains very sound and very encouraging.

Our next question comes from the line of James Hardiman with Longbow Research.

A couple of quick questions here on the guidance. When you talked about pushing back Max Payne into next year, you talked about that being a $0.60 to $0.70 impact, although now the new guidance seems to be down more than $0.60 to $0.70 versus your guidance coming out of the second quarter. So I guess the question is are there incremental drags on earnings over and above sort of the Max Payne impact here?

So for Q4, when we gave out the information on Max Payne, that was the information that we knew at the time on that title. So we didn't update the full guidance. We said that we would do that on this call. So the updated numbers, there is a couple variety of other factors that are affecting the Q4 numbers. We had some adjustments to our fourth quarter sales forecast based on some current trends and the near-term sales outlook that we were seeing. We also have a more challenging retail environment in Europe as part of that. We have higher expected software development cost amortization in the period, and we have the coupon interest expense on our new convertible notes, as well as a lower share count due to the expected loss position we now have in Q4.

Great, very helpful. And then just continuing to go down that path, $0.60 to $0.70 of Max Payne getting pushed out of this year and into next, presumably. You were previously targeting that $2 for next year, even before the move. So should I be thinking about $2.60 to $2.70? Or ultimately, did some other titles fall out of '13 and maybe go into '14?

Yes, we gave that figure some time ago in an effort to be transparent about the robust year we had ahead of ourselves. We have some titles that remain unannounced for the year, very robust lineup. But we don't intend to adjust that figure regularly on a prospective basis. We'll guide as we normally do at this point.

Our next question comes from the line of Eric Handler with MKM Partners.

Just curious of a statement that you've talked about before, being physical margins being comparable to digital margins. Can you sort of walk through the puts and takes of how that is, given you don't have the packaging with digital? And I would just think that it doesn't take a lot more to do some downloadable content in terms of the cost to create that. So where -- what's the reason why they're comparable margins?

Well, obviously, your margins interact with your selling price, as well as your cost profile. And in the case of your physical goods, you have your cost of goods sold and what you can -- you're obviously familiar what that is. With regard to digital goods, you're right. You don't have certain physical costs, but you do have marketing partners with whom you share. And you may have a different frontline price point. So the effect is that percentages may bump around, but the dollar margins per unit are pretty similar.

Our next question comes from the line of Mike Hickey with National Alliance.

Just another question on your fiscal '13 guidance of plus $2 per share. I understand you don't want to update that. But are the inputs the same? I mean, game-wise? Or can we at least get clarification that the games that you were modeling for fiscal '13 originally are the same, plus Max now?

Mike, when we gave that information out, we said we'd be above $2. And so clearly, it was like 9 months ago I think at this point. So things definitely move around, but we still maintain that we'll be over $2 in that period.

Okay. And then Apple's creating a lot of buzz that they may go into the TV market at the end of this year, maybe early '13. And clearly, they've been disruptive to other markets. I'm just curious, Strauss, how you see a potential Apple TV, how that's going to impact your business and maybe how you can benefit from it?

That's a good question. I mean, if you believe that everything is going to be connected and that processing power continues to go, if you believe the Moore's law as I do -- I mean, people who don't have been disabused of the notion -- then a TV that delivers the kind of quality experience Apple has delivered to other product lines could be a very interesting added benefit for gamers at home. But until I see the product and what it's meant to do, it's very hard to opine.

Okay. And then if that's not disruptive enough, it looks like -- obviously, you have Nintendo having a next-gen platform this year. It looks like Microsoft is heavily rumored '13 or '14, so can you just walk us through how you manage your IP and your resources into sort of another next-gen cycle?

Well, it's a great question, Mike. As you're aware, when these platform transitions occur, the strong becomes stronger and the weak go away, because they -- what happens of course is your software acquisition curve declines as the new platforms are announced and the old platforms are coming to the end of their growth period. Of course they don't go away. We still sell products that were launched a long time ago, and we still sell physical goods for those products. But you do see a decline in the tie ratio as the new platforms are announced. And as they come out, platforms obviously have low installed bases in the beginning, for obviously. So we have to be very thoughtful about how we manage our portfolio. And we and our competitors all are thinking about it. It's a little premature because it's early days yet, but it is something that we're being very thoughtful about. And I will say this: from a financial position, the company has never been in better shape to invest. From an intellectual-property position, the company's never had more franchises or more important franchises than we have now. So between the 2, then add the most important thing which is we believe we have the very best development talent in the business, bar none, and it's largely internal talent, which is to say that we have the ability to talk to our colleagues and all get on the same page about what we want to develop. And then we have the ability to go do it. No one needs to ask anyone's permission. We don't need to find external resources to pursue that. And we have a habit of making the highest-quality products in the business. So we think we're as well positioned as anyone could be. You are right, however, that these transitions create challenges and opportunities.

Our next question comes from the line of Ben Schachter with Macquarie.

Strauss, you've been somewhat outspoken on the whole social gaming issue, and now there's a lot more data out there, with Zynga being public and Facebook having their data last night. Given all the new details, just wondering if you had any updated thoughts on how social gaming may evolve and how it may impact Take-Two? Then I have a couple of follow-ups.

Yes, we still believe it's potentially an opportunity. We put out Civilization for Facebook, got great ratings on it and had a great learning experience. It wasn't an especially costly endeavor, and we continue to be exceedingly focused on what social gaming can mean for Take-Two. We do have to be true to our DNA. We make robust products, we make the highest-quality products in the business, and we aim to delight consumers with everything we do. So both can be true. There can be a big social gaming market, and there can be companies out there that are doing a terrific job attacking the market. And equally, there's a very significant market for what we and many of our competitors do in terms of more robust experiences. And as I said earlier, we endeavor to do all of the above. But when we say we endeavor to do all of the above, we are doing so judiciously with an eye towards how much we're investing and making sure that everything we do is based on the passion of our development teams and the desire to delight consumers. In terms of the metrics that are going on, look, it is pretty extraordinary and something to admire that in a very short period of time, Mark Zuckerberg and his team at Facebook will be launching an IPO that's rumored to be a $75 billion to $100 billion offering. And I read today that they're reporting about over $8 billion -- about $3.5 billion of revenue, about $1 billion in profits. And they do all that with a couple of thousand employees. And how can you not admire that?

And just separately on some of the Asia issues. So beyond China, just wondering, are there other markets in Asia that are interesting for you? And how have some of the other markets, Japan and some other areas, changed over the last few years?

Well, I mean, I think all of the -- this is Karl, Ben. All of the markets in Asia are potentially interesting to us. Some are more developed than others. Some are more developed in packaged goods than others. I think in terms of both the Southeast Asian markets, we do have a robust packaged good business which is growing. But that's obviously where we focus the bulk of our online activities. Japan is also very interesting. That's from an online prospective. But that's really more of a mobile market. So it really does depend from a market-by-market basis. And then it remains to be seen whether some of the other markets like India can evolve and present an opportunity for us. I happen to believe that they can. But again, time will tell, and I think that those markets, they do evolve a bit more.

Our next question comes from the line of Daniel Ernst with Hudson Square Research.

Two questions if I might. First, on the iOS experience you're having and the success of GTA III. And, Lainie, you mentioned that it was a very high margin product for you, given that it was relatively painless to port the product over to iOS. Is that platform now -- given that success, is that platform now able to support a ground-up launch? Could you take a AAA Rockstar title, build it from the ground up for iOS and have a financial success? Are the economics compelling enough at this point to sort of develop originally -- an AAA title like that iOS? And then second question on baseball. With the contract over and that going from being a drag on earnings to being neutral, is there an opportunity given that you have the engine built and great ratings in that game and experience in selling to that market to turn that into a new contract that is profit share rather than the big upfront payments that have caused it to be so painful in the past?

Daniel, it's Karl. In terms of iOS, your question was really can we do a AAA product from the ground up on iOS? And I think it really depends on what your definition of AAA is. There is still a limitation to the technical capabilities and processing power on the IOS. So can you put out an experience that is equivalent to something you would put on one of the more advanced consoles or PC? The answer is no, you can't do that yet. Will there be a day when that happens? Obviously. And then it's just a question of is there a convergence between the iOS operating system and the other ones as they evolve? And honestly, I can't answer that question. But time will tell. But obviously, we can't do something as in depth as one of our big AAA games on the iOS system today from the ground up. That being said, we had and we are pursuing things. Development from the ground up. We're not just interested in iOS and Android as a port outlet for us. We are endeavoring to build things from the ground up on iOS and the Android systems that actually do present more robust experiences. And we're not the only ones. There's others that are going after that as well. In terms of MLB, look. I mean, we've had -- I think we have a great baseball game. We have a great engine. Obviously, we have assets there. Whether there's a deal to be done, that remains to be seen.

Our next question comes from the line of Brian Fitzgerald with UBS.

Lainie, you mentioned softness in Europe. And last night, one of your competitors mentioned that financial concerns at a key U.K. retail partner could impact revenues next quarter. Is that what you're seeing? Is it localized more towards the U.K.? Or is it maybe broader in terms of EU? And should we anticipate ongoing international pressure there going forward? And I had one follow-up on some of the digital stuff.

Well, on the retail in Europe, we're not going to really comment specifically on who it is or what the issues are there. Overall, I think that the business in Europe for us is pretty strong, and we certainly are going to be affected if one or more of our retailers are having issues over in Europe.

Okay. And on the digital side, do you see any differentiation relative to your performance with titles on iOS versus Android? And maybe in terms of your distribution channels, Origin versus Valve?

We don't really give out that level of detail, and it's -- but I will say it's still a work in progress. And obviously, one of the concerns that an AAA developer has and publisher has is the price point of those platforms. And that is a concern, I think. We do deliver these AAA experiences, and consumers are accustomed to an exceedingly low price point.

And to be clear, we're actually not on Origin at this point.

Our next question comes from the line of Doug Cruetz with Cowen and Company.

Yes. You guys have a lot of AAA products scheduled for the upcoming year. I think probably 2x more than you've ever shipped in a single year. And I'm just wondering, do you have any concern about cannibalization between the products, your ability to support all those products with launches independently, the marketing dollars, et cetera? Just how you're thinking about that.

It's a good question. I mean, the thing about cannibalization in entertainment is remember, unlike, say, the toothpaste business, in the entertainment business, you never need entertainment. So when people ask about competitors, in a way, we compete with all forms of entertainment. In a way, we don't compete at all. Because when you give consumers something that they really, really want, they come out for it. That said, we found out post the worldwide financial crisis in '08, the consumers we're more selective with their dollars and that put a finer point on our need and desire to put out only the highest-quality products. So in a way, even if we have a title release schedule, we don't really compete because it's not as though our franchises look alike or sound alike or play alike. All that said, there is a matter of focus. We have a limited number of individuals around here, and we do want to make sure that when we're spending a lot of money to make a AAA product and a lot of money to market it, that the entire organization can focus. So we try to schedule accordingly. And we try to be mindful of what our competitors are doing as well. And I think our competitors have found it wise to be mindful of what we're doing. So the answer is yes, it's a high-class problem, but we do have to be somewhat careful not to step on releases. And I think we are. I think one of the ways we've done it is we were kind of a market leader in saying actually, there is another season besides the Christmas holiday season that we can be really successful throughout the rest of the year, with a possible exception of July. And we tend to focus on a worldwide release schedule that covers virtually every month of the year. So to answer your question, I think we do have sufficient room in the calendar to be effective without stepping on our products.

Our next question comes from the line of Edward Williams with BMO Capital Markets.

Just a couple of questions looking at platforms. Can you comment a little bit about your thoughts with regards to the upcoming launch of PS Vita and how you see the handhelds relative to iOS and your level of support there? I have seen handheld hasn't been big for you in the past, but where your thought is there? And then as a follow-up to that, can you talk about a little bit about how you are prioritizing your development resources between digital versus physical and then across the various consoles as we look into the current year?

Hey, it's Karl. In terms of the Vita, we have not announced any specific support for Vita, although Ken Levine did actually speak of the Vita when the -- and the concept of BioShock at one point, but we have not actually announced anything specific and related to that. That being said, we've had a long history with Sony and their handheld devices and have done very well together over the past. So we are looking forward to the Vita coming out in the Western markets. And it's obvious that it's something that we're giving great consideration to on a go-forward basis. In terms of -- I think your second part of that question was something about competing with how the Vita hold up versus other handheld opportunities and specifically iOS? I mean, look, just by the fact that Vita is a mobile device and a lot of the -- all of the iOS devices are mobile devices as well. By definition, they could be construed as competitive. I think that they are different platforms and there's different technical capabilities between the 2 platforms. But are they competitive? Well, to the extent that you're only going to have one mobile device which, by the way, all of us don't. We all have multiple mobile devices, then they will be directly competitive. But again, that will shake out in the market. And can you just repeat your second question? It was something, it was about...

What I was curious about is if you're looking at that allocating your development budget across different platforms, can you just comment a little bit how you're prioritizing the decision to focus on digital versus the decision to focus on physical, or the decision to focus on the 360 versus PS3? Or do we -- just how you kind of characterize that budgeting process or how you're going about it?

I can't really go through a great amount detail about it but I'll give you philosophically how we look at this. In terms of amongst different consoles, et cetera, we look at what -- what platforms in general that are relevant. And we develop for those platforms. And then it behooves us to be -- to have our content to the extent that, that platform can handle our content and the experience we want to deliver to be on all the platforms that are relevant to the consumer. So all of the console platforms are relevant. Obviously we've developed across-the-board in that context. And in terms of digital versus physical, we actually don't really look at our development budgets in that way at all. Because in a lot of ways, look, it's all zeros and ones. It's the same content, and whether it's delivered digitally or physically, it's the same stuff. So whether the digital opportunity is really more a function of how it's delivered ultimately and not necessarily something that we're looking at separately in the development context. Now online games, which is a separate component of the "digital business", that is a separate consideration. And we look, as Strauss said before, we're very aggressive in our online strategy, and we've got 3 projects that we've announced going on in Asia at this point, and each of them has their own separate development budget that we manage internally.

Our next question comes from the line of Colin Sebastian with Robert W. Baird.

This is Gregor Schauer in for Colin. I wanted to dig in a little bit more into the iOS and the Android contribution this quarter. It looks like last year there was 0% contribution, and then I assume that this is in the other category and that was 3% this quarter which looks like a nice contribution in terms of growth. But could you give us any further insight in terms of how that broke down between Android and IOS? And do you have some positive things to say about Android? And so the general perception is that most of the gaming monies to be made on iOS, are using any different there?

Yes, we're not probably going to break down the information much further especially because it's early days yet.

Right. Well, just regarding the latter part of my question, are you seeing anything different in terms of -- sort of the general perception that most of the gaming opportunities are really just on iOS? Are you seeing more? Or are you seeing there's some more opportunity for Android?

Yes, I mean, I don't see it that way. I mean, I think that Apple has a great advantage because they brought out this terrific tablet and it's done incredibly well. But I think there are plenty of Android opportunities as well. And there's plenty to go around in any case. There's billions of people with mobile platforms and I believe that tablets will be ubiquitous. And that's why we are in the market and why we need to be there. But we don't need to -- we have plenty of choices that we actually have to really debate and focus on because we have to make them. But this isn't a choice we have to make. We can do both.

Because with GTA III, the Anniversary Edition was on the iOS and Android.

Precisely.

Right. Okay, and then just finally, regarding the tablet opportunity versus the smartphones, do you see -- is anything significantly different there in terms of opportunity? Do you think the ultimate issue is the tablet's becoming more important than the smartphones?

Well, they're going to change because tablets, as Karl just referenced, if you believe in Moore's Law, we're pretty early with tablets. Eventually you have the believe the processing power of tablets is going to grow substantially. And in any case, the screen size is bigger. So even if the processing power of a smartphone is equal that of a PC, you're still burdened by a screen size issue. So in terms of the kind of experiences we love to focus on which is a very robust experience, I think the tablet's going to be a more interesting platform for us. However, people have proven that you can do really well with games on a small platform as well. As I said we do have to consider price points because we developed these very high-quality products and so we are not unmindful of the need to charge an appropriate price for those products.

Right. Okay, and then obviously it's considering that we are taking into account that tablet distribution is probably never going to be the equivalent of smartphones, just given the different market sizes?

It remains to be seen, but I wouldn't actually agree with that. I think tablets are going to be ubiquitous.

Right, but I mean mobile devices about sell in the order of 1.6 billion if there were all smartphones are at one point. Wouldn't you agree at all, it's difficult to imagine 1.6 billion tablet units?

No, I don't believe it is. I'm a big believer that tablets will be ubiquitous.

Our next question comes from the line of Atul Bagga with Lazard.

Just a quick one on your potential use of cash. Can you help us specifically what your -- help us understand your acquisition strategy? What segments you might be looking at, what sizes? Is this something which is on your radar right now?

Yes, I mean, the good news about our cash balance is that it allows us to consider opportunities that perhaps we couldn't have considered in the past. And we are in growth mode around here. And so we're investing behind our development teams. We're investing in our marketing teams. And we're investing in our franchises. And we're investing in the footprint of our distribution which is reflected in the percentage of our revenues that comes from outside the United States which has grown materially since 2007. We like to be in a position of being able to consider opportunities that come up, and one of the reasons we're able to is, frankly, the cost of capital is much lower today than it was years ago for this sort of capital. So while it is a drag on our per share results, it's not anywhere near as much of as drag as it might have been just a couple of years ago. All that said, what we've done so far from an M&A point of view is we've been exceedingly disciplined, we're focused on value and when we have done an acquisition, we've acquired intellectual property as well as a team and -- that we felt both would advantage ourselves in our core business. And I don't think you will see that thinking change. So what we're not going to do is roll the dice on behalf of our shareholders and take a flyer and see what happens and then announce a write-off if it goes against us. I think you can assume that we take being fiduciaries of capital exceedingly seriously, and if we do make an acquisition, large or small, it will be consistent with the strategy we've outlined, it will be heavily focused on being accretive as quickly as possible, and it will be value-oriented.

And just to be clear as well, you had mentioned early on that margins between digital and packaged goods business, you see kind of a similar margin, and in terms of opportunity, you're still seeing strong opportunity in the packaged goods side. Is it fair to say that when you're looking at acquisition, it could be across-the-board, whether it's digital or packaged goods?

As Karl said, everything we do is digital. Now we're just starting to learn about how you get it to consumers. We're just -- we're indifferent. We want to be expert in getting our products to consumers wherever they are, however they want it, whatever channel they want, and frankly, we want to be flexible at how they pay for it as well. And in order to do that, you need to avail yourselves of all different forms of digital as well as packaged goods distribution. But there's nothing, technically, that prevents us from distributing a AAA console title digitally. Right? We do so. So I can't imagine making a deal that would somehow make a decision among the camps because this isn't a fight. The answer is all of the above.

Our next question comes from the line of Mike Olson with Piper Jaffray.

I just have one quick one. How do you guys think about kind of DLC delivery and annual subscriptions going forward? Do you expect or should we expect that you will institute a DLC membership service of any -- for any of your larger franchises going forward?

It's Karl, Mike. Well, look, in terms of DLC, obviously, right now most of our DLC distribution is done on a sort of one-off basis in terms of, you pay a price and you own -- then you own the DLC. There are whole host of other business models that you can consider in the context of electronically distributed content. And those are in the form of some potential subscriptions. We have lots of variations on those. There's also microtransactions. It's free to play with microtransactions. There's also lower priced models plus microtransactions. The iterations are almost endless. And at the end of the day, we look at these -- those type of -- that type of evolutions as an opportunity to really be able the maximize our relationship, and ultimately our financial relationships with the consumer to give them content the way they want their content, where they want the content, give it to them, and the way they want to buy the content, so that they can engage more fully. In a dynamic world, where the more you get paid, the more deeper consumers engage with their content, I can tell you that we feel we are very well-positioned because in our products, consumers do engage deeply and we offer a lot of value in our products. And in a world where everything doesn't cost $59, and it really -- there's -- I don't want to say price discrimination, but there's potential price differences depending on how much content you actually and value deliver to the consumer, we will fare very well.

Our next question is a follow-up question from Justin Post with Bank of America Merrill Lynch.

I was asking about the convertible and why you did it, but you already answered that.

We have no further questions in queue at this time. I would now like to turn the floor back over to management for closing comments.

Well, thanks so much for joining us. We're gratified with the quarter's results. We're very excited about our upcoming releases and we very much appreciate your support.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.