Mastering Success with Strauss Zelnick, Chairman & CEO of Take-Two Interactive Software, Inc.
Gary Pinkus: I think about the multiple things you do both personally and professionally, it's a pretty stunning list. It feels like you've either invented more hours in the day or come up with a personal operating model that allows you to do things at a different level than the rest of us. Maybe talk a little bit about that. How do you think about organizing your time? How do you get that much stuff done and still manage to shove in parenting, having a wife, and working out?
Strauss Zelnick: Most of the time, totally inadequately. You fall short. From a self-assessment point of view at any given time, if you're honest about it. I appreciate the introduction. Before we get into it, I will answer your question.
It is always a pleasure to follow Willy Walker and be the warm-up act for Barry Sternlicht. So, thank you for putting us in this slot. I really appreciate that. I am allergic to the intro. It's so flattering to have an introduction like that, but it's a little off-putting because, of course, if you peel back the surface, everything's not quite as shiny as it sounds or looks.
The true answer is, first of all, I don't advise anyone to do three things at the same time. Certainly not when you start out. These things came upon me over time. So, I started ZMC from scratch in 2001. We took over, so that's what I was doing full-time. That was it. Took over Take-Two. And it was a really small company then. It isn't now, but it was then. The market cap was about $700 million. Revenue was about $700 million. It was just another portfolio company for ZMC. We did not expect it to grow into what it did, and it took a long time. So, it wasn't what I started with, and then family business came my way when my father-in-law passed away, which was in 2016. So, at that point, ZMC was pretty mature, Take-Two was pretty mature, and I was able to turn my attention at least partially to a third thing. So, that's how it works. The other reason I think it works is that I believe in delegation with information. I have really good people at each of the three enterprises. I don't believe for a minute that you can run a business by hiring great people and entirely getting out of their way. But I do think if you hire great people, align economic incentives, stay fully informed, and then get out of the way, it actually really can work. And that is typically how I try to approach it.
Gary Pinkus: On that last point, when you say fully informed, do you have a set of metrics that you expect to get on a daily or weekly basis? What's the operating rhythm for those three?
Strauss Zelnick: It's weekly. I think this is a question I am often posed by people I'm trying to coach, which is another thing that I actually spent a lot of time on: how do you interact with your teams? I don't really do one-on-one because I've just too many colleagues. I've got about, at last count, about 17,500 people in the system. So, it's not realistic to do one-on-one. But I also don't think it's necessarily the best thing for an organization for the CEO to do one-on-ones as a matter of management. So the way we do Take-Two and ZMC is we have a weekly meeting of the senior team and the really senior team. So Take-Two is a $30 billion company with $5.5 billion in revenue and 12,500 people. The senior team is 14 people. We meet on Tuesday mornings at 11:00, and the rule of the meeting is that you have to bring everything that matters to the meeting. And there's no filter. And that is effectively the one-on-one. So if someone says to me after the meeting, hey I didn’t want to say this in the meeting, Can I talk to you personally, you've all heard that. My response is, if it's personal, of course, if it's about business, you've got to bring it to the meeting. We do that in the meeting, and we do the same thing at ZMC. So everything's on the table, and obviously, there may be follow-up meetings, but that's level setting in terms of where we are and where we hope to go both for the week and for longer. At Bells Burg, where I'm not quite as intimately involved, I get a weekly written update from the key team members, and then I read it on Friday nights. Even if it's late, I respond 100% of the time to the team, and then if we need to have meetings, we have meetings. I was talking to a young CEO who's got a real estate business, and his hair was on fire, a wife and a little kid, and he had no time for anything. And he was working from about five in the morning to 11 at night. And I said, “So tell me what you are populating your day with?” And he was like, “I have 25 one on one’s.” I was like, “That's your week. That's 25 hours. How about if you do this, how about a one 1-hour meeting with 25 people? Let's try that.”
Gary Pinkus: You touched on something a second ago. Strauss, you talked about being CEO at 29. For me, at least, it begs the question since few of us have had that opportunity. Maybe, if you don't mind being a bit personal for a moment, go back to what I'll call the Strauss Zelnick origin story, as they call it in the comic business. Where and how did you grow up? I didn't touch on this in the intro, but Strauss has had a number of CEO positions in the media industry, including board positions. He was chair of the board at CBS. At a very young age, Strauss was the wonderkid, if I could pronounce that right of the media industry. Go back further. Where did you get started? Did you know from the moment you were five years old that that was what you wanted to do? How did you get to where you were and maybe where you are now?
Strauss Zelnick: Yeah. I don't know that there's anything more pathetic than being an old guy dining out on your youthful success, but I'll put that to the side. I grew up in Boston. My dad was a lawyer, and for some reason, I wanted to run a movie company when I was five years old, and it made no sense because the family had no exposure to the entertainment business, and I wasn't even allowed to watch television or go to the movies. The first movie I ever saw was Disney's Fantasia, which both scared and bored me. But nonetheless, I decided that was what I wanted to do. The family moved to New Jersey, that wasn't the worst of it, although that was bad. I maintained an interest in entertainment. Like many people in the entertainment business, I toyed with the notion of being a performer. I was a singer-songwriter but did not have much talent. Luckily, I realized that before, it was too late. I was just good enough that right now, if I hadn't recognized that, I'd be playing weddings and bar mitzvahs. So it's good that I did recognize that and gave it up. And then I became a writer. I was a better writer than I was a singer-songwriter. But I still wasn't good enough to be a professional writer, and I didn't like it enough. And so, having toyed with the notion of being a creative person, I thought this original ambition of actually running a business in the creative space would be more interesting. I went to Wesleyan undergrad because I didn't get into Harvard undergrad. And that was deeply depressing to me. It was like a fulcrum moment in my life because my family had been going to Harvard since the Dark Ages, and I was the first one not to get in, and I thought I was going to get in. I was really shocked that I didn't get in. My advisors at school were not at all shocked because they actually had looked at my S.A.T. scores and my grades. But, in any case, I went to Wesleyan. Because I was so upset that I hadn't gotten this thing I wanted. It actually motivated me to do well for the first time in my life. I did well at Wesleyan, well enough that I went to Harvard out of undergrad to study business and law at the same time. That was a little Harvard, I thought, because I'll show you, I'll go to both schools as if they cared. And then, I had no way to get into the entertainment business. But I got very lucky. A friend of my dad, not a close friend. Just a casual friend was making movies, this was a long time ago, was making tax shelter movies if you remember that. Bad tax shelter movies. But he was in the movie business. He had a friend who was at Viacom, which at that time was a tiny little company, public company, that actually spun out of CBS. I leaned on the head of business affairs to give me a summer job after my first year in law school. And it was that summer job at Viacom that actually led to my first job in the entertainment business at Columbia Pictures. When I graduated, I was responsible for licensing international television programming to international markets, which gave me some sales skills. I was recruited there to go to Vestrom, which was the largest independent home entertainment company that wanted to start a movie company. And I went over there. I was 28. I graduated at 26. And for no good reason, they may have been president of that company. About nine months later, it was a public company. And I, thankfully, had the presence of mind, to understand that this was really a cool thing, but I'm completely and totally not ready for this job. So I ran scared and started a movie division for them, and the first picture I greenlit, oddly became the highest-grossing independent film of all time, which was good for my career. And it actually got me the job as president of 20th Century Fox.
Gary Pinkus: Remind me of the name.
Strauss Zelnick: Dirty dancing.
Gary Pinkus: Dirty dancing. So, Willy actually gave us an agenda, which so far, I've successfully ignored so far. But I should probably jump back on it.
Let's talk a little about gaming. I remember over dinner which I think was at Willy's house, you gave me some statistics, which I'm going to ask you to quote for the group about the size of the gaming industry relative to TV. And all of the other components of media. I'm assuming that's part of what drew you to it. But talk a little bit. I still have this image of gaming from my youth, sitting in front of an Atari machine, playing mostly by myself, maybe with my brother, if I was in the right mood. I think it's different now. Give us a sense of what's happening in the industry.
Strauss Zelnick: Look, it picks up where I left off. So, I was head of Fox for four years. So, I'd been in the movie business successfully for seven years. And there's a great Buffet aphorism that I'll butcher, which is if you take a bad business and a good management team over time, it is the business's reputation that will remain intact. And I realized that the motion picture business was just a bad business. And I don't mean bad, like unpleasant, because it was fun. The underlying economics were terrible. So I was at Fox and trying to figure out whether I was really going to dig in and stay in the movie business or do something else. So I thought, what I really want to do is, first of all, something more entrepreneurial. But also, what I really want is to work in the movie business of 1927, not the movie business of 2000. So, what's the movie business of 1927? I was like, it's a video game business now. At that time, it was a tiny little business. And I simultaneously arrived at that conclusion. Oddly, I was called by a headhunter, and I was recruited to join a pre-revenue startup in the video game space. You're looking at the only human being who has ever voluntarily left the job of president of a major film studio, taken a 95% pay cut, sold his fancy house in Beverly Hills at a huge loss, and moved his young family to Silicon Valley, but I did. And that was actually in 1993. So it was a really long time ago, and I was betting that the video game business would become the largest entertainment business. And thankfully, I was right about that.
So where are we now? The video game business is bigger than any other entertainment business, but it is a $180 billion-a-year business. If you combine linear television with streaming, actually all forms of television are bigger than video games, for now, but not by much and vastly bigger than music, which is a $30 billion business, vastly bigger than books, which is a $70 billion-ish business. So it's a massive industry, and it's America's pastime. Hundreds of millions of Americans play video games.
And interestingly, to your point about who's actually playing them. The average age of video game players is 37, and the skew male-female is about 55% male, 45% female, or said another way. You would think this audience is completely devoid of gamers. How many of you play video games, mobile or console? Raise your hand. So actually, it is pretty small and surprising that there's no…
Gary Pinkus: There are more hands going up over here. They were a little skittish to put their hands up.
Strauss Zelnick: But actually, most women over the age of around 35 do play some mobile games. So it's unusual that there are fewer hands here. But people think of it as male dominated. Actually, no, most women play video games.
Gary Pinkus: And it's social now if I understood my version of the adolescent male is actually clearly not demographically right.
Strauss Zelnick: I'll try again. How many of you are teenage kids? So, your teenage kids do have headsets on, are playing video games, and talking to their remote friends when they're playing video games. And they're not in the basement. They're in the family room. Generally, they have friends around when they're doing that.
Gary Pinkus: I'm going to shift to another of the topics I promised Willy we'd cover, and it does tie back to gaming. But artificial intelligence came up in a number of conversations. Yesterday, I wasn't sure if I was excited or terrified when Muhammad yesterday said ChatGPT five. I think it is unbelievable because I thought GPT four was pretty unbelievable. And so you guys have been working with artificial intelligence in some form for probably longer than almost any other industry. And even Willy mentioned that AI goes back 70 years longer than the internet. Talk to us a little bit about how you've worked with it historically. And then, is the new generative AI fundamentally different for the gaming industry? You can even take it to the world at large.
Strauss Zelnick: So the first thing to remember is AI; artificial intelligence is an oxymoron, just like machine learning. There is no such thing as artificial intelligence. And machines don't learn. What you're dealing with is computations and algorithms. Generative AI is a combination of rich data sets, computing, and large language models. For those of us who haven't been exposed to generative AI until recently, I think it's a pretty cool-looking parlor trick. But it is a parlor trick. It's a super fancy parlor trick. So, for the people who are telling you that machines through generative AI are going to become sentient, take over the world, become evil, and enslave us all. Put your mind at ease. That's not going to happen. Ultimately, they are machines, whereas the head of BostonDynamics of Robotics company said at a conference I was at, “We intentionally make these things with an off switch.” So they're machines, and these machines are pretty extraordinary. But you're right. Since the dawn of the video game business, we've been using what is now known as artificial intelligence, which essentially is the ability to create material inside a computer and make it look real. That's what we're doing.
Generative AI is cool for us but is it really not much cooler than when you and I first used the internet a really long time ago. We could actually make a query, a natural English language query, and get a response. That was pretty cool then, too. And this generation of young people will see generative AI as just table stakes as it is. It does not replace human intelligence and won't. I love the fact that people are like, “Well, ChatGPT can ace the LSAT.” It's like, “Okay. Computers have been beating human beings at chess for a long time. It's just the same thing.” However, for the LSAT, I don't know how many trained lawyers there are here. The LSAT doesn't mean that you can be a practicing lawyer. Like, I sadly have to hire litigators now and then. Like I don't call up and say, “What was your LSAT score?” I want to know what cases that person won or lost.
So ChatGPT will provide all kinds of work that was previously human work. That is the story of the Industrial Revolution, to begin with, as well as the history of computers. And yes, it's embedded in the video game business. Probably the best example for the 14 people here who play video games is if you play video games now, there's dialog in the video games. The way we create dialog in a video game is that we actually have human beings write it and then record it, and they record about 10,000 lines of dialog. When you get into the game, we have artificial intelligence that has this tree and branch system. So, it feels natural to you as you're hearing this prerecorded dialog. As you can understand from what I just told you, that's a very cumbersome and expensive system. We're soon going to be able to train models inside our video games on the storyline and on the characters, but then have the dialog be generated on the fly in a natural way. So if Gary plays a game and I play the game, we'll have totally different experiences. But the dialog that exists, which wasn't actually written by human beings, which was generated by the model, will feel really natural. Now, we're not there yet, but we will get there. Finally, how many of you are worried that AI is going to cause you to be unemployed?
Gary Pinkus: I'm retiring, so I'm less worried about that.
Strauss Zelnick: You already have religion on this topic, clearly. It's interesting. Not one hand went up. But this is an enormous fear. And when I speak publicly on the topic, like people angrily say, “AI is going to destroy employment.” What I remind people of is the short phrase, “The industrial revolution and the advent of computer technology vastly increased employment and did not decrease employment.” Now, I'll give you a specific question. I'm sitting here with a McKinsey consultant. I'm just asking you, Gary. 150 years ago, what percent of the US workforce was engaged in agriculture?
Gary Pinkus: 80%, I think.
Strauss Zelnick: About 65 or 70, but you're very close. Today, we feed all of America with our agriculture and most of the world with our agricultural exports. What percent of the U.S. workforce is engaged in agriculture? We're just saying farming.
Gary Pinkus: I think less than 10.
Strauss Zelnick: 2%. I have yet to run into anyone. I've been around for a long time, and someone has said to me, “It's terrible. I cannot get a job as a farmer.” So, that's what's going to happen with generative AI. The jobs that are being taken away are the jobs you do not want. And for the jobs that you all do here, you all realize that you do not get paid for doing Excel spreadsheets. You may do them, but that's not how you get paid. You get paid for making really good and hard decisions, typically about making investments, managing investments, and mitigating risk. There's no machine that's going to make that decision for you effectively. Why? If you all had that machine, you'd all have the same technology, and you wouldn't be able to trade assets, or buy assets, or sell assets. By definition, you're going to have to take your human intelligence and rise above that. Right now, many of you do use common systems that actually make investing and managing real estate more effective. But you don't use those systems to make the decision for you. And generative AI is not going to do that for you, either.
Gary Pinkus: Let's use that maybe to jump to this question of investments. This is an audience that has probably got more than the average consumer's interest in things like interest rates and the macro economy where people are investing. Maybe open-ended questions Strauss, points of view on not necessarily interest rates in the macro economy, although I'm open to that, too. But because we talked about that a fair bit with Muhammad yesterday. But what are you getting most excited about as an investor now? With the real estate part of what you do as a particular areas, you are more or less excited about it?
Strauss Zelnick: Hands-on how you define excited. I'm scared. I think it's been a pretty tough time for the past couple of years. And I am in commercial real estate, and that's been pretty brutal. I'm also an optimist, not an expert. My own view, though, is that for what it's worth, things will continue to ease. I don't think you know the people now saying they're going to get three, 25 basis point rate cuts between now and year-end. I don't see that personally. I think we may get one or two rate cuts, so I wouldn't be surprised if we had the total 50 bps by the end of the year. I'd also note that with all the shrieking around interest rates, Barry's talked a lot about this publicly, I'm sure, he will again today. But the issue is really just how quickly the Fed changes interest rates, not the actual level of interest rates. It was a shock to the system, and the fact that so many of us were deeply affected by it in some ways made us unable to get out of it quickly enough. More than the actual level, mortgage rates now for many of you are in the multi-space around 6.9%. I think my first mortgage when I graduated from school was 16 or 17%. So, in the fullness of time, I'm not sure rates are so egregious, although I do see them coming down. But it's the way that we got from free money to expensive money that caused all the upset that so many of us have had to deal with. I do see that it is beginning to ease in the next year or two, and inflation is clearly coming down. And again, quoting Barry if you actually untangle the statistics for inflation, which he's done before. And maybe we'll do it again. The core inflation is actually lower than what is being reported now. So we're actually in a pretty good place. I think markets are a leading indicator, the S&P is a leading indicator of expectations that things are only getting better. So I was hopeful that by the end of ‘24, we'd be in a better place than I think we will be. But I think as we head into ‘25 and ‘25, we'll be in a pretty good place.
Gary Pinkus: You touched on something interesting there because I share that same perspective. This is why the historical standards, if you go back 20 plus years, we're not in a particularly high-interest rate environment. Yet, the real estate industry could thrive in that environment. And in fact, all industries could as long as we weren't moving too dramatically.
Strauss Zelnick: It is the reset that is problematic. Reset is a fancy way of saying losing buildings. It is a problem. But it's a problem that we will get through. And depending on how you organize your life, which is to say, what your appetite for leverage was, you're either in a better or worse place.
