July 20, 2005

‘GTA’ hit with adult rating, Take-Two cuts outlook

By Gina Keating and Kevin Krolicki

LOS ANGELES (Reuters) - A video game ratings board on
Wednesday slapped a restrictive "adult" rating on "Grand Theft
Auto: San Andreas" because of sex scenes hidden in the
blockbuster game, prompting publisher Take-Two Interactive
Software Inc to warn of a deeper quarterly loss.

Shares of Take-Two dropped about 11 percent in after-hours
trade to $24 from a Nasdaq close of $27.07.

The company's blockbuster game, "Grand Theft Auto: San
Andreas" has been at the center of an international controversy
after hackers unveiled a software modification known as "hot
coffee" allowing players to have their characters engage in sex
acts at the house of a "girlfriend."

In response to that widely publicized hack, the
Entertainment Software Ratings Board launched an investigation
and took the unusual step of changing the rating on the game to
"Adults Only 18+" (AO) from "Mature 17+" (M).

"What was clear to us is the fact that fully rendered
content existed on the disk that was not disclosed," said
Patricia Vance, president of Entertainment Software Rating
Board. "The publisher took the risk that a hacker could find it
and it clearly put the rating at risk."

Critics of the game's content had urged a more-restrictive
rating, a move which threatens to crimp sales of the
criminal-adventure role-playing game since major retail outlets
have generally declined to carry adult-only titles.

Best Buy Co. Inc., the top U.S. electronics retailer,
responded to the rating change by immediately pulling the game.
Other retailers were expected to follow suit.

Take Two said its Rockstar Games affiliate would stop
making the current version of the controversial title.

The controversy has fanned debate between industry
executives and media watchdogs over whether the fast-growing
video game industry should continue to regulate itself.

Take-Two said it expected July-quarter sales of between
$160 million to $170 million and a per-share loss of between 40
cents and 45 cents -- more than double the average Wall Street
expectation -- after taking a charge for the unsold retail
inventory of the hit game.

Take-Two said it would provide new "AO" labels for any
retailers that wanted to continue selling the current version
of the game. It said it would also work on a new "M"-rated
version, which it expected to be ready for sale during its
fourth quarter, that would prevent the "hot coffee" hack.

U.S. Senator Hillary Clinton, who has vowed to introduce
legislation to crack down on the sale of violent and sex-laden
games to minors, called on the company to go further.

In a statement on Wednesday, Clinton urged Take-Two to
offer parents a refund on returned games. The company, she
charged, had "gamed the ratings system and enabled pornographic
material to get into the hands of children."

Tim Winter, executive director of the Parents Television
Council gave the company credit for "owning up" to creating the
embedded sex scenes," but said the episode showed that "self
regulation has been an abysmal failure."

"Whenever you have a product that is potentially harmful
you have a liability for that manufacturer," Winter said. "We
want accountability. We want action. We want it fixed. We want
to know why so it doesn't happen again."

Rockstar Games spokesman Rodney Walker said the company
supported a strong ratings system to ensure that games like
"Grand Theft Auto" reached the older audience for which it was

"We believe the popularity of our games coincides with the
change in our audience -- it's getting older," he said. "Rock
Star makes games with sophisticated content, and parents need
to know that."