The Road To Ruin: How Grand Theft Auto Hit The Skids

[DAMN iNATOR]

So, the following article comes to you courtesy of the folks over at “Wired” magazine, who give their view of how RockStar Games, Take-Two Interactive and the GTA series have gone, in their own opinion, gone from bad to worse. So I figured this would make an interesting read with Grand Theft Auto IV due to hit the XBOX 360 and PlayStation 3 in less than 6 months. (Part 1 of 3.)

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Wired 15.05: The Road to Ruin: How Grand Theft Auto Hit the Skids

David Kushner from Wired magazine 03.29.07 | 5:00 AM
Rockstar Gameography View Slideshow



See Also:
Reckless Driving: The ups and downs of Take-Two Interactive's stock price.
For late-breaking news on Take-Two Interactive's, Rockstar Games and Grand Theft Auto IV, visit the Wired Game|Life blog.


Boorish behavior, backdated stock options and a hidden sex scene — how Grand Theft Auto hit the skids. Get a sneak peek from the May issue of Wired magazine.
“There are repercussions for the choices you make,” said Sam Houser, cofounder and president of Rockstar Games. It was October 2002, and I had been granted a rare interview with the gang behind the blockbuster Grand Theft Auto game franchise: Sam, his younger brother Dan, and their childhood friend Terry Donovan. We were sitting in Rockstar's stylish New York City office as Sam explained that concerns about the violence in his games were unfounded because GTA had a moral system hard-coded into it. Certain actions — like hit-and-runs and drive-bys — will increase the player's “wanted” level. “If you go around offing people, you’ll see the police,” he said.
Grand Theft Auto and its progeny — nearly a dozen sequels and spinoffs, including this fall’s GTA IV — let players live out their fantasies. But few videogame fantasies match the real-life adventures of Rockstar Games. Almost a decade ago, a gang of young prep-school-educated Brits invaded New York with a then-outrageous dream: to make video-games hip. They would elevate a medium built on Mario and Pokémon into something defiantly grown-up — games that would earn a place on shelves between Scarface and Licensed to Ill.
The lads at Rockstar Games scored. With more than 50 million units sold, Grand Theft Auto titles have pulled in a billion dollars in revenue. Along the way, the execs achieved the street cred and bad-boy rep of real rock stars. But then, like Tony Montana face-down in a pile of blow, they hit the skids.
The trouble began five years ago, when Rockstar’s embattled parent company, Take-Two Interactive, came under investigation by the Securities and Exchange Commission. Since then, there have been charges of shady accounting and backdated stock options. Last October, Ryan Brant, cofounder and onetime CEO of Take-Two, resigned. Four months later, he pleaded guilty to falsifying business records and agreed to pay more than $7 million in penalties, bringing his lifetime Take-Two hit to almost $11 million. He’ll be sentenced in August, and his departure was emblematic of a company that has seen three CEOs and two CFOs leave since 2001.
For all the financial irregularities and management shuffles, though, a few lines of code written into one of Rockstar’s games would cause even bigger headaches. Last June, Take-Two announced it had received a grand jury subpoena from Manhattan district attorney Robert Morgenthau seeking, among other things, documents “relating to the knowledge of the Company’s officers and directors regarding the creation, inclusion and programming of hidden scenes (commonly referred to as ‘Hot Coffee’).” Hot Coffee is an explicit sex minigame buried in the source code of Rockstar’s 2004 title Grand Theft Auto: San Andreas. Numerous lawsuits have also been filed over the scene.
The irony is thick: The company that defined virtual criminality is now associated with the real thing. Rockstar and Take-Two executives declined to answer questions for this article, but their rich and troubled story is revealed by official documents and former employees. It seems the blokes forgot that in life, as in Grand Theft Auto, there are repercussions for the choices you make.
INTRO LEVEL

Dan and Sam Houser had dreamed of rock stardom since they were school kids in London. Their dad, Wally, was co-owner of a jazz nightclub, and in the early ’80s the brothers developed an obsession with the hip hop scene across the pond in New York. They would race home after a day of cutting up at St. Paul’s School to throw on records, sneak smokes, and dream.
Sam and Dan, now 35 and 33, idolized not only the rappers and the DJs but also producer Rick Rubin of Def Jam Recordings. A scruffy white college geek turned impresario, he had somehow insinuated himself into hip hop culture, working with the biggest acts, injecting his own sound, and making millions on his own terms. “People like that inspire me so massively,” Sam Houser told me back in 2002. His 18th birthday present was a trip to New York, where he bought a pair of Air Jordans and a leather jacket.
The Housers weren’t the only wannabe rock stars at St. Paul’s. The father of their pal and classmate Terry Donovan directed the iconic video for the Robert Palmer song “Simply Irresistible,” and Terry DJ’d at techno clubs.
Looking to break into the music industry, the youths all took jobs at BMG Music in London. Sam and Dan worked on lame in-house concert videos. Donovan was a self-described “A&R chap” who signed fledgling bands to sublabels. When BMG launched an interactive division in 1993, the three friends jumped at the chance to work there, even though the Housers’ previous exposure to game design was fiddling around on a Sinclair ZX Spectrum, and the extent of Donovan’s coding experience was getting his computer to write TERRY IS COOL.
The videogame industry works like the record industry: Labels put out CDs created by bands, and publishers put out software created by developers. Titles that do well pay for the flops. BMG Interactive released several games in the mid-1990s, but its big break came when it received a pitch from a developer in Scotland for a game called Race and Chase. The graphics were primitive, with an overhead point of view that looked like you were pushing toy Hot Wheels cars through a maze. But the game’s urban environment teemed with mobsters and thugs, and gameplay centered around boosting cars, rubbing out enemies, and rising through the underworld. For the young Brits weaned on Run DMC and The Warriors, it was a revelation. “Here was a game that was commenting on the world,” Dan said to me that day nearly five years ago. Race and Chase was signed and renamed Grand Theft Auto.
The gameplay was surprisingly unconstrained. The only limitation was your “wanted” level: Cause enough mayhem and a cop’s face would appear on a meter at the top of the screen. Police cars would give chase if they spotted you. Commit more egregious crimes and your wanted level increased. Now an in-game APB was put out on you. At wanted level three, police would begin to set up roadblocks. If you got busted, you got carted off to jail and your weapons were confiscated. But that was the extent of the limits. “The problem with other games is that when you hit a point that’s frustrating, you can’t get past it,” Sam Houser told me. “In Grand Theft Auto, when you hit a point that’s tough, just go do something else. That’s fucking great!”
In 1998, BMG’s games division was bought by Take-Two Interactive, a scrappy publisher in New York. It seemed like a good match. Take-Two had been launched in 1993 by a 21-year-old named Ryan Brant. Like Donovan and the Housers, he was born into a media family. His father, Peter Brant, owned magazines like Interview and Art in America, cofounded the Greenwich Polo Club … and had spent time in jail for tax evasion. Take-Two’s games, such as Ripper and Hell: A Cyberpunk Thriller, had adult subject matter, cinematic pretensions, and a deliberate, if ham-handed, edginess. But they were poorly received.
That’s where Donovan and the Housers came in. The Londoners had attitude, style, and what Dan Houser later called a “culturally relevant, detail-obsessed approach” to game-making. They moved their core team to New York and assumed the name Rockstar Games. (The group of coders and designers in Scotland was eventually acquired by Take-Two and renamed Rockstar North.) The name hinted at their ambitions. “We admired record labels, obviously, and clothing companies, which were obsessed with details and with an integrity between design, product, and marketing,” Dan told the Design Museum of London in 2003. Rockstar wouldn’t just sell games — it would sell a lifestyle.
WANTED LEVEL: ONE

Rockstar Games started out in a cramped ground-floor apartment in New York’s SoHo district nicknamed the Commune. When the new execs weren’t working on their next game, they were soaking up American culture. “We were staggered by what was on television,” Donovan told me in 2002. To promote Grand Theft Auto 2 in 1999, they hosted a series of parties called Rockstar Loft. Just gaining entry was a game: To get directions, club-goers had to call a number and leave their contact info. They’d get called back and have to answer questions like “What has been the best moment in your life so far?”
GTA 2, which still had the Hot Wheels top-down viewpoint of the original, sold as well as its predecessor: about 2 million copies. A respectable figure, but it left the upstarts chastened. “We realized how hard being a game publisher is. We’ve actually got very serious, proper jobs here,” Sam told me.
He micromanaged production of GTA III, coaxing the team in Scotland to create something of unprecedented ambition. The game threw players face-first into a gory 3-D gang world. Released in October 2001, it sold five times as well as its predecessors.
What made GTA III so popular was the range of options it offered players. Steal a car and you could explore the sprawling metropolis of Liberty City. You could drive to the hideouts of one of the many crime lords and get a lucrative assignment. You could jump off ramps like Bo and Luke in The Dukes of Hazzard. Or boost a taxicab and pick up fares. Or climb into a fire truck or ambulance and be a vigilante do-gooder, dousing flames and saving lives.
Or, as the media was quick to report, you could pick up a prostitute in order to boost your health meter, then kill her to get your money back. It was just one possible course of action in a game that presented players with literally millions of options, but in the eyes of the general public it came to epitomize Rockstar’s blockbuster.
Like the Rolling Stones, Twisted Sister, and Marilyn Manson before it, GTA III was blamed for the supposed corruption of a generation. Following the game’s release, US representative Joe Baca, a Democrat from Southern California, introduced the Protect Children from Video Game Sex and Violence Act of 2002, asking, “Do you really want your kids assuming the role of a mass murderer or a carjacker while you are away at work?” Australia banned the game, and several lawsuits were filed, including a 2003 suit claiming the game inspired two Tennessee teenagers to shoot passersby, killing one and wounding another. That case sought $246 million in damages.
Not that such developments ever seemed to roil the Rockstars. “PlayStation players aren’t all 10 years old,” Donovan told me. “There isn’t some kind of social responsibility to have a redeeming value. Your responsibility is to provide a toolkit with which young adults can entertain themselves.” The legislation never passed, the lawsuit failed, and — of course — the controversy helped boost sales.
WANTED LEVEL: TWO

Take-Two Interactive had a hit franchise, and its stock went from $7 a share in October 2001, three weeks before the launch of GTA III, to almost $20 the following January. But then came those nasty repercussions.
That month, the Nasdaq halted trading of the company’s stock for three weeks after Take-Two announced it would be restating earnings reports. The SEC also launched an investigation into its financials. It seemed that while the punks at Rockstar were off creating an invaluable piece of gaming IP, the bosses at Take-Two had quietly been playing a little game of their own called “parking transactions.”
The SEC alleged that on Halloween day 2000, executives at Take-Two recorded a single shipment of 230,000 videogames for $5.4 million, its biggest sale to date. But the games were soon sent back to HQ. To hide their return, Take-Two disguised it as a purchase of “assorted products.” According to the SEC, the company improperly recognized $60 million in revenue from 180 different parking transactions in 2000 and 2001. In June 2005, the SEC revealed its findings in a settlement agreement under which Take-Two paid $7.5 million in penalties — but admitted no wrongdoing.
It didn’t end there, though. Brant was charged by the SEC with awarding himself 2.1 million shares of backdated option grants between 1997 and 2003 — a period during which the stock price fluctuated by about $30 — and several other Take-Two executives received an undisclosed number of backdated shares.