[by Georg Szalai, Hollywood Reporter]

Video game maker Take-Two Interactive Software recently released the well-reviewed L.A. Noire, a crime drama with a cinematic feel. The title has provided the latest shot in the arm for Take-Two, which also publishes the hugely popularGrand Theft Auto franchise and surprise hit Red Dead Redemption. Chairman and CEO Strauss Zelnick is a former CEO of music major BMG Entertainment and was a top executive at Fox and Columbia Pictures before co-founding ZelnickMedia in 2001. He took over Take-Two’s board in 2007 with the support of shareholders to clean up the company amid probes into its business practices. Indeed, the publicly-traded Take-Two, which employs more than 2,000, turned a profit for its most recent year despite no new GTA release. With video gamers gearing up for the E3 show June 7 to 9 in Los Angeles, Zelnick, 53, a married father of three who lives in New York, spoke with THR about 3D, his company’s digital future and what Hollywood can learn about keeping talent costs down.

The Hollywood Reporter: L.A. Noire uses new face-recognition technology and motion capture. Is this going to change the gaming industry?

Strauss Zelnick: Just the thought that we can do that already is a big breakthrough. There are 200 actors in L.A. Noire, which is really brand-new to the industry. There has been live action incorporated in video games, but not to this extent. What that implies going forward remains to be seen.

THR: How widespread will this technology become?

Zelnick: It is sort of like 3D in the movies. Does 3D apply to every movie you make? Probably not. I don’t know that Hangover II would benefit from being a 3D movie. But to the extent you benefit from great human realism in a video game, that opportunity is beginning to exist.

THR: Using actors, is there a risk of rising talent costs?

Zelnick: Yes. What that probably means is that we are going to keep pushing the envelope on creating characters in the computer that look real so that we can own our stars. In five or 10 or 15 years, video games will look like live-action. If you look at our basketball game and stand back by 10 feet, it is very difficult to distinguish from a televised game of basketball.

THR: Unlike some game makers, you own much of your intellectual property. How many of your brands are your own?

Zelnick: We own basically all of our IP. On the sports side, we own the software, but the properties are licensed. As far as our entertainment IP, we do have some licensed properties, for example our Nickelodeon properties, but generally speaking, we own our intellectual property. That allows us to control it and gives us a higher margin than a competitor who has licensed properties.

THR: When will 3D become a key contributor in gaming?

Zelnick: It’s a little complex because you’ve got the glasses issue. But, of course, technology is coming where you can have a 3D experience without glasses. The physics in Avatar don’t have to work, but the physics have to work in the video game business because if you create a motion and the physics don’t work, it won’t fit with the gameplay, and it will be a bad experience.

THR: Will entertainment companies buy game firms?

Zelnick: I don’t understand how the big diversified media companies can’t be exposed to interactive entertainment. We are the only growth area in the entertainment business, and the world and the demographic is moving towards interactive entertainment. The average age of a video game player is 36 and almost 50/50 male-female. If you include social gaming, it is very much a female business for that. Time Warner has a pretty meaningful business, but still a small portion of its revenues. Disney has just made some changes in its interactive entertainment business. News Corp./Fox has very limited exposure. Viacom has no exposure to speak of. It’s a bit of a mystery to me why the traditional entertainment companies don’t feel interactive is highly relevant to them when what they do is create the best entertainment properties and distribute them around the world. But that benefits us, so it’s OK.

THR: Take-Two in its latest fiscal year made 9 percent of its revenue in digital rather than traditional packaged form. How key is digital to your future?

Zelnick: We are platform-agnostic. All our properties are digital, but what we are quibbling about now is whether we deliver it over a wire or on a physical disc. That, to me, is a detail. The economics of digital distribution are fine; there is a benefit to not having physical inventory. At the same time, retail is an important marketing partner. The record business lost a lot when people stopped browsing in the record stores. Is our strategy to transition to digital? No. Is our strategy to be everywhere the consumer is? Absolutely.