Strauss Zelnick on Embracing Change Through Innovation and Creativity | 2024 Upfront Summit

Hello, everyone. Good afternoon. We have audience members ready. Hi, Strauss.

Hi. Thanks for joining us. Nice to be here. It's good to have you here.

There's so many things we can talk about, but I've been told we only have like 23 minutes. Right. So we're going to make it as speedy, but kind of get into some of the greater stories. I want to start off by asking, take us back.

This is also going to give you a good lead up into telling us more about you and how ZMC started. But you're now running a $35 billion holding company amongst other things underneath it. How did that whole journey begin? Well, it began in borrowed offices with secondhand computer equipment.

And we had one fewer chair than we had people working at the firm. And that's true. And when you tell when the men's room was usually out of commission and the way it was out of commission is you would go into the men's room and there'd be water sheeting down the wall. And I tell that story because, you know, when people when things work out well, everyone looks at it and says, wow, that was like that looked very inevitable and very quick.

And I like to say the only overnight successes are other people's successes. And it actually wasn't romantic at all. The reason we started the business was we thought there was a great opportunity to invest behind the notion that digital technology would supercharge entertainment, communications, and all forms of media, which in 2001 I thought was a completely obvious idea. But thankfully, big media did not think it was either an obvious or smart idea.

And if you take a look at the market caps of big media companies, so our market cap at that time was exactly zero. Oh, and by the way, we had no capital whatsoever. And now take the aggregate- We have a lot of scrappy entrepreneurs in this audience. Yeah, you need to be.

And take the aggregate market cap of the big entertainment players, which is where I came from, Legacy Entertainment, in 01 and now look at it today. So put it in context, you talked about the assets that we manage today. And today, Paramount Global's equity market cap is about $8 billion. Just put it in context.

Wow. So anyhow, we started that way. We were a fundless sponsor for seven years. Another way of saying we had no money.

Raised our first fund. I have investors in the audience. Thank you. In 07 and 08, which is a hard time to raise a fund.

Thankfully, we did well. Our second fund in 15, third fund in 19, and basically just finished raising our fourth fund. And what's interesting is the same notion, the intersection of digital technology and all things media, remains as powerful, if not more powerful, an idea today as it was back then. Yeah.

You do multiple things. I want to start there. More on the professional side, we'll talk personal at some point. You're an investor, but you're also an operator, and you're engaged on both sides of things right now.

How are you spending your time, and how are you prioritizing what's most important right now? It's a great question. I think part of it is ZMC's approach is that we're very hands-on and we're very, very disciplined about the companies that we take on. So we're in our fourth one.

We've been around for 23 years, and I think we have 10 companies, and we've done well. Most of our competitors with the same AUM would have 25, 30 active enterprises. And we also have a lot of people for relatively small private equity firms, still a middle market firm. We have about 35, 36 people.

We are actively engaged with all of our businesses. and I oversee all of them. So I'm engaged with, I mean, we have one of our investors in the audience, so she'll appreciate this. I mean, we have a company that's in the live entertainment business.

It's a great deal. It's a phenomenal deal and it's going really well. And they actually, you wouldn't have never, there's not one person here who ever has been to Pigeon Forge, Tennessee. If you've been to Pigeon Forge, Tennessee, all right, did you go to Dolly Parton Stampede?

You did, we own that company. So we feed 1,000 people three times a day at Dolly Parton Stampede. You're looking at a man who sells 2.4 million chickens a year.

And by the way, when I got into this business, I never thought that media included selling chickens, but it turns out it does. So anyway, I spent last weekend with my family doing a taste test because I thought the dessert was no good at Dolly Parton Stampede. And I can tell you that the apple turnover has been reformulated, and it's going to cost us three cents more per serving. and it's much better.

All right. So, but that's very hands-on. Yes. I mean, but that's my job, right?

But kidding aside, what is, what is the job of the person who sits in the corner office? I'm, I'm fond of saying like CEOs don't really do the work, right? The work is done by the team. We have across our portfolio, 17,500 colleagues in 140 locations worldwide.

They're doing the work. You know, the job of the senior team led by me is to set the strategy, establish the culture, align interests. That's crucial. Because if you don't align economic interests by sharing widely with everyone in the same way, you say whatever fancy words you want, no one's on your team.

No one's moving in the same direction. And so where I check in, because I believe in delegation with information, is first where I can actually add value. And second, when the decisions are complex enough that they rise to my level And third with regard to capital allocation So what does that that involve you know that involves a lot of talking yeah you know and i i have the ability to do that because i reasonably crisp so that was only a five minute answer that was i don think it was five minutes i was sure i got the turnover story in there well i do want to ask and kind of going a little bit specifically on something you are well known for obviously under zmc there's multiple different businesses but i do want to talk a little bit about take two and kind of how you went from being a media executive running studios doing great things there to becoming a gaming nerd it was a long time ago i was um i was very fortunate my ambition when i was a little kid and it stayed that way till i got out of school was to run a movie studio because it was like you know i'm old so it was like the coolest part of the entertainment business when i was little that was the only reason by the way um i went to wesleyan undergrad i don't know if anyone to wesleyan they had a great film program even then i didn't take any film courses because that i just want to be head of a movie studio i want to do the film courses and um and it happened much more quickly than i thought you know three years after graduating i was president my first uh studio which was the largest independent at the time no longer in business and then i became president of 20th Century Fox when just five or six years out of school.

And so I was in the movie business for about seven years. And I was one of the handful of people in the movie business who actually paid attention to the underlying economics, which incidentally are horrible and were horrible then and have been horrible since about 1955 when the studio system ended and are horrible now and will be horrible in the future. And there was a great Buffett aphorism, which I'll butcher, but basically was if you take a bad business and a great manager, it is the business's reputation that will remain intact.

And I read that and I thought, and I had an amazing run. Like we had all these hits at Vestron and the first picture I ever greenlit was a huge hit. And then huge hits at Fox. We were number one at the box office the whole time I was there.

I was like, yeah, I need to get out of Dodge when the getting out is good. And I thought, I'm really interested in being an entrepreneur. And when would I really have wanted to be in the movie business 1927 that's when a good time to be in the movie business was so um what's the movie business in 1927 this is 1993 that i asked myself the question and i was like the video game business that's the next big entertainment business by the way thank god i was right because you're looking at the only person who has ever voluntarily stepped down as a president of a major film studio and i didn't get paid because when you voluntarily leave a job and you're working for rupert murdoch You don't get like a big, that doesn't happen.

And by the way, he wasn't super upset when I told him I was leaving, incidentally. And I started this company, you know, it was a tiny little company, Crystal Dynamics, still in business today. And then built BMG Interactive, which got sold to Take-Two. And then in 2007, took over this very, very bad company that was about to go bankrupt called Take-Two Interactive.

So it's been a long time. It's been a long time. And there are so many veins I want to run down. But in particular, one thing I think a lot about is the fact that when you launched games, you treated them like movies.

They had trailers. They were characters. There was cast. It was treated in the way of things that you had seen in a very different industry or sort of the entertainment industry of now.

Now, what in the entertainment industry today do you see is actually something creative that is happening that's differentiated in the way people are launching new ideas, new games, new concepts? Is there anything innovative happening right now? Oh, there are huge innovations. I'm sure you talked about some of them.

I mean, what Mr. Beast is doing is really interesting. And what Night Media is doing is really interesting. And I don't believe that the creator economy is going to eat the entertainment business.

But I do believe that's a really interesting business that will continue to grow. And I mean, it's pretty extraordinary that Mr. Beast has his business. And then, you know, kind of as a side hustle, he launched a chocolate company and chocolate companies going to do $400 million in revenue this year.

And by the way, it's good chocolate, too. So, I mean, that's amazing. And that's great innovation. And the job of everyone who's in digital media is to innovate.

We have a three-part strategy at Take Two and, frankly, at all of our creative companies, which is you have to try to be the most creative company in your business, the most innovative company in your business, and the most efficient company in your business. The hardest of that is obviously innovation. You know, the easiest is efficiency. Like, just don't waste money.

That's relatively easy and just requires discipline and a rudimentary knowledge of the business you're in. be the most creative means you know attract motivate retain the best talent and give them the balance sheet so they can actually take risk and follow their passions but innovation is really hard because first of all you're wrong a lot of times so it's expensive and i do turn around so we often couldn't afford innovation initially but ultimately we have to invest in it in success and the second is by definition it looks odd and it's not not sensible um and you're right off a whole lot of it.

So it is the hardest thing that we do. And I would say we're really great at efficiency. As I said, that's pretty easy. I think we're really great at creativity.

Innovation is a little bit harder. It's a little bit harder. I have to ask, what do you think of TikTok? It an amazing platform Do you mean politically or like from an entertainment point of view it just amazing what they done And politically what we doing what the United States is doing where the government plays a role I mean you know I don think you can be naive about national security at the same time Anytime we talk about shutting down anything creative in this country, it gives me great cause for concern.

You can't have it both ways. We get the benefit of being a free country because we have freedom of speech. you take away freedom of speech, you no longer have a free country. Our founding fathers said that.

And they were right. A free press and free speech is truly what distinguishes this country from most other countries. Even countries that are great countries today like Germany, there are certain things you can't say in Germany. There's a reason for that.

There's a history with regard to that. But we have pure freedom of speech here, and I think that has to extend to the entertainment business. But that said, if someone's spying on us, that's problematic. Yeah.

Well, problematic, but the engagement levels are insane. And as an entertainment platform, it's sort of everyone's source of news now. It's breathtaking that people are getting their news on TikTok. Yeah.

And it's kind of changed the way that we all. I mean, I'm not. I'm not like, let me go watch TikTok to find out what's happening. But many people do.

Yeah. How do you get your news? How do I get my news? I don't read a physical paper, but I do.

I would like to tell you very proudly, I do read The Economist every week. Oh, very exciting. Yes, my wife told me. She's here.

She told me that I was ill-informed at a dinner party. We go to like one dinner party every decade. By the way, your wife's in the audience. Yes.

And so we went to this one dinner party in a decade and I was incredibly bored and I was ill-informed. And a question was raised about my business. someone was like, did you see this deal happening? And what do you think of it?

And it was like squarely in my business. And I had no clue because I was not reading the news. And she said, that was afterwards. My wife doesn't care about dinner party.

You have to drag her kicking and screaming. But anyway, she said, that was actually embarrassing. Don't you read the news? So I've started reading The Economist and I'm very well versed on Burkino Faso, which they write about every week.

You read The Economist, you know they love that place. Who's ever been there? Maybe somebody in the audience. There we go.

No, you've been there. Okay, you went to the Stampede, and she went to Burkina Faso. Thank you for coming today. You're going to be tasting Apple turnovers any time now.

I want to talk about people. I've got to meet you guys after, just please. I'm going to say hello. I want to talk about people.

It's a big part of, I mean, obviously big part of your professional story mentors you've had people who believe in you but you just said you graduated from college and five to seven years later you were the president of a movie studio no graduated from grad school graduated from grad school and you were the president of a movie studio that doesn't happen today or does it no it's i mean it's not it doesn't feel to me like the dark ages but um you know it was weird i was i was president of estron i had a relationship with Joe Roth because he had been an independent producer and made two pictures of Estron.

We'd become friendly. He became chairman of Fox. He needed a president. I was kind of like, you know, he came from the independent world.

And in the independent world, I was quite well known in the major world, completely irrelevant. And so he called up and said, you know, might you be interested in this job? And I was like, I was looking. So it was good timing to say the least.

And this is true, by the way. And he said, well, what are you doing on whatever? It was a Thursday. and I said I'm going to be in LA which as it turns out after this call I was going to be in LA and he said great we'll have breakfast and we had breakfast at the Bel Air and in those days the chairman had breakfast at Bel Air the presidents of below had breakfast at the polo lounge and so we were at the in the chairman's breakfast restaurant and he said we had a one hour chat he said this sounds great I think you ought to do it are you free to meet with Rupert and Barry Rupert Murdoch and Barry Diller.

And I was like, as it happens, I am. And this is exactly right. Drove to the lot in Century City. I met with Rupert and Barry together.

I had never met either one of them. We met for an hour. And at the end, I walked out. And the HR guy was standing there.

And he said, great. Here's how much the job pays. And I was like, sounds good. They were like, when can you start?

Wow. Yeah, so that doesn't happen. We do things like background checks now. But to that point, there were people who there was somebody who believed in you, someone who took an interest in you beyond just kind of knowing you off the street.

How much of that is a big part of what you do today and believing in new talent, bringing people up in your organization, but also at other organizations? How much of that is part of your professional word now? It's a mix. I mean, the people who work at ZMC have been working with me basically forever, and they started as young associates.

but we were really selective and I really did think we were bringing on board the best and the brightest and the ones who are there which is most of the investment team are extraordinary and then as I said we aligned interests both cultural strategic and economic which is another way of saying I was willing to share yeah and we're still working together and we still bring on board young talented people but we don't do you know we're not discovering people in a drug store and say, you know, you can run some huge business.

So it always that intersection between you know great talent that is experienced and great talent that isn experienced And I think you want to have both For example the CEO of Raptive which is one of our very biggest companies and one of our most successful is a highly experienced media and technology executive. He's nearly my age. He's been around for a long time. He's great.

Yeah. And then the CEO of Logitech, which is a sports technology company, was the head of IT at the company and never had a leadership position. We just believed in him and he's been he's crushed it. How do you and to that point specifically, you obviously hire very you hire high quality talent.

You knew this. But what is it that you look for? There are people in the audience who are building companies. There are people in the audience who are funding new fund managers.

There's always something when you're making a decision on people. How do you know this is the person? What is it that you look for? You know, I was not initially very good at this.

And in fact, I would say up to about my mid-30s, I would hire based on the standard things, right? Background, resume, how impressive someone would be. Harvard Law. Yeah, sure, including where you went to school.

And I made a horrible hiring mistake when I was at BMG of a senior person. It was really a disaster. And so I'm telling stories about my wife here today. I had to let him go after nine months.

And my wife met him just before I had to let him go. and she just sort of met him in passing. She came to the office, which she never does, and she came into my office and said, was that so-and-so? And I said, yes, it was.

And she said, oh my God, he's actually insane. How did you ever hire him? And I was like, I have no clue. And for about two years, this is a true story, she interviewed everyone before I hired them.

And then I began to get the hang of it and I was willing to engage emotionally with people as well as intellectually. And frankly, I became a better and much more empathetic listener. And the thing I'm probably most proud of in what I do, and I'm not proud of a whole lot because it's not my demeanor, is that I have some facility for identifying great talent, encouraging them to work within our enterprises, and motivating them to do their very best work. And it's why, having run every kind of entertainment business there is, the hit ratios that those enterprises have enjoyed have been the highest in the business.

And I'm loathe to say that sentence without saying the next sentence, which is, by the way, I did not create any of those products, those hit products. And I did not choose the hit products. I chose the people. So I do seem to have a facility for that.

I want to ask, you do a ton of things. You work out a lot. There's many other hobbies aside from just work, but how do you find balance? Oh, God, that's an overrated virtue.

I don't, and balance is like, there's no such thing. If you want to do well in your career and in life, you got to choose, and you can focus on three or four things at a time. And if you think you can do more and have this balanced life where you're journaling and, you know, I don't know. Meditating.

Outside in the morning, doing yoga at the sunset, and then, you know, You're at the homeless kitchen in the evening, and then you work 17 hours a day, and you create AI models, and you know you're going to fail. You can't do that. It's only like the made-up stories that look like that. The real stories look like I don't get to the gym as often as I'd like because I have a little kid at home, and my husband's in Vietnam, and I'm heading home at 840, and I'm going to miss putting the kids to bed.

Does this sound familiar? That's happening to me right now. That's the real story. And then you cobble it together the best you can.

So at any given time, I think you can have three to four priorities. Here are mine, my family and my friends, my work, fitness, and charitable work, mentoring, and coaching. And if you think about it, that leaves out a lot of other stuff I like to do. Like I love movies.

I don't get to watch too many movies. I love to read. I read on planes. Kind of not so much when I'm not on planes.

I actually love museums. I never get to go to museums because it's not on my priority list. not because I'm unfortunate in some way. And you're allowed to change those priorities.

But if you have 10, I have news for you. You'll fail across all 10. Yeah. Sounds like you have top four focus.

I have top four focus, yeah. Okay. We have a lightning round. I know.

We have a minute and 50, 4, 3, 2, 1 second. Before someone calls me and kicks me off. But I think I preempted you on some of these questions, so you sort of know what's coming. I encouraged you to surprise me, but anyway.

Netflix is making a movie on you. What's the title and who's playing you? Oh, God. I know.

I know. I asked it yesterday, too. What's the title? I cannot come up with the title.

Who's playing you? Shaquille O'Neal? No, there's an actor. There is an actor who looks exactly like me, but I've spaced on it.

He plays one of the lesser superheroes. Chris Pine? No. All right, we'll move on.

Video games or TV shows? Got dark curly hair. Video games or TV shows? Video games.

investing or operating? It's a trick question. It's not a trick. I'm going to go with investing because the truth is at the level at which I operate, you're mostly allocating capital.

So I'll go with investing. Okay, and then push-ups or pull-ups? Oh, pull-ups. Pull-ups are my jam.

Okay, well. Very proud of my pull-ups. Thank you so much, Strauss, and thank you all for being here. Thank you.

Thank you.