NOW THAT SONY'S

have turned their attentions to the latest and greatest videogames. Hardware is the industry's loss leader; software the bread winner that pays the bills.

In the Santa Monica, Calif., hotels and convention centers hosting the expo, Microsoft is touting Halo 3, the third installment of an alien-killing trilogy with a cult-like following, while Electronic Arts is showing off the latest in its cash-cow Madden NFL series. Without a doubt, it's time for the game makers to shine. And that's bad timing for Take-Two Interactive, which is preparing to launch the fourth installment of its wildly popular Grand Theft Auto franchise in October.

A dark cloud has dogged Take-Two for the past year, as the company suffered through a costly options probe, management shakeup, financial losses and the scandal over explicit sexual content concealed in its Grand Theft Auto: San Andreas game. Grand Theft Auto is Take Two's prize property, at times generating more than half of total sales. Given the GTA series' fanatical following, there's little doubt the sequel will be as popular and as profitable as its predecessors. But the company will need a lot more than one hot sequel to get back on track.

Much depends on the new management team, which took over following the March shareholder revolt that ousted a majority of the company's board members as well as its chief executive. At the helm now are media industry veterans Strauss Zelnick as chairman and Ben Feder as chief executive and president. The two are co-founders of ZelnickMedia, an investment firm that specializes in media properties and holds a stake in Take-Two.

Formerly the chief executive of BMG Entertainment and 20th Century Fox, Zelnick is credited with stemming the losses at Direct Holdings USA, a direct marketer of books, music and videos that holds the exclusive rights to the Time Life brand. In March, he sold his stake in the now-profitable venture to Reader's Digest for a reported $91.8 million.

Zelnick's track record has had some overzealous Take-Two investors who've seen the company's shares swing violently between $10.88 and $24.80 over the past 52 weeks betting that he can do it again. But given the sheer breadth of Take-Two's problems, investors should also own plenty of patience.

That was made even more apparent on Monday, when Take-Two's new regime held a conference call to update Wall Street on progress during its first 100 days at the helm. Ahead of the call, analysts were hoping for further guidance on the company's restructuring plan, which aims to streamline operations, square away legal woes and cut about $25 million in annualized operating costs by the end of fiscal 2008. (That would save 20 cents a share, according to research by Sterne Agee analyst Arvind Bhatia.)

Also of concern was the postponement of Manhunt 2 the game about an inmate who breaks out of an asylum and goes on a killing rampage. Britain has banned the title, the regulator complaining of "sustained and cumulative casual sadism in the way in which these killings are committed, and encouraged." In the U.S., Manhunt 2 received an "adults only" rating. Both Sony and Nintendo bar "AO"-rated titles from their consoles, causing Take-Two to halt the distribution on the verge of this month's shipping deadline.

But the new managers were content to project confidence, offering few carrots to hungry analysts. "New management continues to impress us, and we believe that they will ultimately succeed in turning Take-Two's fortunes around, but we heard nothing in today's conference call to alter our belief that the turnaround will take more than a year to complete," wrote Wedbush Morgan analyst Michael Pachter on Monday. Pachter has a Sell rating and a 12-month price target of $12 on Take-Two's shares. (Wedbush Morgan makes a market in Take-Two's shares.)

The company raised eyebrows by announcing a $100 million revolving credit line. According to Pachter, that could indicate that Take-Two is running low on cash. At the end of the second quarter, the company had $108 million in cash and the analyst believes a large chunk of that could be blown on the delays with Manhunt 2, among other problems. "We expect net cash position to further deteriorate over the next several months and expect additional borrowings under the credit facility," he said.

While Grand Theft Auto IV is expected to push the company back into the black, that probably won't happen until the end of this year or early 2008. Even then, the profits won't continue forever. That's one reason the new team at Take-Two has promised to expedite the development of new games. They're also pushing to expand the company's line of sports titles to diversify away from the shoot-'em-ups that Take-Two is known for. All of this could help smooth out sales cycles driven by Grand Theft Auto in good time. Meanwhile, investors who enter the game now just might find themselves fighting a losing battle in the near term.