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By Ronald Grover and Malathi Nayak
LOS ANGELES/SAN FRANCISCO May 5 Activision
Blizzard Inc intends to spend $500 million developing
and promoting "Destiny," potentially breaking industry records
as it seeks to build the sci-fi role-playing videogame into its
next multibillion-dollar franchise.
CEO Bobby Kotick revealed the number, which dwarfs Hollywood
spending on some of its biggest firms, during the Milken
conference in Los Angeles last week. A company spokesperson said
on Monday the number was accurate but also included marketing,
packaging, infrastructure support, royalties and other costs.
Activision, eyeing the flagging growth of its long-running
"Call of Duty" action-shooter franchise, is eager to lay the
foundation for its next multi-game blockbuster series.
Investors hope that "Destiny," scheduled for release on
Sept. 9 from Bungie, the same studio that created Microsoft's
best-selling "Halo" franchise, could re-invigorate Activision's
revenue, which slid 6 percent in 2013.
The company signed a 10-year contract with Bungie in 2010
that gives it worldwide distribution rights and significant
control over the potential franchise's development.
"If you're making a $500 million bet you can't take that
chance with someone else's IP," Activision CEO told the Milken
conference. "The stakes for us are getting bigger."
"Destiny" is a cross between a traditional shooting game
format and a role-playing game in which gamers play characters
in a real-time online world. The title allows gamers to play
"Guardians" who protect the last city standing on a
Analysts said $500 million would likely be a record spent on
a single game - especially one without an established track
record. To break even, Activision would have to sell about 15
million to 16 million units of a $60 game, analysts said.
"It's a head scratcher, said Sterne Agee analyst Arvind
Bhatia. "For brand new IP, it's tough but it could post a big
Bhatia expects the game will sell 8 million units. "Grand
Theft Auto V," which hit stores last September, was a runaway
success with over 32.5 million units as of February this year.
But it was the fifth installment of a critically acclaimed
series that had become an indelible component of popular youth
RECORD BY ANY NAME
Some analysts estimate that Take-Two Interactive,
the publisher of "Grand Theft Auto," spent over $260 million to
develop, produce and market the fifth installment, though it's
unclear whether that's comparable with Activision's own $500
GTA is on track to reach $2 billion in retail sales,
according to analysts.
"Bungie's very ambitious plan is designed to unfold over a
10-year period, "said an Activision spokesperson. "The depth of
creative content, scope and scale is unprecedented and is
required to bring Bungie's vision to life."
The spokesperson added that investment in the next
generation engine and a "robust backend infrastructure are
upfront expenditures that should reduce future product
"Over the long term, we expect the ultimate product costs to
be roughly in line with other Triple-A titles."
Activison's big bet comes as hits are getting harder to come
by. The industry is struggling with a years-long sales slump,
the result of increasing competition from free-to-play games on
smartphones and tablets. Video game software sales plummeted 11
percent last year from 2012.
Sales of Activision's 2013 title, "Call of Duty: Ghosts,"
proved weaker than its 2012 installment.
Over time, Activision's "Destiny" could hit large numbers
"but there's no way they would come close to Grand Theft Auto,"
said Mike Hickey, an analyst at the Benchmark Company.
Still, Activision's executives say they see franchise
potential in its new game.
"We expect 'Destiny' to be Activision Publishing's next
billion-dollar franchise," Kotick said when the company released
its fourth quarter earnings on Feb. 6.
The company, which reports first-quarter earnings after the
closing bell on Tuesday, saw earnings slide 12 percent to $1
billion in 2013. Its revenues dropped to $4.6 billion, from $4.9
billion the year before.
It generates significant revenue from its franchise
properties, but many of those are several years old. "Call of
Duty" has had a decade-long run while "World of Warcraft" was
first released in 2004.
Franchises enable game publishers to generate steady revenue
from several iterations, as well as digital sales from
additional downloadable content.
Activision could use another money-making shooter game
franchise, said Hickey, the Benchmark Company analyst.
"It's up to management to create new experiences to drive
forward growth over a game that could be aging a bit," he said.
"I'm not saying 'Call of Duty' is like that, but everyone is
concerned about fatigue and competition."
(Editing by Edwin Chan and Ken Wills)