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.<\/p>\n
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.<\/p>\n
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.<\/p>\n
Investors hope that “Destiny,” scheduled for release on September 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.<\/p>\n
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.<\/p>\n
“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.”<\/p>\n
“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 post-apocalyptic Earth.<\/p>\n
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.<\/p>\n
“It’s a head scratcher, said Sterne Agee analyst Arvind Bhatia. “For brand new IP, it’s tough but it could post a big surprise.”<\/p>\n
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 culture.<\/p>\n
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 million figure.<\/p>\n
GTA is on track to reach $2 billion in retail sales, according to analysts.<\/p>\n
“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.”<\/p>\n
The spokesperson added that investment in the next generation engine and a “robust backend infrastructure are upfront expenditures that should reduce future product development costs.”<\/p>\n
“Over the long term, we expect the ultimate product costs to be roughly in line with other Triple-A titles.”<\/p>\n
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.<\/p>\n
Sales of Activision’s 2013 title, “Call of Duty: Ghosts,” proved weaker than its 2012 installment.<\/p>\n
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.<\/p>\n
Still, Activision’s executives say they see franchise potential in its new game.<\/p>\n
“We expect ‘Destiny’ to be Activision Publishing’s next billion-dollar franchise,” Kotick said when the company released its fourth quarter earnings on February 6.<\/p>\n
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.<\/p>\n
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.<\/p>\n
Franchises enable game publishers to generate steady revenue from several iterations, as well as digital sales from additional downloadable content.<\/p>\n
Activision could use another money-making shooter game franchise, said Hickey, the Benchmark Company analyst.<\/p>\n
“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.”<\/p>\n
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