The Cut Scene - Video Game Blog by Variety

Bobby Kotick on another huge quarter for Activision (Call of Duty 4 up to 9 million units)

Red hot Activision posted crazy earnings today, even though it didn't release any games last quarter. Ridiculous 93% revenue growth was driven primarily by continued sales of "Guitar Hero III" and "Call of Duty 4," the latter of which has now sold 9 million units worldwide. That is a LOT. And means CoD 4 is going to be that very rare game to cross the 10 million threshold before it's all said and done.

All the details will be posted soon in my story at Variety.com, at which point I'll link here.

One detail worth nothing from Activision's earnings release is this: "Activision announced today that online functionality for certain key titles to be released in the December quarter of fiscal year 2009 and thereafter is expected to become a significant component of game play for certain platforms for which the company will have continuing performance obligations beyond the sale of the game."

Translated to English: Activision plans to make more money, and incur more costs, from the online components of titles hitting this holiday season. Does that mean we'll be paying more for online play with games like "Guitar Hero IV?" I don't know the answer, but it's interesting.

Here are also for your enjoyment are a few details from my talk with Activision CEO Bobby Kotick about the earnings:

Me: When I see certain companies (like THQ and Midway) performing so far below the NPD industry average, I know others have to be bringing it up. Sure looks like you're in that group.,

Bobby Kotick: For 18 years we've been waiting for this moment. What’s really happening is that the mass market for videogames has arrived. New audiences have now emerged for products like "Guitar Hero" and "Call of Duty" and I think that's in part because of the social component and in part the accessibility and also probably the production values

If you look at the dollar costs per hour of entertainment, we deliver the greatest value of any medium. I thnk especially in a weakening economy, people pay attention to that.

Me: Were you expecting such strong growth in what's usually a slow quarter for the industry?

BK: When you look at our success and that of "GTA," some of the seasonality is coming out of the business. When we look at our upcoming combo with Blizzard and the monthly subscription revenues from "Warcraft" and some of the reduced seasonality we'll get out of that too, it's really going to help from an investor perspective.

Me: What happened with DreamWorks Animation's 2010 film "Master Mind," which THQ is doing the game for? Are you not working with DreamWorks anymore once your deal ends?

BK: We have a long term deal that covers a lot of different franchises. With respect to all those things, we have big investments and commitments against them.

Our strategy generally has been more toward owned IP or proven IP. As the cost of game development goes up and the cost of marketing goes up, we have such a rich portfolio of owned IP that we're generally trying to stay focused on a smaller number of licensed IPs that are proven. With DreamWorks, we have so much confidence in what we’ve done and such great success generally speaking that we've been willing to take more risks on their unproven properties than anybody else. We view ["Master Mind"] as more of a one –off, isolated thing. It wasn't something that was going to be appropriate for our resources right now.

Activision and DreamWorks breaking up in 2010

Activision's relationship with DreamWorks Animation has been probably the most stable in the videogame biz for as long as I've been covering it. It's like that marriage you thought would last forever.

While other movie studios constantly flirt with different videogame publishers -- and vice-versa -- Activision has consistently put out two games per year, based on every single one of DreamWorks' toons (save for a little spat over 2005 bomb "Wallace and Gromit," which DWA just distributed for Aardman). Hell, sometimes they've been so in love that Activision has put out extra games based on DreamWorks characters, like "Shrek Super Slam" and this fall's second "Kung Fu Panda" game.

But just like with my parents (whoa! too personal?), even the most seemingly perfect relationships can end suddenly. So it is with these two, as DreamWorks Animation announced that it is moving onto THQ starting with the fall 2010 movie tentatively titled "Master Mind." Activision is already committed to make games based on DreamWorks toons through spring 2010's "Shrek Goes Fourth."

What's the reason? According to DreamWorks, it's simple: It went out to the market for "Master Mind" and THQ made the best offer. Activision, for whatever reason, wouldn't or couldn't step up to the plate.

The THQ deal may just be a one-time fling, however. DreamWorks isn't making any commitments. What happens in 2011 and beyond? Will it commit to THQ? Try out some other suitors? Go back to Activision?
We'll have to wait and see. Love can be fickle.

For more details, check out the story on Variety.com.

Does the Prototype delay involve Activision?

It's worth remembering, folks, that when Sierra says it's delaying the release of "Prototype" until 2009, it's not going to be the publisher actually releasing the game. It wasn't even going to be if the game came out on schedule this fall That's Activision, which is going to merge with Sierra parent company Vivendi Games sometime next month, at which points its management will be in charge.

Officially, they're still two separate companies, but as I've previously reported, Activision management is already taking a look at Sierra's entire development slate and big changes and cuts are expected to happen post-merger. After all, Activision made the deal to get its hands on Blizzard and "World of Warcraft," not Sierra. And it's not like everyone at Sierra is dedicated to future of their business these days, as Martin Tremblay's decision to bolt for Warner Bros. showed.

I don't claim to have any specific insight into what's going on with "Prototype." It could just be that Radical needs more time to get the game into releaseable form. Or it could be that Activision execs have taken a look at the game and had a lot of "notes." But if it's Sierra, and not Activision, that really and truly is deciding that the game should come out next year, it's worth remembering that it's a new management team led by Bobby Kotick that will actually be making that decision.

(Check out my initial impressions of "Prototype" from GDC here.)

Sierra games being pitched to new corporate masters at Activision

It's a tough time to be developing a game for Vivendi Games' Sierra label, the division that makes "normal" videogames -- i.e. AAA, boxed, non-MMO games for PC and consoles. That's because all of the label's titles now have to justify their existence to their soon-to-be corporate masters at Activision.

What does that mean practically? I've had numerous sources tell me that development teams on all of Vivendi's games now have to essentially pitch their projects to Activision executives. Until the merger is technically complete, work proceeds as usual, but once it's over, Activision will start making some decisions. And it seems very unlikely that everything at Sierra will keep going as it has been.

Just like when a new executive teams takes over at a film studio, some projects in development get killed and others get changed as the new folks in charge start establishing their own tastes and corporate priorities.

Vivendi's Blizzard label is, of course, quite safe from all this. The merged company is going to be called Activision Blizzard, after all. So long as "World of Warcraft" keeps printing money faster than the Fed, they'll be left alone by Activision's execs to do as they please.

But the future of the rest of Vivendi Games is quite uncertain. Even though Vivendi proper will retain a majority stake in the merged entity, Activision CEO Bobby Kotick will keep that title and his president of publishing president Mike Griffith remains in charge of all non-Blizzard games.

Activision obviously made the deal to get its hands on the biggest MMO, and really the biggest game, in the industry. Everything else is basically an afterthought. Which leaves all of those making the afterthoughts in an uncertain position.

Titles set to come out this year, like "The Bourne Conspiracy," "Prototype," "Brutal Legend," and "Ghostbusters," are probably fine since they're so far along. But those in development for 2009 and later? They'll all TBD.

Question marks include whether we'll see more games from VIvendi's costly Robert Ludlum license, or if Activision thinks its conflicts with its costly James Bond license; whether there will be a sequel to "Scarface" as expected; whether Activision will put out a sequel to "F.E.A.R." in conflict with Warner/Monolith's "Project Origin" (Vivendi retains rights to the name while Warner kept the underlying ideas); and if we'll see more games starring Crash Bandicoot or Spyro.

Also, will Vivendi's nascent Sierra Online and Vivendi Mobile divisions be allowed to continue?

It's all in Activision's hands now. Which leaves some nervous developers at Sierra.

Harmonix sues Activision, then quickly withdraws

As I'm reporting in tomorrow's Daily Variety (and you can read now online), original "Guitar Hero" developer Harmonix has sued the game's current publisher Activision for more than $14.5 million in allegedly unpaid royalties. But between the time I started reporting the story this morning and when I finished up this evening, Viacom (Harmonix's corporate owner) withdrew the suit.

Essentially, the now defunct lawsuit claims that under Harmonix's agreement with RedOctane (the first publisher of "Guitar Hero," which was subsequently bought by Activision), it is owed the higher of two royalty rates if any sequel that it doesn't develop "incorporates, uses, or is derived from Harmonix property." In addition, when that happens, it is also supposed to be paid a royalty on any related revenue from song downloads, in-game advertising, consumer products, etc.

However, if there's a "Guitar Hero" sequel that doesn't use any of Harmonix's work, the suit says, the developer is owed a lower royalty rate, half of the higher, and doesn't get any cut of song downloads and other ancillary products. Harmonix claims that Activision is trying to pay it the lower royalty rate -- which would mean Neversoft essentially built "Guitar Hero III" from scratch -- but it is owed the higher rate. That translates into $14.5 million and counting from "Guitar Hero III," an unknown amount of money from song downloads and other products, and future losses that "will mount at the rate of tens of millions of dollars per year."

Activision isn't admitting that it did anything wrong and in fact its general counsel told me "Activision believes that it has made sufficient payments to Harmonix and the claims otherwise do not have merit." But it was apparently spooked enough that it has agreed to further discuss the issue with Harmonix, which prompted Viacom to withdraw the suit less than two days after filing it.

There are lots more details, but rather than summarize them all, I'll just encourage you to read my story on Variety.com.

Activision: More of the same, Disney: Something different

Some interesting details on two big publishers and two very different plans to grow their businesses came this week.

Continuing its strategy of carefully expanding its slate beyond properties from its parent company, Disney Interactive finally announced "Pure," the first title from Black Rock Studios (nee Climax Racing), the British developer it acquired in 2006. It's apparently avoiding competition with the Project Gotham Racing and Burnout's of the world by focusing almost exclusively on "extreme" aerial tricks and stunts.

That's not exactly the core of Disney Interactive Studios' business, of course, nor is releasing only on PC, Playstation 3, and Xbox 360. But the publisher has a very healthy base of games that come straight out of its brand, like "High School Musical" for Wii and DS, so it's trying to expand into other areas. The first such effort, "Turok," just came out to a decidedly mixed critical response (though I thought it was a solid if not spectacular effort). And we can probably expect something just as different when we finally find out what what Warren Spector is doing for Disney.

Activision, meanwhile, is doing the opposite: taking its hit franchises and exploiting the hell out of 'em. The newest example is "Guitar Hero: Aerosmith," one of two spin-offs the publisher is releasing for its uber-successful music game series this spring before a proper sequel in the fall. Of course, now that this strategy of doing games dedicated to a single band is out, the possibilities are endless. Any music fan could easily come up with a hundred new "Guitar Hero" sequels. And I wouldn't be surprised if we see them all on the shelves within five years.

Of course the great part for Activision is all it has to do is program a few dozen new songs, re-skin the game (and not even that well, based on the photo above) to give it an aesthetic for whatever band the sequel is dedicated to, and then sell it for $50 or $60. That's the kind of profit margin most game execs would execute their first-, second-, and third-born to enjoy.

Music downloads: More total for Guitar Hero 3, but more per capita for Rock Band

One other nuggets from today's Activision earnings worth noting...

On the earnings call, Publishing President Mike Griffith said Activision has sold over five million song downloads for "Guitar Hero 3" on Xbox Live since the game launched. Recall that "Rock Band" has sold 2.5 million.

Of course, given that EA/MTV have sold 1.5 million copies of "Rock Band" in the U.S., compared to 6.5 million for "Guitar Hero 3," it appears that on a per capita basis, it's advantage: "Rock Band."

(One caveat: the vast majority of "Rock Band" units were for PS3 and 360, while many copies of "Guitar Hero III" were PS2 and Wii, which don't offer downloadable content. And Activision didn't include PS3 stats, for whatever reason. It's not clear how close the margin is just in terms of 360 owners.)

Activision CEO Bobby Kotick on fixing Tony Hawk, growing in Europe, the fate of Sierra, and more

Following today's earnings report, I had a brief but interesting chat with Activision CEO Bobby Kotick.  He was of course in a good mood after his company's kick ass performance over the holidays (details here). But he also talked about other topics ranging from how Activision will extend its dominance overseas to fixing Tony Hawk to integrating with Vivendi Games on the way to becoming Activision Blizzard this spring.

On expanding overseas, particularly to Europe:

I think that’s an area where there’s some low hanging fruit. We have number 1 market share in US, but we're clearly not there in Europe and there's no reason we see why "Guitar Hero" shouldn’t be the number 1 product in Europe as well… That'll take more local content and better marketing… and investment in our European infrastructure.

"Kung Fu Panda" will be a big international release and the 'Bond' franchise has traditionally done better outside the U.S., particularly in Europe.

Working with Vivendi-owned Universal Music Group following the merger:

Once the deal closes there will likely be lots of opportunities to work with Universal Music Group. [UMG head] Doug Morris will be joining our board.

Will we see any new intellectual property in 2008? Or only the sequels and licensed properties discussed today?

Typically we don't announce new IP without a pretty thoughtful plan. So that wouldn't be something you'd see on an earnings call.

We all know Blizzard will be left alone following the merger. But what about the rest of Vivendi Games, particularly the Sierra label? Will those studios/titles/developers survive?

We haven't said a lot about that process other than the have a lot of terrific products in development and fantastic studios in addition to Blizzard. One of the things that's appealing about this transaction is the ability to get the best of what each company has to offer.

What can we expect from Activision on the Wii in 2008?

The recipe for success when developing for Wii is to take advantage of its unique capabilities. It's not a porting strategy. We are uniquely positioned because understand we physical interface from "Guitar Hero."

Addressing slow sales for "Tony Hawk: Proving Ground," in the wake of a successful launch for EA's "Skate," as Activision prepare for this year's installment in the skateboarding franchise:

We thought having competitive products might increase the overall market. But it didn't really. I think there was just so much product competing in general this year… We didn't expand the market the way we expected. But we're back to a focus on what it will take to succeed in the new environment.

Activision's 2008 slate... "Marvel Ultimate Alliance 2," multiple "Guitar Hero" games, and a lot more

Activision just reported boffo - a.k.a sick - earnings for the holiday quarter, and you can read all about it in the story just posted on Variety.com.

But I thought Cut Scene readers would be particularly interested in the 2008 release slate that Activision publishing president Mike Griffith laid out on a conference call with analysts. These are the main titles you can expect from Activision in the upcoming year.

Readers will note that the list is entirely sequels and move adaptations. Activision being Activision, that's not too surprising. The company is unabashedly focused on building and growing franchises. And it's hard to blame them, since the vast majority of best selling games are franchises or licenses, and it's sequels like "Call of Duty 4" and "Guitar Hero 3" that drove Activision's record results.

However, in an interview with me, Kotick noted that we shouldn't necessarily assume Activision won't be releasing any original properties this year. "We typically don't announce new IP without a pretty thoughtful plan," he explained. "So it wouldn't be something you see on an earnings call." So there may still be an original game or two (but no more) coming from Activision in '08.

(Stay tuned for a separate post with highlights from my interview with Kotick in just a few minutes.)

It's also worth noting that this list doesn't include big titles like "The Bourne Conspiracy" and "Ghostbusters" on Vivendi's release slate for later this year that will be released by Activision once the merger is complete.

But still, we now know a lot. Here's the list:

• Multiple "Guitar Hero" follow-ups, including two mysterious add-ons (probably along the lines of last year's "Rock the '80s") in the spring and a proper sequel, "Guitar Hero 4," in the fall.

• Adaptations of DreamWorks Animation spring release "Kung Fu Panda," for which Activision has particularly high hopes, and the fall's "Madagascar 2," as well as a separate "Kung Fu Panda" game for the holidays.

• An adaptation of Sony and MGM's new James Bond movie "Quantum of Solace" in the fall.

• A new "Spider-Man" game.

• A sequel to "Marvel Ultimate Alliance."

• "Call of Duty 5"

• A new "Tony Hawk" skateboarding game. (Activision admitted that the last installment, "Proving Ground," didn't sell well and said it's totally revamping the skateboarding strategy for '08)