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Analysis: Infinity Ward's Double-Edged Sword?
by Leigh Alexander [PC, Console/PC]
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March 2, 2010
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Every developer and every studio aims to be as globally successful as possible. With record-breaking hit titles come acclaim, affluence, and often special treatment from publishers in the form of favorable contracts.
For creating the Grand Theft Auto franchise hits for Take-Two, Rockstar Games' top brass were able to negotiate a nearly unprecedented profit-sharing deal. Halo house Bungie earned its independence while retaining the benefits of a close relationship with Microsoft.
And Infinity Ward, creator of the multi-billion-dollar Modern Warfare branch in Activision's Call of Duty franchise, earned the freedom to develop a new property when it signed its newest contract with the publisher in 2008.
But amid this week's apparent standoff between Infinity Ward and Activision -- one that multiple sources confirm has seen the ouster of the studio's co-founders -- the publisher is accusing the studio of breaching that contract.
Activision confirmed in an SEC filing that its allegations of "insubordination" and breach of contract will likely lead to litigation. All of the tension and drama today raises one question: Can making a record-breaking franchise become a double-edged sword?
Only top brass at Infinity Ward and Activision are privy to all the facts about the their contract. But numerous sources close to the situation have told Gamasutra there's been tension between Activision leadership and ousted Infinity Ward co-founders Jason West and Vince Zampella for some months.
The pair hasn't maintained a reputation for being easy to work with -- and some sources have told us they first fell out of favor with bombastic Activision CEO Bobby Kotick when they refused to allow Activision to check up on Modern Warfare 2 milestones.
Modern Warfare 2 broke retail records, and a third installment could perform even better. With music genre revenue declining, sources say Activision is eager to have Infinity Ward start on Modern Warfare 3. Infinity Ward, on the other hand, would rather finish the new IP its contract allows.
Numerous sources with knowledge of the situation have speculated to Gamasutra that the contract dictates only Infinity Ward may make games in the Modern Warfare arm of the Call of Duty franchise. Other studios, like fellow Activision subsidiary Treyarch, may continue develop other Call of Duty-branded titles.
Sources say one development candidate would be newly-founded Sledgehammer Games, but Activision can't put another studio to work on the third Modern Warfare installment any more than it can force Infinity Ward to work on it now.
Another source suggests West and Zampella could have demanded a larger share of profits in return for developing Modern Warfare 3 on Activision's schedule instead of in line with Infinity Ward's original plans. According to that account, those attempts to re-negotiate or add to the current contract prompted Activision's ire.
Some media reports have inaccurately conflated this week's situation with outstanding royalties from Activision to Infinity Ward. But sources confirm to Gamasutra that Activision routinely pays royalties at the end of the quarter after which they were earned, which will begin next month, meaning the publisher is not overdue in its financial responsibilities.
The major issue is that Activision's hands are tied by the contract, sources say -- and that may be the root of the "insubordination" allegation against Infinity Ward's leaders.
Activision has a history of using legal muscle to get the better end of its agreements, as it did with its Brutal Legend spat with EA and the DJ Hero battle that caught Scratch developer 7 Studios in the crossfire.
The company also never hesitates to treat games as a business -- for example, now that Guitar Hero is no longer the cash cow it once was, it closed Red Octane and made cuts at Neversoft, despite the way those studios have performed for Activision in the past.
Another source with knowledge of the situation tells Gamasutra that although Infinity Ward is only about 75 developers strong, Activision brass demanded layoffs at the studio anticipating a refusal -- which they received, potentially opening the door for Activision to use that refusal as a way to launch a breach suit that would help it escape its contract.
Certainly, rumors and speculation will run rampant all over the dramatic exit of West and Zampella, and all eyes are watching the situation closely for the real facts to emerge.
But it makes clear one unfortunate downside to success: The game industry is a business, and when success is high, the stakes get higher. A sweetheart contract with a publisher might appear to be the ultimate reward -- but it may also turn out to be an ultimate weakness.
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Steam?
Really? That's the moral to your story? I know you wrote it but maybe you should read it again. The moral I got from it is don't work for a dictator who views creativity as purely a prospect of profit and loss, who uses snake oil tactics in order to wiggle it's way out of contracts and who sees creators of billion dollar franchises as cogs in a wheel that can easily be replaced.
*points to Activision's wiki page to remind people of their history with Atari....
http://en.wikipedia.org/wiki/Activision
This isn't entirely accurate. That lawsuit was filed by Genius against Activision and 7 Studios. I wouldn't think that Activision defending itself against a lawsuit counts as "using legal muscle".
An option is to self-publish, but there's still the high end marketing cost to consider.
Then there's distribution, operations such as replication and storage and transportation and securing self space, world wide contracting, strategic market placement, securing assessment to revenue returns, monetizing over street to fiscal returns, and that's not including on-line requirements which can draw in even more departments and personnel.
I don't doubt it can be done, I just doubt that it can last that long or profitable.
As a coder you already have to be a lawyer, so you don't 'invent' code that is already patented, or use code that may or may not be threatening your project, but wait - there's more!
If you are a successful video game studio with talented people, who work their asses off for months and years - treat them as 'commodities' - shove them around, make them liable for everything you, as an umbrella company, fail to achieve.
Turning from a publisher into a planet of darkness - way to go, Darth Kotick. What company was it, that had more lawyers than developers one day... something with "Micro" in it, cannot remember...
Why would there be a contractual arrangement between the two entities when Activision completely owns Infinity Ward as a result of the acquisition in October 2003?
I can understand if the reference is to an employment contract between Activision and the IW principals, but not the IW entity itself.
There are always two sides to a story but still, using a sledgehammer (see what I did thar?) to swat a fly never ends well.
Activision tried slimy tactics to wriggle out of their contract to get IW to make MW3 for them instead of their contractually obligated new IP. When IW refused to bend and followed the contract Activision used even slimlier tactics to fire the studio heads.
Would anyone not choose a record-breaker over a mediocre hit?
BTW if anyone is gonna want a source on the above statement about tensions, which is probably gonna happen, uncle worked there as a programmer. CoD and CoD2. He keeps up the ties with his old work buddies there lol
Then again maybe the contract said that Activision could demand layoffs without having any legitimate reason.
"Proof that developers need to get together and form their own publisher,"
*points to Activision's wiki page to remind people of their history with Atari....
http://en.wikipedia.org/wiki/Activision"
That's the best, most ironic fact anyone could possibly have pointed out.
That's why I say get real to "developers getting together to form their own publisher". Because they then become... guess what ? Publishers.
Well, I don't know about you, but to me, looks like IW sure is helping pay a lot of Activision bills.....
Maybe the departure from Zampella and West is a sign, that something really went wrong with AAA titles in general. If you can't be profitable in the quarter you released something like MW2, how can you ever become profitable?
Is that NPC accurate?
If Activision really did lose money that bad on the last quarter of 2009 with one of the biggest video game openings in history....your right, how the hell are they suppose to make money?
And it sounds like Infinity Ward is pulling a Bungie, but are more or so gonna get screwed instead.
The 286 mio US$ loss is accurate, see here:
http://www.gamasutra.com/view/news/27181/Activision_Blizzard_Losses_Widen_Still_
Beats_Expectations.php
I don't think it's an accurate reflection of the quarter as the $286m loss was on a GAAP basis, which cannot include revenue not yet received. Much of the revenue from sell-through in that quarter won't appear until the following quarter (the current one).
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Activision CEO Bobby Kotick said in a statement, "We delivered better-than-expected calendar year non-GAAP financial results and our fourth quarter non-GAAP net revenues and non-GAAP earnings per share were the highest in company's history."
"On a non-GAAP basis, our performance enabled us to deliver the most profitable year in our company's history and record operating margin. We generated approximately $1.2 billion in operating cash flow and ended the year with approximately $3.3 billion in cash and investments."
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"Anyone wishing to release new IP this year in this market must be mad. It just does not create the same level of return that a good sequel does."
Sounds like you're into the vision of game development as a sausage factory...
We will see that in the next quarter, but even on a non GAAP basis, Activision didn't reported a profit, they only gave a cash flow of $1.2 billion. Let's wait and see, what they will report for Q1 2010.