Bungie's next project is "well along in its development," but Activision's new deal with the developer isn't intended to supplant Call of Duty
, says Wedbush analyst Michael Pachter.
The analyst says that Activision's ten-year exclusive deal
with Bungie around the Halo
creator's newest property resembles Activision's past deals with id Software, where the publisher is "funding some or all of the development and getting first dollar payback and a healthy revenue share in exchange."
The analyst says he discussed the deal with Bungie and Activision, and while details beyond the initial announcement are scant, "it’s clear that this is a publishing partnership and not a distribution arrangement."
"That means that instead of normal distribution margins of around 10 percent, the deal probably allows Activision to participate in profit upside, suggesting that their margins could end up between 15 – 20 percent if a future Bungie game sells a crazy number of units," Pachter suggests.
The analyst says Bungie has indicated plans to make its games multi-platform "where that makes sense", and confirmed that the first installment under the partnership is "well along in its development." Mentions of an "action game universe" suggest aims for a Halo
-sized property with multiple sequels and offshoots.
Pachter suggests that any future Bungie game will sell "at least 10 million units, as they will appear on multiple platforms for the first time," he says. Typical Halo
games sold around 10 million worldwide units on just Xbox platforms, so assuming future installments are as popular, they could sell as many as 15 units on both Xbox 360 and PlayStation 3, the analyst estimates.
Assuming a 15 percent profit from 10 million units sold, Activision could make about $65 million in profits from a successful Bungie game, the analyst models.
"Bungie is a relatively productive studio, and it is likely that we will see a game from them every two years, beginning next year," he says. "Therefore, I think it’s safe to assume that Activision will generate around 5 cents per share on average every other year from this deal."
However, the positive news is unlikely to be able to completely dismiss the cloud currently overhanging Activision -- and its shares.
"I’m not sure that this will fully offset the negative investor reaction to the ongoing Infinity Ward soap opera," says Pachter, "but at least it shows that Activision can deal with world class developers, and I actually thought that the Bungie guys sounded quite happy with their deal and with their relationship."
As for the key Call of Duty
brand, it's unlikely to lose priority for Activision as a result of this deal, and will continue to be healthy, the analyst adds.
"The majority of the 20 million people who bought Call of Duty
have no idea who Infinity Ward is," says Pachter. Without the involvement of the pedigreed studio, the next installment "probably won’t sell 20 million copies, but it will sell at least half that."