Real-world battle clouds game publishers’ successes

Video gamers will get their first chance on Monday to engage one another in Halo: Reach – the year’s most anticipated title – while an acrimonious real-world battle rages over the action genre.

The latest Halo game becomes available in an online multiplayer beta version, ahead of its full release in the autumn, and just four days after its developer Bungie announ-ced a 10-year alliance with the leading publisher Activision Blizzard.

The deal was good news for Activision which has suffered the bad publicity in recent weeks of an uprising at its Infinity Ward studio, home of last year’s best-selling game, Call of Duty: Modern Warfare 2.

The developments illustrate how the action genre and hard-core gamers still dominate the industry, despite the growth of more casual gaming and the success of the Nintendo Wii.

The record revenues generated by the Halo, Grand Theft Auto and Call of Duty franchises have created rich rewards in royalties for the developers. But they have also generated tensions in relationships with their publishers. The heads of Infinity Ward – Vincent Zampella and Jason West – were fired by Activision in March for alleged insubordination and breach of contract. They have since said they will set up their own studio – Respawn Entertainment – and a distribution deal with Activision’s arch-rival, Electronic Arts.

The Infinity Ward executives denied the allegations and are suing Activision for damages and unpaid royalties of more than $36m.

In a countersuit, Activision alleged Mr West and Mr Zampella had schemed to “steal the studio” and made a secret trip to meet senior EA executives.

Last week, 38 Infinity Ward employees also sued Activision for allegedly delaying and withholding more than $54m in royalties for Modern Warfare 2. They claimed they were being “held hostage” by the publisher and analysts interpreted the move as a tactic by Activision to prevent them defecting to Respawn.

Modern Warfare 2 surpassed Grand Theft Auto IV and Halo 3 as the most successful entertainment launch of all time when it was released last November. It recorded $402m in sales on its first day, according to Guinness World Records, and has generated revenues of more than $1.5bn for Activision.

Halo: Reach is the last title in the franchise to be made by Bungie, which originally developed Halo, was bought by Microsoft in 2000 and then regained its independence in 2007 at the expense of handing over future Halo games to a Microsoft subsidiary.

Harold Ryan, head of Bungie, says the studio expects Halo: Reach will be “the greatest game of all time” and he has no qualms about having its next planned action-genre game published by Activision.

“This is a great deal that we have been working on for over nine months, the timing is unfortunate with all the other [Infinity Ward] stuff going on,” he says.

Bungie’s independent status means Activision will avoid any possible royalty wrangles and defections it has suffered with in-house Infinity Ward. But with Bungie owning the intellectual property, Activision’s earnings potential should be more limited than for the Call of Duty franchise it owns.

“This is going to deliver operating-income margins greater than 20 per cent to Activision,” insists Thomas Tippl, Activision chief operating officer.

“Activision has tarnished its reputation with the developer community with all these headlines,” says Michael Pachter, Wedbush Morgan video game analyst, but he says the level of press attention is unusual.

These kind of moves have always characterised the industry, he points out. To complete a circle, Mr West and Mr Zampella’s creation of Respawn joins them back up with EA, where they worked at another studio making its Medal of Honor games, before breaking away to form Infinity Ward in 2002.

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