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Activision lands next game from Halo development studio [Updated]

Activision Bungie

Activision Blizzard Inc. may have lost key talent at its prized Infinity Ward studio, but it scored a few points Thursday with the surprising announcement of a 10-year agreement to be the exclusive publisher of the next game series from Bungie, developer of the blockbuster Halo video games.

The agreement calls for Activision to market and distribute Bungie's unannounced game franchise, which is expected, like Halo, to be an action game with a significant online component and multiple sequels. However, in a rare move for Activision, which has been adamant about controlling intellectual property in the past, Bungie will have full ownership of the new game. Activision will finance its development.

Neither Bungie nor Activision would say when the first title would be released, BMO Capital Markets game analyst Edward Williams wrote in a note to investors that he expected a game to come out sometime in 2012.

Analyst Evan Wilson of Pacific Crest Securities said that Activision expects the Bungie deal to be accretive to the operating margins of its Activision Publishing division, but not the overall company.

Thomas Tippl, chief operating officer of Activision Blizzard, noted the positive effect on his company's bottom line and added that Bungie's upcoming games will not replace any scheduled to be produced internally by Activision.

"This is part of what we love about this partnership," he said. "There are no trade-offs we are making."

The deal is a coup for Activision, which has been struggling to keep Infinity Ward, producer of the hugely successful Call of Duty: Modern Warfare series, from disintegrating. The two former heads of the studio, Jason West and Vince Zampella, were fired in March and immediately sued the publisher, after which it countersued. On Tuesday, 38 current and former employees of of Infinity Ward also sued Activision, alleging that they have not been paid full royalties for November's Call of Duty: Modern Warfare 2, which generated an estimated $1.3 billion in worldwide retail sales.

Asked whether the conflict affected Bungie's decision to partner with Activision, Ryan replied: "You always consider the [public relations] impact with fans and community. But as far as Activision as a partner goes, aside from the fan and community impact, the Infinity Ward situation doesn’t really come into play."

The two companies signed a binding term-sheet, essentially sealing their partnership save for final details, in March. West and Zampella were fired, which began the imbroglio at Infinity Ward, on March 1.

The deal takes some pressure off Activision, which has been trying to reassure its investors that its Call of Duty franchise was not jeopardized by the dispute with developers.

"We believe this agreement alleviates some of the concern surrounding Activision's publishing business and its increasing dependence on Call of Duty by adding another potentially strong [property] to the portfolio," Williams wrote.

According to people familiar with the situation, the publicly released terms of the Bungie deal are similar to the one that former Infinity Ward heads Jason West and Vincent Zampella were seeking before talks broke down and they were fired for alleged breach of contract in attempting to form their own company. They have since signed a deal with Activision’s chief rival, Electronic Arts Inc.

“It’s astonishing how much money Activision had to pay to cover up its horns and pitchforks with a halo,” quipped Bobby Schwartz, West and Zampella’s attorney.

Activision countered that the new deal proves its attractiveness as a creative partner. “If you look at the big picture, it’s undisputable that we’re the best destination for top talent in the industry,” Tippl said.

Bungie, which Microsoft Corp. purchased in 2000 for an estimated $20 million to $40 million, separated in 2007 from its parent company. In the amicable divorce, Microsoft retained ownership of the Halo property, while Bungie agreed to develop several sequels, including the upcoming Halo Reach, exclusively for Microsoft's Xbox 360 game console. Ryan said Halo Reach will be the last game in the franchise developed by Bungie, with all future Halo games handled by Microsoft.

He added that over the last year he has held discussions about a possible partnership not only with every large game publisher, but with the major media conglomerates as well.   

-- Alex Pham and Ben Fritz

[This post was updated at 11:23 a.m. to include comments from analyst Edward Williams and a clarification of the impact on Activision's bottom line from analyst Evan Wilson. It was updated at 3:23 p.m. with analysis of the similarity of the Bungie deal to the one West and Zampella were seeking and comments from Schwartz and Tippl.]

Photo: Activision Chief Financial Officer Thomas Tippl, left, and Bungie President Harold Ryan. Credit: Activision.

Comments () | Archives (2)

You left Microsoft... for this?!

Activision's long stated/inane goal to "take the fun out of game development" says it all.
I worked there ... they aren't kidding.

As a long-time Halo fan, this comes as very disappointing news from a company that has always strived to be just the opposite.

Bad idea Bungie.
You lay down with dogs, and you get -up with fleas.

Can I just say that I'm really sick of online gaming. I'm so tired of these big companies not giving a rats rear end about taking care of.. 1. all the hackers.. and i don't care if some people think I'm just crying over spilled milk. That it's no big deal.. if they can't take the time to put back into games some of the hard earned money spent by the true gamers to fix all the hacking. Well then they need to take the steps to more enforce the people who are abusing it. either band hacks for good cause they ruin the game fun for everyone. Or start making it punishable by fines. And yes I am very serious. Make it a legal issue if you get caught. And why not... I mean people make a big deal about bootleg movies and stealing music online. and their are millions of far more silly laws in forced today. I am just so sick of paying my hard earned money to play online with my friends and having a blast just until we come across one of these no talent hacks. I am very sick and tired of it. And 2. I'm also sick of running up on people in games like battlefield 2 or Modern warfare 2... putting 15 rounds in they're back just to have them turn, shoot me once in the leg and kill me. Come on! And don't give me that... Oh your just lagging. No sir... if you seen how perfect my connection is on my home setup, well lets just say you'd wet your pants. I hate one shoot kills because some people just run around holding the trigger hoping for a kill. random grenades and shooting. What us gamers call spray and prey. so come on game developers 3 to 5 rounds. cause in real life... I can't take 30 rounds to the head and keep running. Please... please put some of the thousands of dollars i spend back into the game research to fix this crap! Do that and you may just empty my wallet a whole lot more.

Thank You... Sincerely, Gamer tag RockyHamella


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