About 35 Employees Resigned From Infinity Ward, Activision CEO Says

The publisher fired Jason West and Vince Zampella as president and CEO of Infinity Ward in early March, claiming they committed “breaches of contract and insubordination” (CED March 4 p7). West and Zampella sued Activision (CED March 5 p5), and Activision countersued (CED April 13 p11). A group of current and former Infinity Ward employees later sued Activision, saying they were seeking $75 million to $125 million in unpaid bonuses.

Activision claimed the suit filed by the 38 Infinity Ward employees was “without merit.” But Kotick on Thursday reserved all criticism for West and Zampella, offering nothing but praise for the other former employees. “Many” of the Infinity Ward employees who left were “recruited by other studios because of how talented they are,” he said. Activision was “obviously disappointed about this, and we wish we could have convinced some of these incredibly talented people to stay,” he said.

The future of Infinity Ward has been unclear since the staff exodus started. But Kotick said, “We continue to invest in its growth and support the talented developers there who are working hard on the next title.” The company is “already strengthening the studio with additional talent and financial resources,” he said. Infinity Ward is one of three Activision studios that now make its popular Call of Duty games, along with Treyarch and Sledgehammer.

The decision to fire West and Zampella “was not done lightly,” and “it was not done to deprive them of their bonuses, nor was it done without a great deal of deliberation about the consequences,” said Kotick. The company “felt we had no choice but to terminate the two Infinity Ward executives … to protect the company’s assets and the interests of our shareholders,” he said. “I personally considered the two of them friends and their conduct was a compromise of our friendship, which is equally disappointing. Once we began to understand what had occurred, there was no gray area. There was nothing that would have allowed us to retain their services, as talented as they might have been,” he said.

Separately, Kotick said that “over the course of the next couple of years,” the iPhone and mobile platforms overall “will present opportunities for growth and margin expansion that we haven’t seen in the past.” But he said that although the company has released games on those platforms, “one of the challenges for us is really figuring out how do you have a profitable business on those platforms.” The mobile platforms “generate a modest amount of profitability,” he said.

Chief Financial Officer Thomas Tippl wouldn’t provide many specifics about the financial relationship between Activision and Bungie that’s part of the recent 10-year distribution and publishing deal that the publisher signed with the Halo game developer, an ex-Microsoft studio (CED April 30 p9). But he said, “There was no upfront payment provided,” and Activision “will be funding the development expenses” of games made under that pact.

Q1 videogame hardware and software sales in the U.S. and Europe were “largely in line with our expectations,” Tippl said. PS3, Xbox 360 and Wii software sales were “collectively up single digits,” he said. The combined installed base of current-generation videogame systems, including home and handheld consoles, increased 34 percent from a year ago to 227 million units in North America and Europe, he said. The company’s 2010 hardware installed base forecast was unchanged. It expects the number of units will increase to 265 million by the end of 2010, Tippl said. Activision expects “the retail environment will continue to favor large-proven properties and for retailers to elect to hold AAA launch pricing,” he said.

The publisher is “on track” to “increase the profitability” of its music games, Tippl said. It expects the music category “will continue to compress in 2010 as we have moved [away] from the sell-through of higher-priced peripherals,” he said. Activision’s Guitar Hero “remains the leader in the category, with more than 44 million games sold” cumulatively, he said. It will release Guitar Hero 6 this fall, and “soon after we expect to launch the next DJ Hero,” he said.

Activision Blizzard also has several new initiatives for its online game business. The company is adding Facebook integration to its online Battle.net game site, with the goal of making it “as easy as possible” for players to find their friends and play with them on Battle.net,” said Blizzard CEO Mike Morhaime. When the company launches the game StarCraft II: Wings of Liberty and the revamped Battle.net site on July 27, StarCraft II players will also “be able to immediately communicate with their friends” who play Blizzard’s World of Warcraft, he said. The company “also made significant efforts on the marketing side to attract new players” to World of Warcraft, he said. The company’s Q4 “outreach advertising campaign starring Mr. T quickly doubled our new player trial volume” in the U.S. and Europe, he said. It “also saw a record number of returning subscribers in North America in December and record trial activations in Europe during the first week of January,” he said. “Due to the success of this campaign,” the company went “back on air” last week in North America and Europe with it, he said.

The company reported better-than-expected Q1 results of $1.3 billion in revenue and earnings per share of 30 cents (CED May 7 p10). It reported revenue of $981 million and only 14 cents in earnings per share for Q1 last year. The Q1 improvement was “driven by strong global consumer demand” for the game franchises Call of Duty and World of Warcraft, said Kotick.