To say “Call of Duty: Modern Warfare 2” is a hit is akin to calling the Atlantic Ocean a bit humid. The video game has shattered sales records throughout the entertainment industry – besting other games, films and books. It’s on track to be the biggest entertainment event of the year, perhaps the decade.
Activision estimates the sell-through for the first five days of the game came in at $550 million. And retail checks show that the title continues to sell well as the heart of the holiday season approaches.
Analysts estimate the game will sell 12.5 million units before the end of the calendar year – but “Modern Warfare 2” will likely be the gift that keeps on giving for Activision.
Downloadable content (DLC) for the game is expected next spring. Developers Infinity Ward have not announced any details – but have said they plan to provide “a lot of DLC support.”
That support could be a notable contributor to Activision’s earnings. Ben Schachter, an analyst with Broadpoint AmTech, estimates the publisher will generate at least $100 million to $140 million in gross revenue from the game’s downloadable content next year.
“After paying the platform holders an estimated 30 percent, this should generate roughly $59-$85 million in EBIT and contribute $0.04-$0.05 to EPS,” he said in a note to investors.
Downloadable content sales for the first “Modern Warfare” are estimated at $75 million. (Another game in the “Call of Duty” family – “World at War” – sold a reported 1 million DLC packs in just one week on Microsoft’s Xbox 360 earlier this year.)
That proven consumer willingness to pay for more content could spur Activision to test higher prices for “Modern Warfare 2” DLC, says Schachter. Previous content has sold for $10.
Downloadable content has traditionally been made up largely of new multiplayer maps, giving players fresh areas to wage battles.
Recently, though, publishers have expanded their view and offered new single-player content as well. Take Two Interactive Software has led the pack in doing this – dramatically expanding the single-player story of “Grand Theft Auto IV” while also offering new multiplayer options.
Activision may follow that route - with new missions and modes of play – and could potentially also explore micro transaction territory, allowing players to buy specific in-game weapons for low amounts.
Like the first “Modern Warfare” game, the retail price of “MW2” is expected to maintain its $60 price point until the next iteration of the game.
In a market as competitive as video games, that’s notable. Most games disappear from store shelves (or end up in the bargain bin) within a few months. Those that don’t often see their prices drop by $10 or $20.
The “Call of Duty” franchise has always been a big one for Activision, but the launch of “Modern Warfare 2” put it in a different league. Colin Sebastian of Lazard Capital Markets predicts the game will generate over $1 billion in retail sales worldwide in its first several months on store shelves, putting it in the same category as Michael Jackson’s “Thriller” album or the film “Titanic.”
While it doesn’t have the recurring revenue of “World of Warcraft,” (which charges player a monthly subscription fee), it has annual releases and has become the industry’s most popular cross-platform console game.
Add in the high-margin revenue generated from downloadable content and it could, ultimately, be even more valuable than Blizzard’s online gaming king.
“Interestingly, consumers continue to show a willingness to pay for interactive entertainment through both the retail and Internet channels, while traditional forms of media continue to struggle transitioning to new distribution models,” notes Sebastian.