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Activision Sees Another 'Modern Warfare 2' Windfall

Chris Morris|Special to CNBC.com
Thursday, 8 Apr 2010 | 12:05 PM ET

When a game breaks entertainment industry sales records, there's usually not a lot of room to progress. But "Modern Warfare 2" is quickly becoming the gift that keeps giving for Activision.

Modern Warfare 2
Modern Warfare 2

The first downloadable expansion for the action title came out last week, selling 1 million copies on its first day and 2.5 million in its first week.

At $15 per sale, that's more than $37 million in sales—of which roughly $26 million went to the publisher, analysts estimate. And at least one more of these expansions is already planned this year.

As an added bonus, because the game assets have, for the most part, already been created and there are no manufacturing costs for these expansions, the margin on them is considerably higher than traditional releases.

The expansion pack set new sales records for Microsoft's Xbox Live. And the game continues to be a monster hit with players. Microsoft says more than 1.75 billion hours of online play have been logged since the release of "Modern Warfare 2"—the equivalent of nearly 200,000 years.

Perhaps even more interesting is this most recent sales success comes amidst a host of PR disasters for Activision . The personnel problems at developer Infinity Ward, which made the game and expansion, have been well documented. And the expansion's launch was affected by a notable glitch that prevented buyers from actually playing the new multiplayer maps they had just purchased for several hours.

While the gaming community is certainly watching and discussing the drama surrounding the game, they're ultimately more interested in playing it.

"The ongoing interest in the title nearly five months after release is a positive indicator of franchise strength," says Colin Sebastian, an analyst with Lazard Capital Markets. "'Call of Duty' games continue to set the standard for online multi-player game-play, and the map packs help to maintain user engagement in between the annual releases."

The multiplayer expansion of the game is currently exclusive to the Xbox 360, which was the preferred platform for buyers of the original game. Players who own the PlayStation 3 of the game will be able to download the expansion—which Activision dubbed the "Stimulus Package"—later this year.

Typically, expansion packs like this have a relatively short lifespan on consoles, with the majority of sales occurring immediately after release, then falling off sharply. Given the magnitude of "Modern Warfare 2," though, that may not prove to be the case with this release.

"We expect 'Stimulus Package' will continue to sell decently on the Xbox 360 until the release of the second announced map pack sometime later this year," says Ben Schachter, an analyst with Broadpoint AmTech.

While Activision is celebrating the success of the expansion pack, it's worth noting that the original game continues to be a significant hit at retail—even after its record setting launch (4.7 million copies were sold on day one, with sales of $310 million, a record haul for any entertainment company).

In February, "Modern Warfare 2" was once again the industry's best selling game (when the Xbox 360 and PS3 version sales were combined), selling more than 567,000 copies—a mere 3 percent drop from the January numbers.

The real test of consumer loyalty to the brand may come with the release of the next expansion, though. "Stimulus Package" was largely (if not completely) finished before the very public firing of Infinity Ward’s two studio heads in early March. Since then, Jason West and Vince Zampella have filed suit against Activision, alleging (among other things) that they have creative authority over any "Modern Warfare" product.

Recently, two more key personnel left Infinity Ward, leading onlookers to wonder how much of the team plans to depart when West and Zampella found a new studio.

That's a long-term question, however. In the immediate future, say analysts, the "Call of Duty" and "Modern Warfare" franchises should continue to be substantial revenue generators for the company.

"While losing four senior employees … is concerning, it's not clear that the loss will have any impact on the quality/timing of Activision's 'Call of Duty' content in 2010," says Schachter.

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