Activision’s Billion-Dollar Baby ‘Call of Duty’ Readies Its Next Chapter

A year ago, “Call of Duty: Modern Warfare 2” set an all-time entertainment industry record, generating $310 million in sales in its first 24 hours. On Tuesday, its successor will try to top that.

Call of Duty Black Ops
Source: Activision
Call of Duty Black Ops

Right now, the odds look pretty good.

Pre-orders for “Call of Duty: Black Ops” have been tracking higher than “Modern Warfare 2,” which is generally an encouraging sign. But amidst the enthusiasm surrounding the game, there is caution – as this year’s installment could be pivotal in determining the future of the video game industry’s biggest franchise.

While sales of “Call of Duty” titles have increased each year, 2010 saw a lot of internal drama at Activision . In February, Jason West and Vince Zampella, studio heads of Infinity Ward (the creator of “Modern Warfare 2”) and the executive team that created the series, were abruptly fired. A series of particularly ugly lawsuits has followed.

With the guiding influence of West and Zampella gone, some gaming press outlets have wondered if the quality of the games might suffer – and if fans would turn their backs on the titles.

So far, that hasn’t happened. Three of the top six games on Microsoft’s Xbox Live service are “Call of Duty” games – and despite the turmoil, even core gamers seem excited about “Black Ops”.

“’Black Ops’ is a pretty critical test for Activision,” says Colin Sebastian of Lazard Capital Markets. “What’s more important for the game? Is it the franchise itself or is it the developer behind the game? If Treyarch [the development team behind this year’s installment] can sell just as many units as Infinity Ward [West and Zampella’s former unit], then that would mean the franchise is more important.”

Activision, in its most recent earnings call, said it expected “Black Ops” to sell slightly fewer copies than “Modern Warfare 2”. But analysts think the company was simply taking a conservative approach. Sebastian says he expects 15 million copies of the game to ship before the end of the calendar year.

To some extent, those sales will be a reflection of last year’s game. “Modern Warfare 2” was such a popular title that fans are likely to buy whatever comes next. But the core fan outrage over West and Zampella’s dismissal was loud. Activision replaced Electronic Arts as the evil empire in their minds and many made knee-jerk vows to boycott the series.

By now, the core has largely forgotten those vows – and the rest of the world is likely ignorant of the incident.

"’Black Ops’ is a pretty critical test for Activision." -Lazard Capital, Colin Sebastian

“I think unless you follow the play by play in this industry, you probably aren’t even aware of the drama,” says Sebastian. “You’re more interested in the game experience – not whether a parent company is treating the people at a subsidiary well or not.”

The retail performance of “Black Ops” is just the beginning of the game’s trail. With the last few “Call of Duty” games, Activision has been quite successful in continuing to generate revenue from players long after the game has fallen from the sales charts through digitally downloaded add-on packs. Life to date, the franchise has sold more than 20 million digital add-ons, adding up to more than $300 million in revenue.

Over the first nine months of this year, Activision saw digital sales increase 15 percent. And the company has high hopes for “Black Ops” to take things to a new level.

“The tail of these products is getting fatter and that’s because we're getting better at providing additional content and services following those large retail releases,” said Thomas Tippl, COO at Activision in last week’s earnings call. “I would not be surprised [if] ‘Black Ops’ follow-on revenue is going to be … setting a new record in terms of percentage of total revenues for the franchise.”

“Black Ops” is the seventh major “Call of Duty” game – and historically each version has sold better than its predecessor. That’s an impressive run for a franchise, but it’s not unheard of. Take-Two Interactive Software’s “Grand Theft Auto” series, while not an annual series, has never shown signs of a slowdown. And EA’s “Madden” series had a 16-year run of increasing sales.

Whether “Call of Duty” will match that remains to be seen, but for now, at least, it remains one of the most solid performers in Activision’s catalog.

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