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Activision restructuring

Activision, the world’s largest third party game developer, announced a severe restructuring and shift in focus last week despite healthy earnings growth. It’s a bit late for me to be Monday morning quarterbacking, but this is a big deal for the industry.

In a quote from an SEC filing, Activision said they have “approved a restructuring plan involving a focus on the development and publication of a reduced slate of titles on a going-forward basis…and a related reduction in studio headcount and corporate overhead.” (Emphasis mine.)

In short, they’re focusing on the blockbuster, mostly annualized franchises like Call of Duty that make up the bulk of their revenue, and dropping development on most other titles altogether. Due to the collapse of the music game genre, that even includes the venerable Guitar Hero franchise. Blizzard is still untouchable, of course, due to World of Warcraft, but they’re the exception.

Obviously, for games as a creative medium, this is sad. Not surprising, though, since ATVI been a bully and ignored that side of the industry for a while. In the words of a colleague, “Activision is running games like a package goods business rather than a talent business. It’s working for them, sorta, but they are quickly burning through their studios.” Witness the deaths of top tier developers like Bizarre, Infinity Ward, and Vicarious Visions, not to mention dozens of others over the years. CEO Bobby Kotick is famously quoted as hoping to “take all the fun out of making video games.”

Even so, the scope of this move is breathtaking.

From the business perspective, I can see it both ways. Kotick may be a jerk, but he’s definitely putting his money where his mouth is, and I understand why. Of the dozens of titles Activision put out in a given year, two or three often account for 90% of their revenue. On top of that, they’ve described in no uncertain terms the consistent, direct relationship they see between marketing budget and sales of those franchises, notably Call of Duty. Riccitiello’s ups and downs with new IP at EA over the last few years probably didn’t inspire confidence either.

On the other hand, this isn’t the way to operate in a hit driven industry, right? Aren’t you supposed to diversify your portfolio and invest across the spectrum, since you can’t guarantee any individual title will blow up? We’ve seen more and more traditional publishers take advantage of smaller budgets in mobile, downloadable, and social to move in that direction.

Or is the way to do AAA games somewhere between? It does seem like there are significantly more long-lived and evergreen franchises in games than in TV, movies, music, or books. Nintendo would certainly agree. Does that mean it makes more sense to focus there, whether partially like Nintendo or fully like ATVI?

I’d like to look at news like the Spyro reboot as evidence that ATVI agrees, odd timing notwithstanding, and isn’t entrenching as savagely as it seems. It’s Kotick, though, so I have to doubt it. As usual, brutal slashes like these may work in the short term, but over the long haul, they’re likely to cause more harm than good.

That’s enough armchair analyst for now. Anyone else have any thoughts?

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