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Bungie Bets Big In Activision Deal

It seems as though Bungie, the well-known developer behind the Halo franchise, is confident that their next video game series will be a huge success considering the contract between them and the mega publisher Activision.
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It seems as though Bungie, the well-known developer behind the Halo franchise, is confident that their next video game series will be a huge success considering the contract between them and the mega publisher Activision.

One of the interesting side effects of the Activision and Electronic Arts legal battle was that Activision was required to unseal its contract with Bungie. This 27-page document highlights exactly what both the developer and publisher are expecting from their collaboration.

The most intriguing aspect of the contract is the fine print about the upcoming MMO sci-fi shooter that is codenamed Destiny. It states that Bungie will be  making four massively multiplayer online shooter games, with the first being released in Fall 2013 and each of the following coming out in two year intervals. This includes a major DLC component, which is currently named Comet, that will be released in the years in between each of the games.

In what seems to be a tip of the hat to its former employer, Bungie will be releasing Destiny on the Xbox 360 first, with the PS3 version hitting stores in 2014. In fact, Bungie is actually outsourcing the PS3 version to another developer, while still owning the intellectual property. This is likely due to Bungie being almost exclusively familiar with Xbox tech as opposed to the rather difficult Playstation.

Bungie will also be allowed to devote 5% of its staff to the development of another shooter, which is currently named Marathon. It is still unknown whether this is a new version of Bungie‘s old-school Macintosh game (which helped develop the companies reputation), but it may have something to do with it.

Although the games are the most interesting aspect of this information for many, the financial agreement is almost as newsworthy. It seems that either Bungie is very confident in their ability to develop a billion dollar franchise or Activision truly is a shrewd and calculating publisher that definitely has the advantage.

The contract contains a great deal of clauses that require the developer to hit some lofty numbers in order to get the bonuses and royalties the company needs to see the benefit of this new relationship.

From looking at the numbers, Bungie will, in essence, have to likely sell a minimum of just under 5 million copies to break even. To get all of the bonuses, each Destiny release will have to sell 13 million units. This equates to $804 million in revenue, including the expansion pack sales.

Furthermore, the game series must hit an operating margin of 25 percent in order for Bungie to begin receiving substantial royalties. In simple terms, operating margin is the money left over after you factor in game development, marketing, promotion, production, advertising and distribution from the net revenue number.

The contract proves that Bungie is expecting a hit. For operating income up to $100 million, Bungie will get 20% or royalties, for $100m to $400m, it gets 24%, and for $400m and higher, the developer gets 35%. If the game goes into mega-hit territory, hitting $750m, Bungie gets a $25m bonus, along with another $25m for the franchise hitting $1 billion.

So, the numbers need to be real big for Bungie to make money on this deal. In addition, Activision has a few nice stipulations, including being able to cancel the entire contract if the first game does not sell 5 million copies in the first six months. Also, they can reduce royalties if the game comes out late.

Activision does play a bit of defense as well with their banning of respected developers Valve, Gearbox and Epic from working on any Destiny or Comet adaptations. The funniest clause is the fact that Bungie must disclose all Easter eggs and secret rewards hidden in the game. I would expect nothing less.

This recently disclosed information is quite encouraging in my opinion. First of all, it simply proves that Bungie is going big on this series and is putting in a great deal of effort to make it a mainstream, appealing game title. Considering that the game is going to cost around $50 million, with a similar marketing budget, sales need to be massive. But Bungie seems like they know exactly what they are doing.

The contract is also great news for long-term investors of Activision-Blizzard (ATVI), because it shows a publisher and developer who are heavily vested  in this series and, at least from reading between the lines, looking to release the most appealing title possible.

In my opinion, the new deal is extremely bullish for Activision and has me very excited to see what Bungie is cooking up.

Although Bungie has announced it will not be at E3 2012, hopefully we will get some more details about Destiny soon.

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