12 April 2010

Activision Ex-Developers Set Up Own Shop

The Wall Street Journal

Activision Blizzard Inc. saw the key developers of its blockbuster "Call of Duty: Modern Warfare" franchise set up their own development studio Monday under a publishing deal with archrival Electronic Arts Inc.

The move is the latest in an escalating dispute between Activision and the former heads of its Infinity Ward studio, who left the company last month in a dispute over bonuses and ownership rights related to "Call of Duty: Modern Warfare 2"—one of the videogame industry's top-selling titles last year and the latest for the highly rated Activision franchise.

On Monday, Jason West and Vince Zampella announced the formation of a studio called Respawn Entertainment. The studio will retain ownership of the games it creates, which will be published and distributed by EA.

"Now that the team is in control of the games and brands, we can ensure that the fans are treated as well as they deserve," Mr. West said in a statement.

Activision fired Messrs. West and Zampella from Infinity Ward on March 1. Two days later, the pair filed a lawsuit against the game publisher, accusing the company of withholding "substantial royalty payments" they were owned for "Modern Warfare 2."

In a counter-suit filed Friday, Activision accused the pair of delaying the development of games and negotiating with EA while still employed with the company. It also charged the two with intentionally preventing Activision from paying bonuses to other staffers at the studio in an effort to make those employees "easier to poach" for the new studio.

"West's and Zampella's misdeeds formed an unlawful pattern and practice of conduct that was designed to steal the IW studio, which is one of Activision's most valuable assets, at the expense of Activision and its shareholders and for their own personal financial gain," the company claimed in its lawsuit.

Robert Schwartz, an attorney for Messrs. West and Zampella, called Activision's charges "false and outrageous" in a statement Friday.

Analysts say Activision faces little risk in the near term. The next "Call of Duty" game slated for release later this year is being developed by another studio and not is using the "Modern Warfare" brand.

Over the longer term, the company could be challenged if Respawn develops a similar combat-shooter game that takes share from the "Call of Duty" fan base.

"Activision faces two risks. One is that they don't have these guys anymore, and two is that they make a new game somewhere else," said Michael Pachter, an analyst for Wedbush Morgan. "The risk is that 'Modern Warfare' will face competition from its creators. They could split the market."

Coin Sebastian of Lazard Capital Markets said it will likely be two or three years before anyone sees the first game from Respawn, given that the code will have to be developed from scratch. But he noted that Messrs. West and Zampella have a compelling history. The two were key developers behind "Medal of Honor," another combat shooter owned by EA that ended up losing share to "Call of Duty."

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