United Gamer Online (UGO)

Published: Thursday, 29 Apr 2010 | 11:09 AM ET
By: Chris Morris
Special to CNBC.com

Bungie Studios, the development house behind one of the most successful franchises in video games, has found a new home—and Activision may be on the verge of having its third billion-dollar franchise.
Bungie and Activision Blizzard [ATVI 11.26 0.33 (+3.02%) ] on Thursday announced a 10-year exclusive partnership that will bring the next franchise from the creators of “Halo” to the company behind “Call of Duty” and “World of Warcraft.”

For the past 10 years, Bungie has made games exclusively for Microsoft [MSFT 31.003 0.093 (+0.3%) ].

“This partnership is great for Activision because it strengthens our long-term growth prospects,” says Thomas Tippl, chief operating officer of Activision Blizzard. “Our unprecedented partnership with Bungie will enable us to broaden our pipeline of exciting new games as we continue to strengthen our industry position and pursue long-term growth opportunities.”

Bungie was a Microsoft-owned studio until 2007, when it successfully negotiated a split from the company. The separation is widely viewed as one of the most amicable developer/publisher breakups in the industry’s history.

Activision, of course, is on the opposite side of that coin, with the acrimonious split from several key staffers at its Infinity Ward studio (creators of the “Call of Duty” franchise).

Both the former studio heads and a coalition of 38 other employees (both former and current) are suing the company for hundreds of millions of dollars in unpaid bonuses. And Jason West and Vince Zampella, who founded Infinity Ward, recently launched a new studio that will work exclusively with rival Electronic Arts [ERTS 19.80 0.17 (+0.87%) ].

The Bungie alliance is a sign to the video game world that despite the bad press, top developers are still eager to work with the publisher.

“We liken it to the equivalent of signing a 10-year deal with Stephen Spielberg,” said Ben Schachter, an analyst with Broadpoint AmTech. “More importantly for the stock, in our view, is that the announcement should put to rest any concerns about whether the well-publicized issues at Infinity Ward would limit Activision’s ability to attract key developers.”

The “Halo” games are largely responsible for the success of Microsoft’s entry in the console space, having generated more than $1.5 billion in revenue and sold more 25 million copies. Fans have played more than 2 billion hours of the series’ multiplayer component—the equivalent of more than 228,000 years.

Everything Bungie has done in the console world has been an Xbox exclusive so far. That will change with this next franchise, however. The agreement gives Activision the right to publish all of Bungie’s games in the new franchise on multiple platforms and devices—meaning it’s a virtual certainty the game will appear on Sony’s [SNE 35.34 0.64 (+1.84%) ] PlayStation 3 and quite likely on an Apple [AAPL 268.64 7.04 (+2.69%) ] device.

Bungie will retain the intellectual property rights to its game and remains an independent company. That gives it ultimate control over the look, feel and frequency of new titles in the franchise.

That same issue was part of the sticking point between Activision and the Infinity Ward founders. Activision owns the “Call of Duty” franchise and can dictate when new titles come out. (Bungie and Activision began negotiating their alliance nine months ago, long before the PR nightmare surrounding Infinity Ward began.)

While Bungie has not revealed any details about its next franchise, fans are already eager to see what it has in store. Analysts say they expect the first title to be released no later than the end of 2011. (Bungie will release its final “Halo” game this fall for Microsoft.)

While it won’t have the built-in fan base of “Halo,” Bungie’s new franchise will have a wider potential audience, since it will be multiplatform. That could help it equal or better “Halo’s” sales numbers, which could be particularly important if the fallout surrounding “Call of Duty” begins to impact sales of that franchise.

“It’s probably not worth as much as the ‘Call of Duty’ brand, but it could supplement any degradation of sales in that franchise,” says Michael Pachter of Wedbush Securities. “The Bungie guys are pretty good with 10 million unit selling games.

The question is: Can they do 15 or 20 million—‘Halo’-like numbers—with this next franchise? Maybe they won’t hit $1 billion with a single game, but with the franchise? Definitely.”