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Sunday, May 22, 2022

War Game Aims for Record Sales

Activision Blizzard Inc. will soon take the wraps off of what’s predicted to be the biggest video game of the year – and maybe even the best-seller of all time.

Preorders for “Call of Duty: Modern Warfare 2” have been off the charts, and retailers have scheduled midnight sales.

That’s created a lot of excitement for Santa Monica-based Activision. Analysts are hoping the company’s stock will surge after months of modest trading due to declining sales in the video game industry.

The game, which was created and developed at Encino-based studio Infinity Ward Inc., will be released Nov. 10. The studio, which is owned by Activision, also produced three of the previous hits in the series. Each success has brought elevated expectations, and Infinity Ward Chief Executive Vince Zampella said this one will be tough to beat.

“We actually joke about doing a reset game, something intentionally bad so we can back down and relax a little,” Zampella said. “But we do what we love, and hopefully it keeps getting better.”

Some analysts are projecting the shoot-’em-up title could sell more than 12 million copies by the end of December, bringing in more than $500 million in revenue to Activision and $800 million in gross sales.

That would be more money than some of this year’s hit movies have made. It wouldn’t immediately outpace the biggest box office hits such as “Harry Potter and the Half-Blood Prince,” which grossed $929 million worldwide, but it would surpass “Angels and Demons,” which grossed $486 million worldwide to date.

“Anybody who calls themselves a gamer, if they buy one game this year, this is the one they’re going to buy,” said Michael Pachter, an analyst with Wedbush Morgan Inc. in downtown Los Angeles. Pachter has an “outperform” rating on Activision’s stock.

Those who follow the video game industry point to a slew of reasons why “Modern Warfare 2” could become one of the best-selling games of all time.

The game, in which players take on the role of a Special Forces soldier battling a terrorist organization in the Middle East, Russia and South America, has contemporary locations that players can relate to. (Most of the previous games in the series were set during World War II.) It’s also the sequel to 2007’s “Call of Duty: Modern Warfare,” another Infinity Ward hit that sold more than 8 million copies, according to Port Washington, N.Y., research firm NPD Group. The game is also landing with perfect timing: right before the crucial holiday season.

“This is a massive production of a notable franchise at the most opportune time to drop into the market,” said Mike Hickey, an analyst with Englewood, Colo.-based Janco Partners Inc. who also rates Activision stock a “buy.”

But will the game live up to the hype? Video game sales have fallen this year as the recession squeezed consumers’ discretionary income. In the United States, video games have grossed $10.4 billion through September of this year, down 13 percent from the same period last year when game sales totaled about $11.9 billion.

The state of the industry has tempered the enthusiasm of at least one analyst. In a note to investors two weeks ago, Piper Jaffray & Co. analyst Anthony Gikas downgraded Activision’s stock from “buy” to “neutral” in a note to investors. While he didn’t specifically name “Modern Warfare 2,” Gikas noted video game sales this year have been a “colossal disappointment.”

“Almost every management team in the sector has been dead wrong on category sales all year,” Gikas wrote.

The game has also generated some controversy. Last month, footage from the game that was leaked over the Internet showed the game being played from the point of view of a terrorist shooting at civilians in an airport. The footage was called inappropriate and offensive by some critics.

Zampella of Infinity Ward declined to address the leaked footage specifically.

He did say that, “anything that we have in the game we feel occurs in the context of the story and pushes the story along. We didn’t do anything that we feel is out of line or gratuitous.”

Activision has a lot riding on “Modern Warfare.” While the company does not break out its expenses for individual games, analysts estimated it has spent $40 million to $45 million alone to market the game with billboards, TV commercials and Internet videos.

“They say it’s going to be the biggest launch of all time, which implies, though they’ve never said it, that it will have the biggest marketing budget of all time,” said Pachter of Wedbush Morgan.

Activision’s stock, which was trading below $13 in October, has since fallen and was trading at less than $11 last week on worries about the general state of the game industry.

In an earnings call Nov. 5, Activision reported third quarter net income of $15 million on $703 million in revenue, compared with a loss of $108 million on $711 million in revenue for the same quarter last year, when the company had just completed a merger. The most recent quarterly profit was attributed to the performance of Activision’s “Guitar Hero” and “World of Warcraft” games.

The company will receive help in selling “Modern Warfare 2” from retailers, which are running aggressive campaigns to get people to buy the game. Brick-and-mortar stores such as Best Buy and Wal-Mart are opening their doors at midnight Monday, and some are hosting “Modern Warfare 2” parties. Internet retailer Amazon.com Inc. is offering consumers a $20 gift card toward a future video game purchase if they buy “Modern Warfare 2.”

Many of these retailers hope that the success of the title will inspire consumers to purchase more video games, said Jesse Divnich, an analyst with Electronic Entertainment Design and Research in San Diego.

“A game like this just brings gaming back to the forefront of consumers’ minds,” Divnich said.

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