Last Thursday, Activision Blizzard (ATVI) announced a partnership with software studio Bungie. Formerly owned by Microsoft (MSFT), Bungie produced the wildly successful Halo series for the Xbox. Now with the Activision publishing deal, Bungie can roll out Halo-like games on other playforms like the Sony (SNE) Playstation and the Nintendo (NTDOY) Wii.
This is a dramatic development for the video game industry — and could mean record profits for Activision stock in the near future.
Halo has long been one of the most successful titles in history, collectively selling 27 million copies across three incarnations. That’s not a huge number in the pantheon of video game series — consider that Take Two Interactive (TTWO) has sold over 100 million copies of its infamous Grand Theft Auto game in its various forms since the original title debuted in 1997. Electronic Arts (ERTS) has also dwarfed Halo’s sales with almost two decades of its ubiquitous Madden NFL games. But what makes Halo such a breakout hit is that it is a relatively new series– debuting in 2001 — and was never released for any console other than the Microsoft Xbox.
Why does this make a difference? Well, because there have are about 25 million Xbox consoles out there and 40 million Xbox 360s. Sony’s PlayStation 2 is more than double those numbers combined with over 140 million consoles on the market!
If you haven’t connected the dots yet, there was a mammoth untapped market for Halo video games out there — and it was still a runaway hit. Going forward, ATVI has won the publishing rights to bring any new Bungie titles to the Wii and the PlayStation. That gives them even more profit potential.
Now don’t get too excited. Bungie will still finish work on the latest Halo title, Halo: Reach, which is scheduled for a fall 2010 release. And that belongs to Microsoft and its Xbox. But Activision will have a 10-year exclusive right to any forthcoming titles from Bungie and can publish them on a variety of platforms and devices — including any new fads that pop up.
Rumors are that Electronic Arts was bidding on the deal too, and you can see why. This could be a tremendous cash cow for Activision — especially considering that any new Bungie games in development now are likely years down the road. That gives consumer spending plenty of time to get back on the right track.
It’s worth noting that ATVI is currently facing a lawsuit over royalties and has seen some pressure on shares lately. And to be 100% clear, the Activision publishing deal does not apply to the Halo franchise, only new video game series and the specifics on those are slim right now. This means there is no guarantee Bungie will see the same level of red-hot demand Halo enjoyed.
But those developments notwithstanding, this deal seems to be a boon for Activision investors.
As of this writing, Jeff Reeves did not own positions in any of the stocks mentioned here.
Correction: An earlier version of this article incorrectly stated that ATVI owned any future Halo titles. It does not.
