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Activision is Shooting Itself in the Foot Over Its Billion Dollar Call of Duty Franchise

When Call of Duty: Modern Warfare 2 was released last November, it set new records for the video game industry, garnering over $500 million sales in just the first five days and breaking the billion dollar mark soon after. But that success has led to a battle between Activision (ATVI), the game's publisher, and Infinity Ward, the studio that developed the game. On the surface this infighting is just a squabble over big royalties -- but the real issue is who really controls this lucrative series.

The first shots were exchanged Monday, when Activision fired Jason West and Vince Zampella, the co-founders of Infinity ward, on charges of "insubordination". The counterstrike came Wednesday, when the pair filed a lawsuit against Activision claiming that they were owed royalties totaling $36 million.

More important, their lawsuit claims West and Zampella were able to secure a new contract in 2008 that gave them the right to operate Infinity Ward independently and exert creative control over future COD sequels. That's the key to the kingdom, and the true source of the dispute.

The relationship between the two companies, which dates back to 2003, has been contentious for a while. As Call of Duty grew in popularity, Activision pushed for yearly releases, and Infinity Ward felt the quality of the game was being threatened. A compromise was devised where Infinity Ward worked on a two year development cycle. During the off years Activision released new COD titles by other studios, inferior product which never came close to matching the record setting sales of the Infinity Ward releases.

That history is the reason Activision will walk away from this dispute a loser. Gamers are feverishly loyal bunch, and millions went out and bought the watered down off-year versions of COD while waiting for the next Infinity Ward release. But even if Activision retains control of the franchise, they've already shown they can't make a decent release without Infinity Ward.

The gaming press has made it perfectly clear which side they are on in this dispute, painting Activision as a greedy, incompetent dictator. When you compare the $36 million in royalties to the more than $3 billion the Call of Duty franchise has earned to date, it seems clear Activision is killing a golden goose in a mistaken attempt to control exactly how it lays those eggs.

Image from Flickr user Kyle May, CC 2.0

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