On a cloudy Friday afternoon on Venice Boulevard in West Los Angeles nearly two weeks ago, about 50 people were waiting to buy a video game that wasn’t supposed to go on sale for four days.
“Do you have it yet?” an eager customer asked an employee of the store Game Play.
The object of his desire, Call of Duty: Modern Warfare 2, officially launched Nov. 10. But despite the recession that has crimped consumer spending, demand was so high that many stores started selling it as soon as shipments arrived.
“I’m definitely buying fewer games this year, but I knew I was going to buy this one as soon as I could,” said Jeff Katayama, 28, a self-described “Call of Duty freak” who drove 20 miles from Monterey Park to pick up the game early.
Thanks to Katayama and millions like him, Modern Warfare 2 generated a record-setting $550 million in sales through Saturday, besting not only the previous mark for a video game but also for movies at the box office. That represents about 8 million units sold, according to estimates by publisher Activision Blizzard Inc. of Santa Monica.
“This provided the entire industry with a shot in the arm,” said Colin Sebastian, an analyst at Lazard Capital Markets, who predicted Modern Warfare 2 would ultimately sell 15 million to 20 million units, exceeding $1 billion in revenue.
Call of Duty cost $40 million to $50 million to produce, people close to the project said, about as much as a mid-size film. Including marketing expenses and the cost of producing and distributing discs, the launch budget was $200 million, on par with a summer popcorn movie -- and extremely high for a video game.
Unleashing a Hollywood-scale opening for Modern Warfare 2 has been a priority for Activision Blizzard. The marketing and publicity campaign has featured all of the trappings of a modern movie effort, including ads and trailers designed by top advertising shops, a Twitter feed on which news was strategically disclosed, and a controversial scene involving airport terrorism that leaked onto YouTube and generated much media attention.
“My goal was to create a launch that would compare very favorably to the biggest box offices of all time,” Activision Blizzard Chief Executive Bobby Kotick said.
Theatrical box office and video game sales aren’t equivalent because movie tickets are significantly cheaper and are followed by markets that generate additional revenue like DVD sales and pay television. Nonetheless, the fact that top video game launches now exceed the biggest film debuts is a further signal that the two businesses are coming to rival each other in popularity.
Modern Warfare 2 comes at a propitious time for Activision and the video game industry. Video game sales through October are down 12%, according to NPD Group, because of the recession and a lack of mega-hits. Activision has seen sales of a new sequel and spin-off to its Guitar Hero franchise lag significantly behind versions released the last two years.
Since the first Call of Duty, a simulation of World War II action, launched in 2003, it has been among the most successful brands in the industry alongside Super Mario and Grand Theft Auto. Five major releases before Modern Warfare 2, along with a few spin-offs, combined to sell more than 48 million units.
The high-water mark was 2007’s Call of Duty: Modern Warfare, which brought the series to contemporary times. Produced by Infinity Ward of Encino, creator of the first Call of Duty, it sold 14.4 million units.
“Modern Warfare appealed to all types of gamers because it broke down the barriers of a traditional shooter and gave it the feel of a Hollywood blockbuster,” said Sean Spector, co-founder of video game rental service Gamefly.
Because it typically takes at least two years to produce a video game, publishers tap different studios when they want to produce annual sequels. Infinity Ward started work on a second Modern Warfare game immediately after the first, while Treyarch of Santa Monica made 2008’s Call of Duty: World at War, which sold 12 million copies.
Infinity Ward’s past success gave it an extraordinary level of independence to design the game, but Activision did insist that Modern Warfare 2 expand its predecessor’s robust online multi-player features. The first Modern Warfare has consistently been among the most popular video games played online for the last two years, keeping players engaged and generating revenue through downloadable content sales.
“With multi-player we deliver hundreds or thousands of hours of gameplay for about the same price as taking a family to the movies,” Kotick said. “It’s also a way to address the challenge of used games.”
Many industry professionals scorn the used market, since it brings no money to those who make the games. To keep playing Modern Warfare 2 against friends, however, consumers can’t sell the disc. In the five days after it launched, more than 8 million people played the game online.
As Activision seems to be discovering this year with Guitar Hero, there’s danger when a title is overexposed with too many iterations. Nonetheless, the publisher has aggressive expansion plans for Call of Duty. Although Infinity Ward and Treyarch have produced sequels in alternating years since 2005, the publisher now has a third development studio working on future versions.
One person close to the company said it also was considering adapting Call of Duty as a massively multi-player online world. The genre, in which Activision’s Blizzard Entertainment subsidiary is a leader, requires huge upfront investments but can be very profitable as players pay a monthly subscription fee.
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Video games by the numbers
Call of Duty: Modern Warfare 2 is a much-needed hit coming near the end of a difficult year for the video game industry.
U.S. video game industry revenue through Oct. 31, down 13% from 2008
Software revenue, down 12% from 2008
Hardware revenue, down 17% from 2008
Source: NPD Group