April 30, 2010 - Neither Activision nor Bungie would discuss specifics of yesterday's surprise 10-year publishing agreement. But to sign a developer with a pedigree like Bungie to a deal for one game would cost a pretty penny, let alone ten years worth. So how much coin did Activision have to pony up to land Bungie?
Wedbush Morgan Analyst Michael Pachter said the deal may have cost Activision as much as $100 million upfront, but suggested there's no reason to believe the publisher would need to fund Bungie's game development.
"Activision may be funding the game development, but Bungie is only 180 people. If they make $125,000 each per year (that's WAY too high, but it's a reasonable starting point for discussion), their overhead is $22,500,000 per year," Pachter told IGN. "Activision may have paid them five years of operating expense up front, but it doesn't make sense that the deal was negotiated in this manner."
"More likely, Activision gave them a guarantee against future revenues, and may have paid some of this up front. My guess is that the entire deal involves a total guarantee of well in excess of $100 million, and to the extent that there was an up front payment, I suppose it's possible that $100 million was paid now, but there isn't any reason to believe this is true."
"I don't think that Bungie is worried about whether Activision will be around in the future, so credit risk is pretty low," he added.
Janco Partners analyst Mike Hickey believes there was no upfront payment in this deal. "There is no upfront payment to Bungie from Activision; although they are contributing capital to fund development of the game," he told IGN.
Hickey said as long as the new game Bungie develops isn't a massively multiplayer online game, development costs for the first title will run between $45 million to $50 million, with Activision paying roughly $15 million now and the rest of the development funds 2011.
Of course, the significance of this agreement depends on how many games Bungie actually ships. Pachter said he expects the studio to release one game about every two years, saying the total amount of games in this 10-year deal could for four titles.
"It's reasonable to expect that Bungie will put out a game every two or three years, so probably four games under this deal," he said. "If we think that the games will do 8 million units each (very conservative, my bias is much higher), then we're talking about 32 million units sold at an average of $45 wholesale (again, very conservative). That's $1.44 billion in sales."
"I suppose that Activision could offer $100 million up front to lock in the deal, but it would be an advance against future revenues, and would be tied to milestones and deliverables."
According to a report from the Los Angeles Times, the Bungie deal with Activision may have been similar to the one Infinity Ward founders Jason West and Vince Zampella were asking for before the two were fired from the studio last month. Robert Schwartz, the group's attorney, says he is unfamiliar with the deal, only adding that Activision probably paid a large sum.
"I will be interested in seeing it at some point," Schwartz told IGN. "For now, it's hard to comment, other than to observe that Activision sure seems to have paid a lot of money to cover up its horns and pitchforks with a Halo."
