Activision's High Hopes for Call of Duty

It will have all the makings of a Hollywood premiere. Celebrities will make the scene, and so will a still-to-be-announced rock band. Even the World Series champion New York Yankees have been invited. But the Nov. 9 kickoff isn't for the big screen. Instead, mingling with the glitterati will be video game players as game maker Activision Blizzard (ATVI) unveils the latest installment in its bullet-splattered military shooter game, Call of Duty: Modern Warfare 2.

It's a sign of the times that game makers are pulling out all the stops for video games, even for one like Call of Duty, which is widely expected to be the hottest game of the year. For years, the game industry seemed to defy gravity, with rising sales even as DVDs, network TV, and the rest of the entertainment sector tanked as consumers gravitated to the Internet or other outlets. No more. According to the most recent figures by marketing research company NPD Group, game sales so far this year are off by 13%, to $10.4 billion. Highly anticipated games such as Viacom's (VIAB) The Beatles: Rock Band got off to less-than-anticipated sales, prompting some analysts to scale back their projections for game sales this year. Viacom Chief Financial Officer Thomas Dooley says the company hopes a hot Christmas will allow the game "to break even or be slightly profitable."

Call of Duty, which goes on sale Nov. 10, might just single-handedly jump-start the entire holiday season, or at least that's what Activision, which on Nov. 5 reported third-quarter net earnings of $15 million, compared with a year-earlier loss, hopes. The company will likely spend $200 million to launch the game, figures Chief Executive Bobby Kotick. That's a movie-budget-style number, but it includes fees that game companies pay to console makers to license their formats and other expenses. Still, the game may sell north of 12 million units by Christmas, figures analyst Michael Pachter of Wedbush Morgan, which he figures would make more than $580 million for the company.

Kotick, too, doesn't seem worried about Call of Duty, which he says will also sell tons of gear that comes with a premium version of the game (night goggles, for example) as well as online "map packs" that extend the game by adding new areas for the warriors to explore. Moreover, the game, which features military men with assault rifles mowing down terrorists from Afghanistan to Rio de Janeiro, is already generating tons of buzz on gamer blogs. "We expect it could be the biggest game of all time," says Tony Bartel, executive vice-president for marketing at retailer GameStop (GME), who says the chain has already taken the most advance orders for a game in its history.

Marketing Machine Cranks Up Again Call of Duty fans can line up for a midnight purchase of the game at GameStop's 6,000 stores (the company has also rented a stadium in Puerto Rico), and at other outlets such as Best Buy (BBY). But it's taken a hefty marketing push by Activision to prime the pump, despite the 14 million copies the company sold of the 2007 Call of Duty 4: Modern Warfare. To build that buzz, Activision launched its first trailers of the game at a developers' conference in March and followed with a two-week TV blitz in May that included a 60-second commercial during the NBA Eastern Conference finals. On Oct. 4, it spent a hefty $750,000 for a pair of prime-time TV commercials during the San Diego Chargers-Pittsburgh Steelers NFL game.

"This has been one of the biggest rollouts of a video game we've ever seen," says Sam Pontrelli, chief marketing officer for Hansen Natural (HANS), whose Monster energy drink is an official sponsor of the game. Hansen has paid for more than 30,000 displays promoting the game at stores where the drink is sold.

Will Call of Duty be enough to help jump-start sales for the industry? Activision CEO Kotick admitted in a recent conference call that "we remain concerned about consumer spending in our own category and overall." But he said that has less to do with whether folks are falling out of love with video games and more to do with the fact that "until now there haven't been that many compelling titles." He intends to change that. The company is releasing four new games for the holiday season (including a Tony Hawk skateboard game with a controller that operates like a real skateboard). Kotick acknowledges that the business now takes a "significant investment" to keep the gamers coming. But a bunch of camouflage-wearing guys with rifles just might end up turning that money into a very happy holiday for the battered game industry.

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