Who Gets Rich If ‘Destiny’ Strikes Gold?

Source: Activision

All eyes are on Destiny, a new video game being crafted by former Microsoft (NASDAQ:MSFT) developer Bungie and Call of Duty publisher Activision Blizzard (NASDAQ:ATVI) that has been granted the biggest budget in gaming history. Activision CEO Bobby Kotick revealed the budget to be roughly $500 million, and according to gaming site IGN, the game’s budget includes not only production costs but also factors in funding for marketing, packaging, and royalties.

The huge budget eclipses that of the second highest at $265 million, which is what developers spent bringing Grand Theft Auto V to life before its release last year. It also goes well beyond the most expensive movie ever made, Pirates of the Caribbean: At World’s End, which clocked in at $300 million. Fronting half a billion dollars up front for an unproven, yet-to-be-released franchise is a big gamble on Activision’s part, but with the success of its past titles and the promising numbers Grand Theft Auto V put up, it may pay off for the company.

The game’s budget of $500 million is monstrous, but it’s fair to say that Activision is no stranger to producing titles with huge costs. In 2009, the company released Call of Duty: Modern Warfare 2 at a cost of $200 million, which was the most expensive game ever produced at the time. The game paid off for Activision then, and the company has since replicated its success with yearly installments from a number of Call of Duty games. As Call of Duty has continued to put up impressive sales numbers year over year and revenues have piled up from titles like World of Warcraft, Activision probably feels confident in its ability to churn out another bestseller.

Activision’s partnership with Bungie is the key piece of the puzzle that really inspires confidence. Bungie is the developer that was brought up under Microsoft’s wing, developing the Halo franchise from a scratch into an entertainment juggernaut. Since handing off the Halo series to other studios, the developer’s sights have been set on creating Destiny from the ground up. Witnessing the success of Halo as the chief rival to the Call of Duty series, Activision is wise for bringing the two together. Taking the marketing machine Activision has proven to be and coupling it with the development pedigree of Bungie, Destiny seems destined to be one of the biggest franchises in all of entertainment.

The next question for the producers of Destiny is how they will define success upon releasing the game. With such huge start-up costs, it is estimated the game will need to sell between 15 million and 16 million copies to break even. At first glance, those figures appear to be quite intimidating. But look at the success of Grand Theft Auto V, which paid for itself before it was even released, thanks to a huge number of preorders. That title alone has gone on to generate roughly $2 billion in revenue while selling 33 million copies, according to IGN. The difference between Grand Theft Auto and Destiny is that GTA is a proven, successful franchise, while Destiny will be the new kid on the block.

Another caveat is that the developers might not actually expect to make a big profit off of Destiny and are counting on the title to establish itself as a viable player in the gaming market. Activision hopes Destiny will achieve a lifespan of 10 years, citing plans to continue to update it for a decade past release. With hopes of establishing a title that can rival the likes of Call of Duty, Halo, and Grand Theft Auto, executives at Activision are better off projecting Destiny’s huge budget as an investment for the long haul, which, given the outlook so far, could pay off in spades.

There are risks both Bungie and Activision are assuming with bringing Destiny to life. First and most obviously, the game is a completely new intellectual property. Although the title has big development power and big money behind it, it’s still foreign to consumers, and there’s no guarantee it will be a hit.

As laid out over at Forbes, the developers may even be a little overconfident in their ability to turn Destiny into a Halo-killer, stating: “Destiny is being designed around the idea that people will automatically love it, and the existence of the series as a massive franchise has been a no-brainer from what seems like the moment of conception. But even with hit-maker Activision and beloved developer Bungie, is it possible for a ‘sure thing’ to exist in the industry these days?”

Drawbacks aside, the gaming and entertainment industries will be keeping a close eye on what happens with Destiny before and after it launches later this year. Signs are pointing toward a successful launch, but anything can happen. If Destiny does prove to be a smash hit, what will other sectors of the entertainment industry, namely film studios, do in response? Will there be an exodus of investors looking to put their money to work in gaming rather than big-budget movies — which can also go bust, as in the case of John Carter? It’s hard to say what exactly the fallout will be, but the success of Destiny will not pass without deep analysis.]

If Destiny is a multibillion dollar hit and other titles follow in its wake and strategy, gaming could assume the mantle at the top of the entertainment industry. Destiny’s release could have a domino effect, thereby leading to exciting developments for companies like Microsoft, Sony (NYSE:SNE) and Nintendo (NTDOY.PK). Even Facebook (NASDAQ:FB), with its recent acquisition of Oculus VR, will be eager to see what happens.

All there is to do is watch the preorder numbers add up and wonder if Destiny will be a smashing success or seal its fate as the Cutthroat Island of video games.

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