From The Motley Fool
Our StockTalk interview with Robert Kotick, CEO of Activision:
part 2:
Kotick: So, it's probably a 22% or 23% annual growth rate over the last five years in the game business overall. I think you'll see that in the next five years. And, I think five years thereafter, the things that are going to be real catalysts for growth are going to be things like the online changes or wireless changes that I think will have a real positive impact on the business.
TMF: You guys both develop your own games and publish [gaves developed by other companies]. In terms of the financial dynamics of these deals, how do they differ?
Kotick: There's really no such thing as a standard deal. It's not a business where you find very many companies that can create [a complete] product. For us, id Software is probably the only company that I can think of that can create a brand new product where they manage ... the technology, they manage the design. We do all the quality assurance and other than I would say it's a managed business. There are some folks that will contribute more and that would entitle them to a greater royalty percentages where we might provide outside advances, development advances, development fees, but from a dollar standpoint, the deals are really specific to the particular product.
TMF: So as an investor, there's not a lot you can really look at.
Kotick: Well, you can look in the aggregate and you can see what product costs represent as a percentage of our total revenue.
TMF: You talked a little bit about Activision as a movie studio in a manner of speaking, and and you've got a couple of companies that are coming out in the next year or so -- with Square doing their Final Fantasy Movie and Eidos with Tomb Raider -- taking a franchise offline that was once interactive, making it a more static kind of experience. What are your thoughts on that, as far as whether or not you think it would weaken or strengthen the franchise? I can see where it would sound good from a marketing standpoint, but I can't think of many video game movies that are remembered too fondly either.
Kotick: I think you're right. We're by far the biggest video game company in Los Angeles and we built a business in part by becoming custodians for other people's intellectual properties, so we have a long term deal with Disney. We've got a deal with Paramount for the next 10 years on Star Trek. We've got a number of co-ventures with Lucas and we've had a long-term arrangement with Marvel. We've been in the business with DreamWorks and Time Warner. We've had, I think, probably more success than most at being licensees of other peoples' intellectual property rights. We've also done probably four or five deals now where we've taken our original intellectual property rights and sold them to movie studios.
A Square venture and the Eidos Tomb Raider project are two very different things. Square is actually setting out to make a movie. They've decided they are going to take their resources and their financing and make a movie and my sense is that it will have modest appeal.
You know, just like there's a sort of derogatory term for western software in Japan, and I think that what they're going to create is going to be a lot like the way that the market in the U.S. has received anime which is that there is a niche-specialized very popular core of consumer that interested in it, but it's really a niche-y type of entertainment experience. I think that Square's likely to deliver something not much beyond that.
If it breaks through the clutter and appeals to a more popular audience, I would be very surprised and partly because it's not their business. Theatrical distribution is in and of itself a challenge. It's got a holding structure that's set up to deal with five major studios and I just think that it's going to be again, a lot like our conversation about Microsoft -- it will be a great learning experience. I'm not really sure it's going result in a lot of money, but their attitude is that "We have to spend $30 million anyway to make the next Final Fantasy game, we're creating all these great images and all these great scenes and it's tying all together into a feature for not that much more money."
I think whenever you start out with the "Hey, we're going to go build a house and while we're building this house we realized we're going to have to do some custom cabinetry so let's get into the custom cabinetry business" -- you set out to build a house, not to build a custom cabinetry business. Those are very different things, and I think that's going to be the case with Square on a movie.
Now, Tomb Raider is an entirely different different thing that's based on what we've done, which is license intellectual property rights to people that know how to make movies. Now the challenge for the guys at Eidos is that when you're a one-product company and the franchise is such a powerful franchise like Tomb Raider has been, the most important thing you can do to protect the franchise and your other franchises, is make sure that the game experiences that you're delivering successively are better quality and meet the expectations of the consumer each time.
TMF: Most people would say they haven't been able to do that.
Kotick: They haven't, and I think that the timing of the feature works against them because they have a popular property and if the movie comes out and does badly, it's going to, I think, be sort of a final nail in the coffin, sort of, because there's no new product coming out in the next two years that's going to be an extraordinary Tomb Raider product. In order for them to deliver an extraordinary Tomb Raider product, they're going to need to take the next couple of years and really take advantage of the full capabilities of the of the PlayStation 2. Now the alternative could be that the movie is an enormous success and that a couple of years from now they can deliver a game that's a really great game.
Again, as somebody living in L.A. and being around the movie business a lot, the one thing that I hear from my friends who have looked at the script and talked about it from a development perspective is that it's very hard to take a game that has this great fantasy character -- and Laura Croft is this sort of low polygon dream -- girl but when you realize her on a big screen as Angelina Jolie, does that ruin the fantasy or does it enhance the fantasy? Now you're going to be comparing the interactive experience that you have as an interactive consumer to what you are seeing on the screen.
TMF: Well, when you're talking about Angelina Jolie it might not be that big a problem...
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