Why Activision Blizzard Wants To Turn ‘Call of Duty’ and ‘Skylanders’ Into Movies

Activision is considering launching an in-house studio to make ‘Call of Duty’ and ‘Skylanders’ films and TV shows. Will the rewards outweigh the risks?

Aug 23, 2014 at 7:28PM

Activision Blizzard (NASDAQ:ATVI) is reportedly interested in launching an in-house studio to produce TV shows and movies based on top franchises like Call of Duty and Skylanders, according to The Information. 

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Call of Duty (L) and Skylanders (R). Source: Activision Blizzard.

The news isn't surprising, since Activision Blizzard CEO Bobby Kotick once declared that lifetime sales of the Call of Duty franchise had "exceeded worldwide theatrical box office receipts for Harry Potter and Star Wars."

Kotick has always envisioned games as hit movies -- an idea that has shaped the modern gaming industry, where budgets for triple-A games now regularly top the budgets of Hollywood blockbusters.

Why Activision wants to make movies
In the past, Activision published games based on other studios' IPs, like Viacom's Transformers and Sony's (NYSE:SNE) Spider-Man. But none of its own top games have been made into movies.

The first film based on an Activision Blizzard game, Warcraft, will be released by Comcast's Universal Pictures in March 2016. But rather than sell the movie rights to additional hit franchises, Activision is probably doing the math to see how profitable Call of Duty and Skylanders films could be if they were developed internally.

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World of Warcraft. Source: Activision Blizzard.

For example, Marvel sold off the movie rights to some of its biggest comic book franchises before being acquired by Disney (NYSE:DIS) in 2009.

That's why Sony now makes Spider-Man films, Fox makes X-Men ones, and Disney makes The Avengers. If Marvel had retained those rights, Disney would now be booking full profits off new Spider-Man and X-Men films in addition to The Avengers. Activision could avoid Marvel's earlier mistakes by holding on to the film rights to its top franchises.

Movies could breathe new life into Call of Duty
Making a Call of Duty film would certainly be expensive. The Bourne films, which Call of Duty: Modern Warfare and Black Ops can be compared to, cost between $60 million to $125 million to make.

Yet a film wouldn't necessarily be more expensive than a triple-A game. Call of Duty: Modern Warfare 2 (2009) reportedly cost between $40 to $50 million to make, and an additional $200 million on marketing. Take-Two's GTA V was the most expensive video game in history, with a budget of $265 million. Therefore, a Call of Duty film could actually be cheaper than a new Call of Duty game.

There's certainly a huge audience out there -- ever since the series became a modern shooter with Call of Duty 4: Modern Warfare (2007), sales have remained between 17 million and nearly 30 million units per game. If just 15 million gamers buy $8 tickets to see the Call of Duty film, it would equal $120 million in box office receipts.

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Call of Duty 4: Modern Warfare. Source: Activision Blizzard.

But existing fans only account for half of the big picture. The series, which is now 11 years old, peaked with Modern Warfare 3 in 2011, which sold 29.8 million copies across five platforms. The most recent game, Call of Duty: Ghosts, sold 22.3 million copies.

A successful film series would not only bring in new gamers, but become a second stream of revenue for the aging franchise.

Skylanders should emulate the Pokémon business model
Skylanders  -- Activision's collectible NFC (near field communications) figurines which digitally enter a video game when placed upon a "Portal of Power" -- is a hugely profitable franchise, generating over $2 billion in revenue in less than three years.

The toys are so popular because the games require additional figurines to complete. While the starter set -- which includes three figurines, a Portal of Power, and the game -- costs around $60, Kotaku estimated that it costs at least $225 to fully complete the first game in the series, Spyro's Adventure.

That "gotta catch 'em all" strategy is similar to the Pokémon series, yet Skylanders hasn't capitalized on TV and movies the way The Pokémon Company (Nintendo's partially owned affiliate) has. In addition to the Pokémon cartoon, there were five theatrical films, three of which were released globally by Time Warner:

Film (Year)

Studio

Production budget

Global box office

Pokémon: The First Movie (1998)

Warner Bros.

$30 million

$164 million

Pokémon: The Movie 2000 (1999)

Warner Bros.

$30 million

$134 million

Pokémon 3: The Movie (2000)

Warner Bros.

$16 million

$68 million

Pokémon 4Ever (2001)

Dimension

N/A (Japan only)

$28 million

Pokémon Heroes (2002)

Miramax

N/A (Japan only)

$21 million

Source: Box Office Mojo.

Considering how profitable the early Pokémon films were, Activision should strike while the iron's hot and launch Skylander cartoons and films as well. That could also keep the franchise from prematurely fading away, as Guitar Hero did three years ago.

A Foolish final word
If Activision expands into films, it could keep top franchises like Call of Duty and Skylanders fresh for years to come. It could ensure that an outside studio doesn't tarnish the franchise with turkeys like Fox's Street Fighter: The Legend of Chun Li.

A film studio would be a bold, forward-thinking investment for Activision. It would be similar to Sony's recent decision to turn Uncharted and The Last of Us into movies through Sony Pictures and Screen Gems. But there are still big risks -- Microsoft recently closed down Xbox Entertainment Studios, a similar attempt to produce in-house TV shows based on its video games for the Xbox One.

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Leo Sun owns shares of Walt Disney. The Motley Fool recommends Activision Blizzard and Walt Disney. The Motley Fool owns shares of Activision Blizzard and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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