Walking through the Electronic Entertainment Expo's two mammoth halls overflowing with exhausted attendees, elaborate booths, and excessive noise, it's easy to miss the fact that one very significant player in the gaming industry doesn't have its own presence on the show floor. Activision, the world's largest third-party publisher, opted against an E3 booth this year, instead holding court in a private meeting room elsewhere in the Los Angeles Convention Center.
That was where Activision chief operating officer Thomas Tippl met with GameSpot for an in-depth interview, answering questions on everything from this year's E3 to the rash of detractors the publisher has attracted in recent years. The executive also discussed the lack of announced Activision support for the Kinect and Move, as well as what mistakes the publisher made in handling Guitar Hero last year and how it can avoid similar problems with the Call of Duty franchise.
GameSpot: What have you thought of E3 so far?
Thomas Tippl: Well, it's not my first E3. I would say there's the usual excitement. It's great to see that first parties are coming out with new innovations. I was particularly impressed by the 3DS, and it got a great reception. It's a brilliant product. Nintendo's figured out the glasses--or the lack thereof--are key. The integration of the 3D camera was a brilliant move. And if they also address the piracy issues they have and upgrade the copyright protection system, I think it's going to be a big success and draw publisher interest to put more resources against publishing a game in this platform.
GS: So far DJ Hero is the only Activision franchise announced for the 3DS, but a lot of your competitors are already on board and completely committed with more games. Is there any hesitation on Activision's part?
TT: No. You'll hear more titles as they come.
GS: How about the Kinect and Move? Why hasn't Activision announced any dedicated titles or even titles that have features supporting them?
TT: It's always a question of priority setting. We've got some huge opportunities that we have development talent focused on right now. We've got Call of Duty, [Guitar and DJ] Hero, Starcraft, Battle.net, World of Warcraft: Cataclysm, Diablo, our new partnership with Bungie. So we're pursuing some massive opportunities where we believe we can bring a lot of innovation to those properties, particularly through enhancing the online functionality of the player experience and community experience.
And if you look at the market, I think that's where we're also seeing a lot of strength. It's with that dedicated gamer fan base for whom this is the number one priority; the way they spend their time and the entertainment that they choose. Down the road, as we see an install base emerging on these new innovations and user interfaces from Sony and Xbox, we will have certain games for which they will be suitable and open up new ways to innovate and enhance the user experience. You can see games like Tony Hawk would be obvious. Or in a fishing franchise from Rapalla, this type of [feature] could really enhance the experience. And that's what we're focused on. We don't just want to introduce it everywhere whether it's going to get the player a better experience [or not].
GS: Are you unconvinced of the longevity of the casual market then?
TT: I'm convinced of the longevity. I just look at the current macroeconomic environment. You look back at 2009, and you recognize the casual consumer is cash strapped. Unemployment rates are in double digits. People who have a job today are worried whether they'll have a job tomorrow. That has certainly impacted consumers' ability to buy higher priced peripheral products, and we felt that ourselves last year. We had a whole slate of peripheral-based products out there and have not achieved our objectives because people find it more difficult to spend $100 or $120 or $200 on these types of games right now.
That doesn't mean when the economy turns around, there's not going to be an opportunity again for us. In the meantime, we right sized out investment and decided we need fewer but better properties, and you see that in our release slate. We focused on one major Guitar Hero release and one major DJ Hero release. We put more songs than ever in there to improve the value to consumers. We introduced Guitar Hero to the iPhone, which provides a lower price point entry for consumers to start enjoying the music experience in interactive entertainment. We're always adjusting to the marketplace, and I think that's been one of our strengths. That's why we've done much better than many of our competitors.
GS: With the benefit of hindsight, how would you have handled the Guitar Hero franchise differently last year?
TT: Last year we probably served up too much content in this environment. We probably made too much hardware at price points that were for many consumers not attainable. If I could do last year over again, we'd probably be doing what we are doing this year.
GS: Do you expect sales of the rhythm genre to get back to where they were in 2008?
TT: I think it will be tough to get back to that peak in the near term. For that, we need the economy and consumer confidence to turn around; to get back to those levels. We need the casual consumer to come back. We need the Wii platform to significantly improve its momentum. But we think we have an opportunity to grow from this basis going forward.
GS: What are you doing to ensure Call of Duty doesn't have the same problem with too much of it on the marketplace?
TT: With Call of Duty, we actually have the opposite problem. There is so much demand for so many new products, features, and services, we have not been able to deliver with Call of Duty...that I would say we're behind the curve. That community wants fresh new content, and so far, we've only been able to provide it through downloadable content packs. They want so many different things: customization opportunities, different gameplay modes, playing in teams and leagues and tournaments, prize play. We tested more than 25 different product features and services with the fan base and the response has just been phenomenal. Our issue is just making sure we have enough top-notch development talent to deliver that in a way that meets the very high standards the community has set. We're behind the curve, we're not meeting all the needs, and we've got some catching up to do.
We're not going to come out with a Call of Duty release every quarter. We'll continue to have a major blockbuster release in the holiday season every year just like we have with Black Ops--which is shaping up phenomenally--and then continue to build on the online experience and meet those product features and desires we've seen from our consumer research.
GS: Have you changed your expectations on the next generation of consoles and when it will begin?
TT: I don't think there's anything imminent because we would know already. It takes two to three years to make a game, and publishers would want us to be present at launch; otherwise, there's no reason for consumers to buy a next-generation platform. Right now, I think you see most of them are very focused on the user interface. A lot of innovation has been in user interface and online. For neither of those two things do you necessarily need a new box.
At some point will you need a new box? Probably. If I had to venture a guess, you may see it first from Nintendo. The PlayStation 3 has great momentum in the marketplace, particularly in Europe, and first parties still have to recover the major investments that they've made. So I don't think you'll see new hardware in 2010 or 2011; maybe not even in 2012.
GS: In a call with analysts this week, Activision CEO Bobby Kotick said the goal for Activision is to become the most profitable entertainment company in five to 10 years' time. Will that require Activision to expand what it does in sort of the same way Marvel Comics started making movies rather than partnering with others to get them made?
TT: It's very unlikely that we'll start making movies. The reason we set that objective, and we're confident in our ability to achieve that, is consumers' entertainment habits are changing. More and more consumers choose to spend their time with an interactive form of entertainment. So we expect over the next five to 10 years, that trend will continue, and it will continue to gain market share within the overall entertainment market, which today is about a $1.6 trillion market. And video games make up less than 5 percent. There's a huge opportunity.
I'm experiencing this myself. I'm in the first generation of parents that grew up with video games, so for us, it's no longer this evil thing that's overcoming our children. We've all grown up with it, and it's natural for us that our children entertain themselves in an interactive forum. The whole online opportunity that has made games a social experience has made a huge difference. The technology allowing us to tell stories and create emotional connections with characters through facial animation has never been seen before.
Lastly, the ability to offer consumers an experience everywhere is going to continue to drive this. No matter where they go, they can stay connected with their favorite brand and form of entertainment. I don't know whether it's going to take us five years or 10 years, but I think the trend line is very clear. Once you are number one, you need to make sure you don't get complacent, so you set yourself new, challenging objectives in order to make progress.
GS: You mentioned the fear people might have of the medium if they didn't grow up with games. The Entertainment Software Association has been one of the organizations most dedicated to trying to change that, but what does it say when the largest third-party publisher in the world is not a member of the trade group representing it?
TT: We used to be in the ESA, and unfortunately, we haven't found it as effective as we thought it needed to be. So we have launched our own efforts, and we're making our own investments in that direction to educate the public, regulators, government officials, and also to do right for the broader community. Look at the efforts we have undertaken individually around our Call of Duty Foundation. We're making a massive effort to reintegrate veterans coming back from the various war zones. And the efforts we're spending with having created our own internal department around public policy and making sure we educate regulators, families, and what have you is something we're trying out to see whether we can be more effective that way. And I wouldn't rule anything out down the road.
GS: There have been a lot of developers recently making high-profile deals while retaining the intellectual property they make: Bungie, Insomniac, Respawn… Is this a trend of creators gaining leverage as the industry matures?
TT: I don't know. I don't think there's a one-size-fits-all approach to these partnerships. And there are plenty of other examples: Sledgehammer Games, Bizarre Creations, you name it. At the current stage of the industry, there are a lot of developers out there looking for partners and the type of capability that an Activision-Blizzard can bring to the party. And if you look at the partnership we entered into with Bungie, it's a very long-term partnership. And there are many elements of this partnership that were required for us to make sense out of the way it has been structured. It's a 10-year exclusive alliance. It has lots of elements that for confidentiality reasons we're not able to talk about. But do I think this is a sea change? I don't think so. I don't think there are many developers out there that have the capability of Bungie where this kind of partnership would make sense.
GS: Also during the call, Bobby Kotick talked about a "culture of thrift" in the company. But people seem to think with Blizzard, you just give them the resources they want and then step back, letting them do what they do. Are they exempt from that culture of thrift?
TT: No, and I don't think they want to be exempt from that. The culture of thrift isn't about not investing in the games. It's exactly about investing in the games. If we don't waste money on golden toilets and what have you, that gives us the resources to invest in the games so we make a great game. Subsequently, it gives us the ability to spend big in marketing a game.
I don't know if you've been at our offices. We've had the same office since forever, and we just replaced the duct tape on the carpet because it became a trip hazard down the stairs. And that took five years to get done. So we are thrifty in the areas where frankly, the consumer doesn't see value. We are not thrifty in the areas where the consumer sees the value, which is in the game development.
That's why we added 300 headcount to Blizzard's development team, 900 headcount to the customer service team, 300 headcount around the Call of Duty franchise. There are many areas where we are making massive investments to improve the gamer experience, and then there are areas where we think it's not worth it. So we don't have a company gym, cafeteria, and valet parking. Because the gamer doesn't care about that. They don't see value in any of that. Go talk to Blizzard or the Treyarch guys or the Sledgehammer guys. We put the money where the gamer's going to see it.
GS: Activision's not too popular with some gamers after Kotick's comments about taking the fun out of development, the Brutal Legend lawsuit, or the Infinity Ward drama earlier this year. How do you deal with that negative perception? Is it something you can see affecting the bottom line at all?
TT: I would say this: When you become the number one in any industry, you automatically get a target painted on your back. That's just a fact of life, so you have to be able to deal with this. I think there's a very vocal minority that expresses very strong opinions. But at the end of the day, if you look at the overall results we've delivered, 2009 was a very difficult year in the industry. And we have succeeded in that environment because gamers continue to buy our games...because we market the franchise and not the company, and they get a great entertainment experience. So that's the most important thing.
Would we feel better about a more balanced perspective and sometimes not getting things taken out of context? Of course we would. Can we do a better job reaching out to the gamer community and explaining why we take certain decisions? I think we can. And I think we'll continue to do that and make sure we'll get better at it. But overall, what we're focused on is making sure our games are great, our franchises are well respected and trusted by consumers, and that we continue to do the right thing for the community, our employees, our retailers. And if we do that well and show how we deliver value to our stakeholders, over time, I think that will be more important than what you can read on some of the message boards.