The past 24 hours have seen game-industry headlines dominated by the apparent firing of Infinity Ward cofounders president Jason West and CEO Vince Zampella. Though Activision has not confirmed the pair as the unnamed developers it accuses of breach of contract in an SEC filing, analysts are already weighing in on the fallout from their departure from the Call of Duty: Modern Warfare 2 studio.
In the short term, Broadpoint AmTech's Ben Schachter believes Activision's stock price may take a hit on a wave of "negative" news. "We expect the very vocal gaming press to put the story front and center," he said in a note this morning. "The headlines will likely be ugly."
He went on to point out that "disruptions at Infinity Ward could, however, affect quality/timing of the downloadable content (DLC) for Modern Warfare 2 (which we estimate could contribute $0.03 -$0.04 in 2010 earnings per share). However, it is unclear at this point what the extent of the impact, if any, on the DLC will be."
Both Schachter and Janney Capital Markets' Shawn Milne agree that the Infinity Ward executive exits will have no effect on the Call of Duty title Activision has said it will release before year's end. Almost certainly developed by Treyarch (Call of Duty: World at War), the game is widely believed to be set during the Vietnam War or Cold War.
The pair also is concerned that the West/Zampella departures could be the first thread pulled from Infinity Ward's fraying cloth. "In the end, what will matter for investors is if the core Infinity Ward studio holds together or if the departure of key executives will lead to further turmoil within the studio," summarized Schachter. "Clearly, having the top developers leave is a new risk," said Milne. "A greater risk would be whether or not the two heads end up taking more talent away from Activision, or the whole team leaves."
Milne, however, believes that "Activision has specific employment contracts for other key personnel at Infinity Ward" that would prevent a hemorrhage of talent. "Moreover, given Activision's studio compensation model (based on franchise profitability), we would believe there would be no shortage of top development talent looking to work on such a valuable brand."
In the end, both analysts are maintaining their "buy" rating for Activision and urging their clients to scoop up more of the company's stock, should it slip in trading today. As of press time, Activision shares were down 1.01 percent, having fallen $0.11 to $10.82 since trading on the NASDAQ started this morning.
One reason for Milne's optimism is that "Activision's effort to extend the Call of Duty franchise online could possibly reduce a portion of risk related to packaged good sequels." Nearly two years ago to the day, Activision CEO Bobby Kotick publicly expressed interest in bringing the Call of Duty IP "into a massively multiplayer environment."