Analysis: Infinity Ward's Double-Edged Sword?

Every developer and every studio aims to be as globally successful as possible. With record-breaking hit titles come acclaim, affluence, and often special treatment from publishers in the form of favorable contracts. For creating the Grand Theft Auto franchise hits for Take-Two, Rockstar Games' top brass were able to negotiate a nearly unprecedented profit-sharing deal. Halo house Bungie earned its independence while retaining the benefits of a close relationship with Microsoft. And Infinity Ward, creator of the multi-billion-dollar Modern Warfare branch in Activision's Call of Duty franchise, earned the freedom to develop a new property when it signed its newest contract with the publisher in 2008. But amid this week's apparent standoff between Infinity Ward and Activision -- one that multiple sources confirm has seen the ouster of the studio's co-founders -- the publisher is accusing the studio of breaching that contract. Activision confirmed in an SEC filing that its allegations of "insubordination" and breach of contract will likely lead to litigation. All of the tension and drama today raises one question: Can making a record-breaking franchise become a double-edged sword? Only top brass at Infinity Ward and Activision are privy to all the facts about the their contract. But numerous sources close to the situation have told Gamasutra there's been tension between Activision leadership and ousted Infinity Ward co-founders Jason West and Vince Zampella for some months. The pair hasn't maintained a reputation for being easy to work with -- and some sources have told us they first fell out of favor with bombastic Activision CEO Bobby Kotick when they refused to allow Activision to check up on Modern Warfare 2 milestones. Modern Warfare 2 broke retail records, and a third installment could perform even better. With music genre revenue declining, sources say Activision is eager to have Infinity Ward start on Modern Warfare 3. Infinity Ward, on the other hand, would rather finish the new IP its contract allows. Numerous sources with knowledge of the situation have speculated to Gamasutra that the contract dictates only Infinity Ward may make games in the Modern Warfare arm of the Call of Duty franchise. Other studios, like fellow Activision subsidiary Treyarch, may continue develop other Call of Duty-branded titles. Sources say one development candidate would be newly-founded Sledgehammer Games, but Activision can't put another studio to work on the third Modern Warfare installment any more than it can force Infinity Ward to work on it now. Another source suggests West and Zampella could have demanded a larger share of profits in return for developing Modern Warfare 3 on Activision's schedule instead of in line with Infinity Ward's original plans. According to that account, those attempts to re-negotiate or add to the current contract prompted Activision's ire. Some media reports have inaccurately conflated this week's situation with outstanding royalties from Activision to Infinity Ward. But sources confirm to Gamasutra that Activision routinely pays royalties at the end of the quarter after which they were earned, which will begin next month, meaning the publisher is not overdue in its financial responsibilities. The major issue is that Activision's hands are tied by the contract, sources say -- and that may be the root of the "insubordination" allegation against Infinity Ward's leaders. Activision has a history of using legal muscle to get the better end of its agreements, as it did with its Brutal Legend spat with EA and the DJ Hero battle that caught Scratch developer 7 Studios in the crossfire. The company also never hesitates to treat games as a business -- for example, now that Guitar Hero is no longer the cash cow it once was, it closed Red Octane and made cuts at Neversoft, despite the way those studios have performed for Activision in the past. Another source with knowledge of the situation tells Gamasutra that although Infinity Ward is only about 75 developers strong, Activision brass demanded layoffs at the studio anticipating a refusal -- which they received, potentially opening the door for Activision to use that refusal as a way to launch a breach suit that would help it escape its contract. Certainly, rumors and speculation will run rampant all over the dramatic exit of West and Zampella, and all eyes are watching the situation closely for the real facts to emerge. But it makes clear one unfortunate downside to success: The game industry is a business, and when success is high, the stakes get higher. A sweetheart contract with a publisher might appear to be the ultimate reward -- but it may also turn out to be an ultimate weakness.