JAN. 18, 2010 • One of the biggest issues that has emerged in the game industry recently is the growing gap between the haves and the have nots. Big budget games based on well-known franchises are not only smashing all sales records, they are far outpacing other products and potentially crowding out the competition.

Of course, the biggest story of late 2009 was the success of Call of Duty: Modern Warfare 2.  Launching in November 2009, Modern Warfare 2 generated over $500 million in sales during its first week, and by early January had passed $1 billion in sales.  This is not just on par with a blockbuster Hollywood movie, it far exceeds what a top Hollywood movie would do.  In fact, Activision Blizzard is probably correct in claiming Call of Duty: Modern Warfare 2 was the fastest selling entertainment product of all-time.

The issue is products like Modern Warfare 2 don’t just happen.  They take extensive investment and planning, and also require a pre-existing brand name.  In the case of Call of Duty: Modern Warfare 2, the game built on both the success of the Call of Duty franchise and the popularity of the 2007/2008 installment in that franchise, Call of Duty 4: Modern Warfare.

The Call of Duty franchise was first launched by Activision in 2003.  The first games were highly realistic first-person shooters (FPS) set in World War II. They were widely seen as Activision’s answer to Electronic Arts’ highly popular Medal of Honor games.  In fact, many of the team members who had worked on Medal of Honor: Allied Assault went on to form Infinity Ward. However, the franchise really came into its own when Call of Duty 2 was a key launch title for the Xbox 360.  The Xbox 360 took graphic realism in console games to a new level and COD 2 was a key showpiece.

The late 2007 release of Call of Duty 4: Modern Warfare took the franchise from World War II to the modern era and consumers responded enthusiastically.  Call of Duty 4: Modern Warfare went on to sell over 13 million units and it set the stage for Modern Warfare 2.

Going into the launch of Call of Duty: Modern Warfare 2, Activision Blizzard clearly knew what they had, a product whose worst case scenario was sales of $500 million.  The risk of pumping what most people considered was an insane amount of money into marketing and development was actually minimal.  It was clear from the start that with the right marketing campaign Modern Warfare 2 could blow away records.

The Los Angeles Times and other media outlets have speculated that Activision Blizzard spent $200 million on launching Call of Duty: Modern Warfare 2, including development and marketing.  Of this, they estimated about $40-50 million was spent on game development with the rest spent on marketing.  The development budget of $50 million is in line with many of today’s AAA, multi-platform products.  However, the normal rule of thumb is marketing closely matches development, and, if it is true, spending $150 million on marketing is far above the norm.  However, in the case of Modern Warfare 2, its marketing budget made perfect sense.

Most importantly, whatever Activision Blizzard did with Call of Duty: Modern Warfare 2 it worked.  The marketing campaign built unprecedented demand for the game and it came flying out of the gate.

What is surprising about Modern Warfare 2 has been the games staying power.  With such anticipation and a massive build-up we all knew Modern Warfare 2 would have a huge launch.  But we would have expected usage of the game to level off fairly quickly.  Other games have had big launches but they tend to slow down rather quickly.

During November and December, DFC Intelligence closely tracked usage of Modern Warfare 2 on the Xbox 360, using GamerDNA data.  What was interesting was that usage of Modern Warfare 2 remained consistently high from mid-November through December.  In other words, not only did consumers flock to buy Modern Warfare 2 the moment it was released, but they actually continued to play it for a long period of time.

In short, this means that Modern Warfare 2 not only had a massive marketing campaign, but it lived up to the hype.  The normal pattern would be for consumers to play a product heavily for a short period, and then usage would decline significantly as other products are released.  However, during holiday 2009, Modern Warfare 2 dominated usage on Xbox Live and other products were nowhere near as popular.

Throughout its first two months of release, Modern Warfare was regularly played each day by about 15% of GamerDNA Xbox 360 users.  Other major games only had about 2% of users playing on a regular basis.

When one compares the usage of Modern Warfare 2 during holiday 2009, versus usage of similar products during holiday 2008, the results clearly jump out.  In  2008, Call of Duty: World at War, competed for usage with other major shooting games like Gears of War 2, Halo 3 and Left for Dead.  During the holiday season 2008, none of these games had more than 7% of Xbox 360 users playing on a regular basis.  However, at the same time, usage for the popular shooters was much higher than the 2% usage popular games that were not Modern Warfare 2 saw during holiday 2009.

Prior to Call of Duty: Modern Warfare 2, one of the biggest Xbox 360 titles was Grand Theft Auto IV.  Grand Theft Auto IV, which released in late April 2008, quickly soared to over 25% daily usage among the GamerDNA audience (meaning on a given day 25% of the audience played the game).  However, by mid-May usage was down to around 15% and by the end of May it was about 10% of the GamerDNA audience.  This is somewhat surprising as GTA IV is known as a product with a great deal of play time.

Of course, one caveat, it should be noted that while this data tracks both single and multiplayer usage, it only does it for consumers that have a connection to Xbox Live.  We expect that Modern Warfare 2 had a higher percentage of Xbox Live users versus GTA IV.  However, we do not think this had a major impact on the overall usage numbers.  Other Xbox 360 first-person shooter products, including Halo 3 and Gears of War 2, showed drop-offs more similar to GTA IV than Modern Warfare 2.

Modern Warfare 2 never reached the 25% usage level, but it should be noted that the Xbox 360 base has both diversified and grown significantly in the past 18 months.  What is most notable is that the usage continued steady at around 15% a day through the months of November and December. This was even true as several other products competing for user time were launched in mid-November, most notably Left 4 Dead 2 and Assassin’s Creed II.

However, neither Left 4 Dead 2 nor Assassin’s Creed II could do anything to derail the Modern Warfare 2 train.  Both these games showed decent usage, but nothing that could even touch the level of Modern Warfare 2.  Furthermore, it was clear that users of Left 4 Dead 2 and Assassin’s Creed II were by and large also players of Modern Warfare 2, but the reverse was not necessarily true.  For example, in the U.K. and Germany over 80% of Left 4 Dead 2 users also played Modern Warfare 2, while the number of Modern Warfare 2 users that also played Left 4 Dead 2 was only 13% in the U.K. and 16% in Germany.

DFC Intelligence has long argued that the recession is having a fairly minimal impact on the game industry.  Industry sales were expected to be down from a record high in 2008, recession or not.  At best, the recession can be used as an excuse for poor performance.  However, Call of Duty: Modern Warfare 2 shows several major points about the game industry that have nothing to do with the recession:

• Games continue to be at record popularity and the sale potential for the very top products is at an all-time high and continue to grows.

• Massive nine figure plus budgets around certain known properties can make perfect financial sense

• Product quality and sales go hand-in-hand.  Tracking product usage is an important indication of how much to invest in future products in the franchise.

• The rich get richer.  Consumers tend to flock to what they know and like.  Unlike movie sequels, which often tend to slowly lose the audience, game sequels have an opportunity to build on what has been established.