A year ago, friends Josh Resnick and Andrew Goldman, veteran game developers at Santa Monica-based video game publisher Activision Inc. left to start their own firm, Pandemic Studios. Impatient with Activision's stagnant stock price--and their own flagging stock options--they figured their best shot at a big payday lay in running their own outfit.
Activision could have shown the upstarts the back of its hand, but instead it has given them a big leg up, a sign that game developers--those keyboard-stroking techies who create mesmerizing video landscapes and stories--are starting to wield the same financial clout long enjoyed by their creative counterparts in film and TV.
Activision agreed to publish five titles from Pandemic, an unheard-of deal for a game start-up. It will also invest about $10 million as an advance against shared royalties in exchange for about a 5% stake in Pandemic.
What's more, Activision handed Pandemic the rights to two of its successful war games. Pandemic's first two games, due out this year, are sequels to the popular Activision titles "Dark Reign" and "Battlezone," which sold a combined 700,000 copies worldwide.
"We created a structure that almost ensured their success," said Robert Kotick, Activision's chief executive.
Pandemic's quick start puts it at the vanguard of the fast-changing video game industry. Publishers, battling in a competitive, $6.3-billion market, are now forced to secure the best talent by offering lucrative production deals, even to former employees.
"Activision has made an investment developing these people [at Pandemic]. Now Activision gets five titles from them and it has not lost them to the competition," said Christian Svensson, editor in chief of MCV, a video game magazine.
Activision, with $437 million in annual sales, still has 350 in-house developers. But it and rival publishers, such as Redwood City, Calif.-based Electronic Arts, keep looking to buy games from outside developers.
Soaring production costs are fueling part of this outsourcing trend. The benchmark for an expensive video game used to be $1 million. Now $3 million is commonplace as players demand more sophisticated graphics and complicated action.
Former Activision executives figure the company would have spent $2.5 million using in-house talent to create a "Dark Reign" sequel.
