"Guitar Hero" has helped turn Activision Inc. into an entertainment-industry hero.
The popular video game helped the Santa Monica company swing into the No. 1 spot in video game sales for the first half of 2007, according to data released Monday by the NPD Group, a research firm.
Activision became the first independent publisher this decade to knock out Electronic Arts Inc., ringing up $397.8 million in sales of games for consoles and hand-held game players from January through June, compared with EA's $365.7 million.
The lead could be fleeting: Redwood City, Calif.-based EA is widely expected to pull ahead in the more crucial second half of the year.
But Activision executives said the company's achievement gave validation to its strategy: grow market share by aggressively acquiring development studios, winning licenses to make games based on movies such as "Transformers," and cultivating homegrown franchises including "Call of Duty" and "Tony Hawk."
"We've never been better positioned as a company to take advantage of the growth in the video game industry," said Bobby Kotick, Activision's longtime chief executive. "For 17 years, I've focused on becoming the No. 1 video game company, and we're getting a lot closer to achieving that objective."
Of course, it helped that EA was undergoing a lull, with many of its blockbuster titles -- such as "Medal of Honor: Airborne" and "Madden NFL 08" -- not due out until later this year.
Moreover, Activision's sales were pumped up by the "Guitar Hero" franchise, which lets players simulate performing in rock concerts. Chief Financial Officer Thomas Tippl said the runaway hit would be "the fastest Activision brand in the company's history to hit $1 billion in sales."
Investors have noticed. Activision's shares have jumped 54% over the last year, falling 7 cents to $18.12 on Monday. EA shares have gained 15% from the year-earlier period, ending Monday at $51.85, down 2 pennies.
An EA spokeswoman did not respond to a request for comment Monday.
"Activision is doing a lot of things right," said Michael Pachter, an analyst with Wedbush Morgan Securities. "They're growing really fast, and they're being opportunistic."
One opportunity came last year, when Activision acquired RedOctane, the Sunnyvale, Calif.-based publisher of "Guitar Hero," for a reported $100 million.
"When that deal was done a year ago, a lot of people were scratching their heads," said John G. Taylor, managing director of Arcadia Investments Corp.
"Now, there are champagne corks popping at Activision. They early on identified the potential for putting out an easy-to-use, really fun music game. And they were able to push the boundaries for who can play to just about every age category, from old beatniks to kids who love to rock out on Aerosmith," he said.
For the year, sales of "Guitar Hero" games are expected to hit $360 million, contributing roughly a fifth of Activision's estimated revenue of $1.8 billion, according to analyst estimates.
RedOctane was one of nine acquisitions Activision has made in the last five years, helping to expand the games publisher's pool of talent.
Since 2002, Activision has nearly doubled its workforce, to 2,140 from 1,118, hiring developers and acquiring them along with studios as far away as Canada and Ireland.
"This is not an industry that works off of machines or by shaving pennies from the production of goods," said Robin Sue Kaminsky, Activision's executive vice president of publishing. "We're about having the talent to make games capable of delighting consumers."
Analysts note how Activision has grown from a company that has historically been dependent on a single franchise -- namely "Tony Hawk" -- to having a broader portfolio.
The company now offers games developed internally, titles acquired when it snaps up smaller studios and games licensed from DreamWorks SKG and other Hollywood movie studios.
"They've really grown up in the last three or four years," said Colin Sebastian, an analyst with Lazard Capital Markets. "They're now fairly well-rounded."
One of the biggest concerns about Activision is whether it can top this year's outsize growth.
"It's hard to know how much momentum will carry over into next year," Arcadia's Taylor said. "What specific properties will be the growth drivers next year to allow them to hold share?"
Analysts say the biggest threat is powerhouse EA, which is slated to release three titles that compete directly with Activision's top franchises: "Skate" will compete with "Tony Hawk," "Rock Band" with "Guitar Hero" and the latest installment of combat game "Medal of Honor" with "Call of Duty."
Activision executives say they're not worried. Their games have garnered numerous awards, including this year's Best Game of E3 from G4 Television -- "Call of Duty 4: Modern Warfare" -- and six nominations for the prestigious Game Critics Best of E3 Awards.
"We're well situated to win," Kaminsky said.
(BEGIN TEXT OF INFOBOX)
Name: Activision Inc.
Headquarters: Santa Monica
Game franchises: "Guitar Hero," "Tony Hawk," "Call of Duty," "Spider-Man," "Kelly Slater's Pro Surfer"
Market valuation: $5.1 billion
2007 sales*: $1.5 billion
Number of employees: 2,140
Top executives: Bobby Kotick, chief executive and co-chairman; Brian Kelly, co-chairman; Thomas Tippl, chief financial officer; Michael Griffith, president and CEO of publishing unit
*Fiscal year, ended March 31