It's A Battlezone. Activision Is Winning.

In many ways, the video game business is a zero-sum game. The amount of time that gamers can spend going virtual places and killing imaginary things is huge, but it is limited. So video game producers always keep one eye on the competition and one on the market. Electronic Arts is the largest independent video game maker in the world, but they forgot to look over their shoulder for Activision, which raced past them to become the largest game developer, at least in North America. BusinessWeek talked to CEO Robert Kotick about how Activision did it.

It's been a remarkable ride for Activision, which was the first independent video game producer, making games for the Atari system back in 1990. In 1992, Kotick, a high-tech entrepreneur, bought control of the then-bankrupt company for $440,000. Today, Activision has a stock market value of $5.5 billion. Analyst Pachter expects the company to earn $165 million on sales of $1.8 billion this year, nearly twice what it earned in fiscal 2007.

Kotick's strategy involved separating the company into a dozen small studios focusing on particular games. There's one that develops the games licensed from Marvel Entertainment, including Spider-Man and X-Men. Another for those from DreamWorks Animation, namely Shrek the ThirdBee Movie. Under the new business model, studio employees get bonuses for meeting or exceeding profit targets set for their units. Kotick says the strategy has turned employees into brand managers, planning years ahead and keeping several versions of their games under development at the same time. That allows them to stagger releases so the company can produce more consistent sales.

Activision has come a long way since I played Battlezone in an arcade in the eighties. Pick up an ax in Guitar Hero or a gun in Call of Duty-- it's Activision.  Now, about that football game...
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