Business is Modern Warfare, Too

Video game maker Activision has raised a lot of eyebrows by suddenly canning two of the execs behind 2009's most successful video game.

Jason West and Vince Zampella, the president and CEO respectively of Infinity Ward, have left the company, apparently removed by publisher Activision after alleged “breaches of contract and insubordination”. (Infinity Ward is a wholly owned subsidiary of Activision.)

Employee turmoil is commonplace at game publishers—the industry has seen multiple thousands of layoffs in the last 12 months—but when the people affected are the leads on “Call of Duty: Modern Warfare 2,” it’s something that makes investor ears perk. “MW2” set new industry sales records last year, selling 4.7 million copies in its first day in the U.S. and U.K. alone. In January of this year, the game passed $1 billion in retail sales. 

The company did not reveal further details for the action and did not return calls for comment. Broadpoint AmTech analyst Ben Schachter, in a note to analysts, pointed out, though, that there has been recent chatter on Wall Street “regarding possible M&A interest about Infinity Ward from private equity firms and others.” 

It's implied that West and Zampella were trying to jump ship.  The actual story seems to involve the fact that the billion-dollar game meant West and Zampella were owed serious royalties, and Activision instead royally screwed the two over.  They are in turn suing Activision for those royalties.

Jason West and Vince Zampella, who co-founded Activision’s Infinity Ward studio, sued the company in Los Angeles Superior Court yesterday, claiming breach of contract and wrongful termination. They seek at least $36 million and control over “Modern Warfare,” a subset of the “Call of Duty” combat games, according to a copy of the complaint.

Activision, the world’s largest video-game company, conducted a “pretextual” investigation to fire the Infinity Ward co-heads and avoid making a royalty payment due on March 31, according to the complaint.   “Activision terminated their employment weeks before they were to be paid substantial royalty payments as part of their existing contracts for ‘Modern Warfare 2,’” West and Zampella’s lawyers at O’Melveny & Myers LLP wrote in a statement.

Maryanne Lataif, a spokeswoman for Santa Monica, California-based Activision Blizzard, declined to comment on the suit. The company said in a March 1 regulatory filing that two senior executives who led “Modern Warfare” were leaving and said it was investigating insubordination and breach of contract.

$36 million isn't chump change.  And these days, with World of Warcraft creator Blizzard in its stable of game makers, Activision is the big kahuna in the video game world.  This one may have far reaching implications for the industry as a whole.

Either way, I wouldn't expect MW3 this Christmas.