Activision
Activision began with an insult. According to programmer Larry Kaplan, Atari chief Ray Kassar, whose earlier job was at a textile company, called four of his best game designers "towel designers". Kassar also claimed that "anybody can do a cartridge". Those four men walked away and started the first independent, third-party console video game developer. Today Activision is an American publisher based in Santa Monica, California, and in 2016 it was the top publisher in the United States. The road there included a lawsuit, an industry collapse and a company close to financial ruin. This documentary asks how four programmers invented a business that did not yet exist. It asks why the people who built it drifted away, and who pulled it back from the edge.
Warner Communications bought Atari from Nolan Bushnell in 1976, and the workplace changed afterward. Programmers received no bonus pay on profitable games and no public credit, a policy meant to stop rivals from poaching them. Developer John Dunn said Warner managers treated developers as engineers rather than creative staff. Kassar, named Atari's CEO in 1978, was committed to keeping production costs low for Warner.
In early 1979, an Atari marketing memo listed the previous year's best-selling cartridges to guide new game ideas. David Crane noticed that games he alone had made earned the company a great deal of money, yet he drew only a salary. Atari's development staff numbered thirty-five. Four of them, Crane, Kaplan, Alan Miller and Bob Whitehead, had written games behind 60% of Atari's sales.
The four became known as the "Gang of Four". They met Kassar in May 1979 and asked to be treated like musicians at a record label, with royalties and their names on game boxes. Kaplan called the others "the best designers for the 2600 in the world". Soon afterward they decided to leave.
In 1979, the idea of a third-party developer did not exist. Console software came only from the makers of the consoles, so the common belief was that making console games meant building a console first. Their attorney pointed them to Jim Levy, who was raising venture capital to enter the software business for early home computers. Levy liked their plans and helped them secure capital from Sutter Hill Ventures. The founders also consulted legal counsel about writing games for the Atari VCS, and they built litigation fees into their budget.
By August 1979, Crane and Miller had left Atari, and Whitehead followed shortly after. Kaplan quit that August too, but he stayed out at first because he disliked the starting business plan. Activision was formally founded on the 1st of October 1979, with Levy as CEO. The company was first called Computer Arts, Inc. while the founders hunted for a better name. They considered VSync, Inc. but worried that the public would not know how to say it. Levy suggested joining "active" and "television", and Activision was born. Kaplan came back in December, so all four founders were together before the first year ended.
In the latter half of 1979, Activision worked out of Crane's garage. Each programmer built a game for release in mid-1980: Dragster, Fishing Derby, Checkers and Boxing. Their deep knowledge of the Atari 2600 and its software tricks made the games look different from anything Atari produced. The boxes were brightly colored, with an in-game screenshot on the back. Manuals gave at least one page to crediting the developer. Through 1983, nearly every manual also explained how to mail in a photograph of a high score and receive a patch in return.
Before those first four games shipped, Activision took space at the mid-year 1980 Consumer Electronics Show and quickly won favorable press. Atari was alarmed, since the four's departure had already dented its development staff. Crane recalled that Atari first used the trade press at the show to call people who took trade secrets "evil, terrible people". Atari then threatened to stop selling its games to retailers that also carried Activision titles. By the end of 1980, Atari filed a formal lawsuit claiming the four had stolen trade secrets and broken non-disclosure agreements. The case was settled by 1982. Activision agreed to pay royalties to Atari, but the third-party development model was now legitimate.
Each founder kept making his own titles, about one a year. The 1980 games were modest hits. Kaboom!, released in 1981, became Activision's first game to sell over a million units. The breakout came in 1982 with Pitfall!, created by Crane, which sold more than four million copies. Near the end of 1982, Kaplan left to work on the Amiga personal computer, because he wanted more involvement in hardware.
In June 1983, the company went public on NASDAQ under the ticker AVSN, with around 60 employees. Danny Goodman wrote in Creative Computing Video & Arcade Games that year, "I doubt that there is an active Atari 2600 owner who doesn't have at least one Activision cartridge in his library". Within a year of that listing, the market that made those cartridges would begin to collapse.
Activision's success, alongside the popularity of the Atari 2600, invited a crowd of imitators and new consoles. Activision itself moved some of its Atari games to the Intellivision and ColecoVision. According to Crane, the newcomers were often funded by venture capital and hired programmers off the street who had little game design experience. They mass-published whatever the developers produced. This helped cause the video game crash of 1983.
Activision survived, but it felt the damage for years. When the imitators folded, they left warehouses full of unsold games, which savvy retailers bought and resold at deep discounts. Consumers who did not know better were drawn to the bargains instead of Activision's higher-priced titles. Levy said quarterly revenue fell sharply between mid-1983 and the end of 1984. The company shrank from about 400 employees to 95.
To avoid vanishing like the other third-party developers, Activision moved onto home computers such as the Commodore 64, Apple and Atari 8-bit machines. Little Computer People and Hacker came from this period. Talent kept draining away. Miller and Whitehead left in 1984 because their stock had lost so much value, and they went on to form Accolade.
In June 1986, Activision acquired the struggling text adventure pioneer Infocom through a merger. Levy, a big fan of Infocom's titles, pushed the deal, and it became known as the "Infocom Wedding". About six months later, the board replaced Levy with Bruce Davis. Davis had opposed the purchase from the start, managed heavy-handedly, and even tried to seek a lawsuit to recover the purchase price from Infocom's shareholders.
Crane found Davis hard to work with and was troubled by how Davis handled the closure of Imagic, a studio born from Activision's own success. Crane left in 1986 and helped Garry Kitchen found Absolute Entertainment. With his exit, none of the four founders remained.
Sega of America's Michael Katz thought he had found a shortcut around 1990. After securing the rights to Joe Montana's name, he got Sega to pay Mediagenic to turn an early football game into the branded version. Katz did not know about the turmoil inside the company, and the game was mostly unfinished. Katz and Sega had to carry the incomplete game to Electronic Arts, which was building its own John Madden Football series for personal computers, to finish it.
Mediagenic was the name Activision had taken in 1988, when it began selling software beyond games, such as business applications. It had four groups. Activision published games for platforms including the Nintendo Entertainment System, Master System, Atari 7800, Atari ST, Commodore 64 and Amiga. Infocom made interactive fiction. Gamestar, bought in 1986, specialized in sports games. Ten Point O sold business software.
In 1989, after several years of losses, Mediagenic closed the Infocom studios. Only 11 of the 26 employees were offered relocation to the Silicon Valley headquarters, and five of them accepted.
One bright spot was Cyan Worlds. Through Activision, Mediagenic secured the rights to distribute Cyan's games, starting with The Manhole, the first major game distributed on CD-ROM for personal computers. The relationship did not last. Cyan cut its contract and turned to Broderbund, which published Myst, one of the most significant computer games of the 1990s.
In May 1990, Mediagenic took a penalty after losing patent infringement suits brought by Magnavox over similarities between Activision's games and Magnavox's patents. By 1991, Davis's management had produced a large loss on very little revenue and a mountain of debt. A buyer was about to arrive.
Bobby Kotick saw value in the video game industry just after the crash. He and three other investors tried to buy Commodore International to gain access to the Amiga line of computers, but the purchase fell through. The group then bought a company that licensed Nintendo characters, and Nintendo pointed them toward the failing Mediagenic. Kotick wanted the Activision name, which still carried the glow of Pitfall!. After talks with Davis went nowhere, Kotick and more investors, including real estate businessman Steve Wynn and Philips Electronics, bought Mediagenic in a hostile takeover in 1991.
As CEO, Kotick kept only 8 of the company's 150 employees. He restructured everything, drafted a bankruptcy plan and reincorporated the company in Los Angeles, California. The plan counted what was still worth something: the Infocom library and its game-making tools, Activision's distribution network, and licenses to develop for Nintendo and Sega consoles. Kotick gave distributors stock to keep them invested. He also persuaded Philips, parent of Magnavox, to turn its legal claim into stock in the company.
The company reissued older console and Infocom titles as computer compilations. Kotick saw the value in Zork, so the company developed a sequel, Return to Zork. These steps let the company fulfill the bankruptcy plan. By the end of 1992, Kotick renamed Mediagenic back to Activision. The new Activision went public in October 1993 under the ticker ATVI.
By 1995, Kotick had kept one promise to investors: four years of 50% revenue growth while staying at break-even. His second promise was to build high-demand games and reach profitability by 1997.
Activision had published MechWarrior in 1989, a first-person game based on FASA's pen-and-paper game BattleTech. Its sequel, MechWarrior 2, arrived in 1995 after two years of delays and internal struggles. FASA chose not to renew the license. Activision answered with more games bearing the MechWarrior 2 name, which did not breach the agreement: NetMech, MechWarrior 2: Ghost Bear's Legacy and MechWarrior 2: Mercenaries.
In 1997, Activision obtained the license for another pen-and-paper war game, Heavy Gear. Critics received it well, with an 81.46% average rating on GameRankings, and GameSpot considered it the best game of its genre at the time. The MechWarrior 2 engine also powered 1997's Interstate '76 and 1998's Battlezone. With profits returning, Kotick turned toward buying studios.
Between 1997 and 2008, Activision made an estimated 25 acquisitions, several for undisclosed sums. Many came before 2001, in the middle of the dot-com bubble, which let the company buy studios at lower valuations. Market surveys guided which areas to pursue.
On the 16th of June 2000, Activision reorganized as a holding company called Activision Holdings. The operating business became Activision Publishing, Inc., a wholly owned subsidiary. The holding company took the old Activision, Inc. name and became the publicly traded entity.
Licensing deals grew alongside the studios. In December 1998, Activision signed with Marvel to publish Spider-Man games. In October 1999, the deal expanded to X-Men and Blade. In February 1999, it signed with Disney Interactive for games based on Disney movies, including on Nintendo 64. In 2003, DreamWorks Animation joined the list.
Raven Software was founded in 1990 and often worked with id Software because the two were close neighbors. Its early success was the Heretic series, built on id's Doom engine. Around 1997, founders Brian and Steve Raffel decided they needed a parent company. A publishing deal with Activision gave Raven financial support and gave Activision a closer relationship with id. By the end of 1997, Activision acquired Raven for $12 million.
Neversoft had been hired to redevelop Apocalypse, a title Activision could not finish internally. Activision then had Neversoft prototype a skateboarding game, which became Tony Hawk's Pro Skater. Its critical success led Activision to buy the studio around the year 2000.
Infinity Ward came out of a dispute. After Electronic Arts released Medal of Honor: Allied Assault in 2002, several developers disenchanted with their contracts left to form the new studio. Kotick himself provided startup funding. Activision acquired Infinity Ward in 2003 and published its first title, Call of Duty, in direct competition with Electronic Arts. As of 2016, the series had sold more than 250 million units.
Treyarch, a Santa Monica studio founded in 1996, was acquired in 2001. It first helped with Tony Hawk games and Spider-Man titles. After Call of Duty succeeded, Treyarch and Infinity Ward began trading off each year's major release.
Gray Matter Studios started in 1993 as Xatrix Entertainment and took its new name in 1999 while working on Return to Castle Wolfenstein, with Nerve Software and oversight from id Software. The game was a critical and financial success, and Activision bought the remaining shares in 2002. In 2005, Activision merged the smaller Gray Matter into Treyarch for Call of Duty 3.
Toys for Bob was founded in 1989 by Paul Reiche III, Fred Ford and Terry Falls, and it found success with the first two Star Control games. Activision purchased it in 2005 and gave it work on Tony Hawk's games and other licensed properties.
Around 2005, RedOctane was co-developing Guitar Hero with Harmonix, based on the arcade game GuitarFreaks. Harmonix wrote the software while RedOctane built the instrument controllers. The game was a major success, and Activision bought RedOctane in June 2006.
Around 2006, Kotick phoned Jean-Bernard Lévy, the new CEO of Vivendi, a French media conglomerate. Kotick worried that Activision had no title in the growing online multiplayer market. Such games promised steady income from subscriptions and microtransactions instead of a single sale. Vivendi's games division was struggling, but it owned Blizzard Entertainment and World of Warcraft, a hit drawing heavy subscription fees. Vivendi Games also owned Sierra Entertainment.
Lévy saw that Kotick wanted World of Warcraft. He offered a merger only if Vivendi held the majority of the new group, which meant Kotick had to give up control. Friends and investors said Kotick agonized over this. Meanwhile, in 2006-2007, some of Activision's old hits such as Tony Hawk's were fading. Kotick met Blizzard president Mike Morhaime and learned that Blizzard had also made a successful entry into China, a potentially lucrative market. That tipped his decision.
Activision's board signed on by December 2007, and the merger closed in July 2008. The new company, Activision Blizzard, was headed by Kotick, while Vivendi kept a 52% share. Activision Publishing remained a subsidiary and published every game except those from Blizzard. With the merger, Activision also gained the Spyro property. It assigned Toys for Bob to take the series in a new direction, which led to the toys-to-life Skylanders series.
In November 2009, Activision Publishing established Sledgehammer Games, formed by Glen Schofield and Michael Condrey, former Visceral Games leads from Dead Space. They meant to build a Call of Duty spin-off in the style of Dead Space. In early 2010, legal issues between Infinity Ward and Activision Blizzard led several Infinity Ward members to leave. Sledgehammer was reassigned to help with Modern Warfare 3. Sledgehammer, Infinity Ward and Treyarch have shared the flagship series since, with Raven's support.
In February 2010, Activision Blizzard reported significant revenue losses from slowing Guitar Hero sales and weak casual games. Activision Publishing shut down Red Octane, Luxoflux and Underground Development and cut about 25% of Neversoft's staff. Budcat Creations closed in November 2010 and Bizarre Creations in February 2011. The DreamWorks Animation deal expired in 2010, and THQ took the license.
Eric Hirshberg became Activision Publishing's CEO in 2010 and left in March 2018. On the 9th of January 2019, Rob Kostich was named president, after more than ten years running the Call of Duty franchise. Into the 2020s, the focus narrowed on Call of Duty, including the free-to-play Call of Duty: Warzone in 2020. By April 2021, every internal studio worked on some part of the franchise. A new studio, Activision Mobile, was devoted to Call of Duty Mobile. In 2021, with employees working remotely during the COVID-19 pandemic, Activision gave up its longtime Santa Monica headquarters and subleased a much smaller space at the Pen Factory, a former Paper Mate factory.
Microsoft acquired Activision Blizzard in October 2023. The whole group, including Activision Publishing, became a separate division in Microsoft Gaming. On the 8th of March 2024, 600 Activision QA workers in Texas, Minnesota and California unionized under the Communication Workers of America, the largest union in the United States video game industry. On the 16th of May 2024, Activision announced Elsewhere Entertainment, a Warsaw studio building a new narrative AAA franchise unrelated to Call of Duty. That same month, Toys for Bob was spun off. In July 2024, the actors' union SAG-AFTRA began a strike against several publishers, Activision among them, over fears that AI could replicate an actor's voice or likeness.
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Common questions
Who founded Activision and when?
Activision was founded on the 1st of October 1979 by former Atari programmers David Crane, Larry Kaplan, Alan Miller and Bob Whitehead. Jim Levy served as its first CEO and helped them secure capital from Sutter Hill Ventures.
Why did the Activision founders leave Atari?
The Activision founders left Atari because programmers received no royalties, bonus pay or public credit. After a May 1979 meeting with CEO Ray Kassar failed to change that, the four decided to start their own company.
How did Activision get its name?
Jim Levy suggested the name Activision by combining the words "active" and "television". The founders had first called the company Computer Arts, Inc. and had considered VSync, Inc.
What was Activision's biggest early hit?
Pitfall!, created by David Crane in 1982, was Activision's breakout title and sold more than four million copies. Kaboom!, released in 1981, was the company's first game to sell over a million units.
How did the video game crash of 1983 affect Activision?
Activision survived the crash but shrank from about 400 employees to 95 as discounted games from failed rivals undercut its sales. It moved into home computer games and bought Infocom in June 1986 to diversify.
Who is Bobby Kotick and what did he do at Activision?
Bobby Kotick led a group of investors that bought the failing Mediagenic in a hostile takeover in 1991. He cut the staff to 8 of 150 employees, restored the Activision name by the end of 1992 and later became CEO of Activision Blizzard.
When did Activision merge with Blizzard and when did Microsoft buy it?
Activision merged with Vivendi Games, the parent of Blizzard Entertainment, in July 2008 to form Activision Blizzard. Microsoft acquired Activision Blizzard in October 2023.
All sources
100 references cited across the entry
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- 69Now Every Single Activision Studio Works On Call Of DutyZack Zweizan — April 30, 2021
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