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Publishers rule videogame universe

Developer Bungie's power play signals change

The biggest news at this year’s E3 show wasn’t a new videogame but the fight between Bungie and its publisher — and former owner — Microsoft over when to announce the “Halo” developer’s new project.

Microsoft ultimately won the dispute, and Bungie was forced to shelve its planned announcement. But the fact that one of the industry’s most prominent development studios came into E3 with its own strategy signals a change in the videogame biz.

Film and TV have competing centers of power. Studios, networks, producers, stars and agencies all have significant leverage, which only gets bigger as they grow more prominent. But in videogames, there is traditionally only one endgame for successful developers: getting acquired by a big publisher.

“Publishers have done a very good job of maintaining a one-sided financial model throughout the industry, and the real reason comes down to their desire to own the intellectual property,” says Steven Smith, an attorney focusing on the videogame biz at Greenberg Glusker.

The result is that the creators of videogames are lacking in power, recognition and, compared with their counterparts in other media, the financial rewards that usually come with success.

Bungie’s groundbreaking declaration of independence from Microsoft last year is one of a few recent signs that the situation may be changing. The past year also has seen a group of well-respected Japanese developers form their own company, Platinum Studios, and land a multigame deal with Sega. Ken Levine, head of the Take-Two-owned studio that made last year’s smash “BioShock,” is renegotiating what could be a lucrative contract with the help of reps at CAA.

But such moves are still quite rare.

“The market answer is that in Hollywood there is value in certain people’s identity,” Levine notes. “I imagine as a figurehead at my studio, I may add some value now.”

Dating all the way back to the founding of Electronic Arts in 1982, there have been attempts to give creators more value by getting fans to recognize them, but such efforts have consistently failed. With a literal handful of exceptions such as “Sims” creator Will Wright, “Grand Theft Auto” gurus Sam and Dan Houser and Nintendo mastermind Shigeru Miyamoto, videogaming is just not an industry able to turn its creators into stars.

“I think videogame developers are more like directors,” observes Take-Two chairman Strauss Zelnick, a former music and film exec. “There are some directors who are household names, but not many.”

Videogame developers also lack something that even no-names in Hollywood have: a union. Publishers have virulently opposed any effort to oblige them to share profits with talent, as SAG found out when it unsuccessfully tried to earn residuals for videogame voice actors in 2005.

If individuals able to demand a bigger piece of the pie are unusual, some point out, there may be more hope for their studios. Most videogames are made by teams that work together for years at a time, and those teams often forge identities that gamers know, be it Bungie, “World of Warcraft” creator Blizzard, “Call of Duty” maker Infinity Ward or “Guitar Hero” and “Rock Band” developer Harmonix.

But all those studios except Bungie have something in common: They’ve been bought by a huge corporate publisher. Their top employees may be well compensated, but they still lack independence and the ability to define their own future.

“In many cases, the creative leads just aren’t interested in running HR and accounting and finance anymore,” Bungie CEO Harold Ryan says of the reason most developers eventually agree to be bought. “They also need help to sustain their burn rate in between games.”

Bungie was in a unique position, Ryan says, because of the financial cushion provided by nearly a decade working on one of the most successful franchises in videogame history.

Most developers of high-end console games, which typically cost more than $20 million, simply can’t afford to raise that money and take those risks. The alternative, which more young developers are pursuing, is to make low-cost downloadable games with a small team.

That’s an increasingly important segment of the market. But for many, the ultimate accomplishment is to work on the titles with the best graphics, most sophisticated gameplay and deepest stories.

Bungie’s newfound independence is a test of whether that work can be done successfully in a model where growth leads to independence, not the end of it.

“Having seen Bungie internal and external to Microsoft, I think the creative energy is much more enhanced by being independent,” Ryan says. “But if we mess it up for the next 10 years, we’ll have to find some alternative.”

See Variety‘s first in-depth look at the vidgame mavens who drive this dynamic sector, we spotlight the talents and executives behind the year’s most exciting success stories.

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