Activision Blizzard is playing a high stakes game these days. The veteran video game publisher is now betting on a handful of billion dollar franchises – Call of Duty, Skylanders, Destiny and World of Warcraft – and it is betting big. There are rumours (recently denied by developer Bungie) that Destiny cost $500m to develop.

Like Electronic Arts, Activision is characterised by the hardcore gaming community as an unimaginative production line of bland money-spinners; a corporate machine where innovation is outlawed.

But is that how it sees itself? During the E3 conference, Simon Parkin asked Activision Publishing CEO Eric Hirschberg about the company's approach to development, and the risk of relying on these giant brands.

How much creative freedom do you afford your studios?

We try to make the guardrails as wide as possible. Obviously there are specific things that make a Call of Duty game feel like a Call of Duty game and Sledgehammer is well-versed in what those things are having worked on the series before.

But we feel like this series has stayed relevant longer than anyone thought that it could. Therefore the need for innovation, new voices and personality is greater than ever. It was not accidental that we allowed fresh talent to come in and develop their take on the series. I told the team at the beginning that I’d prefer to have to pull them back on if they weren’t going far enough than vice versa. So they came in right at the start with some grand ideas.

How do you manage when something’s too far or not?

It’s more give and take. The process of evaluating the game as it goes along involves a huge number of people, including the team itself at Sledgehammer. They are very good at self-regulating in terms of what is and isn’t working in the game. That said, there’s always a conversation when you inherit an IP that brings certain expectations along with it. The balance that you’re trying to strike is between delivering what people love about the franchise, while simultaneously bringing new ideas in.

As the cost of development increases your portfolio shrinks. How can you develop new types of game in this kind of economic equation?

Yes, on one hand we deal in big budgets and gambles, but I don’t think there’s been any shortage of bold new ideas in terms of building the portfolio. Skylanders was not only a new IP but also an entirely new play pattern. It was something that we created and believed in. We got into kids games at a time when other publishers were exiting. It was hard to find the graph that made it a ‘no brainier’.

With Destiny, the fact that it’s a Bungie-developed title helped. They have a great track record: they can make lasting franchises. That was part of the calculation for us. At the end of the day it comes down to: are we making something that people are going to want to play. It’s a hard judgement but getting it right is something we are good at.

OK, but with Destiny your solution was to hire a top-flight studio to mitigate the risk. That’s not always possible so what other mechanisms do you have in order to develop new ideas?

All kinds of ways. It wasn’t just a case of hiring a top-tier team. It was also the specific idea that they presented. They had a vision of combining two genres that Activision-Blizzard is known for: first person shooters and MMORPGs. Those are the company’s two biggest genres. They planned to the best bits of both and merge them together in an interesting way. That’s a big part of what got us excited. It wasn’t just that they had made Halo.

It was very different from Skylanders’ gestation. That came from a small team skunk-works project. At any one time across the company there are probably fifteen similar skunk-works projects going on. We encourage those and make time for them. They are official/unofficial but great ideas come out of that process.

At other times it's about bringing new talent into an existing franchise as with Advanced Warfare and asking them to make us uncomfortable, to go further in their experimentation than people might think they should.

How is the rise of Spotify-style cloud gaming services going to impact Activision's business over the next few years?

I don’t think the games that we are making right now are headed into that sphere. It’s an interesting thing to look at. But latency and performance are so critical to the experience of these games. Milliseconds matter. So far, for games like Call of Duty and Destiny we prefer global delivery onto the specific devices.

More interesting to me is the way that people are sowing a new willingness to consume entertainment: new ways to pay for it, to pay for products. We are looking at that and learning about it, but our fundamental strategy remains straightforward: make strong content that people believe is worth paying for.

What responsibility do video game creators have when drawing inspiration from real-world military technology and events?

Well, our responsibility is to make an awesome game.

But when you’re dealing with entertainment that’s based on conflicts that, in some cases, are historical,isn't there a responsibility to deal with the subject matter sensitively?

These games are part of a long line of pop cultural institutions that have good guys and bad guys, people trying to save the world and epic heroics. I think Call of Duty fits into that well-established territory in pop culture. It’s entertainment. While yes, a lot of the creativity comes from looking at science and avant-garde ideas and developments in weapon design and military technology, at no point are we trying to make a game that is rooted in a real world conflict.

Advanced Warfare is set forty-five years into the future and the bad guy isn’t a country or a government but a CEO of a company. That is a brilliant fictional leap from today’s headlines with PMCs. We are imaging the ‘what-if’ scenarios if certain forks in our future’s road were taken. So I think we do a good job of creating conflicts that feel compelling and authentic, but that are purely fictional.

It’s been four years since the mass walk-out at what was Activision’s primary studio, Infinity Ward. How have you worked to ensure this kind of thing doesn’t happen again?

First of all, the Infinity Ward stuff happened before I joined the company so I don’t have much insight into that. What I can say is that that in the intervening years since then we've launched three of the best-selling games ever. We have all of the confidence in the world in our teams and they’ve earned that by putting out great titles since that event.

• E3 2014: Call of Duty Advanced Warfare – the future of CoD

• Destiny – how the makers of Halo plan to change the future of shooters

• Skylanders Trap Team – the billion dollar series gets a new generation