"But having their own entertainment studio instead of licensing titles to outsiders could put Activision more firmly in control of the quality of output."
And that will make them better, will it?
There are two big problems/hurdles with video-game adaptions.
The first is that games are a different beast to movies/TV shows/books in that there is a level of immersion that comes from actually being part of the story. Even if it's linear and constrained, there is still involvement. There is also the necessary action part of any game* - the controlling of an avatar of some sort or another. This need to perform actions, be it timing jumps correctly, finding keys, aiming weapons, solving puzzles, picking a lock or just moving a character around, provides something other than the story to engage the player.
In that way, one can still enjoy a game with a lack-lustre story. The need to perform actions or provide a challenge can also dictate then way a game unfolds - the pacing or difficulty or world mechanics. It could be a major plot-point as well that is justifiable because it makes the game more fun/thrilling/difficult or simply longer. Many of these plot points and mechanics would seem contrived or pointless in a movie.
Other times, the story can be intentionally convoluted or vague and barely explained at all, with the developers leaving it up to the player to fill in the blanks as they see fit or giving them the option of finding out more about the world by doing side quests or collecting things. That works because many people don't actually care about the story that much and, even with a vague or hard-to-understand story, a player is usually kept occupied by the action part of the game.
Sometimes the esoteric or bizarre nature of a video game story adds to the experience of a game but would be frustrating in a movie. I didn't understand the story of Final Fantasy VII much at all when I first played it but it still was amazing - just the general movement of it and the small interplays were enough to bowl me over and it was all a fantastical, surreal journey that I got completely engrossed in. As a movie it would be annoying and, frankly, silly.
The second problem is that so many games are based off movies in the first place!
Even if a game is not a specific tie-in, it's easy to see elements of, say, the Aliens series in many sci-fi games. (Halo being the main one.) This is one reason why I believe that most Aliens games have been so-so; the concepts have been aped and adapted so often that they are pretty much stock by now. This is the case right through as elements of popular movies are imported into video games. This might be a setting, like Assassin's Creed: Black Flag capitalising on the popularity of Pirates of the Caribbean or a stock type, like the hardened but honest police officer out for justice/revenge, as utilised in (amongst others) Max Payne. Other times it might be style, such as some horror games borrowing from Hitchcock or Lynch.
Of course, this comes back around with movies borrowing from gaming.
What you end up with is material that is not really unique in setting or style and with a story that won't necessarily work well in a non-interactive medium used as the basis for a movie. That's why there are so many ordinary and, more usually, bad, video game adaptions.
There are two ways for a VG movie to work.
One is to have a unique aspect that modifies the world or plot in some way beyond the norm. But, crucially, that aspect must work well in a movie and be used with at least some restraint. Prince of Persia is a good example. It's not a terribly original story or setting but the whole 'Sands of Time' bit provides a good hook. In the game, this gives it an interesting mechanic that not only made combat a bit more fun but also allowed the developers to create tricky puzzles and sequences that might have led to frustration without the rewind button. For all I know, the concept may even have been created to explain the mechanism rather than the other way around. In the movie, however, it was kept as the plot device but its impact in the moment-to-moment action was negligible.
The other way is to just take the general idea of the story and characters and throw out all the 'game' stuff, building an essentially new, adapted story. This might mean getting rid of some characters that don't serve a real purpose in the new format and deleting sections/levels of the game that don't translate well or don't advance the story. The problem there is that, as noted, many games have rather generic stories and are held up by the 'game' elements so removing that leaves you with a somewhat bland movie. Gears of War, for example has a passable story but the meat of the experience is the solid cover mechanics, good AI and tense firefights requiring strategy and skill. Take that out and it's not so impressive a package.
The biggest problem that VG movies face, however, is the need - or perceived need - to please the fans. That leads us to the inclusion of all manner of things that have helped push VG movies over the line to ridiculous.
Things like the BFG and first-person perspective in Doom, Jean Claude Van Damme's somersault kick in Street Fighter, 'bullet time' in Max Payne and, inexplicably, the health bars in Dead or Alive.
* - At least any that would be made into a movie.