Activision-Blizzard (ATVI)

Introduction

Nearly 12 million people subscribe to Activision-Blizzard’s (ATVI from here on) Massively-Multiplayer Online Role Playing Game, World of Warcraft.  To lend a little context to that number, USA Today, the country’s most popular newspaper, has 1.9 million subscribers.  The New York Times has fallen under 1 million subscribers in 2009.  Five years after release and two expansions later, WoW is still growing.  The unique nature of the game, and to a limited extent, the MMORPG genre, lends itself to continued subscriptions and a devoted consumer base.  At $13-$15 per month, 24/7 access to WoW is a very efficient use of the consumer’s entertainment dollar.  According to ATVI’s 10-Q report for Q3 2009, the company had revenues of 301 million from it’s industry leading MMORPG, which the company admitted was lower than usual due to a now-resolved licensing issue in China.

The only real threat on the horizon to ATVI’s powerhouse franchise is Bioware’s “Star Wars: The Old Republic,” which will likely be released around the same time as WoW’s third expansion.  In order to unseat the Warcraft brand, a game developer will have to exploit ATVI’s biggest (perceived) weakness in the marketplace:  timely delivery of new content.  Since around late 2005-early 2006, ATVI took a stance of limited, but significant content delivery every 3-5 months.  If Bioware wants the MMO crown, they’ll have to deliver a product of high quality in less time than ATVI.

However, one title does not a company make.  While 37% of ATVI’s net revenues for the nine-month period ending 9/30/2009 may have come from World of Warcraft, more than any other platform, 51% of net revenues came from console games for the Xbox360, PS3, Wii, etc.  Their console titles aren’t exactly laggards, either:  Guitar Hero and Call of Duty are the #1 and #2 third-party console franchises in North America and Europe. And you may have heard about Call of Duty: Modern Warfare 2, which shattered sales records when it was released in November.  ATVI produces industry leading content for every platform imaginable with franchises that defy recessionary spending.  Modern Warfare 2 was a cultural event.  StarCraft 2, sequel 1998’s StarCraft (still played professionally in 2009 in Korea), will be another cultural event in 2010.  The pattern continues with each new WoW expansion, Call of Duty release and Guitar Hero release.

In addition to a stellar product line, ATVI is an attractive company because it has been able to  leverage the cash flows of their subscription content into development of new titles that generate up-front sales.  ATVI has $2.7 billion in cash, with $300+ million in nearly guaranteed revenue coming in quarterly from its stranglehold on MMORPGs.   Competitors may be feeling the credit crunch of the recession; ATVI doesn’t.  As a product of their cash position and leading revenue driver, ATVI has increased their market share from 10% in 2008 to 13.1% in 2009.  Based on their development cycle, ATVI’s market share should continue to increase in 2010.

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