Activision CEO Cautiously Eyes Social, Mobile Opportunities
Activision Blizzard is the latest major game publisher to talk up digital opportunities. On a Wednesday earnings call CEO Robert Kotick cautioned that although subscription games, digital downloads and value-added services offer “immediate and tangible business models, along with rapid growth in consumer adoption,” social and mobile games “remain characterized by unproven business models” and “a lot of clutter."
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The company predicted digital revenue will increase more than 10 percent this year. It produced the most digital revenue in the game industry in 2009, about $1.3 billion, Kotick said. Subscription, digital downloads and value-added services “require committed, careful and sometimes significant investment into infrastructure, content and execution,” he said. Social games, social network integration and mobile games are “interesting and present brand development and marketing opportunities,” and they have “relatively low barriers to entry” despite his concerns about their business models, he said. Kotick pointed to the casual Facebook game Farmville, saying “the monetization opportunities” presented by it “are still very speculative.” But he said Activision is “spending a lot of time looking at” such games. “As we always have in the past, when there is an opportunity for a new platform or a new revenue opportunity, we always pursue it thoughtfully, and we've had great success in doing that,” he said.
Activision Blizzard reported mixed results for Q4 and 2009. Q4 revenue fell to $1.56 billion from $1.64 billion a year earlier. The company’s loss widened to $286 million, or 23 cents a share, from $72 million, or 5 cents. But those results were better than expected, and revenue for the year increased to $4.28 billion from $3.03 billion in 2008. The company swung to a $113 million profit, or 9 cents a share, for 2009 from a $107 million loss, or 11 cents, in 2008.
The company increased its retail market share to 16 percent in 2009, Kotick said. Aiding performance was strong demand for Call of Duty: Modern Warfare 2, which quickly became Activision’s third title in the past few years to top $1 billion in sales, he said.
"Overall, the retail environment continues to be cautious,” Activision Publishing CEO Michael Griffith said. “We see retailers continuing to play inventories very tight … consistent with tight open-to-buy dollars. We see the same general trends that we saw in the last quarter of the year kind of playing out into the first quarter. We see retailers continuing to focus disproportionately on the largest of the opportunities that are out there,” buying games from proven franchises in healthy numbers but showing less support for other titles. “There is a cautious optimism” among North American and European retailers, he said.
Activision expects the installed base of current-generation hardware systems to grow to 265 million units this year, “making this cycle the largest ever,” Griffith said. The company expects 9 million PS3s to be sold this year, versus 8 million Xbox 360s, 12 million Wiis, and a combined 18 million DS and PSP systems, he said.
Total U.S. and Europe retail sales fell 10 percent in 2009, “due mainly to steep declines in PS2 software sales as publishers continue to lessen their exposure to the platform and lower attach rates for the casual consumer, including declines in higher priced peripheral-based games,” Griffith said. The company expects the combined U.S. and European retail software market for current-generation home consoles to increase a few percentage points from 2009. It predicted retailers “will hold AAA launch pricing throughout the year,” PS2 sales “will again decline significantly,” and DS and PSP handheld sales will also drop, he said. Activision believes “retailers will continue to be selective with their open-to-buy dollars, and will be taking a cautious approach to inventories as they have for the past few years,” Griffith said.
Activision Blizzard was pleased with the holiday season results of store-within-a-store sections that it set up at almost 600 Toys “R” Us stores, Griffith said. “This new initiative was tremendously successful, helping both” companies “build share,” he said. “We expect to continue to expand this program with more titles in the coming year, and we'll continue to work these types of initiatives with other global retailers as well."
The music-game genre was less successful. The category “was down significantly in dollars” in 2009 in the U.S. and Europe “due to major declines in PS2 sales and decreased sales of higher-priced hardware bundles, particularly on the Wii, where we have seen a weakening in the attach rate to more casual consumers,” Griffith said. Activision’s sellthrough tumbled 35 percent from a year ago in the category, but he said “we strengthened our competitive position in the genre by building share to over 50 percent.” Unit sales of Guitar Hero games were up for it on the Xbox 360 and PS3 in 2009, “showing there is still strong demand for music and this is important that these two platforms are expected to have significant increases in their respective installed bases in 2010,” he said. But Activision predicted more declines in the music genre overall in 2010. The company released 25 music SKUs in 2009 but will only release “less than 10” in 2010 and none for the PS2, he said.