Activision Blizzard vs EA: Sequels vs New Game IPs

Jason Wong • Feb 11, 2009 • Comments ()

According to Robert Kotick, CEO of Activision Blizzard, "Activision Blizzard has delivered record December quarter and calendar year 2008 non-GAAP comparable-basis results. On a non-GAAP comparable basis, Activision Blizzard has finished the calendar year as the largest and most profitable third-party publisher with more than $5 billion of net revenues. These results exceeded the calendar 2009 financial goals that we outlined over a year ago -- when we announced the planned combination of Activision and Blizzard -- of $4.3 billion of non-GAAP net revenues and non-GAAP operating income of $1.1 billion. We achieved these results one full year ahead of our original plan. Our balance sheet remains strong with no debt and more than $3 billion in cash."

Kotick added, "In 2008, we had four of the top-10 best-selling games worldwide for the year. Ninety percent of the top-ten best-selling games worldwide were based on proven franchises, validating our strategy of a focused product slate with high-quality titles based on well-established brands. We enter 2009 with the finest product slate in our company's history and an organization properly sized and resourced to compete alongside the many new entrants and existing competitors in our industry. During the year, we will continue to employ our proven strategies that have worked so well for us over the last decade.

"During the year, we successfully achieved our merger restructuring goals, including the elimination of unprofitable product lines, right sizing our organization and integrating disparate accounting and IT systems, all with minimal disruption to our business. The success of our merger integration coupled with the strength of our product lineup should enable us to once again deliver record, industry-leading non-GAAP margins in 2009. All of our accomplishments reflect the effort, imagination and intellectual and creative talents of the people who work here. We are well poised to continue generating future shareholder value, as we have for the past 17 years."

Activision surpassed the previous market leader EA, which reported $3.67 billion GAAP in net revenues for the 2008 fiscal year. How did they pull this upset? Activision made some keen business moves: merging with Blizzard and arming themselves with major branding power. Supporters of their World of Warcraft and Guitar Hero franchises did more than their fair share in cementing Activision Blizzard as the world's largest games publisher.

Interesting questions emerge for the future of gaming in 2009. EA turned its image around in 2008 by acquiring boutique studios like Irrational Games (makers of the critical and financial success Bioshock) and investing in new intellectual properties (IP). EA hit the bull's-eye when Mirror's Edge and Dead Space became critical darlings, but the publisher was rewarded with lukewarm sales for the two games.

Activision took up the mantle of pumping out sequels to a new level: A staggering three Guitar Hero games were released on consoles between September 2007 and October 2008. Guitar Hero Mobile and Guitar Hero III: Backstage Pass hit the cell phone market within the same year. And with only six months separating the Nintendo DS games Guitar Hero: On Tour and its sequel Guitar Hero: On Tour Decades, the gestation period was close enough for the two gamers to be considered twins, instead of full-fledged brothers. There doesn't seem to be an end to the parade of plastic instruments though, as the company plans to release Guitar Hero: Metallica by the first quarter of 2009.

How much closet room and living room space will be left by Christmas time 2009 is a question every gamer will have to answer soon enough. The answer will show both companies where to diversify their games portfolio. When the votes have been tallied, whose strategy will have paid out? In 2008, sequels won over new games. Who will win in 2009? Which are more important to the long-term health of the industry? Diversity has always been the cornerstone in good investment practices. Certainly, the company that emerges as the market leader in 2009 will have predicted accurately the demands of the consumer zeitgeist. Whether it be EA the creators of new IP or Activision the masters of branding, only time will tell.

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[Source: Press Release]

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Santa certainly was certainly kind to Activision Blizzard last year. The company posted stellar profits for the quarter ended December 31, 2008. Their recorded net revenues were \$1.6 billion and when based upon non-generally accepted accounting principles (non-GAAP) were \$2.3 billion. For the entire year, the company earned \$3.0 billion in GAAP net revenues.\n\nAccording to Robert Kotick, CEO of Activision Blizzard, \"Activision Blizzard has delivered record December quarter and calendar year 2008 non-GAAP comparable-basis results. On a non-GAAP comparable basis, Activision Blizzard has finished the calendar year as the largest and most profitable third-party publisher with more than \$5 billion of net revenues. These results exceeded the calendar 2009 financial goals that we outlined over a year ago -- when we announced the planned combination of Activision and Blizzard -- of \$4.3 billion of non-GAAP net revenues and non-GAAP operating income of \$1.1 billion. We achieved these results one full year ahead of our original plan. Our balance sheet remains strong with no debt and more than \$3 billion in cash.\" \n\nKotick added, \"In 2008, we had four of the top-10 best-selling games worldwide for the year. Ninety percent of the top-ten best-selling games worldwide were based on proven franchises, validating our strategy of a focused product slate with high-quality titles based on well-established brands. We enter 2009 with the finest product slate in our company's history and an organization properly sized and resourced to compete alongside the many new entrants and existing competitors in our industry. During the year, we will continue to employ our proven strategies that have worked so well for us over the last decade.\n\n\"During the year, we successfully achieved our merger restructuring goals, including the elimination of unprofitable product lines, right sizing our organization and integrating disparate accounting and IT systems, all with minimal disruption to our business. The success of our merger integration coupled with the strength of our product lineup should enable us to once again deliver record, industry-leading non-GAAP margins in 2009. All of our accomplishments reflect the effort, imagination and intellectual and creative talents of the people who work here. We are well poised to continue generating future shareholder value, as we have for the past 17 years.\" \n\nActivision surpassed the previous market leader EA, which reported \$3.67 billion GAAP in net revenues for the 2008 fiscal year. How did they pull this upset? Activision made some keen business moves: merging with Blizzard and arming themselves with major branding power. Supporters of their World of Warcraft and Guitar Hero franchises did more than their fair share in cementing Activision Blizzard as the world's largest games publisher. \n\nInteresting questions emerge for the future of gaming in 2009. EA turned its image around in 2008 by acquiring boutique studios like Irrational Games (makers of the critical and financial success Bioshock) and investing in new intellectual properties (IP). EA hit the bull's-eye when Mirror's Edge and Dead Space became critical darlings, but the publisher was rewarded with lukewarm sales for the two games. \n\nActivision took up the mantle of pumping out sequels to a new level: A staggering three Guitar Hero games were released on consoles between September 2007 and October 2008. Guitar Hero Mobile and Guitar Hero III: Backstage Pass hit the cell phone market within the same year. And with only six months separating the Nintendo DS games Guitar Hero: On Tour and its sequel Guitar Hero: On Tour Decades, the gestation period was close enough for the two gamers to be considered twins, instead of full-fledged brothers. There doesn't seem to be an end to the parade of plastic instruments though, as the company plans to release Guitar Hero: Metallica by the first quarter of 2009. \n\nHow much closet room and living room space will be left by Christmas time 2009 is a question every gamer will have to answer soon enough. The answer will show both companies where to diversify their games portfolio. When the votes have been tallied, whose strategy will have paid out? In 2008, sequels won over new games. Who will win in 2009? Which are more important to the long-term health of the industry? Diversity has always been the cornerstone in good investment practices. Certainly, the company that emerges as the market leader in 2009 will have predicted accurately the demands of the consumer zeitgeist. Whether it be EA the creators of new IP or Activision the masters of branding, only time will tell.