Activision

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darrens
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Activision

As I was typing all the key releases into the release schedule I was struck by the disparity between EA's solid schedule and Activision's weak one. If you haven't taken a look then under Company Information in the Bougafer menu you can select a publisher and you get the key events and releases just for that publisher.

Activision's line-up is, quite frankly, weak. I suppose because they've killed some of their solid franchises (Tony Hawk, Guitar Hero, DJ Hero) and failed with some new ones like Blur they're left with Call of Duty and some licensed stuff. Now their recent results were good but that must be built on the twin pillars of World of Warcraft and Call of Duty.

What I think is interesting is that the Call of Duty is under some pressure this year from a number of different angles.

Firstly, it's just difficult to annualise a franchise - apart from the sports titles like FIFA, NBA2k I can't think of any franchise that survives an annual iteration for more than a few years. So, there's a risk that CoD players are going to get (or be) jaded.

Secondly, this year's title is being developed by Infinity Ward. For those that have forgotten this is the developer where Activision sacked the studio leads which led to bitter recriminations and (I think still running) law suits. That's hardly the best recipe for a successful development.

Thirdly, Activision have a terrible reputation for killing their franchises due to over-exploitation (and a touch of arrogance). Call of Duty is a phenomenon but that does mean it can escape from Activision's curse?

And fourthly, and I think most interestingly, Modern Warfare 3 is going head to head with Battlefield 3 from EA. Now, there isn't a franchise out there (with the possible exception of GTA) that would really scare Modern Warfare but I think there's a real risk that Battlefield is going to eat some of their lunch. Battlefield is an established franchise, in some ways ahead of CoD, it's had a lot longer in development and, who knows, maybe people will be ready for a chance.

The battle is a long way off but if Battlefield 3 does throw a stick into the spokes of Modern Warfare 3 then Activision are going to be looking very precarious as the top publisher. Because without the strength of Call of Duty then all they have is the Blizzard stuff. And for those that think Call of Duty is too strong, then remember that Call of Duty rose up to take the crown from Medal of Honour. So there is a precedent for this.

Interesting no?

runalot3
I find often battlefield to

I find often battlefield to be a lot more enjoyable, you have all the vehicles to drive, you can destroy scenery and the maps can sometimes be big enough for you to hide to hatch a plan. In Call Of Duty there are crazy fire fights but there is often little difference between a battle on the same map. Yes you can change the type of battle from team death match to something else but the aim is the same often just kill everyone you see. Battlefield you can run around or fly around or drive and destroy buildings which people are hiding in. This means that the battles will often be quite different because if you are in one building in the round before that might not be there the next round. Also it is a big shame that that Activision got rid of DJ hero and guitar hero, I personally really enjoyed them. I don't think DJ hero got enough of a chance to blossom.

darrens
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I'm not familiar with

I'm not familiar with Battlefield but is there the same levelling up system that they have in CoD? From what I'm told that's one of the big draws of CoD - you invest so much time in levelling up that you feel you need to invest more time (repeat to fade).

runalot3
Yes I think there is levels,

Yes I think there is levels, however I do not think there is the prestiges and banners like Call Of Duty. There is also zombies on Call Of Duty and training mode. Training mode for me is the best part of Call Of Duty because I can play 4 player multiplayer maps with my friends without going online and have some enemy cpu's to play against. There is also the problem in both games of an extremely short story which is a real shame because the actual base of the story is good. I would like there to be alot more single player but there won't be as these are two big multiplayer games each with their own good features and bad. So I think it is hard to choose between them.

darrens
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Have you read this preview of

Have you read this preview of Battlefield 3? Like all previews, it cranks up the hype-meter but it certainly sounds like CoD is going to have some competition.

runalot3
The idea of having the debris

The idea of having the debris causing damage is a really good one. However, some gamers that play CoD won't like this because they like to be able to hide behind things and a bullet might get through a wall if they are unlucky but often that wall means you are pretty much safe if you hide behind it. So some gamers might find this too realistic but I may be wrong.

tsanalysis
tsanalysis's picture
Activision

My thoughts on Activision are that at their market cap it really takes a lot to move the needle, and they are too dependent on too few franchises. Now I have said that I don't favor the shotgun approach that some other publishers are still following, but when you have $13 billion of market cap riding on 3 or 4 mega franchises that is a bit too extreme. I feel that WoW and CoD are probably near their peak which is also troubling.

At the same time, I don't think Activision would make an attractive short candidate because even if WoW or CoD are near their peak, I wouldn't expect their sales to fall off a cliff. And Activision has enough in the works to give potential shorts pause for concern. I posted more detailed thoughts at my blog, but basically I came to the conclusion that the best play on Activision was not to play.

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darrens
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3 or 4 mega franchises?

3 or 4 mega franchises? Aside from WoW and CoD then what do they have that is making any significant profit contribution?

I don't think WoW sales will fall off a cliff but I do wonder if CoD could see a big decline over the next few years. That does seem a real possibility due to a) player fatigue, b) Infinity Ward problems and c) Battlefield 3 competition.

I'm saying this realising that MW3 is already in the top 10 of the Amazon charts so it seems like quite a bizarre thing to say but (aside from the sports game like FIFA and Madden) there has never been an annualized mega-franchise that has survived more than 3 or 4 years.

I'm thinking it may become a decent short candidate although too early yet to say.

tsanalysis
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I was kind of thinking of

I was kind of thinking of current and future releases, so I was including Starcraft, Diablo, Blizzard's next MMO ("Titan"), and Bungie's project among the (potential) mega franchises.

The CoD Elite news today was interesting. I know there haven't been any non-sports franchises which have been successfully annualized for so long, but if there is one which might be able to do it I think it would be CoD. It might not be such a bad strategy for ATVI. While there may not be any one shooter franchise successfully annualized for several years, as a category shooters have remained popular and produced a mega seller for many years. If Activision can pour the resources into the franchise to keep it at the top of the heap quality wise (although admittedly I think BF3 may have it beat in quality this year) and with the hooks being built into the multiplayer and social aspects to make players more invested into their characters and communities, and thus more reluctant to switch to competing products, then perhaps Activision stands a chance of at least maintaining CoD's popularity.

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darrens
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Well, I think Starcraft is

Well, I think Starcraft is nice to have but I don't think it's profit contribution is significant compared to CoD and WoW (unless I'm mistaken). Diablo, well, I just don't know. It's been so long since the last one and I do wonder if there's room for Diablo any more. It used to be just a dungeon crawl and I'm not sure that will fly any more.

Titan? Don't know anything about it, may have to resort to google but, again, is there room for another MMO without canibalising WoW?

CoD Elite is interesting because it's clear that Activision are mindful of the threats to CoD dominance and also are working out how to leverage the enormous on-line commnity to their advantage without charging them to play. I like the CoD Elite model and it will certainly strengthen their position but I do still think the fps crowd can be lured away from CoD by the right game, the right marketing and a bit of luck.

tsanalysis
tsanalysis's picture
You are right that right now

You are right that right now WoW and CoD are the main profit drivers. I was just thinking over time Starcraft and Diablo might be moved to more of a subscription based model as well. Hardly anything is known about "Titan" so far (that is just the codename, btw). I agree it might cannibalize WoW subs, but I was thinking Activision might be able to do some interesting package incentives - such as paying $xx/month for access to all of Activision's MMOs and premium services (Titan, WoW, CoD Elite, etc). That might be attractive to some gamers and allow Activision to bring in even more recurring revenue. Or maybe after Titan reaches a critical mass of subs and WoW subs have declined significantly Activision transitions WoW to a free to play model. There are some interesting scenarios to think about.

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darrens
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You raise some interesting

You raise some interesting points about possible package deals although I have to wonder if anybody paying subs for WoW would have any free time to play anything else (and ditto CoD)!

I don't know if there's been any research on whether people who pay subs tend to dedicate themselves solely to that game but I could believe it.

darrens
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Gamestop have said that MW3

Gamestop have said that MW3 sales are ahead of Black Ops for the equivalent time last year, i.e. when the games were announced but before there were any details.

runalot3
I hate the idea of CoD Elite.

I hate the idea of CoD Elite. If you play on Xbox and computer you already are paying for the internet, xbox live, the game, the console. Having to pay more money for extra things seems like my idea of a nightmare. Some people would do it cause there is always somebody who wants to get ahead by paying money. However, for people who don't want to spend lots of money it is something we hoped wouldn't happen.

darrens
darrens's picture
Has it been announced yet

Has it been announced yet which bits of Elite you're going to have to pay for and which bits are free? I think Activision would argue that everything which is free today will be free going forward.

darrens
darrens's picture
Diablo 3 previews

coming out and they are all pretty positive so maybe I've mis-judged this one because they all say it is hellishly addictive.

However, for outstanding journalism I have to just point you to this preview by gamesradar which I genuinely think is excellent.

darrens
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Does anybody know what has

Does anybody know what has happened to the 007 game? Activision still listed it (in so much as a logo for up and coming games this financial year) in their last results presentation but I can't find any mention of it with any of the release dates.

Has this died with the film?

darrens
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To answer my own post it

To answer my own post it seems that Activision are launching a PS3 exclusive called "Goldeneye 007: reloaded" on the 1st November. At first glance this doesn't look like being a significant title for Activision and is more damage limitation from the lack of a Bond film.

tsanalysis
tsanalysis's picture
Spider-Man: Edge of Time - 61

Spider-Man: Edge of Time - 61 on Metacritic (for 360)
X-Men: Destiny - 48 on Metacritic (for 360)

Is Activision trying to destroy their Marvel license games business? Batman Arkham City shows that you don't need a new movie to make a super-hero game successful, if its good. Are Spider-Man and X-Men headed the way of Tony Hawk and Guitar Hero? Can Activision get anything at all going on the console side besides Call of Duty? Activision has really been talking up Skylanders. It appears to have gotten a few decent reviews but is collecting figures still popular among kids? I don't see any excitement for Goldeneye 007 Reloaded.

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darrens
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Activision really have proved

Activision really have proved the rule that it's hits that matters. They have taken it to an extreme though with two mega successes (CoD, World of Warcraft) and absolutely everything else they do a big pile of loss-making rubbish. Okay, it isn't *quite* that simple with Starcraft doing okay and, probably, Diablo will do well but on the "not-Blizzard" stuff then it is totally true.

Skylander? Well, it may do okay but even if it does they don't own the ip for that do they? So, it turns the wheels to some extent but that's about it.

I should take a proper look at them because with the CoD phenomenon surely about to fall away soon and with WoW subscribers flat to reducing they may be a long terms short.

tsanalysis
tsanalysis's picture
Activision does own the

Activision does own the Skylanders/Spyro IP. Spyro was owned by Vivendi/Sierra, so that came with the merger. Interesting tidbits in the following article mentioning that the budget for Skylanders was more on the level with Call of Duty than a standard release:

http://www.industrygamers.com/news/the-toygame-hybrid-will-it-fly/

Still, I haven't really seen that much buzz for the game other than from Toys R Us placing it on its hot toys list which it has an incentive to do since it is Activision's launch partner on the game/toys.

ATVI probably will make a potentially good short at some time, but for the near term I am thinking they may have some momentum. It is interesting what they are doing with Call of Duty Elite. I don't expect it to gain widespread traction, but I think what they are doing is effectively pulling forward sales from those hardcore players who were sure to buy all the DLC anyways. For those people the price of Elite is actually a good deal. Those map packs are quite successful, selling millions of copies at $15 each. ATVI is probably pulling forward over $100 million in sales that would have occurred over the next 6 months by selling the Elite membership up-front instead of those people buying the map packs individually as they are released.

I am also intrigued by the possibility of additional revenue from Diablo III with the cash auction house they will be shipping with the game. ATVI will get a cut of every listing/sale like Ebay. I think it could be quite successful.

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darrens
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Ah yes, I corrected myself

Ah yes, I corrected myself yesterday when I was chatting on a different message board but hadn't realised that I'd said the same thing here about the Skylander ip. Skylander actually has had some decent reviews but it has hardly been lighting up the charts. However, it's probably early days since it is probably more a holiday gift than a hotly anticipated game so I don't think it's right to write it off yet and is worth watching.

I think all eyes should be on MW3 - it will be a huge seller but with some real competition it will be interesting to see whether it can outsell Black Ops.

darrens
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Really good results from

Really good results from Activision proving once again that when you have the biggest franchise in video gaming history then it doesn't matter what else you do wrong.

And with Battlefield 3 seemingly not quite the force it was reckoned to be, MW3 is looking like simply moving the (financials) bar even higher.

I'm still not a fan of Activision in its current form but with the CoD juggernaut still rolling that papers over any number of cracks.

tsanalysis
tsanalysis's picture
If ATVI rallies on MW3 hype I

If ATVI rallies on MW3 hype I think it actually makes ATVI a more attractive short candidate heading into next year. I am fairly certain that sales of next year's Call of Duty game will decline from MW3 (perhaps significantly). MW3 concludes the Modern Warfare trilogy, which has generally been the higher regarded series than the off-year releases. Part of the sales of MW3 map packs that would have occurred in Q1-Q3 were pulled forward by CoD Elite, so revenue in those quarters will be lowered somewhat (at least on a non-GAAP basis). WoW subs continue to decline, now reported at 10.3 million during the conference call. After the release of Diablo III I think ATVI may be primed for a fall.

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tsanalysis
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So MW3 is doing quite well on

So MW3 is doing quite well on Metacritic. Quite an accomplishment I think for Activision to survive the departure of West/Zampella and a large part of the Infinity Ward team and deliver a 90 rated game. I read an article mentioning that five studios contributed to the development of the game. Infinity Ward and Sledgehammer did the majority of the work but Treyarch, Raven and Neversoft also contributed.

However the user ratings at places like Amazon and Metacritic appear at odds with Metacritic. Metacritic's user ratings in particular are really low - 2.1/2.6 for the PS3/360 versions? Is there some sort of downrating campaign against the game I am not aware of or day one server issues or something else I am not aware of causing those low user reviews?

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darrens
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I agree and think that they

I agree and think that they seem to have done a good job quality-wise despite all the upheavals.

Not sure if it's of any consequence but I think one of the developers took to twitter to ask people to give it good user ratings to balance out the negative campaign.

However, it doesn't appear to have affected early sales which have been stellar. Activision share price suffering a bit from a decline in WoW subscriptions but isn't that old news?

tsanalysis
tsanalysis's picture
Skylanders at #11 for October

Skylanders at #11 for October NPD is very respectable. Probably means around 200,000 units, so maybe closer to 500,000 worldwide. I think it should do well over the holiday. Anecdotally on more than one occasion I have been in a game/toy/electronics store and witnessed moms either buying or being asked by their kids for Skylanders. I now do not think it is out of the realm of possibility that Skylanders really could catch on as one of the 'cool toys' for this holiday, especially if it starts to go viral with the kids sharing their toys. If that happens, 3-5 million units sales worldwide doesn't seem out of the question. Who would have thought?

If that happens, along with Modern Warfare 3 apparently up over Black Ops, and all the revenue that would be brought forward into the December quarter with the Elite subscriptions, and all of a sudden I am thinking Activision could be an interesting short term trade on the long side.

ATVI raised EPS guidance for the year to $.085. ATVI has around $2.5/share in cash. Subtract that out and ATVI is trading around 11-12x calendar 2011 EPS. If, as stated on the cc, WoW's subscriber loss was mainly in the East, and Blizzard's offer of a free copy of Diablo III to those who resubscribe to WoW for a year helps stem the losses then I am thinking ATVI might be good for a short term trade on the long side, especially if the share price gets driven down some more on the fears over the WoW subsriber losses this quarter. Thoughts?

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tsanalysis
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I found this stat from

I found this stat from Activision's PR this morning staggering. Worldwide sell-through in first five days:

Modern Warfare 2: $550 million
Black Ops: $650 million
Modern Warfare 3: $775 million

Unbelievable. Separately, Gamestop said during their conference call that they sold 600,000 CoD Elite memberships. If I see evidence of Skylanders gaining momentum as a must have toy/game heading into the holidays I will be tempted to actually go long Activision for a short term trade.

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darrens
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I'm not that excited about

I'm not that excited about the MW3 numbers (in the UK it sold less units but did more in value because of the higher price) because it's pretty much in line with what everybody expected.

The Elite memberships are more compelling. That is a number which piques my interest in Activision and if that continues to climb I think that does make Activision look a bit more interesting.

I'm not yet convinced that Activision are worthy of a long term investment but I agree that the numbers are hard to ignore.

darrens
darrens's picture
So, in the UK MW3 was down 14

So, in the UK MW3 was down 14% (in unit sales) on Black Ops. The US has just reported software down 14% so I'm assuming that there may be a similar picture in the US.

Skylander has done well:

-“We get asked a lot about how Skylanders is performing. If you combine the sales of software bundles with the character packs which are tracked in the accessories category, the title would rank 4th in December, and 10th for Annual 2011 on dollar sales.”

... but, nevertheless, I wonder if if it's time to short Activision on the back of disappointing MW3 sales?

darrens
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Activision numbers very good

Activision numbers very good and they appear to have un-earthered a new franchise in Skylander. Also WoW subs seem to have stabilised a bit and they talk about two new Blizzard games this year (presumably Diablo 3 and maybe Titan).

However, although they are profitable and generating cash it is difficult to seem growing over the next year or so and I wonder if dividend and share buyback is the best use of their excess cash. They are living off CoD and WoW and I would have thought they needed to invest some decent money in creating new franchises. There's been some talk of them buying Take Two but, although in theory a good move, it's impossible to imagine Zelnick and Kotick doing a deal. Whether the respective Board's can make something happen without those two co-operating I doubt.

So, I think it's treading water for Activision at the moment which is unexciting and won't really fire up the stock markets (who look for growth) but when they're generating cash and profits you can't be too critical.

Unless you're a shareholder.

tsanalysis
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Interesting figures for MW3

Interesting figures for MW3 in January NPD here:

http://blogs.ft.com/fttechhub/2012/02/call-of-duty-takes-big-january-hit...

MW3 sold roughly half the units in January that Black Ops sold last January. I expect this year over year weakness to continue for MW3 and as a result think MW3 will be down from Black Ops lifetime. Further evidence I think that major franchises have peaked for this generation.

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darrens
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I certainly agree that CoD

I certainly agree that CoD has peaked for this generation. Apart from the fact that it now has serious competition in Battlefield it is really hasn't progressed as a game since Modern Warfare 2 I don't think. Eventually people get tired, which they are now. I doubt Acti are going to break the mould and take any risks so it's probably a gradual decline now for CoD, although Elite and the fact that it's starting from such a high base means it will still be a huge money-spinner for them.

tsanalysis
tsanalysis's picture
I'm still not interested in

I'm still not interested in ATVI but Skylanders continues to defy my expectations. I thought kids weren't interested in collecting figurines any more, but they were (and apparently a fair number of adults were too). I thought the craze would die down quickly after the holiday but it is still going. I thought Skylanders would be a one and done fad but it is looking now like it is turning into a lasting franchise which will do well this holiday as well.

NPD said that the franchise has now sold just under $200 million at retail since launch (when all games, figures, etc are added together).

http://www.cnbc.com/id/47043890?__source=yahoo%7Cheadline%7Cquote%7Ctext...

I am not sure about margins, but that is equivalent to roughly 3.3 million units of a $60 game at retail. Not many titles reach that level at full price so not bad at all. Just for comparison ME3 generated about $80 million at retail in its first month and looks to be slowing considerably already.

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tsanalysis
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It is pretty amazing to think

It is pretty amazing to think that in the past couple years Activision has had consecutive annual entertainment record setting sales with Call of Duty, released PC record setting sequels to Starcraft and Diablo, as well as expansions to WoW, and established a new billion dollar franchise in Skylanders and yet the stock is pretty much flat over that timespan. What happens when not everything released by Activision is record-setting anymore?

Actually, the technical indicators on ATVI have turned negative recently with the 20 day moving average crossing below the 200 day moving average (a strong negative indication). Could ATVI finally break out of the channel it has been in to the downside?

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darrens
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Just been having a think

Just been having a think about Activision and, as it turns out, the biggest compliment that you can pay them is that their stock has flat-lined.

I've never really been that excited about Activision recently because their stock always seemed fairly valued and the Cod/Wow bubble only seemed to be able to go one way. But I'm really impressed by Skylanders - it was a new concept which didn't really make any headlines when it first came out but it has gone on to be really powerful with significant steady sales.

I'm also very impressed with the way that Diablo 3 has performed. By my reckoning it has sold something like 2.5m-3m physical copies in June and, as a pure guess, I'd say at least as many digital downloads. Those are pretty amazing figures for a pre-historic PC only franchise with an 88 metacritic and old as the hills gameplay.

They are forecasting earnings of 94c/share which only gives them a forward p/e of around 12 so that doesn't make them expensive. But on the flip side, I do wonder where they can go from here and whether there's a real growth story. I think they are doing a really good job of creating solid, steady earnings (certainly better than any of the other publishers) but it's difficult to see their numbers ramping up significantly and for that reason I'm just not whether they make a good investment.

tsanalysis
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I would be careful with ATVI.

I would be careful with ATVI. Technically it looks like it has begun a downward channel with the shorter term averages crossing below the longer term averages.

WoW activity is still steadily declining:

http://www.warcraftrealms.com/weeklyfactionactivity.php

And Diablo III activity has come down alot since launch:

http://beta.xfire.com/games/d3

Also, upside this quarter from Diablo III will be offset by charges resulting from Activision's settlement with West/Zampella (Activision made it a point to mention in their PR that the settlement would have no impact to their previously issued guidance due to stronger operational results in the quarter - so basically Diablo III strength offset the settlement).

I expect CoD will be down this year. And Skylanders will just replace last year's revenue. I actually think that Activision Blizzard's franchises (WoW, CoD, Diablo, StarCraft) stand a lot to lose from free to play.

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Artheval_Pe
Activision laid-off 89 people

Activision laid-off 89 people at Radical Entertainment and decided that the studio will support games from other Activision studios going forward : http://www.gamesindustry.biz/articles/2012-06-28-prototype-2-developer-s...
http://www.canada.com/entertainment/laid+Vancouver+video+game+company+Ra...

With Neversoft, Raven, Sledgehammer Games, Demonware, Beachhead Studios, Treyarch and Infinity Ward all working on Call of Duty, this seems to me like a very shortsighted decision from Activision. When the Call of Duty franchise will be exhausted (and it will happend in a few years), Activision Publishing won't have any new franchises. Except for Skylanders, the Bungie project and a few licensed games (a lot of them being far from good), they don't have anything except Call of Duty. Plus, the reputation of the company among both gamers and developers is terrible right now.

In a 5 years, we may see Blizzard subsidising the losses from Activision Publishing. Even if World of Warcraft is declining, I am confident, given Blizzard track record that Titan will replace it, and we have seen that the traditional StarCraft and Diablo games still sell extremely well.

darrens
darrens's picture
Why do you think it's short

Why do you think it's short-sighted? There's not a lot of point having a developer, paying all those people, if there isn't anything for them to work on.

I agree with you that they will need new ip to replace the old as it gets tired but, since most new ip fail, I think it's far too risky to have in-house studios working on new ip. Let the entire independent development community work on new ip ideas and then make a contract and publish the ones that you think may be successful. If you end up with a successful franchise then think about buying them and taking them in-house.

But I agree with Activision on this one. Prototype is a failed ip so what's the point keeping on the studio that develops it?

I was startled when I looked at http://www.bougafer.com/content/publisher-valuations to see Activision fundamentals in a different league to all the other publishers. It shows how the market thinks of them and it also shows that if they could buy one of the other publisher's (earnings) and convince the market to put them on the same p/e as Activision's other earnings then that could be instantly accretive to Activision even if they paid a huge premium over the current share price.

Because of egos I don't think it will happen but it may make good business sense.

Artheval_Pe
Well, I happen to have a

Well, I happen to have a different point of view. I think that it is becoming increasingly unlikely for Activision to be able to pick-up any external valuable studio or ip because of Activision recent behaviour towards its internal studios and towards its employees. Most stories of things going terribly wrong during development because of the parent company come from Activision.

Obviously Activision will be able to buy studios and franchises from people who are starved from money and maybe they will find some gems that way, but I don't see any decently-sized studio who can get offers from other publishers becoming part of Activision. I know developers who simply don't consider working for Activision when they're looking for a job. Even when they are junior and jobless.

Another factor is that developers face a completly different ecosystem now, compared to what they faced back in the day when Activision bought Infinity Ward, Treyarch, Grey Matter and Neversoft. Back then, as a developer, you absolutely needed a publisher to get your games to the market and to fund them. So it made sense to sell your company to a big publisher.
Now, developers can self-publish through Steam, by going free-to-play, etc. And they can get money from banks, venture capital or even through Kickstaret. A lot of successful start-ups like Mojang, Tripwire Interactive, ACE Team, Robot Interactive, Trendy Entertainment stayed independent. And the studios that didn't stay independant got bought by publishers like Tencent (Riot Games), Perfect World (Runic Games) or Bethesda Softworks (Arkane Studios, MachineGames, Tango Gameworks), not by Activision or EA.

I think that Activision can keep succeeding precisely by taking risks and developping internaly new IPs that might fail, precisely because they have the financial capacity to let some games fail. Look at Ubisoft : They didn't succeed by waiting for others to build a blockbuster for them. They heavely invested in an original and unique franchise, and now they have Assassin's Creed as a big blockbuster franchise. At E3, they won the show with Watch Dogs which got an insane amount of interest. It is another internaly-developed new franchise.

Prototype is a failed IP, so it needs to be scrapped. I agree with you on that. But I think it would have made a lot more sense to keep Radical Entertainment onboard and have them develop a new IP that might have become the next big thing. They have a talent for building fun open-world destruction games that is recognised, these people knew each other and worked efficently as a team. Destroying that was just a waste of value. It makes sense in the short term, but in the long run, you're just sending valuable manpower to work for your competitors.

tsanalysis
tsanalysis's picture
I wonder if the huge volume

I wonder if the huge volume on ATVI on Friday had to do with the White House meeting on Friday with various industries on gun violence, and presumably no news about any significant new restrictions on the video game industry? If that were the case though I would have thought TTWO and other publishers would have had unusually large volume as well, which wasn't the case.

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darrens
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Activision results today and

Activision results today and it will be very interesting to see how well BLOPS2 actually sold and also what they have to say about 2013. I've seen conflicting reports about BLOPS2 sales with it initially being talked about as down double digit percentages over last year's MW3 but, more recently, there have been some reports contradicting this. We'll find out today who was right.

Activision have already sounded a warning bell with regards to 2013 and, given that they are one of the few publishers with a Dec 30th year end, they will be giving forecasts for their next fiscal year today. That is bound to weigh heavily on their own stock price and also, as a bellwether, to some extent on the other publishers too.

Whether you're invested in Activision or not, their results and ensuing conference call is going to affect sentiment towards the whole industry and they need to strike the balance between being excited about next-gen and what it means going forward, yet managing expectations for a fiscally weak 2013.

tsanalysis
tsanalysis's picture
Very good point about ATVI

Very good point about ATVI being the only publisher having a Dec year end. It will be very interesting indeed what they say about next year.

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tsanalysis
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Well, ATVI repeated their

Well, ATVI repeated their cautious remarks about 2013. What I found most interesting though was their statement about pursuing non course actions. It probably has to do with buying out Vivendi, but I guess you never know.

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darrens
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Great last quarter from

Great last quarter from Activision (so that's only EA who didn't have a fantastic quarter) handsomely beating both revenue and eps forecasts. It's also difficult not to mention the nearly $4bn in cash that they are sitting on after another year of super cash generation.

As you say, they are continuing to be circumspect in terms of next year and have forecast an eps of 80c against this year's eps of $1.18. Here's their paragraph explaining that:

"...due to a challenged global economy, the ongoing console transition and a difficult year-over-year comparison because of Blizzard’s record-shattering Diablo® III success in 2012"

Interesting that they specifically mention Diablo III which I think plays a large part in that since they have a pretty much 1:1 this year on all their big revenue generators (COD, WoW, Skylanders) but nothing to replace their lost Diablo III revenues.

I note the paragraph you mentioned...

"The company is considering or may consider during 2013, substantial stock repurchases, dividends, acquisitions, licensing or other non-ordinary course transactions, and significant debt financings relating thereto."

...and your guess is as good as mine on that. With the amount of cash they have I wonder what they may be referring to which requires debt financing.

Shares were up after hours so it looks like they had prepared the ground well for the drop in next year's eps. Activision are hardly a bargain but I do think they are one of the publishers to admire (as an investor).

tsanalysis
tsanalysis's picture
Is the time finally

Is the time finally approaching to short ATVI? I've been thinking it every year, but every year ATVI has managed to pull through - either with another record Call of Duty release, a big Blizzard release like Diablo III, or a surprise hit like Skylanders. However the number of hurdles ATVI faces seems to continue to be growing, and it seems almost inevitable that they'll stumble at some point.

- At last report, World of Warcraft had lost 1.3 million subs in the quarter. The major expansions have been coming out every two years roughly, so unless Blizzard has quickened their pace the next one won't be out until near the end of 2014.

- There is no other big Blizzard release this year like Diablo III last year.

- Will Skylanders success continue? It always seemed like more of a fad to me than a long lasting thing, so going into the third release I have my doubts. The series has had its greatest success on Nintendo platforms which aren't doing that great. And this year Skylanders will face competition from Disney's Infinity.

- Can Call of Duty maintain its record setting performance through a console transition and in the face of new competition? Even without any serious competition, I'd worry about fracturing of the user base as some players transition to the new consoles. However EA/Respawn's XBox/PC exclusive Titanfall looks like it could present serious competition to Call of Duty on those platforms. Titanfall was the big winner from the E3 Game Critics Awards, winning Best of Show, Best Original Game, Best Console Game, Best PC Game, Best Action Game, and Best Online Multiplayer.

- One of ATVI's "pillars" for the future, Bungie's Destiny, was shut out from the E3 Game Critics Awards.

- Another expected future pillar, Blizzard's next MMO code named "Titan", was confirmed by the company to be undergoing major changes (it was reported the game was effectively rebooted) and is now expected no earlier than 2016, at best.

Vivendi was said to be trying to sell its stake in Activision a couple months ago, but couldn't find any takers. With all these hurdles facing ATVI, can it sustain a $16 billion market cap?

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darrens
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I have been thinking that

I have been thinking that Activision are on the edge of an abyss for some years now but they seem to keep on defying the odds and with sentiment returning to the industry at the moment I'd be somewhat loathe to short them.

They are on a high rating but it starts to look less stretching if you believe that the industry will return to growth and we are at the nadir. I think it is more likely that the publishers that are lagging behind (yes, I'm looking at you Ubisoft and Take Two) will rise to meet the EA and Activision ratings rather than the other way around.

Having said all of that, the one thing in your list that maybe isn't in the price is Skylanders business being eaten away by Disney Infinity. Disney Infinity was a big hit at E3 and if that supplants Skylanders then that would be a big miss for Activision. However, in all likelihood I don't think everybody is going to abandon Skylanders this holiday and move to Infinity so that doesn't make them a short for me.

I agree that Activision will stumble at some point but I feel if there is an opportunity it will become more obvious before it's missed.

darrens
darrens's picture
As Activision flirts with an

As Activision flirts with an all time high I'm very pleased that I resisted any temptation to short this stock as was being suggested at the beginning of the month.  Whatever you say about the company, this was a super bit of capital restructuring which really seemed to snatch victory (stock price at all time high) from the jaws of defeat (paying Vivendi a $3bn dividend). 

What was especially interesting was that Bobby Kotick stumping up a whole heap of his own money to buy in and he's already up nearly 30% along with the other investors.  Assuming he isn't in for a trade (which seems unlikely) I find it very interesting that he's bought in just when Activision appear to be hitting all the headwinds that were mentioned up above.  World of Warcraft is still losing players, Disney Infinity looks to be a real threat to Skylanders and Call of Duty surely can't be a franchise that is going to get bigger.

However, as far as insider buying goes then it's a big positive for the stock.  I think a big congratulations to Bobby et al for this bit of business - good for the shareholders and done in a very efficient way.  I'm not sure it changes my mind about the company's future but it certainly is a feather in the cap and (in some way) goes to justifying his huge remuneration package.

darrens
darrens's picture
Activision results last night

Activision results last night which held few surprises given their recent announcement of their shareholder restructuring.

What is interesting is that they are saying Call of Duty: Ghosts is tracking lower than last year's Call of Duty for pre-orders although they are blaming it on consumer indecision about whether to get it for current or next gen. They may be right, but I just think that Call of Duty has peaked. I'm not expecting it to drop off that sharply but I can imagine it weakening over the next few years.

They are also very "eyes open" about the threat of Battlefield 4 to CoD and the threat of Infinity to Skylanders so I am going to assume that their forecasts for this calendar year are quite conservative. WoW is also past its best and is steadily losing players (while remaining a huge cash cow).

The flip side is that they are bullish about next-gen bringing innovation although not actually specific.

Put it all together and there does seem to be a real discrepancy between what they are saying publicly (and what we can see in the public domain) which is that there are some real headwinds for Activision and what he (Kotick) has done personally which is buy a big stake in the company.

I'm still watching from the sidelines on this one but my gut is to go with what I can actually see and think that Activision could have a hard year coming up.

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