Tuesday, November 1, 2011

Gaming Sector: Activision Blizzard, Inc.

Introduction

Within an extremely fragmented sector, Activision Blizzard, Inc. has been able to stand out from the crowd as the largest worldwide publisher of videogame content across all console platforms and is a sponsor for several online enabled games. Fiscal year 2010 proved to be the finest year yet as the company raked in revenues of $4.4 billion (GAAP) and net income of $418 million (Activision Blizzard 2010 Annual Report). While Activision Blizzard’s current performance bodes well for the immediate future, the company’s long-term strategy to remain competitive in an evolving sector remains unclear.

For those of you unfamiliar with Activision Blizzard, here are videos showing their most profitable franchises: Call of Duty and World of Warcraft.

Position in the Gaming Sector

Activision Blizzard remains one of the largest players in the content creation and publishing layer within the gaming sector. These two layers are undergoing a radical transformation as the separation line is becoming more and more blurry with each passing year. This is due to the recent trend of publishers, particularly EA and Activision Blizzard, acquiring third party content developers rather than investing capital to produce fresh and exciting intellectual property in-house. While this strategy may yield gains in the short-term, it is not sustainable as a long-term strategy. This business model is analogous to the pharmaceutical industry as the big players like Pfizer and Eli Lilly are struggling to find the next blockbuster drug that will support their on-going research and development efforts before their current blockbuster drugs lose their patent exclusivity benefits. Eventually this cycle will break when popular franchises get stale, all of the current mainstream content becomes oversaturated, and all that remains is niche content that cannot generate enough revenue to offset publishing and operating costs for a larger companies like EA and Activision Blizzard.

Future of Activision Blizzard

Activision Blizzard is currently at a crossroads that may define their future in the gaming sector. Currently, it controls two of the most popular content IP in the sector: Call of Duty and World of Warcraft. However, how long can Activision Blizzard rely on generating enormous profits off two key franchises before gamers’ tastes will change. Activision Blizzard learned a hard lesson with its Guitar Hero franchise that no longer exists. With an over-saturated market of first person shooters, how long can the Call of Duty franchise keep hardcore gamers entertained? The same can also be said about World of Warcraft now that it is about to enter its eighth year in operation this November. Activision Blizzard continues to operate under an old archaic and antiquated business model in the constant evolving gaming sector. Will Activision Blizzard pursue other avenues like the social platform before its too late? The next five years are sure to be interesting…

For the full report and analysis of Activision Blizzard's network, click here

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