Transcript Document

Date:
May 3, 2011
To:
Professor Keifer
Dr. Kiger
Professor Martel
Dr. Tucker
From:
Team #
Student 1
Student 2
Student 3
Student 4
Student 5
Subject: Analysis of Activision Blizzard, Inc.
As requested by the senior partners of Copeland Cluster and Associates on April 11, 2011,
our team has performed an analysis of Activision Blizzard, Inc. and prepared a report. Our
report contains details of the effectiveness of Activision Blizzard, Inc.’s current strategy.
Through our analysis of the effectiveness of its current strategy, we were able to identify
the key strategic issues Activision Blizzard, Inc. is facing and pose specific
recommendations to add economic value in the future.
This report was created with consideration of the following criteria:
•The current strategy of the company
•The competitive dimensions
•Key strategic issues
•Recommendations
Our research showed Activision Blizzard, Inc.’s current strategy, has in many ways, been
immensely successful. Research further indicates that although successful, Activision’s
current strategy might be setting the company up for a potentially dangerous future.
Our team would especially like to thank Catherine Penrod for all of her assistance in the
making and editing of this report. We would be pleased to discuss our report and
recommendations with you upon request. Please feel free to call or email our team
member Student 4 at XXX-XXX-XXXX or [email protected]. She is available at any day
after 12 p.m. Our team would like to thank you for your faith in selecting us to prepare this
company analysis.
THE ACTIVE VISION:
THE DEMAND TO
EXPAND
Prepared for:
Professor Keifer
Dr. Kiger
Professor Martel
Dr. Tucker
Prepared by:
Team #
Student 1
Student 2
Student 3
Student 4
Student 5
May 3, 2011
E xe c u t ive S u m m a r y
Activision Blizzard, Inc. is one of the leading companies in the entertainment and game
software industry in the world. Since its creation in 1979, Activision has been able to
keep up with the ever changing aspects to the industry to be sure that it is still producing
exceptional products for the video game market. If not for its adaptability, Activision
would not be consistently making a profit when other companies are taking losses.
Through the analysis of Activision’s current strategy, this report points out the key issues
Activision is facing as a company today and recommendations on how to improve upon
and benefit financially from these issues.
Activision’s current strategy within the video game industry has put it as one of the most
profitable companies with certain competitive advantages. Activision’s mission is to focus
on the development and production of proven game franchises that show high consumer
appeal. Activision produces and sells Call of Duty and World of Warcraft, which are the
two best-selling games in their genres. It has a major presence in the growing world of
digital distribution with content available on resources such as Steam and Battle.net.
Activision’s marketing strategy is successful, with its return on marketing investments
being at 4.48 in 2010. Also, Activision makes most of its games compatible with many
platforms; in fact, 20 of at least 26 games released in 2010 can be played on multiple
platforms.
There are still some key issues Activision faces in the video game industry. For example,
there is not much diversification in its products. In 2010, Call of Duty and World of
Warcraft accounted for over 62% of the net revenues for the company. Another issue is
the lack of presence in the casual and social gaming market, which is expected to expand
30% in 2011, making over $1 billion for the industry. Project Beachhead is another issue
because, if it is not developed correctly, it could cost the company more than it would
make.
Given these key issues, there are two recommendations for improving profitability. One
recommendation is to expand and buy the company Take-Two Interactive Inc. and make a
strategic alliance with social gaming company Zynga. Take-Two has games like Grand
Theft Auto and the whole 2K Sports department that have had many top selling games.
Grand Theft Auto V is estimated to make over $750 million with its release and Activision
has no game that can compete with it. 2K Sports makes sports games that compete in
the sports genre, which makes up 19.6% of overall revenues in the industry. Activision
does not make any competitive sports games. Making a strategic alliance with Zynga will
give Activision a presence in the social gaming field. The second recommendation is to
make Beachhead profitable and capable of being the best digital distribution website in
the industry.
With these recommendations, it is estimated Activision would start to make a 20%
increase in net revenues for the next five years. Given the research, these
recommendations will position Activision as the number one video game company in the
world.
Ta b l e o f C o n t e n t s
Introduction .................................................................................................................................................. 1
Current Strategy ........................................................................................................................................... 2
Overview ................................................................................................................................................... 2
Game Genres............................................................................................................................................. 3
Overview ............................................................................................................................................... 3
Activision Blizzard, Inc. .......................................................................................................................... 4
THQ ....................................................................................................................................................... 5
Electronic Arts ....................................................................................................................................... 5
Take-Two Interactive ............................................................................................................................ 5
Seasonality ................................................................................................................................................ 6
Activision Blizzard, Inc. .......................................................................................................................... 6
Electronic Arts ....................................................................................................................................... 7
Take-Two Interactive ............................................................................................................................ 7
THQ ....................................................................................................................................................... 7
Digital Distribution .................................................................................................................................... 8
Activision Blizzard, Inc. .......................................................................................................................... 8
Call of Duty ............................................................................................................................................ 9
Electronic Arts ..................................................................................................................................... 10
Take-Two Interactive .......................................................................................................................... 11
THQ ..................................................................................................................................................... 11
Marketing Strategies ............................................................................................................................... 12
Activision Blizzard, Inc. ........................................................................................................................ 12
Electronic Arts ..................................................................................................................................... 13
Take-Two Interactive .......................................................................................................................... 13
THQ ..................................................................................................................................................... 13
Brand Name Recognition .................................................................................................................... 14
Platform Compatibility ............................................................................................................................ 16
Key Issues.................................................................................................................................................... 20
Overview ................................................................................................................................................. 20
Franchise Diversification ......................................................................................................................... 21
Casual and Social Gaming ....................................................................................................................... 24
Cost of Project Beachhead ...................................................................................................................... 25
Recommendations ..................................................................................................................................... 26
Overview ................................................................................................................................................. 26
Expansion: Take-Two.............................................................................................................................. 27
Impact of Take-Two Merger.................................................................................................................... 30
Expansion: Zynga Alliance ....................................................................................................................... 32
Impact of Zynga Alliance ......................................................................................................................... 33
Subscription Fees for Beachhead ............................................................................................................ 34
Impact of Fees for Beachhead ................................................................................................................ 35
Conclusion .................................................................................................................................................. 37
Appendix A: Net Revenues by Quarter...................................................................................................... 39
Appendix B: Primary Research Survey....................................................................................................... 41
Appendix C: GAAP Net Revenue Growth by Platforms............................................................................. 44
Appendix D: Forecasted Income Statements ............................................................................................ 46
Appendix E: Forecasted Balance Sheet...................................................................................................... 50
Appendix F: Ratios ...................................................................................................................................... 56
References .................................................................................................................................................. 58
Introduction
Current Strategy
Key Issues
Recommendations
“To continue to be one of the largest, most profitable,
and well respected interactive entertainment software
companies of the world” (Activision , 2011).
--Activision Blizzard, Inc.
ATVI
TTWO
ERTS
THQI
1
O b j e c t ive
The objective of this report is to develop strategic recommendations Activision Blizzard, Inc.
can use to improve its market value and distinguish its competitive advantage in the
interactive entertainment software industry. Since its inception on July 9, 2008, the
Activision Blizzard Incorporation merger, known as the Business Combination, has made the
company an industry leader in the development and publishing of interactive entertainment
software (Activision Blizzard, Inc., 2011). This $18 billion deal, although shown to be a
profitable investment, has created a potentially dangerous environment for Activision
Blizzard, Inc. in the future. As of May 2, 2011, ATVI stock was closed at $11.43, up 240 basis
points from 2010. This indicates that in the past year, the investors future perception of the
company is positive. An analysis of Activision’s current strategy, financial position, and
competitive dimensions was conducted in order to develop possible recommendations for
Activision Blizzard, Inc. to remain competitive.
Conclusion
Introduction
Current
Strategy
Key Issues
Recommendations
Conclusion
Derived from its annual report, Activision’s strategy is to focus on the
development and publishing activities of proven franchises, or content that
has the potential to become franchised with sustainable mass consumer
appeal and recognition (Activision Blizzard, Inc., 2011). Its main focus areas
include the Call of Duty franchise, Project Beachhead, downloadable content,
new entertainment franchises, licensed properties, and development of
Bungie’s next big hit (Activision Blizzard, Inc., 2011). Research indicates its
game genres, marketing strategies, platform compatibility, seasonality of
releases, and digital distribution to be the competitive dimensions facing
Activision Blizzard, Inc.
Competitive
Dimensions
Key
Issues
Game Genres
Franchise
Diversification
O ve r v i e w
Seasonality
Digital
Distribution
Recommendations
Expansion
Lacking Presence
in Casual and
Social Games
Development
Cost of Project
Beachhead
Marketing
Strategy
Platform
Compatibility
2
Profitability of
Beachhead
Introduction
Current
Strategy
Key Issues
Recommendations
Conclusion
There are different types of video games produced today with the goal that everyone can find a
game to suit their entertainment needs. Since the start of the industry, the number of genres
have grown to accommodate the market. The genres currently offered are: action, adventure,
educational, racing / driving, role-playing (RPG), simulation, sports, and strategy. Underneath
these basic genres, there are many sub-genres offered to meet specific needs (Arsenault, 2009).
From 2007 -2009, the action, shooter, sports, and family entertainment genres have consistently
had the top selling titles. The action genre has decreased 280 basis points in sales since 2007,
which means the action based games have started to decline in consumer appeal. The shooter
genre has increased 10 basis points and has always been right around the same percentage,
meaning it is a very consistent genre in the industry. Sports games have increased 550 basis
points since 2007, making sports games a very profitable solution when making a game. The
family entertainment games have decreased 230 basis points since 2007, which possibly means
a drop in appeal towards the gaming market. (Entertainment Software Association, 2010)
Game Genres
Of the genres and sub-genres, the best-selling ones are action, family entertainment, shooting,
and sports games. Since 2007, these four groups have consistently sold more units than any of
the other types of games made. In 2009, action games made up 19.5%, sports games made up
19.6%, family entertainment games made up 15.3%, and shooter games made up 12.2% of the
video game market. All together that makes ups 66.6% of the units sold during 2009, leaving
just 33.4% of the rest of the market for the other game genres. (Entertainment Software
Association, 2010)
Best Selling Video Game
Genres by Units Sold, 2009
Best Selling Video Game
Genres by Units Sold, 2007
Other Genres
34%
Other Genres
33%
Action Games
22%
Action Games
20%
Family
Entertainment Shooter Games
18%
12%
Shooter
Sports Games
Games
14%
12%
(Entertainment Software Association, 2010)
Sports Games
20%
Family
Entertainment
15%
(Entertainment Software Association, 2010)
3
Introduction
Current
Strategy
Key Issues
Game Genres
Activision develops products in the
genres of first person action,
action/adventure, role-playing,
simulation and strategy (Activision
Blizzard Inc., 2011). Of these, the
best seller has to be in the first
person action area with the Call of
Duty franchise. Call of Duty has
consistently been a top performer
for Activision since its release in
2003. Life-to-date, Call of Duty has
earned over $4.2 billion worth of
revenue, with the newest
installment, Call of Duty: Black Ops,
making over $650 million in the first
five days of sales (Activision Blizzard
Inc., 2011).
Recommendations
Conclusion
(Lafferty, 2010)
Blizzard Entertainment’s focus is on
the MMORPG genre of video games.
It is the leader in this field making
three of the most popular games to
date, World of Warcraft Diablo, and
Starcraft. World of Warcraft is one of
the most widely played games in the
world, with over 12 million online
players having a subscription to the
software (Activision Blizzard Inc.,
2011). The most recent expansion,
World of Warcraft: Cataclysm, by
January 10, 2011, sold over 4.7 million
copies worldwide setting the record
for computer game sales. The first day
sales of Cataclysm also set a record in
making over $3.3 million in revenue.
This shows Blizzard’s stronghold on
the MMORPG genre in the gaming
industry.
(Wallpaperez, n.d.)
4
Introduction
Current
Strategy
Key Issues
Recommendations
Conclusion
THQ
(Shane, 2011)
(THQ UFC Undisputed 2010 for Xbox 360, 2011)
Electronic Arts
Electronic Arts Inc. has a wide variety of
genres it produces such as action/adventure,
casual, sports, family, fantasy, racing, music,
massively-multiplayer online role-playing,
simulation and strategy. The biggest money
maker for EA is in the EASports division,
where it makes games like Madden and FIFA
and other sports games. “Net revenue for
fiscal year 2010 was driven by FIFA 10,
Madden NFL 10 and The Sims 3” (Electronic
Arts Inc., 2010). If not for these titles, EA’s
net revenues would have been greatly lower
than they already have been. EA has seen a
decrease in net revenues over the past years
due to competition with other competitors in
the same fields EA used to dominate.
(Rodda, 2010)
(Madden 2011 to Hit iPads, 2010)
Take-Two Interactive
Take-Two Interactive is another game
publisher that specializes in genres including
action, adventure, racing, role-playing, sports
and strategy. It publishes games under
Rockstar Games and 2K, which focus on
action and sports games. Rockstar Games
makes the Grand Theft Auto franchise, which
is one of the most popular games ever made.
2K makes sports games like NBA 2K11, which
are very popular and played among many age
groups in the world (Take-Two Interactive
Software, Inc., 2010).
(Noe, 2009)
5
(Srisavasdi, 2010)
Game Genres
THQ Inc. has a main focus on the fighting,
racing, action, shooting and strategy genres
of video gaming. The most popular games
THQ has published in the past have been in
the fighting genre. The two biggest fighting
games developed are based off of Ultimate
Fighting Championship (UFC) and World
Wrestling Entertainment (WWE) (THQ Inc.,
2009). Currently, these are two of the most
popular fighting games on the market, giving
THQ a firm grasp on that genre of gaming.
Current
Strategy
Introduction
Key Issues
Recommendations
Conclusion
Research indicates strong comparisons between revenue and the seasonality of
video game releases. Company reports suggest the highest sale periods occur
during the fourth quarter of the year. This is primarily driven by consumer
heterogeneity of holiday season purchases.
Net Sales Growth Rate
Comparing third & fourth quarter sales
167%
2010
200%
2009
219%
Seasonality
2008
0
50
100
150
200
250
Percentage of Growth Rate
Research shows Activision Blizzard, Inc.’s strategic releasing of top titles during this time
frame to have had extreme market success. Last year it released six titles of its most
popular franchises on five different platforms; DJ Hero 2, Tony Hawk: SHRED, James Bond
007: Blood Stone, Call of Duty: Black Ops, Bakugan: Defenders of the Core, and World of
Warcraft: Cataclysm (Activision Blizzard, Inc., 2011). According to its internal estimates,
Call of Duty: Black Ops set a new record in interactive entertainment retail sales of over
$650 million during its first five days and has grossed over $1 billion year to date
(Activision Blizzard, Inc., 2011). The company also set records on December 7, 2010, with
its release of World of Warcraft: Cataclysm selling “3.3 million copies worldwide…during
its first 24 hours, making it the fastest-selling PC game of all time” (Activision Blizzard,
Inc., 2011, p. 41).
Seasonal releases have increased Activision’s net sales growth rate 219%, 200%, and
167% basis points from third quarter to fourth quarter sales of 2008, 2009, and 2010
respectively (refer to appendix A for revenues in dollars). (Activision Blizzard, Inc. , 2010)
(Activision Blizzard, Inc. , 2009).
6
Introduction
Current
Strategy
Key Issues
2010
67%
2009
58%
2008
85%
50
Percentage of Growth Rate
Take-Two Interactive
In the fourth quarter of 2010, Take-Two
Interactive released eight game titles on nine
different platforms, which helped generate
$334 million in revenue (Take-Two Interactive,
2010). It showed 2009 fourth quarter revenue
to be around $360 million, a 612% increase in
net revenues from third quarter sales. This
percentage is offset by low third quarter sales
and the market success of its two major
franchise titles during the fourth quarter, NBA
2K and Grand Theft Auto (refer to appendix A
for revenues in dollars). (Take-Two
Interactive, 2010) (Take-Two Interactive, 2009)
(Take-Two Interactive, 2008)
72%
2009
612%
2008 -41%
-50
150
350
100
550
Percentage of Growth Rate
THQ
In 2010, THQ Inc, released 20 game
titles on a total of nine different
platforms, including Nintendo Wii’s
uDraw (THQ Inc., 2011).
Comparisons between net revenue
growth of its past three years show
that THQ has increased 19,100 basis
points from 2008 to 2010 (refer to
appendix A for revenues in dollars).
(THQ Inc., 2010) (THQ Inc., 2009)
(THQ Inc., 2008)
Net Sales Growth Rate
Comparing third & fourth
quarter sales
2010
308%
2009
252%
2008
117%
0
100
200
300
Percentage of Growth Rate
7
400
Seasonality
0
Net Sales Growth Rate
Comparing third & fourth
quarter sales
2010
Conclusion
Net Sales Growth Rate
Comparing third & fourth quarter
sales
Electronic Arts
Electronic Arts released over 23
game titles on 11 different
platforms of its most popular
franchises (Electronic Arts, Inc. ).
Like Activision, Electronic Arts sales
also experienced seasonality in its
net growth of sales. However, EA
showed less significant growth rates
of 85%, 58%, and 67% from third
quarter to fourth quarter sales of
2008, 2009, and 2010 respectively
(refer to appendix A for revenues in
dollars). (Electronic Arts, 2010)
(Electronic Arts, Inc., 2009)
(Electronic Arts, Inc., 2008)
Recommendations
Introduction
Current
Strategy
Key Issues
Recommendations
Conclusion
Activision Blizzard, Inc. is positioning itself for the digital distribution shift. The company
utilizes digital distribution through Steam and through Blizzard Entertainment‘s gaming
service, Battle.net. Blizzard is also looking to create digital extensions for StarCraft II and
World of Warcraft. Activision’s two largest franchises are World of Warcraft and Call of Duty,
both of which are seeing digital growth. Activision is currently in the development stages of a
new studio division, Beachhead. Project Beachhead is designed to create and lead the
production of the popular Call of Duty franchise for online content. Each of these elements is
positioning the company for a successful shift to the digital platform.
Digital Distribution
Project
Beachhead
Steam
Digital
Distributor
Blizzard
Activision began its move towards digital by using distributors such as Steam. Activision has a
large catalogue available through the Steam webpage. Currently, Activision has 32 games, 25
videos, and 60 posts on the Steam site. Activision also remains ahead of its competitors in
transitioning its business towards digital, largely due to its crown jewel, the multiplayer online
strategy game World of Warcraft, which subscribers pay $14.99 a month to play. World of
Warcraft can be played on Battle.net, Blizzard Entertainment’s online gaming service.
Blizzard Entertainment is positioning for digital delivery in its games such as Star Craft II. The
company plans to launch digital extensions of the game and time-based access models. “We
expect a long tail of revenues from this title, with the initial revenue ramp led by packaged SW
and longer term skew towards online/subscription revenues” (Deutsche Bank, 2011). Blizzard
had also taken the initiative to expand World of Warcraft (WoW). Referring to WoW’s
contribution to the growth and profitability of Blizzard, Deutsche Bank states, “Additionally, the
company is introducing new value added services such as paid mobile access and new virtual
goods/digital extensions, which should add incremental revenues and drive engagement levels”
(Deutsche Bank, 2011).
8
Introduction
Current
Strategy
Key Issues
Recommendations
In February 2011, Activision announced its newest division, Beachhead. Beachhead is
Activision’ s new digital platform for the Call of Duty community. The studio will focus on the
digital delivery of new and innovative Call of Duty content. As quoted from Activision
Publishing CEO Eric Hirshberg, the plan of Beachhead is to “bring the online experience and
console play together for the first time through a platform [that has been] in development
for over a year" (Alexander, 2011, p. 1). Activision is currently planning downloadable
content for Call of Duty that has more commercial potential than most console games.
Another feature of Beachhead will be the ability to track individuals scores and statistics
regardless of the platform Call of Duty was played on. “We enter 2011 a leaner, more
focused organization”, Hirshberg said, asserting that the company would only invest in those
areas where it believed it had a “true competitive advantage” (Alexander, 2011, p. 1). This
digital division of Activision positions the company for a high-profit opportunity and access to
the growth of digital distribution.
Activision Blizzard Inc. Q4 Earnings Preview 2010
Three days prior to the earnings report and initial announcement of Project
Beachhead
(Stock Wizard, 2011)
9
Digital Distribution
(Activision, 2011)
Conclusion
Introduction
Current
Strategy
Key Issues
Recommendations
Conclusion
Electronic Arts
The digital strategy of Electronic Arts is to reign supreme in the casual and social
networking games platform. In November 2009, Electronic Arts bought out Playfish, an
independent studio and leading creator of social network games. Then in October of
2010 EA acquired Chillingo, a leading independent game publisher recognized for
innovative games and software for various platforms. Chillingo is the leading publisher
for Apple applications.
•Increased EA’s intangibles by $6 million (16 percent)
Playfish
•Decreased acquisition-related contingent consideration by $25
million
•Decreased cash used in investing activities by $464 million primarily
due to a $262 million decrease in the acquisitions of subsidiaries
Digital Distribution
Chillingo
•Contributed to decrease in net deferred income tax asset position
•Increased market leadership on the Apple® platform and
strengthened position as the world's leading wireless entertainment
publisher for EA Mobile (TM)
One, one, and two
Electronic Arts, Inc. Sports President Peter
Moore stated in his 2011 M16 keynote
address, “Companies that refuse to keep
up with changes in consumer behavior are
bound to fail. Our competitors scoffed
when we invested in social gaming, by
buying Playfish, they scoffed at our directto-consumer models. But we are number
one in mobile games, number one in
casual games and number two in social
games” (Brightman, 2011). Currently
Zynga, known for hits such as FarmVille,
CityVille, and FrontierVille, holds the
number one position in social gaming.
10
Mass Effect 2
Electronic Arts is working on
transforming Mass Effect 2 (first person
shooter game) as a potential digital
game. Without divulging a specific
figure, EA CEO John Riccitiello stated,
“The digital version would up
accounting for a “double-digit
percentage of total sales.” The EA
executive also said that a broader
digital distribution program on the
PlayStation Network as well as
Microsoft’s Xbox Live might be
vulnerable by what he termed a
“channel conflict” between the
companies’ digital networks and
physical goods business units (MESA,
2011).
Introduction
Current
Strategy
Key Issues
Recommendations
Conclusion
Take-Two Interactive
•
Take-Two is cautious that if games become strictly digital, then it will alienate too many
customers. Take-Two distributes its online games through Steam. Take-Two has also
touched on cloud-gaming services, such as OnLive. Take-Two has distributed games such as
BioShock and Borderlands through OnLive’s streaming service. Overall, the company
focuses primarily on the PS3, Xbox 360 and Wii consoles since they allow Take-Two to push
the game to their technical limitations. Take-Two predicts “the tablet PCs will account for
50% of all consumers of entertainment and information devices in the years to come” (Hill,
2010).
Grand Theft
Auto
Sid Meier’s
Civiliztion
Homefront
Warhammer
BioShock
Borderlands
Metro 2033
Homefront
*The third tier games are based on Top Sellers from the Stream and Onlive game sites. THQ and Take Two Interactive distribution is not limited to these games
THQ
THQ is beginning to focus on the digital delivery of games and content as a main revenue
driver for the company moving forward. “In an interview with Forbes, Farrell talked up the
reduced-price model the company is debuting with the upcoming MX vs. ATV Alive, which
will release at a lowered price of $40 in the hopes of attracting a larger user base to
purchase over 100 pieces of downloadable content” (Orland, 2011).
Digital game distribution has been an advantage for THQ because of lower overall
distribution fees and because it eliminates the need to maintain costly inventory. THQ CEO
Brain Farrell explains, “If we deliver an experience that the gamer values and wants more
of, we build on that with digitally delivered downloadable content, which has the effect of
increasing the average revenue per user,"(Orland, 2011). THQ streams games through the
cloud-computing service, OnLive, as well as 28 games through the online distributor, Steam.
11
Digital Distribution
Take-Two Interactive is no stranger to digital distribution. They are the leading publisher
and developer of interactive entertainment software and have published hits such as Grand
Theft Auto, Liberty City Stories and the Red Dead Redemption expansion. “At the moment,
digital distribution represents less than 15% of Take-Two revenues. These numbers come
from Strauss Zelnick, CEO of Take-Two, in an interview with Bloomberg. Even though digital
distribution of profits are rising, Zelnick believes that there are technological barriers that
prevent the acquisition of digital products” (Gadget Ground, 2011).
Current
Strategy
Introduction
Key Issues
Recommendations
Conclusion
Although very hard to determine, the Mergent Online database (2011) confirms Activision
Blizzard’s success amongst competitors for its return on marketing investments in the last
three years. From its return on marketing investment ratio, it is evident that Activision
Blizzard, Inc. has had success in customer value and satisfaction, customer attraction and
retention, customer lifetime values and customer equity better than its competitors
(Armstrong & Kotler, 2011).
Activision Blizzard, Inc.
ROI
M a r ke t i n g S t ra t e g i e s
Return on Marketing Investment
5
4
4.48
3
2
1
0
-0.23
-1
-2.05
-2
-3
2010
2009
2008
(Mergent Online, 2011)
Activision offers double experience points for online play during a certain time period after
releasing new downloadable content. By offering the double experience weekends, it entices
consumers to buy it as soon as it comes out. Allowing players take advantage of these special
weekends. Comparatively, when Call of Duty: World at War’s first map pack came out it sold 1
million copies its first weekend. (Santos, 2009) While First Strike, Black Ops’ first map pack
sold 1.4 million copies in 24 hours. (Haas, 2011)
Blizzard Entertainment, the producers of World of Warcraft and two other MMORPG games,
has had great success through marketing efforts and commands 62% of the market share for
MMORPG. (MMORPGREALM, 2010, para. 11?) Blizzard has taken several different approaches
throughout the years to market World of Warcraft and their other products. Mr. T, William
Shatner, Ozzy Osbourne & others endorsed World of Warcraft in commercials in between late
2007 and early 2008 and were spread worldwide through the use of YouTube.com.
(Medievaldragon, 2007)
Blizzard Entertainment is holding a video contest, for its 20 year anniversary, in which gamers
are asked to “unleash your creativity and capture your favorite Blizzard game-related memory
on video.” (Blizzard Entertainment, n.d.) Blizzard saw an increase in 2009 in ROI, which is
partially due to the celebrity endorsements. The increase of ROI for 2010 can also be partially
explained by the sales of downloadable content (DLC) with the double experience points
incentives. The outcome for 2011 is looking to grow as well with 1.4 million sales of First Strike
(DLC) and the video contest that Blizzard has created for it’s 20 year anniversary.
12
Current
Strategy
Introduction
Key Issues
Electronic Arts
Return on Marketing
Investment
Take-Two Interactive
ROI
0
-5
-10
-4.18
-15
-20
-19.59
-25
2010
2009
-19.68
2008
Conclusion
Return on Marketing
Investment
Electronic Arts, Inc.
ROI
0
-5
-10
-15
-20
-25
-30
-11.6
-23.4
-22.13
2010
2009
2008
Take-Two Interactive
Take-Two Interactive’s ROI was comparable to
EA but has managed to make improvements
for 2010. Even though sales went well for
Grand Theft Auto IV “higher marketing costs,
legal feels, and R&D costs led to the increased
losses” (McWhertor, 2009) . The improved
ROI for 2010 was mostly due to Take-Two
receiving a “metascore”, by Metacritic (2011),
that was the highest of these four game
publishers (Dietz, February). However,
because these games lack the following like
Call of Duty, the revenues from sales are not
as high. If Take-Two can keep up the game
quality that it is currently producing, it should
start to see customer retention in 2011.
THQ
THQ Inc.
ROI
Return on Marketing
Investment
THQ was able to improve its ROI in 2010 due
to few releases and the success it received on
a few of its products. “In November, THQ
launched in North America the uDraw
GameTablet, a first-of-its-kind, innovative
gaming accessory, which quickly became one
of the top-ranked gaming products of the
2010 holiday season” (THQ Inc., 2011, p.26).
The continued growth in its ROI will be
contributable through the ability to create
new games for the Kids and Family segments
of the market.
13
0
-20
-2.51
-11.64
-40
-60
-72.34
-80
2010
2009
2008
M a r ke t i n g S t ra t e g i e s
Electronic Arts (EA) is consistently having
difficulties generating a positive Return on
Investment (ROI). EA faces the challenge of
regaining lost market shares. In an industry
where seasonality is important, the release of
EA’s new PC title Spore was pushed back from
the 2007 holiday season, to September 2008
(BDO, 2007) (Sliwinski, 2008). This loss was also
attributed to EA’s biggest title, Madden NFL 10,
taking a hit in sales (Kane, 2009). EA will most
likely not see an improvement in their ROI in
2011 partially due to the$100 million marketing
plan for Battlefield 3 to dethrone Call of Duty
(Makuch, 2011).
Recommendations
Current
Strategy
Introduction
Key Issues
Recommendations
Conclusion
The return on marketing investment can be measured through several different
aspects of the standard marketing performance measures. Brand
awareness/recognition, sales, or marketing shares are the three areas that a
company can look at to help determine this. (Armstrong & Kotler, 2011) One of
the best ways to measure brand awareness, since it cannot be determined by
looking at a company’s financial reports, is by conducting a survey.
Brand Name Recognition in
Video Game Industry
80%
Percentage of Votes
M a r ke t i n g S t ra t e g i e s
A company that has great brand recognition among consumers will not have to
spend as much money on marketing. This is due to the fact that consumers who
know their brands will spread the word themselves through “buzz marketing.”
These so called buzz marketers also show continue purchasing the company’s
product. This is not to say that the company will not have to market anymore.
However, it does lower the marketing costs but keeps the sales and revenue up,
which in turn helps increase the return on marketing investments. Does Activision
have brand recognition in the video game market, well our team decided to take a
survey to find out.
74%
56%
60%
40%
52%
37%
31%
20%
0%
BioShock
Call of Duty:
Black Ops
Madden NFL
World of
Warcraft
2K NBA
Game Titles
The information in the graphs on this page and the next have a few limitations to
them. Our survey was through SurveyMonkey.com and was sent to over 2,500
people to take and ended up having 461 people take the survey. However, the
free services provided by SurveyMonkey only allowed us to see the first 100
results. (See next page for more information pertaining to the graphs and a color
coded key for the graphs)
14
Current
Strategy
Introduction
Key Issues
Recommendations
Conclusion
Activision Blizzard, Inc. has a good brand awareness for World of Warcraft and Call of
Duty. However, World of Warcraft had the second highest margin, 44%, over the next
closest producer. Since Call of Duty is based on the titles correctly correlated to its game
publisher, the survey indicated a margin of 9% over the next closest publisher. It showed
that many people associate sports games with Electronic Arts and first-person shooters
with Activision Blizzard, Inc. It was also evident, by the portion of the graph below, that
there are some game titles that people associate with a certain game publisher, which is
an issue that those publishers would need to overcome. In the case of Activision
Blizzard, Inc., which was not correctly associated as the producer of Guitar Hero by a
narrow margin of 2%, it has taken the necessary steps and has closed the doors on its
music-based games division.
Brand Name Recognition in
Video Game Industry
60%
36%
38%
34%
31%
40%
31%
20%
0%
Guitar Hero
Home Front
Grand Theft
Auto
Game Titles
Activision Blizzard
THQ
Electronic Arts
Take-Two Interactive
Battlefield
WWE
* Game titles with percentages
in orange were correctly
associated with its producer.
Refer to Appendix B for the Statistical Data of this survey. Such as the sample size
(n=100), range (6-74), etc.
15
Percentage of Votes
80%
M a r ke t i n g S t ra t e g i e s
This survey gave insight to a game publishers’ ability to generate brand awareness for its
products. An overwhelming number of people choose Electronic Arts as the producer of
both Madden NFL and 2K NBA. Unfortunately, Electronic Arts only publishes Madden
NFL. Our survey showed that only three of our ten games had a margin of greater than
10% over the 2nd most votes, and one of those was for 2K NBA. Activision performed well
in the survey, its two biggest games each received at least 37%.
Introduction
Current
Strategy
Key Issues
Recommendations
Conclusion
An analysis of the industry shows the most popular platforms being utilized by
today’s gamers are consoles, computers, hand-held devices and mobile gaming.
“Activision Publishing, Inc. is a leading international publisher of interactive
software products and downloadable content. Activision develops and publishes
games on the various platforms through internally developed franchises and
license agreements” (Activision Blizzard, Inc, 2011 p. 3).
Activision 2010 Game Releases by
Platforms (single or multiple)
Single
Platforms
23%
Platform Compatibility
Multiple
Platforms
77%
(Activision Blizzard Inc., 2011)
Activision Blizzard is always concerned about producing products that are
compatible with popular platforms. At the same time, it wants to ensure that its
product is compatible on various platforms as well. According to Activision’s
website, it produced at least 26 different games during 2010, 20 of which have the
ability to be played on multiple platforms (Activision Blizzard Inc., 2011). Activision
currently makes 20 games compatible with multiple platforms in order to increase
sales by extending its business to different market segments. Call of Duty: Black
Ops is its most platform varied product that it published in 2010 (Call of Duty:
Black Ops, 2010).
PC
Nintendo
DS
PS3
Call of
Duty:
Black Ops
Wii
Xbox 360
(Call of Duty: Black Ops, 2010)
16
Introduction
Current
Strategy
The biggest factor for this increase was
due to revenue in console sales, more
specifically the Xbox 360. The reason for
this was partially due to the release of
Call of Duty: Black Ops. Even though the
graphs show that consoles stayed at 57%
of revenues, console revenues actually
increased by $131 million (refer to
appendix C for more in-depth data).
Recommendations
Conclusion
GAAP Net Revenues by Platform
Mix (2010)
Hand held
devices
5%
MMORPG
30%
Consoles
57%
PC and
other
(Activision Blizzard Inc., 2011, p.6) 8%
GAAP Net Revenues by Platform Mix
(2009)
The company also saw revenue growth in
Hand held
its PC platform as well as in the
devices
MMORPG
MMORPG, for the last quarter of the
6%
33%
year. With MMORPG being closely
related to the PC sales, even though
MMORPG sales dropped from 2009. It
would have been worse had it not been
for the release of two of Blizzard’s biggest
titles. In 2010, Activision released a new
game, for both World of Warcraft and
PC and
Starcraft. This prevented Activision
other
Consoles
Blizzard from losing more than $18
4%
57%
(Activision Blizzard Inc., 2011, p.6)
million in MMORPG sales from 2009
(refer to appendix C for more in-depth
data). (Activision Blizzard Inc., 2011, p.6)
The reason for Activision Blizzards overall growth from in 2010 was partially due to the
release of Call of Duty: Black Ops. The substantial sales that its MMORPG platform saw in
the last quarter of 2010 also helped. (Activision Blizzard Inc., 2011) The best
recommendation possible, would be to increase sales by offering new content, for
already released games, to keep current players attracted to the game as well as possibly
bring in new players into the market. However, this is exactly what Activision has been
doing and will continue.
17
Platform Compatibility
The revenue created in each
segment/platform mix increased by 6%
from 2009 to 2010, and the major part of
that revenue is in the console segment,
which can be broken down by brands of
consoles.
Key Issues
Introduction
Current
Strategy
Key Issues
Recommendations
Conclusion
Activision has suffered net losses in certain divisions that were losing consumer
appeal within the video game market. Activision is restructuring its company by
discontinuing all music-based games and closing the doors on those business units.
The company plans on letting go 500 employees, which were in the music-based
games division. It is predicting between $35 and $50 million in net pre-tax charges
due to this restructure. Whether you consider the net losses in revenue due to musicbased games or Activision being sued because of implications with these games, both
negatively contribute to this particular business unit of Activision Blizzard, Inc.
(Activision Blizzard Inc., 2011)
Platform Compatibility
Employees
Net Pre-Tax
Charges
(Haywook, 2006)
500
Employees
$35$50
million
Lawsuits against Activision is not something new, nor is
going to stop in the near future. As is evident by the current
issue that is facing Activision and its two former employees
Jason West and Vince Zampella, which started when Activision
terminated West and Zampella’s employment on March 1st 2010. Following the
termination, both employees filed a complaint two days later against Activision.
(Activision Blizzard Inc., 2011)
“A California judge has ruled that the lawsuit filed by Activision against former Infinity
Ward studio heads Vince Zampella and Jason West can move forward. EA originally filed to
dismiss the case after Activision claimed that its rival colluded with West and Zampella
while they were still under contract, but California Superior Court Judge Elihu Berle
decided today that there was enough evidence for the case to go on towards trial.”
(Schramm, 2011)
18
Introduction
Current
Strategy
Key Issues
Recommendations
Activision has started to take action in response to the obsolete technology of the
Playstation 2, which can be used to explain part of that decrease in revenue. It has
started to weed out games for this system by only releasing 3 games for it in 2010,
which also had an impact on the decline from the previous year. In 2009, Activision
released 13 games for the Playstation 2 console. Although creating games for
obsolete platforms has been an issue Activision is already overcoming, there are
still more issues that face the company.
2010 Releases
GAAP Net
Revenues:
$174
(VGChartz, n.d, pgs. 2-5)
80%
Decrease
2010 Releases
(VGChartz, n.d, p. 1) (GameSpot, n.d.)
19
GAAP Net
Revenues:
$35
Platform Compatibility
Also, Activision currently makes games for console systems that are quickly
becoming obsolete. Looking through Activision’s reports, it is clear that Sony’s
Playstation 2 console is no longer wielding the revenue that it once did. Revenues
for this console platform saw a net loss of $139 million from 2009 to 2010, or an
80% decrease.
Conclusion
Introduction
Current Strategy
Key Issues
Recommendations
Conclusion
There are many issues that face Activision Blizzard, Inc. in today’s interactive
entertainment software market. The key strategic issues that will be discussed
are what research deems the most important. Due to the fact its main focus
areas include the Call of Duty franchise, Project Beachhead, and downloadable
content, Activision Blizzard, Inc. shows an immense lack of portfolio
diversification in its products and software (Activision Blizzard, Inc., 2011).
Research connects Activision’s problem of franchise diversification with its lack of
presence in casual and social games, which in turn denotes the company’s other
issue in charging for online game play (Brightman, 2010). Activision has
consistently insisted on never charging its customers for online game play;
however, with the development costs of Project Beachhead, research indicates
Activision may no longer have free game play.
Competitive
Dimensions
Key
Issues
O ve r v i e w
Game Genres
Franchise
Diversification
Seasonality
Digital
Distribution
Marketing
Strategy
Recommendations
Expansion
Lacking Presence
in Casual and
Social Games
Development
Cost of Project
Beachhead
Platform
Compatibility
20
Subscription
Fees of
Beachhead
Introduction
Key Issues
Current Strategy
Other
38%
CoD
and
WoW
62%
(Activision Blizzard Inc., 2011)
Top 10 Titles % of Industry
Sales
24%
23%
22%
21%
20%
2009
2010
(Activision Blizzard Inc., 2011).
21
Conclusion
F r a n c h i s e D ive r s i f i c a t i o n
Activision has a history of generating its
primary revenue off of a small number of
franchises with proven popularity. One
outrageous example is how Call of Duty (CoD)
and World of Warcraft (WoW) accounted for
approximately 62% of the consolidated
revenues in 2010, with both contributing
even more to the operating income
(Activision Blizzard Inc., 2011). If in 2010 one
of these games had failed to make as much
money as it did, Activision would not have
had as high of a net income for the year. Of
the at least 26 games Activision made, only 2
made over half of the sales revenue.
% of Activision Revenue
2010
This problem is not only affecting
Activision, but it is also affecting
the whole industry. “According to
The NPD Group, the top 10 titles
accounted for 23% of the sales in
the U.S. video game industry in
2010, as compared to 21% in
2009” (Activision Blizzard Inc.,
2011). The amount of revenue
created from the top ten titles is
continuously increasing, showing
that the same genres and games
are making the most profit year
in and year out. The only games
Activision has in the top games
are Call of Duty and World of
Warcraft.
Recommendations
Introduction
Current Strategy
Key Issues
Recommendations
Conclusion
F r a n c h i s e D ive r s i f i c a t i o n
Another problem with making a majority of the revenue off the same titles year
after year is the possibility of them not being popular. Activision recently ran into
this problem with Guitar Hero, which was once the top selling title for Activision.
It was shut down in early 2011 because there was not enough revenue coming
from the game (Activision Blizzard Inc., 2011). What if Call of Duty went the same
way as Guitar Hero? “DFC Intelligence analyst David Cole says ‘there is a very real
danger of milking a franchise and causing quality to decline, which can result in
turning consumers off’” (Senior, 2011). This is exactly what happened to Guitar
Hero, by making too many games too fast, the market died with the game.
Call of Duty has been proven to be a very well performing game franchise over
the years, but another problem in focusing on just one main franchise would be
the competition. If Activision makes a bad Call of Duty game, people could move
to a similar game that is better. There is no shortage of competition either- EA’s
Battlefield series and THQ’s Homefront are easy substitutes (Senior, 2011). The
susceptibility to poor performance and competition is a big problem with
focusing most efforts into only a few games.
Activision:
Call of Duty
(Haywook, 2006)
Substitutable
Games:
First-Person
Shooters
THQ:
Homefront
EA:
Battlefield
22
Introduction
Current Strategy
Key Issues
Recommendations
(Werewolf News, 2009)
(Windows 7 Themes.net, 2011)
23
F r a n c h i s e D ive r s i f i c a t i o n
Based on this research, it is evident that Activision Blizzard, Inc. does well at
managing the release dates of its profitable franchises; however, research also
indicates that it focuses on fewer game titles and fewer platforms in
comparison to its major competitors. Although this strategy has been
successful for the company in the past, Activision’s lack of product and
platform diversification could be an issue for its performance in the future. As
previously stated, only two of Activision Blizzard, Inc. franchises made up 62%
of its company’s total revenue (Activision Blizzard, Inc., 2011). If its current
market of consumer’s loses interest in these popular franchised games,
Activision will have trouble diluting profit losses.
Conclusion
Introduction
Current Strategy
Key Issues
Recommendations
Conclusion
“The biggest area of growth in the coming years is likely to be games for tablets and
smartphones. In that market, EA has a huge position, while Activision Blizzard, Inc. isn’t a
player” (Takahashi, 2011). It is evident that Activision is lacking presence in the causal
and social gaming category. Although Activision is looking to derive a majority of its
revenue from digital sales, the company does not feel the pressure to invest in social
gaming like its competitors have done. Activision CEO Robert Kotick dismissed social
gaming during an earnings call with analysts in 2010, calling the category "characterized
by unproven business models and a lot of clutter” (Oran, 2010). According to gaming
experts at the Tuck School of Business’s third annual Media, Sports and Entertainment
Symposium, “Approximately 50 million monthly gamers generate annual revenues of over
a billion dollars for the industry…The social gaming industry is projected to expand 30
percent this year and social gaming companies will need to find ways to convert such
growth into increasing profits” (The Dartmouth Staff, 2011).
Casual and Social Gaming
“Games on social networks became a billion dollar business is 2010, enabling the
market’s big developers to secure significant investments and pursue sizable exits. Now
that Zynga has clearly established itself as the 800 pound gorilla, EA/Playfish are bringing
more IP to the market” (Smith, 2011).
(Parks Associates, 2011)
According to the research firm Parks Associates, social gaming is on track to become
a $5 billion industry in the next five years.
Activision’s leading competitor Electronic Arts is currently dominating the casual
gaming and mobile gaming platform. They hold the number one position in casual
and mobile gaming and second in social gaming, right behind Zynga. “The global
social gaming market is expected to grow from $1 billion in 2009 ($600 million from
the US) to just over $3 billion in 2012, representing a compounded annual growth
rate (CAGR) of 45%” (Zacks Investment Research, 2011).
24
Introduction
Current Strategy
Key Issues
Recommendations
Conclusion
Currently, Activision insiders are the only individuals with any detailed information on this
wholly owned studio. Activision Blizzard, Inc. Chief Financial Officer Thomas Tippl stated
during the 2010 results conference call, “We're not yet ready to talk about the details of
Beachhead, but when we are, we are going to present in detail what the content is, what the
services are, et cetera. So you just have to stay tuned on that"(GoNintendo, 2011). Activision
is taking a risk with investing a majority of its time and efforts into a single franchise.
(Activision , 2011)
According to Activision Blizzard, Inc.’s Fourth Quarter Corporate Citizenship presentation the
top four out of seven main focuses for the company in the year 2011 are all Call of Duty related
(Activision , 2011). If for any reason the franchise should collapse or a new hit-driven game hits
the market, the company would face major tribulations. It appears Activision may be setting up
Beachhead to be a loss leader. “Providing the service for free [will] create a more formidable
barrier to entry by its competitors; we [Wedbush Morgan Securities] think it is possible that
Project Beachhead will incorporate ‘must have’ features that will serve to drive ever increasing
sales of each Call of Duty installment” (Pachter, 2011).
Historically, the company has promised never to charge users to play multiplayer. Activision
believes it can sustain sales of Call of Duty at the 20 million-unit level annually. As of right now,
there is also no information about which platforms it is going to support. With the uncertainty
of Project Beachhead, the key issue is how Activision is going to make the new development
studio profitable and how this is going to affect the company and industry as a whole.
25
Cost of Project Beachhead
Activision Blizzard, Inc. is introducing a new segment to the company dedicated to expanding
the Call of Duty franchise by creating online content. "We have long believed that Activision
would begin to offer a premium multiplayer experience for its Call of Duty brand, beginning
early in 2011. With the company's recent announcement of Project Beachhead, it
acknowledged that such a premium service is in the works, but details about pricing were not
provided” (Pachter, 2011).
Introduction
Current Strategy
Key Issues
Recommendations
Conclusion
Based on Activision Blizzard, Inc.’s franchise diversification, lack of
presence in casual and social games, and increasing development costs of
Project Beachhead, the two recommendations we posed are for the
company to expand and charge customers for Beachhead. We believe
that there are two companies that will act as positive reinforcements to
Activision’s lack of franchise diversification and presence in casual and
social games. Recommendations for Activision Blizzard, Inc. in 2011 to
purchase Take-Two Interactive Games, and in 2012 develop a strategic
alliance with social gaming company, Zynga. As for recommendations for
improving the profitability of Project Beachhead, through much research,
we recommend for Activision Blizzard, Inc. to start charging its customers
a subscription fee.
Key
Issues
Competitive
Dimensions
Game Genres
Franchise
Diversification
O ve r v i e w
Seasonality
Digital
Distribution
Marketing
Strategy
Recommendations
Expansion
Lacking Presence
in Casual and
Social Games
Development
Cost of Project
Beachhead
Platform
Compatibility
26
Subscription
Fees for
Beachhead
Introduction
Current Strategy
Key Issues
Recommendations
Activision
Blizzard,
Inc.
Video Game
Powerhouse
Take-Two
Interactive
Software,
Inc.
27
E x p a n s i o n : Ta ke - Two
One of the problems with how Activision currently operates is how few games it has in
different genres and how few top selling games it creates. The way to get around this
problem is to purchase or buyout Take-Two Interactive. Take-Two has made many high
profit games over the years with the top being the Grand Theft Auto franchise and the
sports games made by 2K. (Sinclair, 2011). With the addition of these successful
games, Activision would be entering into fields that have never been a great success
for the company. This will increase Activision’s level of competition with industry
competitors who have made similar games that cannot be replicated well enough.
Purchasing Take-Two Interactive would make it easier for Activision to acquire already
successful franchises, rather then spend more money to open themselves up to this
market of gamers.
Conclusion
Introduction
Current Strategy
Key Issues
Recommendations
Conclusion
Grand Theft Auto is in a class of its own when it comes to game genres. Since its
creation in 1997, Grand Theft Auto has been one of the best-selling titles ever
created. When Grand Theft Auto VI came out in 2008, the first day sales totaled over
3.6 million copies, making over $310 million globally for Take-Two, breaking the
record for first day selling numbers at that time. The game had sold more than Halo
3 and even movies such as Pirates of the Caribbean and Spiderman (Vella, 2008). The
game that took over Grand Theft Auto VI’s record for first day sales was Call of Duty:
Modern Warfare 2, showing what a profitable combination Activision would have if it
was able to purchase Take-Two (Activision Blizzard Inc., 2011). The next installment
to the franchise, Grand Theft Auto V, is expected to make over $750 million when it
releases in 2012 (Pakinkis, 2010).
Grand
Theft
Auto
E x p a n s i o n : Ta ke - Two
Call of
Duty
Two huge
successful
franchises
Activision has had troubles in the past few years trying to make a game that is
comparable to Grand Theft Auto. Activision’s recent attempt was with its True Crime
series, which was announced to be discontinued earlier in 2011. CEO of Activision
Publishing, Eric Hirshberg said, “True Crime’s development was not going to lead to a
title at or near the top of the competitive open-world genre. To be blunt, it just was
not good enough” (Gilbert, 2011). It was a fact; True Crime was never going to be
able to compete against the major titles in the industry already. If Activision
purchases Take-Two and starts publishing Grand Theft Auto, there would be no need
to make anything new because they would have the best title in the genre to date.
Grand Theft
Auto’s
profitability
True Crime’s
profitability
28
Introduction
Current Strategy
Key Issues
Recommendations
NBA 2K
MLB 2K
2K
Sports
Games
NHL 2K
Top Spin
Golf
The growing success of 2K Sports is another reason for Activision to buy TakeTwo. Activision has never released any kind of sports genre games since it was
created. This is bad seeing as sports games make up such a large portion of the
profitable market today. Since sports games made up 19.6% of the revenues in
2009, not being involved in this section is out of the question (Entertainment
Software Association, 2010). With opportunities in 2K Sports to make games in
basketball, baseball, and hockey, it would be easy to make these games
compete with EA and its sports division.
29
E x p a n s i o n : Ta ke - Two
Another facet to Take-Two that would help Activision make more money would
be 2K Sports. 2K Sports is a brand within Take-Two that makes games such as
NBA 2K11, MLB 2K11, NHL 2K11, and Top Spin Golf. As of 2008, the NBA 2K
franchise had sold over 6 million units, the MLB 2K franchise had sold over 5.5
million units, and the NHL 2K franchise had sold over 2.5 million units
(Androvich, 2008). Since then, 2K has come out with a title each year, but none
have been more successful than NBA 2K11. NBA 2K11 had sold over 4 million
units by February of 2011 when it was released in October of 2010. This
performance has been the fastest selling title for both the franchise and the
publisher (Magrino, 2011). With the continuing growth and popularity of the 2K
Sports titles, it is possible that it could eventually over take EA Sports for the
best sports games.
Conclusion
Introduction
Current Strategy
Key Issues
Recommendations
Conclusion
I m p a c t o f Ta ke - Two M e r g e r
Activision should purchase Take-Two Interactive for $1.8 billion in an all cash deal. The
acquisition will take place in 2011, starting by consolidating the two companies’
income statements and balance sheets. The problem using cash to purchase Take-Two
is that Activision will have to acquire debt in order to balance the balance sheet. The
debt will be around $1.2 billion, which the company will pay back through a loan,
amortized for ten years with annual principal payments plus interest of 6.5%. On the
balance sheet, goodwill increases to approximately $9 billion due to the 24% premium
paid to Take-Two’s stockholders. Incurring this debt is a hard move to make, but
seeing as this is the only long-term liability Activision will have, the purchase will pay
off when Activision benefits from the higher profits in the future.
At the end of the first year, revenues will be around $4.5 billion and net income will be
around negative $53 million. The reason Activision will have negative net income in
2011 is not only due to the purchase of Take-Two with cash, but also because costs of
goods sold is about 66% of net revenues. Since the merger will most likely take place
later in this year, Activision Blizzard, Inc. will not have enough time to work together to
decrease these costs, but will work to decrease that percentage in the next five years
by reducing product costs.
2011 Major Impacts of Take-Two Merger
Purchase Take-Two for $1.8 Billion
Issue $1.2 Billion Worth of Debt
Add $9 Billion to Goodwill
Net Revenues of $4.5 Billion
Net Income of -$53 million
(Refer to Appendices C and D for condensed financial statements)
30
Introduction
Current Strategy
Key Issues
Recommendations
2011: $4.5
Billion Net
Revenues
$254
Million Net
Income
2012: $5.8
Billion Net
Revenues
30% Sales
Increase
$5.8 Billion
Net
Revenues
40% Net
Profit
Margin
From 2013-2015, buying Take-Two will prove to be a really profitable decision. Net
revenues will increase by 1,000 basis points in 2013 and 400 basis points each year
after, making net income increase to around $811 million by 2015. This is an increase in
net income of over $850 million dollars throughout the 5 years. Reducing costs of goods
sold is one of the main reasons for why they were able to make so much money. Costs
of goods sold decreased by 1,400 basis points as a percentage of sales over the five
years because Activision was able to get rid of costs, as well as use its experience to
help make new games cheaper. (Refer to Appendices C and D for condensed financial
statements)
Costs of
Goods
Sold
Decreases
1400
Basis
Points
Increase
in Net
Income
of Over
$800
Billion
31
I m p a c t o f Ta ke - Two M e r g e r
In 2012, the recommendation of buying Take-Two will account for most of the 30%
increase of net revenues. The net revenues will increase to around $5.8 billion and net
income will increase to around $254 million. This is a major increase from the year
before with a net profit margin of 40%. One of the reasons for this increase is all the
product costs that the company has will start to decrease as a percentage of sales due
to cutting unnecessary costs which are duplicated from the two companies. The biggest
impact on the balance sheet during this would be the payment on the long term debt
and addition to retained earnings.
Conclusion
Introduction
Current Strategy
Key Issues
Recommendations
Conclusion
Activision Blizzard Incorporated needs a strong entrance into the social gaming
platform. According to The Wall Street Journal, “[The] social gaming company Zynga
could be worth as much as $7 to 9 billion” (Wingfield, Ante, & Das, 2011). Rather than
buying out the company, Activision Blizzard should create a ten year strategic alliance or
partnership with Zynga. Second Shares stated, “This year Zynga should generate about
$525mm in revenue. In 2012, we expect Zynga will generate more than $1B in revenue”
(Loukerner, 2010).
Social gaming is not only growing rapidly but highly profitable. Companies can earn
revenues from membership fees, advertising, and the sale of virtual goods. Virtual
goods are by far the largest source of revenue, with Piper Jaffray predicting “$6 billion in
virtual good sales by 2013” (Loukerner, 2010). The industry has seen success in large
infrastructure companies acquiring independent developers.
Expansion: Zynga Alliance
(See Exhibit to the Right)
Creating a strategic alliance with Zynga will
enable Activision to keep development
costs low, while increasing presence in
social gaming. A partnership between
these top two companies could potentially
result in the development of social
networking games based on Activision’s
major franchises. “Social gaming
companies like Zynga benefit from brands
paying to be in the games” (Loukerner,
2010). Zynga generated about “$400
million in profit last year on approximately
$850 million in revenue” (Wingfield, Ante,
& Das, 2011).
32
(Loukerner, 2010)
Introduction
Current Strategy
Key Issues
Recommendations
Zynga is the dominant social gaming company worldwide. “Zynga has 237mm active
users per month and 67mm active users per day” (Loukerner, 2010). The strong
presence that Zynga has through social media drives consumers to the games. Social
games based on Activision titles can only have the same effect, therefore reaching a
larger consumer base.
As seen in the chart,
Zynga clearly dominates
over every other social
game developer. It is
evident that the alliance
will not only gain
recognition for Activision
in the social gaming
category, but it is also
likely for the company to
surpass its main
competitor, Electronic
Arts.
(Loukerner, 2010)
Partnering with Zynga and developing social games is going to call for advertising
expenses. Referring to appendix C, sales and marketing expenses will increase 15%
each year related to the advertising of social games. This impact directly correlates
with Activision’s competitive strategy of continuing to improve profitability.
“We continually strive to manage risk and increase our operating leverage and
efficiency with the goal of increased profitability. We believe the key factors
affecting our future profitability will be the success of our core properties, proven
franchises and genres, cost discipline, and our ability to leverage the continued
growth of online and digital revenue opportunities” (Activision, 2011).
33
Impact of Zynga Alliance
A strategic alliance created between Activision and Zynga appears to be the key in
shifting towards casual and social gaming. Referring to appendix C, acquiring the
strategic partnership with Zynga contributed to the growth of generated revenue for
the years 2012- 2015. Activision sustained revenue growth throughout the following
four years due to the acquisition of Take Two Interactive, subscription fee from
Project Beachhead, and its partnership with Zynga. Research indicates the alliance
with Zynga would increase brand name recognition and continue to generate
revenue. According to The Wall Street Journal, Zynga generated about “$400 million
in profit last year on approximately $850 million in revenue and the company is
worth approximately 7-9 billion dollars” (Wingfield, Ante, & Das, 2011).
Conclusion
Introduction
Current Strategy
Key Issues
S u b s c r i p t i o n Fe e s f o r
Beachhead
Activision anticipates Beachhead will
do for the Call of Duty franchise what
direct digital distribution did for
Blizzard games. Blizzard sells its main
titles through the online Blizzard store.
Since the type of pricing that will be
associated with Project Beachhead has
yet to be disclosed, research has
provided possible options for the
company. The two main options for
how payment could work is either
exclusive content and weapons made
available individually for a set price or
having a subscription fee that would
grant access to all of the available
content.
Conclusion
(Tan, 2011)
Wedbush Morgan analyst Michael Pachter
stated some ways that Activision could go
in terms of pricing. "The exclusive content
could be pay as you go, or monthly…for
$5 a month you get unlimited weapons
and all the map packs we bring out for
Modern Warfare in perpetuity” (Pachter,
2011). Consumers could then, for
example, purchase map packs separately pay as you go, or for $60 per year (as
much as the retail game itself) get all of
the unlimited weapons and map packs
available.
Map
Packs
Project
Beachhead
Subscription
Recommendations
Weapons
Personal
Performance
Statistics
Beachhead also creates an opportunity for quarterly subscriptions. The pricing solution
that would create the highest profitability would be a quarterly subscription fee of
$14.95 that provides users with limited downloadable content. Quarterly subscriptions
would work best when dealing with seasonality. The seasonality of Activision Blizzard
Incorporated is the highest in its fourth quarter. Referring to appendix A, the company’s
net revenues grew 167% from the third quarter to the fourth quarter in 2010.
34
Recommendations
Conclusion
The recommendation for how to make Project Beachhead a profitable venture for
Activision is to make a subscription fee for all the users. The fee will be a quarterly
fee of $14.95, which gives a person access to the server where they can interact
with their friends and get downloadable content. Users will have to pay extra for
most content, but there will be a certain amount of free downloadable fun for
anyone who buys a subscription. The implementation of the recommendation
should be done in mid-2012 because of the purchase of Take-Two in late 2011.
I m p a c t o f Fe e s f o r B e a c h h e a d
Introduction
Current Strategy
Key Issues
It is still very uncertain as to how profitable Beachhead will be because there is
very little information on the service in the public right now. Since its main target
market is Call of Duty players, it is very likely it will make profit. In the first year, a
substantial amount of gamers will use Beachhead and pay for its services because
of the mass appeal that Call of Duty has in the gaming world. Project Beachhead
will be a part of the 10% increase in net revenues during the fiscal year of 2012.
The main cost that Activision will incur by making Beachhead will be product cost,
which will be at 14% of sales at the time. Beachhead will be a major portion of
those costs. Beachhead will affect the balance sheet in that it will be contributing
to retained earnings through increasing net income.
The impact of Beachhead directly
correlates with Activision’s
competitive strategy of focusing
on delivery of digital content and
online services.
“We continue to shift towards
digital delivery of content and
to establish and develop direct
and long-term relationships
with our gamers. We will also
continue to support, maintain
and enhance World of
Warcraft and Call of
Duty online communities”
(Activision, 2011).
$14.45 a
quarter per
player
Appeal to Call
of Duty gamers
Beachhead
Profitability
Help increase
revenues by
10% it’s first
year
35
Money for
downloadable
content
36
Introduction
Current Strategy
Key Issues
Recommendations
Competitive
Dimensions
Game Genres
Key
Issues
Recommendations
Franchise
Diversification
Seasonality
Digital
Distribution
Marketing
Strategy
Expansion
Lacking Presence
in Casual and
Social Games
Development
Cost of Project
Beachhead
Platform
Compatibility
37
Subscription
Fees of
Beachhead
Conclusion
Activision Blizzard, Inc. has seen revenue growth since the merger with Blizzard
Entertainment in 2008. Activision’s current strategy confirms its focus on
franchises, technologies, and digital content that have proven to be successful
in the past. Research indicates that in order to continue economic growth,
Activision should be aware of the industry’s competitive dimensions, and the
potential issues it may face. Its franchise diversification, presence in the social
and casual gaming market, and its concentrated time, effort, and funds into
Project Beachhead to be its three major issues. Through our analysis of
Activision Blizzard, Inc. the recommendations in this report will not only
provide the company with revenue growth for the next five years, they also act
as stabilizers to ensure future market success for the company.
Conclusion
38
Appendix A: Net Revenues by Quarter
Activision Blizzard, Inc.*
Quarter 3
Quarter 4
2010
397,000
1,061,000
(Activision
Blizzard, Inc.,
2010)
2009
411,000
1,232,000
(Activision
Blizzard, Inc.,
2009)
2008
413,000
1,318,000
(Activision
Blizzard, Inc.,
2008)
Quarter 3
Quarter 4
2010
613,000
1,053,000
(Electronic Arts,
Inc., 2010)
2009
788,000
1,243,000
(Electronic Arts,
Inc., 2009)
2008
894,000
1,654,000
(Electronic Arts,
Inc., 2008)
Take-Two Interactive Software, Inc.*
2010
2009
Quarter 3
194,381
50,621
Quarter 4
334,259
360,364
THQ Inc.*
Quarter 3
Quarter 4
(Take-Two
Interactive
Software, Inc.,
2010)
(Take-Two
Interactive
Software, Inc.,
2009)
2010
77,053
314,589
(THQ Inc.,
2010)
2008
433,836
256,810
(Take-Two
Interactive
Software, Inc.,
2008)
2009
101,290
356,678
(THQ Inc.,
2009)
2008
164,816
357,310
(THQ Inc.,
2008)
*(amounts expressed in thousands)
39
Appendix A
Electronic Arts, Inc.*
40
Appendix B: Primary Research Survey
Below are the questions our group asked in the survey that we posted to
SurveyMonkey.com.
Q6: Who makes the WWE video
game?
A) Take-Two Interactive
B) Electronic Arts
C) THQ Inc.
D) Take-Two Interactive
Q2: Who publishes the video game
franchise Call of Duty?
A) Activision Blizzard Inc.
B) Electronic Arts
C) Take-Two Interactive
D) THQ Inc.
Q7: Who makes the Battlefield
franchise video games?
A) THQ Inc.
B) Activision Blizzard Inc.
C) Take-Two Interactive
D) Electronic Arts
Q3: Who publishes the video game
franchise Madden NFL?
A) Activision Blizzard Inc.
B) THQ Inc.
C) Take-Two Interactive
D) Electronic Arts
Q8: Who makes the Grand Theft Auto
video game franchise?
A) THQ Inc.
B) Activision Blizzard Inc.
C) Electronic Arts
D) Take-Two Interactive
Q4: Who publishes the video game
franchise World of Warcraft?
A) Electronic Arts
B) Activision Blizzard Inc.
C) THQ Inc.
D) Take-Two Interactive
Q9: Who the Homefront video game?
A) Electronic Arts
B) Activision Blizzard Inc.
C) THQ Inc.
D) Take-Two Interactive
Q5: Who publishes the 2K NBA
basketball video games?
A) Take-Two Interactive
B) THQ Inc.
C) Electronic Arts
D) Activision Blizzard Inc.
Q10: Who makes the Guitar Hero
franchise video games?
A) THQ Inc.
B) Activision Blizzard Inc.
C) Take-Two Interactive
D) Electronic Arts
41
Appendix B
Q1: Who makes Bioshock the video
game?
A) THQ Inc.
B) Activision Blizzard Inc.
C) Electronic Arts
D) Take-Two Interactive
Appendix B: Primary Research Survey
Statistical Data
Mean=27.03
Median=23
Standard Deviation=13.68
Mode=31
Standard Error=1.37
Sample Variance=187.03
Range= 69
Min=5
Max=74
Appendix B continued
Ex: Normal Distribution for World of Warcraft
P= .9830
27.03
42
Z=2.12
56
43
Appendix C: GAAP Net Revenue Growth by Platforms
*All net revenues from the GAAP are in millions.
44
Appendix C
Breakdown of the Console Platforms by Company
45
Appendix D: Forecasted Income Statements
2011
$4,448,374,820
2,943,539,000
1,504,835,820
711,523,488
714,848,459
234,214,894
1,660,586,841
(155,751,021)
23,000,000
70,839,117
(61,911,904)
(9,286,786)
$(52,625,118)
2012
$5,782,887,266
3,469,732,360
2,313,154,906
Net revenues
Cost of Goods Sold
Gross Income
Costs and Expenses
Product Development
Sales and marketing
General and administrative
Total Costs and Expenses
Operating Income
Investment and other net income
Interest Expense
Income before income taxes
Tax Expense (benefit)
Net Income (loss)
809,604,217
867,433,090
289,144,363
1,966,181,670
346,973,236
29,900,000
77,664,866
299,208,370
44,881,255
$254,327,114
46
Appendix D
Net revenues
Cost of Goods Sold
Gross Income
Costs and Expenses
Product Development
Sales and marketing
General and administrative
Total Costs and Expenses
Operating Income
Investment and other net income
Interest Expense
Income before income taxes
Tax Expense (benefit)
Net Income (loss)
Appendix D: Forecasted Income Statements
Appendix D continued
Net revenues
Cost of Goods Sold
Gross Income
Costs and Expenses
Product Development
Sales and marketing
General and administrative
Total Costs and Expenses
Operating Income
Investment and other net income
Interest Expense
Income before income taxes
Tax Expense (benefit)
Net Income (loss)
2013
$6,361,175,993
3,562,258,556
2,798,917,437
890,564,639
954,176,399
318,058,800
2,162,799,837
636,117,599
32,890,000
66,861,319
602,146,280
90,321,942
$511,824,338
2014
$6,615,623,032
3,440,123,977
3,175,499,056
Net revenues
Cost of Goods Sold
Gross Income
Costs and Expenses
Product Development
Sales and marketing
General and administrative
Total Costs and Expenses
Operating Income
Investment and other net income
Interest Expense
Income before income taxes
Tax Expense (benefit)
Net Income (loss)
47
926,187,225
992,343,455
330,781,152
2,249,311,831
926,187,225
34,205,600
56,057,772
904,335,053
135,650,258
$768,684,795
Appendix D: Forecasted Income Statements
Net revenues
Cost of Goods Sold
Gross Income
Costs and Expenses
Product Development
Sales and marketing
General and administrative
Total Costs and Expenses
Operating Income
Investment and other net income
Interest Expense
Income before income taxes
Tax Expense (benefit)
Net Income (loss)
48
963,234,714
1,032,037,193
344,012,398
2,339,284,304
963,234,714
35,573,824
45,254,225
953,554,313
143,033,147
$810,521,166
Appendix D continued
2015
$6,880,247,954
3,577,728,936
3,302,519,018
49
Appendix E: Forecasted Balance Sheet
Assets
2011
$1,309,118,000
696,000,000
723,845,000
140,592,000
301,763,000
45,000,000
640,000,000
346,976,000
4,203,294,000
Long-term investments
Software development
Intellectual property licenses
Property and equipment
Other assets
23,000,000
148,898,000
28,000,000
190,326,000
25,680,000
Total Current Assets:
Fixed Assets:
Intangible assets
Trademark and trade names
Goodwill
179,142,000
433,000,000
9,012,469,000
10,040,515,000
$14,243,809,000
Total Fixed Assets:
Total Assets:
Liabilities and Shareholders Equity
Current Liabilities:
Accounts payable
Deferred revenues
$411,852,000
1,736,412,000
Accrued expenses and other liabilities
Take-Two liabilities of discontinued
operations
Long-term principal payment
Total Current Liabilities:
Other Liabilities:
Deferred income taxes, net
Other liabilities
Long-term liabilities
Income taxes payable
Take-Two liabilities of discontinued
operations, net of current portion
Total Liabilities
Shareholders Equity:
Common Stock and Additional paid-in
capital
Retained earnings
985,498,000
3,799,000
3,137,561,000
121,059,000
184,000,000
1,194,844,097
29,381,515
3,118,000
4,669,963,612
12,353,000,000
(572,154,612)
11,780,845,388
(2,194,000,000)
Less: Treasury Stock
Accumulated other comprehensive
income (loss)
Total Shareholders Equity:
Total Liabilities and Shareholders Equity:
External funding needed (long-term)
(13,000,000)
9,573,845,388
$14,243,809,000
-
50
Appendix E
Cash and cash equivalents
Short-term investments
Accounts receivable
Inventory
Software development
Intellectual property licenses
Deferred income taxes, net
Other current assets
Appendix E: Forecasted Balance Sheet
Assets
Cash and cash equivalents
Short-term investments
Accounts receivable
Inventory
Software development
Intellectual property licenses
Deferred income taxes, net
Other current assets
Total Current Assets:
Fixed Assets:
Long-term investments
Software development
Intellectual property licenses
Property and equipment
Other assets
Intangible assets
Trademark and trade names
Goodwill
Appendix E continued
Total Fixed Assets:
Total Assets:
Liabilities and Shareholders Equity
Current Liabilities:
Accounts payable
Deferred revenues
Accrued expenses and other liabilities
Take-Two liabilities of discontinued
operations
Long-term principal payment
Total Current Liabilities:
Other Liabilities:
Deferred income taxes, net
Other liabilities
Long-term liabilities
Income taxes payable
Take-Two liabilities of discontinued
operations, net of current portion
Total Liabilities
Shareholders Equity:
Common Stock and Additional paid-in
capital
Retained earnings
Less: Treasury Stock
Accumulated other comprehensive
income (loss)
Total Shareholders Equity:
Total Liabilities and Shareholders Equity:
External funding needed (long-term)
51
2012
$1,445,721,817
696,000,000
925,261,963
140,592,000
404,802,109
57,828,873
640,000,000
346,976,000
4,657,182,760
23,000,000
173,486,618
36,400,000
190,326,000
33,384,000
179,142,000
433,000,000
9,012,469,000
10,081,207,618
$14,738,390,378
$535,407,600
1,736,412,000
1,214,406,326
166,208,418
3,652,434,344
157,376,700
239,200,000
1,028,635,679
44,881,255
5,122,527,978
12,353,000,000
(317,827,497)
12,035,172,503
(2,194,000,000)
(13,000,000)
9,828,172,503
$14,950,700,481
(212,310,103)
Appendix E: Forecasted Balance Sheet
Assets
Current Assets:
Total Current Assets:
Fixed Assets:
Long-term investments
Software development
Intellectual property licenses
Property and equipment
Other assets
Intangible assets
Trademark and trade names
Goodwill
23,000,000
212,924,140
40,040,000
190,326,000
36,722,400
179,142,000
433,000,000
9,012,469,000
10,127,623,540
$15,068,906,016
Total Fixed Assets:
Total Assets:
Liabilities and Shareholders Equity
Current Liabilities:
Accounts payable
Deferred revenues
$588,948,360
1,736,412,000
Accrued expenses and other liabilities
Take-Two liabilities of discontinued
operations
Long-term principal payment
Total Current Liabilities:
Other Liabilities:
Deferred income taxes, net
Other liabilities
Long-term liabilities
Income taxes payable
Take-Two liabilities of discontinued
operations, net of current portion
Total Liabilities
Shareholders Equity:
Common Stock and Additional paid-in
capital
Retained earnings
Less: Treasury Stock
Accumulated other comprehensive
income (loss)
Total Shareholders Equity:
Total Liabilities and Shareholders Equity:
External funding needed (long-term)
1,335,846,958
166,208,418
3,827,415,736
173,114,370
263,120,000
862,427,261
90,321,942
5,216,399,309
12,353,000,000
193,996,841
12,546,996,841
(2,194,000,000)
(13,000,000)
10,339,996,841
$15,556,396,150
(487,490,134)
52
Appendix E continued
2013
$1,590,293,998
696,000,000
1,017,788,159
140,592,000
445,282,319
64,350,000
640,000,000
346,976,000
4,941,282,476
Cash and cash equivalents
Short-term investments
Accounts receivable
Inventory
Software development
Intellectual property licenses
Deferred income taxes, net
Other current assets
Appendix E: Forecasted Balance Sheet
Assets
Current Assets:
Cash and cash equivalents
Short-term investments
Accounts receivable
Inventory
Software development
Intellectual property licenses
Deferred income taxes, net
Other current assets
Total Current Assets:
Fixed Assets:
Appendix E continued
Long-term investments
Software development
Intellectual property licenses
Property and equipment
Other assets
Intangible assets
Trademark and trade names
Goodwill
Total Fixed Assets:
Total Assets:
Liabilities and Shareholders Equity
Current Liabilities:
Accounts payable
Deferred revenues
Accrued expenses and other liabilities
Take-Two liabilities of discontinued
operations
Long-term principal payment
Total Current Liabilities:
Other Liabilities:
Deferred income taxes, net
Other liabilities
Long-term liabilities
Income taxes payable
Take-Two liabilities of discontinued
operations, net of current portion
Total Liabilities
Shareholders Equity:
Common Stock and Additional paid-in
capital
Retained earnings
Less: Treasury Stock
Accumulated other comprehensive
income (loss)
Total Shareholders Equity:
Total Liabilities and Shareholders Equity:
External funding needed (long-term)
53
2014
$1,653,905,758
696,000,000
1,058,499,685
140,592,000
448,781,934
66,924,000
640,000,000
346,976,000
5,051,679,377
23,000,000
221,441,106
41,641,600
190,326,000
38,191,296
179,142,000
433,000,000
9,012,469,000
10,139,211,002
$15,190,890,378
$612,506,294
1,736,412,000
1,389,280,837
166,208,418
3,904,407,549
180,038,945
273,644,800
696,218,843
135,650,258
5,189,960,395
12,353,000,000
962,681,635
13,315,681,635
(2,194,000,000)
(13,000,000)
11,108,681,635
$16,298,642,030
(1,107,751,652)
Appendix E: Forecasted Balance Sheet
Assets
Current Assets:
Total Current Assets:
Fixed Assets:
Long-term investments
Software development
Intellectual property licenses
Property and equipment
Other assets
Intangible assets
Trademark and trade names
Goodwill
23,000,000
230,298,750
43,307,264
190,326,000
39,718,948
179,142,000
433,000,000
9,012,469,000
10,151,261,962
$15,332,065,794
Total Fixed Assets:
Total Assets:
Liabilities and Shareholders Equity
Current Liabilities:
Accounts payable
Deferred revenues
$637,006,546
1,736,412,000
Accrued expenses and other liabilities
Take-Two liabilities of discontinued
operations
Long-term principal payment
Total Current Liabilities:
Other Liabilities:
Deferred income taxes, net
Other liabilities
Long-term liabilities
Income taxes payable
1,444,852,070
166,208,418
3,984,479,034
187,240,503
284,590,592
530,010,425
143,033,147
Take-Two liabilities of discontinued
operations, net of current portion
Total Liabilities
Shareholders Equity:
Common Stock and Additional paid-in
capital
Retained earnings
Less: Treasury Stock
Accumulated other comprehensive
income (loss)
Total Shareholders Equity:
Total Liabilities and Shareholders Equity:
External funding needed (long-term)
54
5,129,353,701
12,353,000,000
1,773,202,801
14,126,202,801
(2,194,000,000)
(13,000,000)
11,919,202,801
$17,048,556,502
(1,716,490,709)
Appendix E continued
2015
$1,720,061,988
696,000,000
1,100,839,673
140,592,000
466,733,211
69,600,960
640,000,000
346,976,000
5,180,803,832
Cash and cash equivalents
Short-term investments
Accounts receivable
Inventory
Software development
Intellectual property licenses
Deferred income taxes, net
Other current assets
55
Appendix F: Ratios
Net sales growth rate
Margins
Gross Profit Margin
Operating
profit(loss)margin
Net profit (loss)
margin
Asset Management
Indicators
Inventory turnover
Days' sales in
inventory
Accounts receivable
turnover
Days'sales
outstanding
Fixed assets turnover
Total assets turnover
48.00 48.00
%
%
14.00 14.00
-3.50% 6.00% 10.00%
%
%
11.62 11.78
-1.18% 4.40% 8.05%
%
%
33.83% 40.00% 44.00%
-0.37% 1.73% 3.40% 5.06% 5.29%
-0.55% 2.59% 4.95% 6.92% 6.80%
20.94 24.68
25.34 24.47 25.45
N/A
N/A
N/A
N/A
N/A
6.15
6.25
6.25
6.25
6.25
59.39 58.40
58.40 58.40 58.40
23.37 30.38
0.31
0.39
33.42 34.76 36.15
0.42
0.44
0.45
Financial
Management
Indicators
Liquidity indicators (
short-term)
Current ratio
Quick ratio
1.34
1.29
1.28
1.24
1.29
1.25
1.29
1.26
1.30
1.26
Solvency indicators (
Long-term)
Debt ratio
Debt/equity
Leverage
0.33
0.49
1.49
0.35
0.52
1.50
0.35
0.50
1.46
0.34
0.47
1.37
0.33
0.43
1.29
56
Appendix F
Returns
Return on assets
Return on equity
2011 2012 2013 2014 2015
0.00
0.30
0.10
0.04
0.04
57
Re f e re n c e s
Activision . (2011). Corporate Citizenship. Retrieved April 18, 2011 from Activision:
http://www.actisision.com/index.html#about|en_US|type:corporate
Activision Blizzard Inc. (2011). Games. Retrieved April 17, 2011, from Activision :
http://www.activision.com/index.html#games|en_US
Activision Blizzard, Inc. . (2010). Quarterly Report Pursuant to Sention 13 or 15(d) of the
Securities Exchange Act of 1934. Activision Blizzard, Inc. .
Activision Blizzard, Inc. . (2009). Quarterly Report Rursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. Activision Blizzard, Inc. .
Activision Blizzard, Inc. (2011). Annual Report Persuant to Section 13 or 15(d) of the
Securities Exchange Act of 1933. Santa Monica: Activision Blizzard, Inc.
Activision Blizzard, Inc. (2011). Annual Report Pursuant to Section 13 or 15(d) of the
Securities and Exchange Act of 1934. Delaware: Activision Blizzard, Inc.
Activision Blizzard, Inc. (2011, February 9). Fourth Quarter and CY 2010 Results. 14.
Activision Blizzard, Inc.
Activision Blizzard, Inc. (2011, February 9). Game Release Calendar. Retrieved April
20, 2011 from Activision Blizzard:
http://investor.activision.com/games.cfm
Androvich, M. (2008, October 6). 2K Sports Unheralded Against EA Sports, says
Zelnick. Retrieved April 26, 2011, from GameIndustry.biz:
http://www.gamesindustry.biz/articles/2k-sports-unheralded-against-easports-says-zelnick
Armstrong, G., & Kotler, P. (2011). Marketing: An Introduction (10 ed.). Upper Saddle
River, New Jersey: Prentice Hall.
Arsenault, D. (2009, March 2). Video Game Genre, Evolution and Innovation. Retrieved
April 21, 2011, from Eludamos. Journal for Computer Game Culture: http://
www.eludamos.org/index.php/eludamos/article/viewArticle/65/12 5
BDO. (2007, May 9). Spore Delayed by EA. Retrieved April 28, 2011, from Wyrd:
http://wyrdstuff.com/?p=503
Blizzard Entertainment. (n.d.). 20 Year Anniversary: Memories of Blizzard Video
Contest. Retrieved April 30, 2011, from Blizzard Entertainment:
http://us.blizzard.com/en-us/company/about/b20/contest.html
Brightman, J. (2010, November 23). Activision: 'We Will Never, Ever Charge for Call of
Duty Multiplayer'. Retrieved May 2, 2011 from Industry Gamers:
http://www.industrygamers.com/news/activision-we-will-never-evercharge-for-call-of-duty-multiplayer/
58
Brightman, J. (2011, April 8). Facebook Dominance is EA's Next Goal . From IndustryGamers:
http://www.industrygamers.com/news/facebook-dominance-is-eas-nextgoal/
Call of Duty: Black Ops. (2010). Black Ops:Game. Retrieved May 2, 2011, from Call of
Duty: Black Ops: http://www.callofduty.com/game
Cluster 5a 101. (2011, April 19). please take this survey for our cliuster project! United
States of America: www.surveymonkey.com.
Dietz, J. (February, 9 2011). Metacritic’s 1st Annual Game Publisher Rankings. Retrieved
April 23, 2011, from Metacritic: http://features.metacritic.com/features/2011/
game-publisher-rankings-for-2010-releases/
Electronic Arts. (2011). Form 10-Q Quarterly Report. Electronic Arts.
Electronic Arts Inc. (2010). Annual Report Persuant to section 13 or 15(d) of the
Exchange Act of 1934. Redwood City: Electronic Arts Inc.
Securities
Electronic Arts, Inc. . Recently Released Products. Electronic Arts, Inc. .
Electronic Arts, Inc. (2008). Ouarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Commission Act of 1934. Redwood City: Electronic Arts,
Inc.
Electronic Arts, Inc. (2009). Ouarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Commission Act of 1934. Redwood City: Electronic Arts, Inc.
Electronic Arts, Inc. (2010). Ouarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Commission Act of 1934. Redwood City: Electronic Arts, Inc.
Entertainment Software Association. (2010). 2010 Sales, Demographic and Usage Data:
Essential Facts about the Computer and Video Game Industry. Entertainment
Software Association.
Gadget Ground. (2011, January 21). Take-Two said the chairman of digital distribution and
film. From Gadget Ground:
http://gadgetground.com/take-two-said-the-chairman-of-digital-distributionand-film/
GameSpot. (n.d.). Monster Jam: Urban Assault (PSP). Retrieved May 1, 2011, from
GameSpot: 2011
Gilbert, B. (2011, February 9). Activision Axing Guitar Hero and True Crime; Freestyle
Games Reportedly Hit with Layoffs. Retrieved April 26, 2011, from Joystiq:
http://www.joystiq.com/2011/02/09/report-activision-axing-guitar-hero-andtrue-crime-freestyle-g/
GoNintendo. (2011, February 10). Activision elaborates on project Beachhead...a little. From
GoNintendo: http://gonintendo.com/viewstory.php?id=149909
59
Haas, P. (2011, February 9). Call Of Duty: Black Ops First Strike Sales, PS3 Release Date
Announced. Retrieved April 26, 2011, from Cinema Blend:
http://www.cinemablend.com/games/Call-Duty-Black-Ops-First-StrikeSales-PS3-Release-Date-Announced-29936.html
Haywook, N. (2006, March 3). Guitar Hero - PS2. Retrieved May 1, 2011, from Hexus
Gaming: http://gaming.hexus.net/content/item.php?item=4804
Kane, Y. (2009, September 10). EA CEO Says Madden Sales Are Down. Retrieved April 27,
2011, from The Wall Street Journal:
http://blogs.wsj.com/digits/2009/09/10/ea-ceos-videogame-outlook/
Lafferty, M. (2010, November 12). "Call of Duty: Black Ops" is Worth the Hype.
Retrieved
April 28, 2011, from Boise Weekly:
http://www.boiseweekly.com/Cobweb/archives/2010/11/12/review-callof-duty-black-ops-is-worth-the-hype
Loukerner. (2010, April 6). Zynga $5 Billion Valuation: BUY – Early Leader in Social
Gaming is Printing Money . From Second Shares: Secondary Private Company
Stocks: http://www.secondshares.com/2010/04/06/zynga-5-billion-valuationbuy-–-early-leader-in-social-gaming-is-printing-money/
Madden 2011 to Hit iPads. (2010, August 9). Retrieved April 28, 2011, from Gadgetlite:
http://www.gadgetlite.com/2010/08/09/madden-2011-hit-ipads/
Magrino, T. (2011, February 1). NBA 2K11 sales near 4 million. Retrieved April 26, 2011,
from Game Spot: http://www.gamespot.com/news/6297199.html
Makuch, E. (2011, April 7). EA: Battlefield 3 designed to "take Call of Duty down". Retrieved
April 24, 2011, from Gamespot:
http://www.gamespot.com/pc/action/battlefield3/news.html?sid=6307366
McWhertor, M. (2009, March 10). Grand Theft Auto IV Moves 13 Million Copies, Take-Two
Sees Loss. Retrieved April 26, 2011, from Kotoku:
http://kotaku.com/#!5167709/grand-theft-auto-iv-moves-13-million-copiestake+two-sees-loss
Medievaldragon. (2007, November 20). World of Warcraft Mr. T Commercial TV ad.
Retrieved April 20, 2011, from YouTube:
http://www.youtube.com/watch?v=bqJE5TH5jhc&feature=related
Mergent Online. (2011). Activision Blizzard, Inc. (NMS: ATVI). Retrieved April 24, 2011
from Mergent Online:
http://www.mergentonline.com.proxy.library.ohio.edu/companyfinancials.php?
pagetype=ratios&compnumber=126122
Mergent Online. (2011). Electronic Arts, Inc. (NMS: ERTS). Retrieved April 24, 2011 from
Mergent Online: http://www.mergentonline.com.proxy.library.ohio.edu/
companyfinancials.php?pagetype=ratios&compnumber=627773
60
Mergent Online. (2011). Take-Two Interactive Software, Inc. (NMS: TTWO). Retrieved April
24, 2011 from Mergent Online:
http://www.mergentonline.com.proxy.library.ohiou.edu/companyfinancials.php?
pagetype=ratios&compnumber=91266
Mergent Online. (2011). THQ, Inc. (NMS: THQI). Retrieved April 24, 2011 from Mergent
Online:
http://www.mergentonline.com.proxy.library.ohiou.edu/companyfinancials.php?
pagetype=ratios&compnumber=67936
MESA. (2011, March 8). EA: Digital Distribution Has ‘Mass Effect’ on PlayStation Game.
From MESA (Media & Entertainment Services Alliance):
http://mesalliance.org/blog/2011/03/08/ea-digital-distribution-has-‘masseffect’-on-playstation-game/
NASDAQ. (2011, May 2). FlashQuotes: ATVI. Retrieved May 2, 2011 from NASDAQ:
http://www.nasdaq.com/aspx/flashquotes.aspx?symbol=ATVI&selected=ATVI
Noe, G. (2009, June 1). Grand Theft Auto IV . Retrieved April 28, 2011, from First Hour:
http://firsthour.net/series/grand-theft-auto
Orland, K. (2011, April 18). THQ's Farrell Talks Up Digital Distribution, New Business
Models. From Gamasutra: http://www.gamasutra.com/view/news/34160/
THQs_Farrell_Talks_Up_Digital_Distribution_New_Business_Models.php
Pakinkis, T. (2010, November 25). Grand Theft Auto 5 release in 2012. Retrieved April 26,
2011, from Computer and Video Games:
http://www.computerandvideogames.com/277677/news/grand-theft-auto-5release-in-2012-analyst/
Rodda, D. (2010, August 11). FIFA 2011 Cover Unveiled, Slightly Random. Retrieved April
28, 2011, from Futbol for Yanks:
http://futbolforyanks.com/2010/08/11/fifa-2011-cover-unveiled-slightlyrandom/
Santos, A. (2009, n.d.). World at War Map Pack 1 reaches over $10 million in sales in its
first weekend. Retrieved April 25, 2011, from VG Tribune:
http://vgtribune.com/world-at-war-map-pack-1-reaches-over-10-million-insales-in-its-first-weekend/
Schramm, M. (2011, March 16). Judge: Activision’s suit against EA and former IW heads
can proceed. Retrieved May 2, 2011, from Joystiq:
http;//www.joystiq.com/2011/03/16/judge-activisions-suit-against-ea-andformer-iw-heads-can-proc/
Senior, T. (2011, February 16). Could Call of Duty go the same way as Guitar Hero?
Retrieved April 24, 2011, from PCGAMER:
http://www.pcgamer.com/2011/02/16/could-call-of-duty-go-the-same-way-asguitar-hero/
Shane, C. (2011, January 25). WWE All Stars Boxart Revealed. Retrieved April 28, 2011,
from CAWS: http://caws.ws/wweallstars/?p=69
61
Sinclair, B. (2011, February 11). Activision to Acquire Take-Two? Retrieved April 24, 2011,
from GameSpot: http://www.gamespot.com/news/6298567.html
Sliwinski, A. (2008, February 12). Spore finally evolves to retail Sept 7, 2008. Retrieved
April 28, 2011, from Joystiq:
http://www.joystiq.com/2008/02/12/spore-finally-evolves-to-retail-sept-72008/
Smith, J. (2011, March 29). Inside Virtual Goods: Profiling the Social Gaming Middle Market
2011, Is Here. From Inside Social Games:
http://www.insidesocialgames.com/2011/03/29/inside-virtual-goodsprofiling-the-social-gaming-middle-market-2011-is-here/
Srisavasdi, G. (2010, October 7). Ballin' with NBA 2K11 and Michael Jordan. Retrieved
April 28, 2011, from Hollywood Outbreak:
http://www.hollywoodoutbreak.com/2010/10/07/ballin-with-nba-2k11-andmichael-jordan/
Stock Wizard. (2011, February 6). Activision Blizzard Inc. (NASDAQ: ATVI): Q4 Earnings
Preview 2010. Retrieved May 2, 2011 from Stock Wizard:
http://isstockwizard.blogspot.com/2011/02/activision-blizzard-inc-nasdaqatvi-q4.html
Takahashi, D. (2011, February 17). How long before Zynga becomes the most valuable
video game company? From GamesBeat Interpreting Innovation:
http://venturebeat.com/2011/02/17/wtf-how-long-before-zynga-becomes-themost-valuable-video-game-company/
Take-Two Interactive Software, Inc. (2010). Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934. New York: Take-Two Interactive
Software, Inc.
Take-Two Interactive Software, Inc. (2008). Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. New York: Take-Two Interactive
Software, Inc.
Take-Two Interactive Software, Inc. (2009). Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. New York: Take-Two Interactive
Software, Inc.
Take-Two Interactive Software, Inc. (2010). Quarterly Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934. New York: Take-Two Interactive
Software, Inc.
Tan, M. (2011, February 9). Project Beachhead to manage Call of Duty online content.
Retrieved May 3, 2011 from Destructoid: http://www.destructoid.com/projectbeachhead-to-manage-call-of-duty-online-content-193649.phtml
THQ Inc. (2009). Annual Report Persuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. Agoura Hills: THQ Inc.
THQ Inc. (2011). Pursuant to Section 13 OR 15(D) of The Securities Exchange Act of 1934.
Agoura Hills: THQ Inc.
62
THQ Inc. (2009). Quartely Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. Agoura Hills: THQ Inc.
THQ Inc. (2008). Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934. Agoura Hills: THQ Inc.
THQ Inc. (2010). Quarterly Report Pursuant to Section 13 or15(d) of the Securities Exchange
Act of 1934. Agoura Hills: THQ Inc.
THQ Inc. (2011, April). Recently Released. (T. Inc., Producer) Retrieved April 22, 2011
from THQ: http://www.thq.com/us/search/index/
THQ UFC Undisputed 2010 for Xbox 360. (2011). Retrieved April 28, 2011, from Shopping:
http://www.shopping.com/THQ-UFC-Undisputed-2010-for-Xbox-360/prices
Vella, M. (2008, May). Grand Theft Auto Rakes in Record Sales. Retrieved April 26, 2011,
from Business Week:
http://www.businessweek.com/innovate/gamesinc/archives/
2008/05/grand_theft_aut.html
Wallpaperez. (n.d.). Retrieved April 28, 2011, from Wallpaperez:
http://www.wallpaperez.info/games/World-of-Warcraft-Cataclysmwallpaper-2121.html
Wingfield, N., Ante, S. E., & Das, A. (2011, February 14). Zynga's Talks With Investors Value
Gaming Concern at Over $7 Billion. From The Wall Street Journal: http://
online.wsj.com/article/
SB10001424052748703515504576142693408473796.html
Zacks Investment Research. (2011, April 1). EA Launches On Facebook. From Zacks
Investment Research : http://www.dailymarkets.com/stock/2011/04/01/ealaunches-on-facebook/
63