Activision financials: Revenue at $4.8 billion, major franchise cuts include Guitar Hero and True Crime

By Stephany Nunneley

Activision has posted its annual earnings and earnings forQ4 2010, while confirming earlier reports it has canceled the Guitar Hero series and True Crime: Hong Kong.

What happened?

The Guitar Hero business disbanded and 2011’s game canned.

True Crime canned.

Around 500 staff laid off.

First Strike Black Ops DLC hitting PS3 on March 3.

No Blizzard release this year, but two coming in 2012.

No Acti music or skateboarding games in 2011.

Beachhead studio formed to work on CoD digital content.

According to CEO Bobby Kotick: “Due to continued declines in the music genre, the company will disband Activision Publishing’s Guitar Hero business unit and discontinue development on its Guitar Hero game for 2011. The company also will stop development on True Crime: Hong Kong. These decisions are based on the desire to focus on the greatest opportunities that the company currently has to create the world’s best interactive entertainment experiences.”

Year end and Q4 financials

Activision Blizzard reported results well above Wall Street’s expectations. Net revenues came in at $4.80 billion, compared with $4.78 billion in 2009. Revenues from digital channels for the calendar year were more than $1.5 billion, an increase of more than 20 percent year-over-year.

For the fourth quarter ending December 31, net revenue came in at $2.55 billion, compared to the same period in 2009, when it reported revenues of $2.50 billion. Revenues from digital channels for the quarter were more than $470 million, an increase of 40 percent year-over-year.

Analysts expected revenue of $2.2 billion, and given Activision’s conservative nature, its 2011 guidance may be “slightly below” investors’ current expectations.

Such a boon in revenue and earnings can attributed to strong sales for Call of Duty: Black Ops, a game which sold over $1 billion in its first six weeks at retail. Analysts expected 20 million copies of Black Ops to be moved during the quarter, but it looks like that figure may be a lot higher.

“Because of focus and disciplined execution, 2010 was another extraordinary year for Activision Blizzard,” he said. “We made some of the best games we have ever made in over 30 years of being in the interactive entertainment business. We benefited from new content releases for two of the world’s most successful online entertainment franchises: Activision Publishing’s Call of Duty: Black Ops and Blizzard Entertainment’s World of Warcraft: Cataclysm, a new installment in the world’s largest subscription-based massively multiplayer online role-playing game.

“During the year, we grew our net revenues, delivered record earnings, achieved record GAAP and non-GAAP operating margins of 11 percent and 29 percent, respectively, and generated $1.4 billion in operating cash flow.

“The amount of players online with Black Ops is equal to the number of Netflix subs.” – Kotick.

“Activision Blizzard’s key franchises have larger audience bases than ever before and we continue to see significantly enhanced user activity and engagement for our expanding online communities. Our revenues from digital channels, which now account for over 30 percent of our overall revenues, were driven by increased sales of Activision Publishing’s Call of Duty map packs and value-added services for Blizzard Entertainment’s World of Warcraft.

“Notably, since Call of Duty: Black Ops was launched in November players have spent an average of 52 minutes per day playing online, roughly equivalent to the 55 minutes that the average user spends each day on Facebook. As of February 2, 2011, more than 27 million gamers have played Call of Duty games online, logging more than 2 billion hours, or the equivalent of more than 229,000 years of gameplay.”

The company plans to buy back stock as well, which will see it repurchase up to $1.5 billion in outstanding common stock.

No new releases for Blizzard in 2011

CFO Thomas Tippl said during the financial call to investors, that the company’s outlook of 2011 does not include a new Blizzard game, but instead expects the developer to release two titles in 2012 – possibly the new MMO and Diablo III – but no one would confirm which titles when asked by numerous analysts on the call. Blizzard is good for one major release a year, it was explained, and the firm wanted to wait on a Diablo III release this year, because quality matters to Blizzard above anything else. If the game happened to release this year, it would be because Blizzard believed it to be ready, but don’t expect it.

Development on Diablo III is going well, but until it goes into beta, a release date will not be locked in. No date is set, because there isn’t one.

Mike Morhaime, president and a co-founder of Blizzard, said net income was $850 million for the developer this year. While he would not go into detail on the difference between digital and retail sales of Cataclysm, retail carried “the lion’s share,” of sales.

“Our outlook for 2011 does not include a new Blizzard game, but two titles are expected in 2012.” – Tippl.

StarCraft II is approaching 4.5 million units sold worldwide, and over 150, 000 maps have been uploaded onto Battle.net. Information on Heart of the Swarm, the first of three planned expansions for the game, is coming in the next few months, and information on the beta will appear in the next financial call.

“Blizzard significantly evolved its direct digital distribution capabilities with the launch of its new Battle.net service and saw players embrace its service offerings in record numbers,” said CEO Bobby Kotick.

The cancellation of the Guitar Hero series and True Crime

CFO Thomas Tippl said the firm does not plan to release any new music or skateboarding games in 2011, and due to the cancellation of True Crime: Hong Kong, along with the Guitar Hero and DJ Hero series, it would result in the loss of about 500 out of 7000 positions at Activision Publishing which is roughly 4 percent of sector’s total workforce. However, Tippl said due to the firm heavily investing in Blizzard and Call of Duty, “net head count at end of year is probably not going to be materially different.”

Business Highlights

Blizzard just turned 20 years old. A lot of same employees still work there.

Cataclysm has sold through more than 4.7 million copies in its first month and has more than 12 millions subs.

Black Ops was the first game to surpass $650 million in sales during its first five days. To date, the game has achieved more than $1 billion in retail sales worldwide.

Total unique Black Ops players increased by more than 49 percent over the number of players of Modern Warfare for the first three months after each game’s release.

Black Ops: First Strike set XBL records with more than 1.4 million downloads in first 24 hours, an increase of more than 25% over Modern Warfare 2’s Stimulus Package.

First Strike will be released on PC “later in the quarter”, out March 3 on PS3.

Strong double digital growth worldwide in Black Ops popularity.

Eric Hirshberg, COO of Activision Publishing, said the firm did not feel True Crime: Hong Kong would compete in the open world genre, and it wasn’t going to be “good enough.” So, it was canceled for quality purposes and was “the right decision for the right reasons.”

Demand for the music game genre declined at a “considerable pace,” despite the favorable reception of Activision’s particular offerings and those of its competitors.

“We simply cannot make these games profitable based on current market and demands,” said Hirshberg.

The COO also said without saying which studio was developing the newest title in the series, that the Call of Duty franchise was at “the epicenter of online gaming,” and a new FPS was in the works.

Hirshberg also said the firm expects the installed base of online-enabled consoles to increase 24 percent to 92 million this year.

More DLC is planned for Black Ops, First Strike will land on PS3 March 3 with PC getting it later in the quarter.

Other titles in the works include Spider-Man, Transformers and X-Men, along with a “broad entertainment franchise which brings together toys, games and online in an unprecedented way,” which will be announced at the Toyfair next week on February 23.

Also, a new Family Guy game is in the works. Giggity.

Beachhead Studios to create online content for Call of Duty

It was announced during the financial call to investors, that Activision had formed a new studio called Beachhead, which will create new digital content for the Call of Duty series. The studio will lead the creation of an all-new digital platform for the CoD franchise, complete with a suite of online services to “super charge the online experience,” while “integrating online and console together for the first time.”

The Beachhead project has been in development for over a year, and more information on the studio along with content and services plans will be announced at a later date.

“Beachhead will create the best-in-class online community, exclusive content, and a suite of services to supercharge the online gaming experience like never before,” explained CFO Thomas Tippl. “The platform will support in-game integration and bring online experiences and console play together for the first time. The platform has been in development for over a year and we’re very excited about the increased value we can bring to the community.

“We look forward to sharing more specifics on this exciting new endeavor with you in the near future.”

Eric Hirshberg added during this segment of the call, that a new standalone Call of Duty title was in development for the Chinese market. It is to be a free-to-play, micro-transaction based game, and while he didn’t say if Beachhead had any input in it, Hirshberg did mention that it would not be released this year.