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Activision Blizzard 2011 Q4 Conference Call – Mike Morhaime – Full Transcript

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This is a full transcript of the speech by Blizzard Entertainment CEO Mike Morhaime during the Activision Blizzard 2011 Q4 Financial Results Conference Call. Let’s start with a few quotes by Activision Blizzard Bob Kotick.

Bob Kotick: 2011 is another record year for Activision Blizzard. In 2011, we generated nearly $1 billion in operating cash flow. And over the last 3 years, we’ve generated over $3.5 billion in operating cash flow, and we’ve returned more than $3 billion in value to our shareholders through dividends and stock repurchases.

In the U.S. and Europe, we remain the largest and most profitable third-party interactive entertainment company and the largest and most profitable third-party interactive entertainment digital publisher. We again delivered better-than-expected financial results and achieved multiple financial and operational records, as we have for the last few years. We achieved record operating margins and record EPS, which grew more than 17% over the prior year, and as I mentioned, we generated nearly $1 billion in operating cash flow, which allows us to continue to invest thoughtfully in our future growth and return capital to our shareholders.

With that in mind, we’re increasing our dividend 9% to $0.18 per share, and our Board of Directors has authorized a new $1 billion stock repurchase program. Our strong performance is a testament to the hard work and incredible talent of all of the Activision Blizzard employees around the world. Their commitment to excellence, teamwork and inspired creativity continues to drive our superior performance.

Today, we’re going to highlight a few important achievements from 2011 and provide some greater detail about our plans for 2012 and beyond, including our strong lineup, our expansion into new markets and new business models, and our development initiatives for new platforms.

2011 was a very competitive year. There were many great products released, and gamers had more entertainment choices on more platforms than ever before. Despite these choices and new competitors, Blizzard Entertainment’s World of Warcraft remains far and away the world’s largest online subscription-based massively multiplayer game, ending the year with 10.2 million subscribers. World of Warcraft has a very loyal group of players and later in the call, Mike Morhaime will share some of this year’s plans for the franchise.

We expect growth from Blizzard. In addition to World of Warcraft, which provides a strong foundation, Blizzard plans to launch at least 2 titles this year, including Diablo III with its real money auction house. Business pipeline has never been stronger, including World of Warcraft: Mists of Pandaria, StarCraft II: Heart of the Swarm, the Blizzard DOTA, and the next-generation MMO.

Morhaime: I want to quickly recap our activity from 2011. We launched both StarCraft II and World of Warcraft: Cataclysm in China and introduced the localized version of World of Warcraft with the fast-growing brazilian market. We also announced the expansion sets for StarCraft II, World of Warcraft, and kicked off the beta test for Diablo III. We’re preparing to launch multiple titles in 2012. And with next BlizzCon scheduled for 2013, our development teams are focused on bringing these games to players as quickly as possible.

World of Warcraft: Cataclysm

Moving on to financials. In large part due to the record-breaking Cataclysm launch in 2010, our results in both Q4 2011 and the year are down versus prior year. Despite not releasing a new game, we still posted approximately $500 million in operating income for 2011 while investing in our strongest pipeline of games ever.

Subscriber numbers for World of Warcraft ended 2011 at approximately 10.2 million, with no significant change relative to the prior quarter. We released a major update in November, which included new dungeons and raids, as well as new features that made our exciting raid content more accessible to a broader audience.

This content update has been well received by the community, and we believe it has contributed to retaining our players in the wake of competitive launches. Another initiative that has been very successful is the World of Warcraft Annual Pass.

This program was announced at BlizzCon this past year. Under its terms, players who commit to being a World of Warcraft subscriber for one year will get a free copy of Diablo III, unique digital items in World of Warcraft, and other benefits. To date, we have signed up more than one million players in the West for the World of Warcraft Annual Pass.

World of Warcraft: Mists of Pandaria

Some of you may have seen recent news about the upcoming World of Warcraft expansion, Mists of Pandaria. Last week, we began inviting global press to visit our office to get a hands-on look at the game.

The press visit will take place next month, and our players will be able to read the latest news on the game on March 19.

We’re looking forward to showcasing the game to our community and collecting more feedback as we prepare for the upcoming beta for Mists of Pandaria.

Diablo III

I mentioned earlier that we began beta testing for Diablo III last year. After receiving feedback from the community and our internal teams, we’ve implemented changes to the game, which we believe will greatly improve the game experience and ensure that the final release will live up to our high expectations.

We have also been testing the auction house functionality. This testing will help ensure a smooth rollout of this feature with the retail launch so our players can safely and securely trade items with each other. Given the popularity of the Action/RPG genre and the keen interest in Diablo III, we expect this launch to be a big opportunity for Blizzard. We can also confirm that we are targeting a Q2 launch for Diablo III. We expect to announce more details about the release schedule in the coming weeks.

StarCraft II

2011 was definitely a banner year for eSports. One of the most popular leagues in the world, Major League Gaming, posted their more successful year ever. MLG has served more than 3.5 million unique viewers over the course of the year, with much of that viewership driven by StarCraft II.

We believe that the excitement for eSports drives longevity and demand for our games. And with the recent announcement of our Battle.net World Championship season, we’re looking forward to taking an even more visible leadership role in this space.

As part of the Battle.net World Championship initiative, Blizzard will work with eSports partners to create grassroots open tournaments at the national level to boost engagement in countries around the world. The reaction from our community on this initiative has been very positive, and we are looking forward to another exciting year for eSports.

StarCraft II: Heart of the Swarm

In the midst of all the eSports buzz, the StarCraft development team has been making great progress on the new expansion, Heart of the Swarm. The feedback we collected on the campaign and multiplayer content from this past BlizzCon has been invaluable. We will share more news about Heart of the Swarm in the coming months.

Blizzard DOTA

Finally, we continue development work on Blizzard DOTA, a new free-to-play online game which we showcased at the last BlizzCon. Blizzard DOTA is being created using the StarCraft II engine and is based on an online gaming style that’s become quite popular in recent years.

We believe Blizzard DOTA has unique design elements that will distinguish it from competitors. More importantly, our game will feature well-known heroes and characters from all Blizzard franchises in the game, giving it instant recognition and appeal among Blizzard gamers. As with Heart of the Swarm, we’re looking forward to sharing more news about Blizzard DOTA at a later date.

Conclusion

We expect 2012 to be a big year for Blizzard, with easily our strongest pipeline of games ever. With multiple titles expected to launch in 2012, we’re committed to bringing our players what they want most, new gaming experiences in all their favorite Blizzard universes. And I speak for everyone at Blizzard when I say that we all can’t wait to join them on Battle.net in the battlefields of Blizzard DOTA, Diablo III, Heart of the Swarm and Mists of Pandaria.

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Tomas Hernandez is owner of Blizzplanet.com since 2003 posting news about World of Warcraft, StarCraft II, Diablo III, Hearthstone, Next-Gen MMO, Blizzard Careers, and the Warcraft film.

Blizzplanet is a leading fansite covering news about upcoming Blizzard Entertainment licensed products. I also post previews and reviews. I have interviewed book writers and Blizzard game developers.

I was previously an employee of the OGaming Network (2003), and IncGamers (2008-2010). I was a guest newsposter for GosuGamers (World of Warcraft) a few years ago and for Diablofans.com (formerly Diablo3.com)

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