Activision Blizzard purchased 85% of shares from majority-shareholder Vivendi for $8.2 Billion. The company continues to be a public shareholder entity. No changes should affect Blizzard Entertainment.
This significant purchase makes Activision Blizzard full owner of itself. Vivendi now owns only 12% of Activision, Inc. according to TheWrap
Activision Blizzard Announces Transformative Purchase of Shares from Vivendi and New Capital Structure Company to Buy Back Approximately 429 Million Shares from Vivendi for $5.83 Billion. Investor Group Led By CEO Bobby Kotick and Co-Chairman Brian Kelly to Separately Purchase Approximately 172 Million Activision Blizzard Shares from Vivendi for $2.34 Billion New Capital Structure Expected to Drive Meaningful Earnings-Per-Share Accretion.
Activision Blizzard Reports Preliminary Second Quarter Results
SANTA MONICA, Calif. –(BUSINESS WIRE)– Activision Blizzard, Inc. (Nasdaq: ATVI) (the “Company”), a global leader in interactive entertainment, announced today that it reached an agreement under which it will acquire from Vivendi ( Euronext Paris : VIV) approximately 429 million Company shares and certain tax attributes, in exchange for approximately $5.83 billion in cash, or $13.60 per share acquired before taking into account the future benefit from these tax attributes. In a simultaneous transaction, ASAC II LP , an investment vehicle led by Activision Blizzard CEO Bobby Kotick and Co-Chairman Brian Kelly , to which they have personally committed $100 million combined, separately will purchase approximately 172 million Company shares from Vivendi for approximately $2.34 billion in cash, or $13.60 per share.
Following the completion of the transaction, Activision Blizzard will be an independent company with the majority of its shares owned by the public. The Company will be led by Bobby Kotick as Chief Executive Officer and Brian Kelly as Chairman. Vivendi will no longer be the majority shareholder, but will retain a stake of 83 million shares or approximately 12%. ASAC II LP—the investor group which, in addition to Kotick and Kelly, includes Davis Advisors, Leonard Green & Partners, L.P. , Tencent, as well as one of the largest global institutional investors—will own a stake of approximately 24.9%.
Activision Blizzard expects that its new outstanding share count and capital structure (which will include approximately $1.4 billion of net debt) will result in expected pro forma 2013 earnings-per-share (EPS) accretion of between 18% and 29% on a GAAP basis and between 23% and 33% on a non-GAAP basis.
Bobby Kotick , CEO of Activision Blizzard , said, “These transactions together represent a tremendous opportunity for Activision Blizzard and all its shareholders, including Vivendi . We should emerge even stronger—an independent company with a best-in-class franchise portfolio and the focus and flexibility to drive long-term shareholder value and expand our leadership position as one of the world’s most important entertainment companies. The transactions announced today will allow us to take advantage of attractive financing markets while still retaining more than $3 billion cash on hand to preserve financial stability.”
Mr. Kotick continued, “Our successful combination with Blizzard Entertainment five years ago brought together some of the best creative and business talent in the industry and some of the most beloved entertainment franchises in the world, including Call of Duty® and World of Warcraft®. Since that time, we have generated over $5.4 billion in operating cash flow and returned more than $4 billion of that to shareholders via buybacks and dividends. We are grateful for Vivendi’s partnership through this period, and we look forward to their continued support.”
Activision Blizzard will fund the acquisition with the combination of approximately $1.2 billion of domestic cash on hand and approximately $4.6 billion of debt proceeds, net of fees and upfront interest, accessed through the capital markets and bank financing. The Company has received committed financing for the transaction from Bank of America Merrill Lynch and J.P. Morgan . The transaction is expected to close by the end of September 2013 , subject to customary closing conditions.
A special committee of independent directors was formed to represent the Company in negotiating and evaluating the transactions.
Please see the Company’s Current Report on Form 8-K being filed with the Securities and Exchange Commission and the exhibits thereto for further information about the terms of the transactions.
Activision Blizzard’s financial advisor on the transaction is J.P. Morgan Securities LLC and its legal counsel is Skadden, Arps, Slate, Meagher & Flom LLP . The Special Committee’s financial advisor is Centerview Partners and its legal counsel is Wachtell, Lipton, Rosen & Katz . ASAC II LP’s financial advisor is Allen & Company LLC and its legal counsel is Sullivan & Cromwell LLP .
Preliminary Second Quarter Results and Full-Year Outlook
For the second quarter, Activision Blizzard expects to report GAAP net revenue of approximately $1.05 billion and Non-GAAP net revenue of approximately $608 million , with GAAP earnings per diluted share of $0.28 and Non-GAAP earnings per diluted share of approximately $0.08 . In addition, the Company will announce full second quarter results on August 1, 2013 and hold its regularly scheduled conference call for analysts and investors at that time.
For the quarter, Activision Blizzard was the #1 independent publisher in North America and Europe combined, including accessory packs and figures, with the #1 and #2 best-selling titles year-to-date— Skylanders Giants™ and Call of Duty: Black Ops II.¹ Additionally, Blizzard Entertainment’s World of Warcraft® remained the world’s #1 subscription-based MMORPG, ending the quarter with approximately 7.7 million subscribers.²
The Company raised its full-year 2013 GAAP net revenue outlook to $4.31 billion and its earnings per diluted share outlook to $0.77 , up from its prior net revenue outlook of $4.22 billion and earnings per diluted share outlook of $0.73 . Additionally, the Company affirmed its full-year 2013 Non-GAAP net revenue outlook of $4.25 billion and earnings per diluted share outlook of $0.82 . These full-year outlook numbers do not yet account for any benefit of earnings per share accretion from the announced transaction.
Conference Call and Webcast Information
Activision Blizzard will host a conference call and live webcast on Friday, July 26, 2013 at 8:30 a.m. ET , 2:30 p.m. Paris time, 1:30 p.m. London time to discuss this announcement. The company welcomes listeners to the call live by dialing (866) 953-6860 in the U.S. or (617) 399-3484 outside the U.S. using the passcode 14828517. The live webcast of the call can be accessed at www.activisionblizzard.com.
For those unable to listen to the live conference call, an audio replay of the call will be available through August 9, 2013 and can be accessed by calling (888) 286-8010 in the U.S. or (617) 801-6888 outside the U.S. and using the passcode: 30609761. In addition, a webcast replay also will be archived on the Investor Relations section of Activision Blizzard’s website.
Bob Kotick and Mike Morhaime spoke before the shareholders on Wednesday, May 8 to discuss the Activision Blizzard Q1 2013 financial results. Some key details were revealed in this quarter:
World of Warcraft subscription dropped 14% down to 8.3 million subscribers worldwide.
Diablo III (PS3) will be launched later this year.
Blizzard is developing new titles (plural) with new business models, including Hearthstone and Blizzard All-Stars.
1.1 Million viewers watched eSport matches during the Heart of the Swarm launch
Hearthstone: Heroes of Warcraft enters beta testing this summer for PC/Mac.
Hearthstone will be released in 2013
Heartstone for iPad will be released shortly after the PC/Mac launch
I have to note that Mike Morhaime talked about each video game, paused to mention BlizzCon, and then talked about Blizzard All-Stars and the Next-Gen MMO.
It may be nothing, but it’s odd to not mention these last two along with the other games, but chose to mention them right after talking about BlizzCon. Hint?
Robert A. Kotic – Activision Blizzard CEO
Robert A. Kotick: Activision Publishing’s Skylanders was the leading video game franchise in both North America and Europe, including toys and accessories. Call of Duty was the #2 franchise in North America and Europe combined. Blizzard’s World of Warcraft remains the largest subscription-based MMORPG in the world. However, during the quarter, subscribership declined by approximately 1.3 million subscribers, roughly 14%, and we ended the quarter with approximately 8.3 million subscribers.
Though the majority of our subscriber declines occurred in the East, where we have more subscribers and lower revenue per subscriber, we saw declines in the West as well. And while we do believe further declines are likely and we expect to have fewer subscribers at year end than we do today, World of Warcraft remains one of the most successful franchises in the history of entertainment.
It’s important to note that the nature of online games has changed, and with the environment becoming far more competitive, especially with free-to-play games. To address this, we’re working to release new content more frequently to keep our players engaged longer and make it easier for lapsed players to come back into the game.
We believe in the long-term value of this franchise and will continue to commit substantial resources to World of Warcraft.
During the quarter, Blizzard also launched its expansion to the long-standing StarCraft franchise, with StarCraft II: Heart of the Swarm. The expansion pack launched to strong critical response and was the #1 title for the PC in the quarter.
Blizzard Entertainment has already launched StarCraft II: Heart of the Swarm and will launch Diablo III for the PlayStation 3 later this year.
In addition, Blizzard is also developing new titles with new business models, including Hearthstone and Blizzard All-Stars. During the remainder of the year, we’ll continue to invest in our established franchises, invest selectively in new opportunities and to manage our costs very carefully.
Mike Morhaime – Blizzard Entertainment President
Mike Morhaime: On the product side, Q1 was an exciting time for Blizzard as we announced 2 new games: Hearthstone, a collectible card game on Windows, Mac and iPad; and Diablo III for PlayStation 3 and 4. These games not only bring Blizzard into the mobile and console spaces, but in the case of Hearthstone, also represent our first entry into free-to-play.
We ended March with $330 million in revenue, up 31% year-over-year and $135 million in operating income, up 52% from the same quarter last year. This increase was driven in large part by the launch of Heart of the Swarm, as we didn’t have a comparable launch in Q1 2012.
For World of Warcraft, we ended the March quarter at 8.3 million subscribers globally. While we saw declines in the West, the majority of the decline came from the East, which has historically seen greater volatility. Given a more competitive market and the length of time since the last expansion, we do expect further volatility this year.
Looking forward, our objective is to deliver new game content at a quicker pace to improve engagement. Our next content update will release later this month and we will continue to invest in additional updates and improvements to continue to evolve the game.
More specifically, we’re examining ways we can ease the transition back into the game for returning players. We’ve always seen players come and go from World of Warcraft. Smoothing out that transitional period is something we’re studying, as we adjust our approach to player behavior and preferences.
On the StarCraft II side, the highlight from last quarter was a successful launch of Heart of the Swarm. In partnership with popular community personalities, we hosted an unprecedented 21-hour global Internet broadcast to celebrate the launch of the game. More than 1.1 million viewers tuned in to this broadcast to see eSports’ show matches, interviews and community produced content.
By the end of the second day on the market, Heart of the Swarm had already sold 1.1 million copies. And then that weekend, more than 1.1 million viewers watched the first major Heart of the Swarm tournament at Major League Gaming’s Winter Championship.
We’ve ridden that strong momentum into announcing this year’s StarCraft II World Championship Series, a global partnership between Blizzard and some of the biggest organizations in eSports. As a result of this partnership, world-class StarCraft II eSports can be viewed in prime time online throughout the world during the week. And StarCraft II is now available on Korean cable television 5 days a week. Viewership of the tournament has been consistently high and we look forward to continuing to improve the spectator experience over the course of the year leading up to the global finals at BlizzCon.
Moving on to Diablo III. We announced that the game would come to Sony PlayStation 3 and PlayStation 4 and showcased the demo of the PS3 version at PAX East in March. Press on the PS3 version has been very positive, as we have put a lot of work into adapting the game to take advantage of the console platform’s strength. The controls and interface have been modified to suit consoles and the game will have local and online multiplayer capability. We recently announced pre-orders for the PS3 version, which is scheduled to ship later this year.
Rounding out our game updates, I’d like to talk about Hearthstone: Heroes of Warcraft, our new free-to-play collectible card game for Windows, Mac and iPad. Players will be able to earn cards through game play and have the option to purchase card packs if they want to fill out their collection a little faster. Hearthstone is being developed by a small team at Blizzard, whose goal is to create a Blizzard-quality game experience at a smaller scale and scope than our typical project. At this early stage, it’s already clear that the team is achieving the depth and accessibility of the traditional Blizzard game with Hearthstone. Simply put, it’s a lot of fun.
The announcement at PAX East generated a great deal of interest and excitement from attendees. And thus far, we’ve received a massive response from players interested in trying out the beta. We expect the Windows and Mac versions of Hearthstone to go into public testing this summer and released later this year. The iPad version will be available for download shortly after.
Finally, I want to remind everyone that BlizzCon is coming this November to the Anaheim Convention Center. Ticket sales took place 2 weeks ago and our players enthusiastically claimed all available tickets in a matter of seconds. Details on virtual ticket sales will come at a later date.
As usual, we’ll be sharing the latest news on Blizzard games at the show. We’ll also be hosting the World Championship Series’ Global Finals and crowning a true StarCraft II world champion.
Overall, Blizzard has had a good start to a challenging 2013. We successfully launched StarCraft II: Heart of the Swarm and announced 2 new games that we feel will deliver Blizzard-quality experiences to new players on additional platforms. And there’s still more in the pipeline with our teams continuing to work on Blizzard All-Stars and our unannounced MMO.
With these new games and continued development on existing franchises, we hope to welcome even more gamers into the Blizzard community as we build towards the future.
The Activision Blizzard Q4 2012 financial results conference call took place today February 7th, 2013.
Mike Morhaime reported World of Warcraft has over 9.6 Million players as of December 31, 2012, and Diablo III has over 12 million players. Details about BlizzCon 2013 will surface later throughout the year.
Mike Morhaime: 2012 was a busy year for Blizzard Entertainment. We had some very ambitious goals, and successfully shipped 2 games: Diablo III and World of Warcraft: Mists of Pandaria. A third game, StarCraft II: Heart of the Swarm, entered public beta testing in 2012, as well. On the year, Blizzard turned in strong financials with non-GAPP revenue of $1.6 billion and operating income of $717 million.
As of the end of the year, global subscribership for World of Warcraft added more than 9.6 million players, down slightly from the previous quarter. The majority of the decline came from China, while subscribership in the West was relatively more stable.
Looking ahead, the next major content update for World of Warcraft is already in testing and should reach players in the coming weeks. The development team continues to stick with the plan of more frequent content updates in the wake of the expansion launch, applying lessons that we’ve learned from past expansions.
Moving on to Diablo III, the launch of the game back in May had a tremendous impact on Blizzard and our community. Diablo III broke PC games sales records and as of the end of the year, had sold more than 12 million copies worldwide.
While this is a humbling achievement, we’re not satisfied with merely breaking sales records. The development teams have worked aggressively to update the games since the launch, adding new content, game systems, features and other improvements. A new update is in testing now, which will add dueling and other new content. Diablo is extremely important to Blizzard and we’ll continue to invest aggressively to support the franchise and its community.
On the StarCraft side, we’ve had a flurry of activity surrounding the game in the past few months. The Battle.net World Championship in Shanghai this past November was a great success. A big congratulations go out again to PartinG from South Korea who was crowned our global champion.
The Heart of the Swarm beta has also been ongoing since last year and the team continues to improve the game with player feedback. Over the past couple of months, we’ve announced numerous new online features for the game, unveiling the opening cinematic, and conducted a global press showcase.
The feedback from the community about the campaign and the new online features has been very positive and excitement continues to grow as we head into launch on March 12.
Lastly, I want to remind everyone that BlizzCon will make its return later this year. We’ll have more details announcements soon and we’re looking forward to reconnecting with our players this year to hear their thoughts, share the latest Blizzard news and share along with them at the Blizzard eSports Global Finals. We hope you’ll be able to join us at the show.
As we head into 2013, we’ll continue to work hard on our pipeline of games and deliver a great experience to our players.
Brian J. Pitz (Jefferies & Company, Inc., Research Division): What do you think about the World of Warcraft and MMO community? Do you think the audience essentially remains strong and willing to play? Or do you think they’re essentially in need of a new game? Can you talk about, really, the fatigue factor both in the MMO, as well as with specifically for the game, and then, I just have a follow-up question.
Eric Hirshberg (Activision Blizzard Publishing Unit CEO): Well, we have seen an evolution in player behavior since the launch of Cataclysm. Players consume content quickly. There are more apps that come and go from the community, which is why we are targeting more frequent content updates. We are currently testing our second major update since Mists of Pandaria. I think that another thing to note, if you compare the months following Cataclysm and the months following Mists of Pandaria, the trailing months have been stronger with Mists. And we have seen an increase in engagement in all regions with the launch of Mists of Pandaria.
Neil A. Doshi (Citigroup Inc, Research Division): Mike, if you can give a little more color on the China market, it seems like there’s continuously intense competition there and most of the declines seem to come from the East. Is there anything you could do to be more competitive in that competitive market?
Mike Morhaime (Blizzard Entertainment CEO): Yes, so with respect to competition, we’ve always had competition for World of Warcraft in all markets. I think it’s fair to say that competition has increased, but I think it’s also important to point out that World of Warcraft is competing against, really, all forms of entertainment for leisure time. And so that just underscores the need for us to continue creating new content, to keep up engagements. With respect to China, in spite of the decline in subscribership, it is important to note that the engagement levels of the core items did increase with the launch of the expansions and I think that, that suggests increased engagement by our core players.
Activision Blizzard announced the next Financial Results conference call will take place on February 7th, 2013 covering the rounds up of earnings and issues throughout the fourth quarter of 2012.
Blizzard Entertainment CEO Mike Morhaime is expected to discuss any relevant details of how World of Warcraft: Mists of Pandaria, StarCraft II: Wings of Liberty and Diablo III held up throughout the quarter.
It is very possible, but not guaranteed, that Mike Morhaime might reveal details of BlizzCon 2013. I predict an approximate timeframe when Blizzard expects tickets to be sold. (i.e. end of Quarter X, mid-/or end-[of X-month], etc.)
We might get an update on Blizzard All-Stars. With the release of StarCraft II: Heart of the Swarm in the horizon, Global Launch schedule might go live in the following weeks after the conference call.
Do you have your own predictions? Share them with the community.
Activision Blizzard to Release Fourth Quarter 2012 Results on February 7, 2013
SANTA MONICA, Calif. –(BUSINESS WIRE)– Activision Blizzard, Inc. (Nasdaq: ATVI) intends to release its fourth quarter 2012 results after the close of the market on Thursday, February 7, 2013 . In conjunction with this release, Activision Blizzard will host a conference call that will be broadcast over the Internet.
Thursday, February 7, 2013
1:30 p.m. Pacific Time ( 4:30 p.m. Eastern Time )
To listen to the call, please log onto:
U.S. and Canada : 888-427-9414
Anyone planning to dial in to the call should RSVP to Pam Beaver at:
The Activision Blizzard Q3 2012 Financial Results conference call was held on November 7th at 4:30pm EST / 1:30pm PDT.
Blizzard CEO Mike Morhaime talked briefly about the overall progress of Diablo III, World of Warcraft: Mists of Pandaria and StarCraft II: Heart of the Swarm. He estimates StarCraft II: Heart of the Swarm is coming out on the first-half of 2013 (January-June range). BlizzCon 2013 and a Diablo III expansion were officially confirmed by Mike Morhaime at this conference as well. Listen to the recording below.
For the first nine months, Activision Blizzard was the #1 PC publisher in the U.S. and Europe. Additionally, for the third quarter, Blizzard Entertainment had two of the top five PC games with Diablo III and World of Warcraft: Mists of Pandaria.
Since its release in May 2012, Blizzard Entertainment’s Diablo III was the #1 bestselling game in dollars and units on the PC in the U.S. and Europe.
On September 25, 2012, Blizzard Entertainment released World of Warcraft: Mists of Pandaria, and sold through approximately 2.7 million copies of the game as of its first week of release. Additionally, on October 2, 2012, World of Warcraft: Mists of Pandaria was released in China, marking what the company believes to be the first time any game has officially released in China as part of a global launch.
As of September 30, 2012, Blizzard Entertainment’s World of Warcraft remains the #1 subscription-based MMORPG, with more than 10 million subscribers.
Diablo III has already sold an excess of 10 million copies.
Listen to the Conference Call
This recording captures only the portion where Mike Morhaime talks about Blizzard Entertainment’s results.
Mike Morhaime: The third quarter for Blizzard was a very successful one, thanks in large part to the launch of Mists of Pandaria at the end of September. As of the first week, more than 2.7 million copies sold through and subscribership had grown to over 10 million at the end of the quarter. We also launched the game in China just one week after the other regions, which as far as we are aware, is the first time any game has officially released in China as part of a global launch. Overall, it was a successful launch and we were very pleased with the reaction from players and critics.
The team worked hard to create a good variety of deeply engaged content for a wide range of players. The challenge mode and the new raids had been very appealing for hardcore players, while our other new features, such as the pet battle system have been popular with players across the board. This breadth of new content, combined with a vast amount of existing content in World of Warcraft, has resulted in the game that has a lot to offer for veterans, as well as newcomers to online gaming.
We’re looking forward to maintaining engagement by providing more frequent content updates. The first major update to Mists of Pandaria is already in public testing, with additional updates to follow. We have other initiatives planned for the holiday season that we hope will maintain momentum from the launch and continued growth in the community.
Moving on to Diablo III, the game continued to sell very well in the quarter, riding the momentum from its record-breaking launch in May. We’ve updated the game several times to add new features and these changes have been received well by the community. Next on the slate for Blizzard will be Heart of the Swarm, the first expansion to StarCraft II. With 6 million copies of Wings of Liberty sold to date, we have a large community of players eagerly awaiting the next installment of StarCraft.
Beta testing for Heart of the Swarm is well underway and the development team has been collecting great feedback from the community. Just last week, we made a major content update to the beta in order to test some important community features, which have been well-received by players. These features are designed to improve the social aspect, as well as the overall user experience for StarCraft players. We’re working hard towards a first-half 2013 launch for Heart of the Swarm.
We plan on closing out 2012 with one more major initiative, our Battle.net World Championship event, which will take place on November 17th and 18th in Shanghai, China. This event is the culmination of months of intense eSports competition, involving dozens of online tournaments and live events across five continents. The global finals will be very much like a World Cup of eSports with more than 60 top pro gamers in StarCraft II and World of Warcraft competing at the event. The sold out Battle.net World Championship will be broadcast online to a global audience. Live streams and information about the tournament can be found at http://www.battle.net/bwc.
In closing, we’re very pleased with the success of Mists of Pandaria and Diablo III continues to be a top seller on the PC chart. Heart of the Swarm is well on its way and we have other exciting projects in the pipeline. BlizzCon will be returning next year as well, adding to what will be a busy 2013 for Blizzard. We continue to build on our infrastructure for long-term growth and remain focused on creating high-quality content for all of our players around the world.
Douglas Creutz (Cowen and Company): You mentioned you’re at above 1 million peak concurrent users in China. I just wondered how that maybe compared to levels that you’ve hit after prior expansion launches. And then secondly, if you could just talk about where you are with DOTA All-Stars?
Morhaime: Let me start with the second one, which is Blizzard All-Stars is in development and we’re doing some great work. Some internal testing is underway. We’re doing a lot of things to experiment with gameplay and I don’t really have anything concrete to announce on this call, other than we’re very excited about the game. So with respect to China, I really don’t have anything to announce in terms of historical comparables. I think — other than to say that the engagement has increased with the launch of the expansion and we’re very happy with the reception.
Stephen Ju (Crédit Suisse AG, Research Division): The prior iterations of Diablo II expansion pack released about 1 year after the game itself came out. So wondering if you have anything you share in terms of whether or not you have a similar plan for Diablo III to keep your users engaged?
Morhaime: We do have a plan. An expansion planned for Diablo. I don’t have any timeline to talk about. I think that the most important thing for us always comes down to the quality of the expansion and the gameplay, and so that will be a big factor in terms of driving our schedule.
Starting tomorrow, Activision Blizzard will broadcast its third-quarter financial results conference call. Previous conference calls have been informative, while at other times not as much.
There is a slight chance that Mike Morhaime might announce or provide an approximate internal target for the official StarCraft II: Heart of the Swarm release date. Again, it is a possibility. Not guaranteed.
Keep your eyes on Blizzplanet for images and details of whatever might come from the lips of Mike Morhaime. If you are able to listen to the broadcast on Wednesday, make sure to read the press release for further details. This news post will be updated tomorrow.
Activision Blizzard To Release Third Quarter 2012 Results On November 7, 2012
SANTA MONICA, Calif. , Oct. 11, 2012 /PRNewswire/ — Activision Blizzard, Inc. (Nasdaq: ATVI) intends to release its third quarter 2012 results after the close of the market on Wednesday, November 7 , 2012. In conjunction with this release, Activision Blizzard will host a conference call that will be broadcast over the Internet.
Wednesday, November 7, 2012
1:30 pm Pacific Time ( 4:30 pm Eastern Time )
The Activision Blizzard Q1 2012 financial results conference call took place on May 8 at 1:30pm PST. Mike Morhaime discussed the latest progress with all Blizzard Entertainment’s upcoming projects.
2012 is already shaping up to be a busy an exciting year at Blizzard, as we’re poised to deliver fresh content to our players in all 4, all of our major franchises. I’ll begin discussing our franchise updates with World of Warcraft.
At the end of Q1, global subscribership for World of Warcraft remained at 10.2 million. Maintaining our subscriber levels puts us in a great position as we drive toward the launch of Mists of Pandaria later this year. We opened the beta in late March and have rapidly expanded testing through a good portion of our community, including the 1.2 million players who signed up for the World of Warcraft Annual Pass.
That program closed at the end of April and was very successful. Thus far, the feedback we’ve collected from the Mists of Pandaria beta tests have been great and development continues to move with a good pace as we open up more of the expansion content to players.
Mists of Pandaria will offer a brand-new continent to explore, a new player class, the monk, and more importantly, new game modes that will help World of Warcraft continue to engage its diverse audience. Scenarios will offer for a more relaxed way of playing at a group that’s less structured than traditional dungeons.
Challenge modes will give hard-core players and guilds new ways to compete with each other while earning cool rewards. And the pet battle system will offer players a light-hearted diversion from regular questing, vengeance, PvP.
On the Diablo front, we are less than a week away from launching. In preparation, we recently conducted an open beta stress test for Diablo III where anyone could download and try out the game. Response we got was huge with more than 2 million people worldwide participating in the open beta.
All the testing we’ve done over the past several months has been critical for us in polishing and preparing Diablo III for launch, particularly in the case with the auction house feature. We believe that having this convenient method for item trading integrated within the game will enhance the overall player experience.
Now all that’s left is to get the game into the hands of our players. Official midnight launch events for Diablo III have been announced for locations around the world, including the United States, Europe, Korea, Taiwan and Southeast Asia.
More than 8,000 retail locations across North America and Europe will also be open at midnight to celebrate the launch. Our players are clearly excited about Diablo III as it’s already set a Blizzard record for pre-orders, including those who signed up for the Annual Pass.
We look forward to providing a more definite sales update in the coming weeks. Most importantly, I’m proud of all the hard work that the team has put into Diablo III. This game has been a long time in the making, and our community has been supportive of us every step of the way. I’m confident that their patience will be rewarded next week when we launch our best Diablo game yet.
Meanwhile, the StarCraft 2 development team continues to forge ahead. The team has begun early testing on the arcade update that will make big improvements to the custom game experience on Battle.net. In fact, the team is already working with map creators in the StarCraft 2 community to update their maps and take full advantage of the new functionality.
We’re aiming to make the new arcade system live in the next coming months.
In addition to the work being done on arcade, development on Heart of the Swarm is going very well. Just a few weeks ago, we announced that we would offer a beta sneak peak of Heart of the Swarm to attend the use of Major League Gaming Spring Championship.
The event will take place at Anaheim Convention Center from June 8 to June 10. It won’t be too long after the MLG tournament that we’ll be ready to announce plans for our beta.
We’ll also be running our own U.S.A. national finals for our own StarCraft dual championship series event at the same event. This is just one of the many such events that we’re running with partners in countries around the world. Our goal is to identify and foster local heroes in various countries and have them compete in the StarCraft II global finals.
New developments from Korea also bode well for StarCraft II eSports. Just last week, we announced partnerships with the Korean eSports Association and OnGameNet, the cable television station, to create new StarCraft 2 leagues in Korea.
These new leagues will complement GOMTV’s successful global StarCraft II league, providing viewers with even more options for StarCraft II eSports. This news has created tremendous excitement in the StarCraft community as many of the popular pro-gamers from StarCraft I are preparing to compete in StarCraft II.
As I mentioned earlier, 2012 is already a busy year at Blizzard. With Diablo III launching next week, Mists of Pandaria well into beta testing and Heart of the Swarm close to beta, we are well positioned to deliver multiple titles in the coming year, which means Battle.net is going to be an even more exciting place to be for online gamers.
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.
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.
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.
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.
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.
It is official! Blizzard Entertainment CEO Mike Morhaime announced at the Activision Blizzard Q2 2011 Financial Results Conference Call that Diablo III beta will begin at the end of Q3 2011. Likely before BlizzCon 2011 (Held on October 21-22 at the Anaheim Convention Center). The remaining window of Q3 for Diablo III beta testing to start is anywhere between August and September 30. October is not part of the third quarter.
We are very excited after the recent Diablo III Press Event. For those unfortunate, Blizzplanet will offer livestreams of Diablo III Beta, and will chat with players to respond questions and execute petitions live. We at Blizzplanet got plans to announce a Diablo III beta event that will make fans happy to be able to participate in as a community. Stay tuned.
This page will be updated soon with transcript. Check us back later.
Since the last call, we launched Cataclysm in China, and made some exciting announcements on both StarCraft II and Diablo III. I’ll go into a greater detail about those in a moment. First, I’d like to talk briefly about the financial side of the business.
For the first half of 2011, Blizzard is up year-over-year in net revenue as we’ve added Cataclysm and StarCraft II to our product mix and have brought value-added services live in China. In addition, we have increased our investments in service and product development in order to better serve our community and strengthen our business for the long term.
Moving on to StarCraft II, back in May, we’ve invited press from around the globe to get a first look at the upcoming expansion pack, Heart of the Swarm. We showcased a couple of levels from the game’s campaign, and we have seen a lot of positive feedback and coverage about the sneak peak. We look forward to sharing more information and news about Hear of the Swarm at the upcoming the GamesCom later this month, as well as at BlizzCon in October.
We also just released the Starter Edition of StarCraft II this week. The starter edition lets players play through a portion of the single player campaign, and they can also play unlimited multiplayer battles as the Terran race on a few different maps for free. Our hope is that the Starter Edition will encourage more gamers to try out StarCraft II, and they’ll eventually upgrade to the full edition.
On the World of Warcraft side, we experienced a slight decrease in subscribership during Q2, closing the quarter at 11.1 million subscribers worldwide. Since that time, we launched Cataclysm in China and have seen an increase in concurrency within the region. We’re very excited to have delivered the latest expansion to Chinese players, and we look forward to working with our local partner NetEase to continue improving the rate at which we are able to release new content to our players there.
In addition, to the China launch, we also just announced that we will be releasing a Portuguese version of World of Warcraft in Brazil later this year. Aside from promoting World of Warcraft in other regions, we’re taking other steps to bring more players into the community. With the new World of Warcraft Starter Edition, players are now able to play the game for free until Level 20 with no time restrictions. Since the launch of this program, we’ve seen a significant increase in new account creations, which we hope will allow us to continue attracting new players.
The World of Warcraft development team is also working on the next content update, which will include major new raid and dungeon content. We believe that this new end-game content will keep the game fresh for current players and provide compelling reasons for laps players to come back.
Before moving on to Diablo III, I want to thank our World of Warcraft community for their warm response to our recent charity pet, the Cenarion Hatchling. We pledged that Blizzard would donate 100% of the proceeds from sales of this pet through July 31 to help Japan relief efforts. Through this initiative and the generosity of our players, Blizzard will donate more than $1.9 million dollars to support ongoing earthquake and tsunami relief in Japan.
Many of you are already aware of the big news that we recently shared about Diablo III. Alongside the gold-based auction house, we will include an auction house within Diablo III that will allow players to trade items using real money. This auction house will be a secure and safe environment for players to trade their items over Battle.net. In the previous game, Diablo II, we did not offer such a feature, which resulted in many players turning to unscrupulous third-party services to purchase items. We felt that because players clearly wanted such a feature, it made sense for us to build it in the Diablo III so they could trade in a more convenient and secure manner than going through unauthorized third-party.
Players who participate in this optional system will be able to list items on the auction house for a flat fee, with another charge for completed transactions. When listing an item for sale, players will have the ability to direct the proceeds either through their e-balance which will remain on Battle.net, or to cash out through a third-party service. We have not disclosed specific fees, but we plan on keeping them nominal so that more players can participate in it, if they so choose. And so that players will opt to use our secure approved method of item trading and not churn to third parties.
We will also allow a limited number of free listings each week, so players can build up a balance without needing to deposit any funds to get started.
As for the upcoming beta, Diablo III is still on track to go into external beta testing later this quarter. And we are still working hard to ship the game before the end of the year. However, we’re not ready to commit to a release date at this time. What I can tell you is that the press who visited us last week played a near final version of the beta content and the response has been overwhelmingly positive. We are very much looking forward to getting the beta into the hands of our players and collecting their feedback for the final phase of development.
Finally, I’d like to take a moment to talk about BlizzCon, where we will hold exciting StarCraft II and World of Warcraft tournaments and share news about all of our franchises. Once again, this year we sold out the show in a matter of seconds. I’m also very pleased to note that this year’s BlizzCon will host the finals event for the Global StarCraft League (GSL), which is growing in viewership around the world. The GSL recently announced that they served more than 50 million videos-on-demand and live stream this year alone.
Another prominent eSports league, Major League Gaming, held a tournament in Anaheim this past weekend and served more than 30 million online streams of their eSports matches over 3 days. The interest in all of these leagues illustrates that eSports is becoming a truly global phenomenon, and it’s great to see StarCraft II at the center of all the activity.
The rest of 2011 and beyond is looking very exciting for Blizzard. We are making great progress on Diablo III, and the StarCraft II team is hard at work on the Heart of the Swarm. As always, we are continuing to make adjustments to our infrastructure to better support our massive community of players and keep pace on all the products in our pipeline.
Brian Karimzad (Analyst, Goldman Sachs): Hi, there. Mike, and I know you don’t intend to speak in the same superlatives as Eric does, but can you help us frame how you guys are thinking about the lifetime value of the Diablo III player versus maybe some of your other franchises, or maybe some of the stuff on the publishing side?
Mike Morhaime: What I would say is that Diablo III, at least in the West, is primarily going to operate off of a standard box revenue model, with the box and [expansions] to follow. The Auction House is really a big unknown for us. We really don’t have any predictions on how popular it will be, although we do expect it to be a pretty integral part of the game, and we also expect it to drive engagement and longevity in the life of Diablo III.
Edward Williams (Managing Director, BMO Capital Markets): Good afternoon. A couple of quick questions for you. Can you comment a little bit, Mike, on Cataclysm in China? What have you seen relative to what you’re targeting coming out of it? And can you also just talk a little bit about the subscriber levels? What you think is driving that number?
Mike Morhaime: Cataclysm just launched a couple of weeks ago in China. We have seen concurrency levels increase substantially. I think that there’s still big opportunities in China to continue growing there, especially as we focus more on the Tier 2 and 3 cities.
China represents, in terms of broadband penetration, there are more broadband users in China than any other country in the world, and it’s continuing to grow from there. So I think that presents a huge opportunity for us in the future. Especially as the Tier 2 and 3 gamers upgrade their systems to be able to support World of Warcraft.
In terms of subscriber growth around the world, what I would say is what we have seen is that subscribership tends to be seasonal and driven by content updates, and so as we’re heading further away from an expansion launch, it’s normal to see some declines, where the team is currently working on our largest content update since Cataclysm and that will hit later this year.
We are also doing things to continue driving growth like the recent Starter Edition for World of Warcraft, which lowers the barrier to trial by providing the first 20 levels free. We have seen an increase in new account creations from that. It’s still too early to tell on conversions to subscribership, but I really believe that, that is an important direction for us to continue lowering that barrier to trial and reaching new players around the world.
We’re also looking at new markets. We had great success in Russia. We think that Brazil is really an emerging market that has a lot of potential in terms of the number of broadband users. They’re a top 10 country. Their economy has performed very well compared to the rest of the world during the recession, and we already have some Brazilians playing in English, but we think the market can be a lot bigger in Portuguese.
I think that there are other countries we’re looking at beyond that as well, but I don’t have anything that I can talk about.
Edward Williams (Managing Director, BMO Capital Markets): How much of your subscriber base in China changed with regards to Tier 2 and Tier 3 over the course of the last couple of years? How significant has that become?
Mike Morhaime: That’s an area of growth for us, but we don’t break down those numbers, sorry.
Jeetil Patel (Deutsche Bank Securities): A couple of questions actually. First of all, on Diablo III, what’s the determinant on Diablo III coming out in 2011 versus 2012? Second, you’ve got 11.5 million subscribers, you did about $359 million of revenue which was up nicely versus a year ago. While subs are down, can you reconcile the incremental revenue from a product sales versus value added services standpoint? And I have a quick follow-up.
Mike Morhaime: In terms of the timing of the Diablo III release date, really, it’s just going to come down to there are a lot of moving parts in putting out a content release like Diablo III. We talked about new Auction House technology which has not been fully tested. We’re not yet in beta. And really, it’s just going to come down to when the game is ready for prime time. And so we’ll know more when we hit beta, and we’ll know more when we put some of these new systems into test. It’s a brand new infrastructure and with a lot of complex moving parts. In terms of the World of Warcraft business, clearly, coming off of the Cataclysm launch, we have a lot of momentum coming into 2011, and that has certainly helped the revenue numbers. I think that the value-added services, launching in China is certainly a factor. I think that those are probably the major factors driving revenue. We ended the year slightly up compared to last year. So we’re pretty happy with the result.
We’re increasing our investment in new projects that haven’t necessarily been announced. And we have increased the investment in customer service, but I would say, I think we’re at scale at this point. And there was — we did answer beta for StarCraft II last year during the quarter, which allowed us to capitalize development expenses, and I think that helped us out on the OpEx side on the comparison.
Eric Handler (Analyst, MKM Partners LLC): Is there any opportunity to use an Auction House type of services, or similar value-added services for StarCraft II that you have for Diablo and World of Warcraft?
Mike Morhaime: We really tried to design the features of these games to leverage the needs of the games themselves. Diablo III and previous Diablo games — as well — were very item-centric games with a lot of item trading, without a good mechanism really for doing that. And so, I guess the equivalent type of things for StarCraft II would be our map marketplace where players are able to create their own custom maps, and we do have plans to provide a marketplace where they’d be able to offer them up to other players for sale. Of course it’s very complex system that is still being designed. I think that some of the things we’re doing on the back end to support the Diablo III Auction House actually can be leveraged in StarCraft II to support that system which is great. On the World of Warcraft side, we really don’t have plans to do something similar. It’s a very different game, and it really isn’t designed with this type of item trading in mind.
Douglas Creutz (Vice President and Senior Research Analyst, Cowen & Company LLC): You guys had north of a 20% sequential revenue increase in Asia during the quarter. I know you launched StarCraft II in China and you also launched the added value-added services. I was wondering if you could kind of talk about, directionally, what was the biggest drivers of that revenue increase?
Mike Morhaime: The biggest drivers for that were the popularity of World of Warcraft, especially in China, and the launch of the value-added services.
Bob Kotick: I think one of the things we’re realizing though is that the success that we’ve had which is unique for Western publishers in China, we’ve learned so much about the opportunity that over the next 3 to 5 years, we’ll continue to see investment and real opportunity for us in places like China that are not really opportunities for many of our competitors.
It’s official. During the Activision Blizzard Q1 2011 Financial Results conference call held today at 1:30pm PDT (4:30pm EST), Blizzard Entertainment CEO Mike Morhaime officially announced Diablo III beta testing will commence this upcoming Q3 2011. It was not specified if it’s a fiscal Q3, or otherwise. One could extrapolate Diablo III Beta might start in early July, after the Diablo II anniversary, which coincides with the Diablo III official announcement held in Paris at the 2008 Blizzard Worldwide Invitationals. Here is the quote from Blizzard Entertainment CEO Mike Morhaime during today’s Activision Blizzard Q1 2011 Financial Results conference call:
Morhaime: “On the Diablo III front, I’m pleased to report that we began internal company live testing last week. The game is looking great, and we are currently targeting a Q3 Launch for external beta testing. The development team is working hard to try and launch Diablo III this year. But I want to be clear that we do not have an official release date or window yet. As always we won’t compromise the quality of the game in order to hit a window.”
Note: Check back later today and tomorrow for the full transcript and recording sample.
Morhaime: Blizzard Entertainment has come up with the most successful year ever in 2010 shipping two record-breaking games in World of Warcraft: Cataclysm and StarCraft II: Wings of Liberty. As we drive deeper into 2011, we are looking to build off that momentum by providing even more epic experiences to our players; and we are also working hard on our exciting pipeline of new games.
On our financial side, we got $357 million dollars in revenue and $170 million dollars in operating income. We’re pleased with the growth in the Blizzard community over the past year, and expect to grow further with the upcoming launch of Diablo III.
Looking at the World of Warcraft side of business, we were pleased to see record sales on the Cataclysm launch in Unites States and Europe which helps drive global subscribership. During the first quarter of 2011, as players have eagerly consumed the new content, we have seen subscribership return to pre-launch levels in the last.
We finished the quarter with 11.4 million subscribers worldwide. Moving forward our objective is to continue delivering new content to players in all regions to further energize our community. Our partners at NetEase are continuing to drive toward launching World of Warcraft: cataclysm later this year, which should reinvigorate that community with some new exciting content.
For all our other regions, we recently launched the first content update for Cataclysm. This update includes new dungeons, special rewards for guilds, and a feature to help players find a guild to join. Player feedback has been positive and as a result we have seen an increase in player engagement and higher daily concurrency.
In addition, we have another major update already in testing that includes new raids and quests content, as well as an exciting new dungeon journal that will make raids and dungeons more approachable for all players.
I also have some news to share in regards to our [?] services. We recently launched several [?] for World of Warcraft players in China, allowing our chinese community access most of the services available to players in other regions.
We also launched a mobile guild chat system. This new feature allows subscribers of our Premium World of Warcraft Remote Service to chat with their guildmates through mobile devices.
Finally, we announced a new premium mount that will be offered in the Blizzard Store in a near future.
Moving on to StarCraft II, the first quarter was an eventful one for this franchise. In addition to releasing new ladder and costume map content for our players, we also launched the game in China. Already, the China region is one of our largest communities for StarCraft II in terms of concurrency, and [effort?] is up to a great start in the region.
We’ve signed with several partners to run StarCraft II Tournaments in China, as well as a Chinese broadcast partner to televise Korean GSL matches in Chinese. As we look to the future of StarCraft II, the development team is also hard at work on the first expansion: Heart of the Swarm. We’ll be showcasing that game to worldwide press later on this month.
On the Diablo III front, I’m pleased to report that we began internal company live testing last week. The game is looking great, and we are currently targeting a Q3 Launch for external beta testing. The development team is working hard to try and launch Diablo III this year. But I want to be clear that we do not have an official release date or window yet. As always we won’t compromise the quality of the game in order to hit a window.
Lastly, I want to talk a little bit about BlizzCon. Tickets will be going on sale later this month, and as in the past we expect it to sold out quickly. We also offer the show via internet stream and DirecTV Pay-Per-View to reach our players who can’t make it out to the show. Last year we had more than 95,000 paid viewers join us via DirecTV or the live internet stream.
As always, we look forward to sharing exciting news with our community at this year’s show.
Activision Blizzard, Inc. (Nasdaq: ATVI) released its fourth quarter and calendar year 2010 results after the close of the market on Wednesday, February 9, 2011 at 1:30pm Pacific Time.
Mike Morhaime (president, Blizzard Entertainment) said there will be more details about Diablo III Beta at the next Financial Conference Call, which seems to indicate it might start in 2011, and as a guess-timate I’d say 2012 launch date considering beta testing usually lasts around six months. Sounds exciting.
A few days ago, Blizzard Entertainment announced BlizzCon 2011 will take place at the Anaheim Convention Center this upcoming October 21-22.
In previous conferences, Mike Morhaime announced the approximate date of StarCraft II: Wings of Liberty beta test, the plans for a charity-motivated WoW vanity pet sales: the Wind Rider Cub and the Gryphon Hatchling, and he also revealed the date of BlizzCon 2010. This conference is always a platform for some kind of official announcement by Blizzard Entertainment.
Mike Morhaime: Before I discuss our performance in 2010, I wanted to note that yersterday was the 20th Anniversary of Blizzard Entertainment. It’s hard to believe that the company has grown from a trio of UCLA engineering graduates to one that serves millions of players around the world.
That success has been fueled by continuity. Many of the original Blizzard employees who joined us in the early years are still with us today, and we have worked hard to pass on our core values and reinforce our culture of excellence with our new employees.
We were a company of gamers back then, and we are still a company of gamers today.
We have assembled some of the strongest and most passionate development teams in the industry, and that positions us well to continue delivering epic entertainment experiences.
Blizzard’s 20th year was our best yet. We shipped two games: StarCraft II: Wings of Liberty and World of Warcraft: Cataclysm that was incredibly successful.
StarCraft II and Cataclysm were the Top 2 selling PC Games in 2010 in retail in North America, and Europe combined. These two games have delivered a record year.
At 2010, Non-GAPP revenues exceeded $1.65 Billion dollars, an increase of 38% from 2009. In addition, our non-GAPP operating income reached $850 million dollars, this year, increasing 53% over the prior year.
As we previously announced, World of Warcraft reached 12 million subscribers worldwide last year, and has grown from there following the release of Cataclysm in December. That release with another record-breaking record-breaker for Blizzard Entertainment.
Worldwide sales as of day one topped 3.3 million units, and one-month sales hit more than 4.7 million units.
These sale numbers are a reflection of the ongoing strength of World of Warcraft and our community. Even as the game has passed the sixth year mark., the critics have also reacted positively with the game currently holding a 90 average of metacritic, and end of the Year Awards.
Our developers have continued to raise the bar for quality, and creativity in the MMO space. The award-winning content they have created in Cataclysm will help us maintain our competitive advantage as new competitors come online in the future.
In addition to Cataclysm, we are seeing continued success with StarCraft II. The game has won several major gaming awards including a spot in the Time Magazine Top 10 Games for 2010, and Wired overall Game of the Year.
Sales continue to be strong with StarCraft II approaching 4.5 Million units sold to date worldwide. With our developers working hard to support this huge new community, we have added new features such as Chat Channels on Battle.net at the request of our players.
We also just released a trio of official custom games a few weeks ago. These custom maps are important to the longevity of StarCraft II, as they showcase pluzzle and party game modes that are popular with casual players.
The new map releases also include a lot of artwork for the community to use in creating their own custom maps. To date, worldwide, StarCraft II community developers have uploaded more than 150,000 maps to Battle.net.
As we head into 2011, we want to build upon the momentum from the launches of Cataclysm and StarCraft II. We will focus on growing our World of Warcraft community by supporting our players. The developers are already hard at work on additional updates for the game. We’re also working with our partner NetEase to prepare Cataclysm for launch in China, which includes getting the proper government approvals. Our goal is to reduce the amount of time between our game launches in China versus the rest of the world.
On the StarCraft II front, we will continue to improve the Battle.net experience, as well as create new content for our players. We recently began public testing on a handful of the ladder maps to keep the game fresh for our multiplayer community. And as with Cataclysm, we’re working with our partners at NetEase to prepare StarCraft II for launch in China.
However, we have no specific updates to share at this time. Finally, the development team is hard at work on Heart of the Swarm, which is first expansion to StarCraft II. We are looking forward to sharing more information about that expansion, as I said, in the coming months.
As for Diablo III, development continues to go well, and we’re very excited about the game. Our most recent public showcase for Diablo III was at the G-Star show in Korea, where demo stations attracted huge lines of players. I’m looking forward to sharing some more news about the game and our upcoming beta on the next call.
Finally, I wanted to remind everyone that we just announced our BlizzCon show for 2011, which will be taking place on October 21 and 22 at the Anaheim Convention Center. Our shows keep getting better and better every year, and we are looking forward to meeting with our players and sharing exciting news about Blizzard at the event.
In summary, 2010 was a great way to cap off an amazing 20-year run at Blizzard Entertainment. We added more titles our stream of best-selling, award-winning games, and more gamers around the world are playing Blizzard games today than ever before.
The next 20 years promise to be even better. The games we operate today and the games we have in the pipeline represent the best and widest slate of content that Blizzard has ever produced. The future looks bright.
As more and more people around the world get access to broadband and become interested in online gaming, Blizzard is in a unique leadership position to attract those players to become part of our community.
Jeetil Patel (Deutsche Bank): Your 2011 guidance for the year, you have a comment in there in that it does not yet include a Blizzard title. I guess what is the qualifier to get a Blizzard title out this year? I guess it seems like the commentary seems awfully interesting in that. Are you waiting for some sort of percentage completion, competitive slate? Can you just maybe elaborate more as to why there isn’t a Blizzard title this year? Second, can you or do you plan to leverage your World of Warcraft or Call of Duty kind of user base to reach and offer a services model similar to Netflix? I mean it’s interesting that you’ve got a great content offering as a services offering at Netflix, can you leverage your two major IPs or two significant subscriber bases today to do something similar in gaming? Or do you think you need a new or different platform to deliver content in the form of gaming as a service?
Thomas Tippl: I don’t know how many questions those were but hopefully we kept track of all of them. On the first one, with regards to the commentary around the Blizzard title. As you know and, as we said before, we think that in the long run Blizzard is good for one major release a year. But of course, what always rules is the quality of the game has to be there. And that’s why, for example, we didn’t have a release in 2009, but we had two releases in 2010. And as you can see, the results speak for themselves. I think that has played out well for our shareholders. With regards to Diablo, we don’t have a date yet. So we felt it was prudent not to bake it in, because again we don’t want to find ourselves in a situation where we either disappoint or would have to make any compromises on the game quality which we would never do. If the title ships, obviously, that will present material upside to the outlook that we have provided.
Jeetil Patel – (Deutsche Bank): I guess going back to the Diablo question, I guess can you talk about how far along it is in terms of percentage of completion?
Michael Morhaime: I don’t have a percentage of completion rating for you today, other than to say that the game’s coming along very well. We are very happy with the development progress that the team is making, but until we get to beta and we have the community help us test the game, we aren’t going to lock in a release date. And so I just want to clarify that we are not setting a date. I am not saying that it’s going to be 2012. I am just saying that there isn’t a date yet. And so given that we haven’t locked into a date, we fully support the decision not to include it in guidance.
Activision Blizzard Reports December Quarter and Calendar Year 2010 Financial Results
Company Achieves Record CY 2010 Operating Cash Flow of $1.4 Billion
CY 2010 GAAP Net Revenues Increase Year Over Year to $4.45 Billion
Company Delivers Record CY 2010 EPS
2010 Revenues From Digital Channels Grow Over 20% to More Than $1.5 Billion
Company Announces New $1.5 Billion Stock Repurchase Program
Company Announces 10% Increase in Cash Dividend to $0.165 per Common Share
SANTA MONICA, Calif. , Feb. 9, 2011 /PRNewswire/ – Activision Blizzard, Inc. (Nasdaq: ATVI) today announced financial results for the calendar year and quarter ending December 31, 2010 . Activision Blizzard reports results on both a GAAP and a non-GAAP basis. A reconciliation of the company’s GAAP and non-GAAP results can be found in the attached tables.
For calendar year 2010, Activision Blizzard’s GAAP net revenues increased to $4.45 billion , as compared with $4.28 billion for 2009. On a non-GAAP basis, the company’s net revenues were $4.80 billion , as compared with $4.78 billion for 2009. Revenues from digital channels for the calendar year were more than $1.5 billion , an increase of more than 20% year over year.
For calendar year 2010, Activision Blizzard’s GAAP earnings per diluted share increased to $0.33 , as compared with $0.09 per diluted share for 2009. The 2010 results include a $0.16 per share non-cash reduction in the valuation of intangible assets reflecting weaker retail sales in the casual and music genres, while the 2009 results included a similar non-cash charge of $0.19 per share. On a non-GAAP basis, the company’s earnings per diluted share grew 14.5% to $0.79 , as compared with $0.69 per diluted share for 2009.
For the quarter ended December 31, 2010 , Activision Blizzard’s GAAP net revenues were $1.43 billion as compared with fourth-quarter 2009 net revenues of $1.56 billion . On a non-GAAP basis, the company’s net revenues for the quarter were $2.55 billion , as compared with fourth-quarter 2009 non-GAAP net revenues of $2.50 billion . Revenues from digital channels for the quarter were more than $470 million , an increase of 40% year over year.
For the quarter ended December 31, 2010 , Activision Blizzard had a GAAP loss per share of $0.20 , inclusive of the $0.16 per share non-cash charge mentioned above. On a non-GAAP basis, the company’s earnings per diluted share grew to $0.53 . For the comparable quarter in 2009, the company had a GAAP loss per share of $0.23 , inclusive of the $0.19 per share non-cash charge mentioned above, and non-GAAP earnings per diluted share of $0.49 .
Robert Kotick , CEO of Activision Blizzard , stated, “Because of focus and disciplined execution, 2010 was another extraordinary year for Activision Blizzard . 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% and 29%, respectively, and generated $1.4 billion in operating cash flow.”
Kotick added, “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% 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. 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. 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.(1) 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.(2)”
Kotick concluded, “Online gaming continues to broaden its appeal. Our shareholders continue to be well positioned to benefit from these trends and the focus of our incredibly talented employees around the world continues to allow us to lead our industry. We expect to continue to drive long-term growth, increase our return on invested capital and generate strong cash flow as we have over the last few years. Our strong balance sheet affords us the financial flexibility to invest in games that few companies have the ability to create and allows us to provide our shareholders with value through dividends and share repurchases.”
Activision Blizzard was the #1 publisher overall in North America and Europe for the calendar year.(3)
Activision Blizzard was the #1 publisher in North America on the Xbox® 360, PlayStation® 3 and PC collectively for the calendar year.(4)
Blizzard Entertainment’s World of Warcraft: Cataclysm, which was launched on December 7, 2010 , sold through more than 3.3 million copies worldwide during its first 24 hours of release, making it the fastest-selling PC game of all time. It continued to sell through more than 4.7 million copies in its first month.(5)
As of December 31, 2010 , more than 12 million gamers worldwide are subscribed to play Blizzard Entertainment’s World of Warcraft.(6)
For the December quarter, in North America and Europe, Call of Duty: Black Ops was the #1 best-selling console title in dollars ever during a single quarter and the Call of Duty franchise was the #1 franchise overall.(3)
In November 2010 , Call of Duty: Black Ops became the first video game ever to surpass $650 million in retail sales in its first five days of release.(2) To date, the game has achieved more than $1 billion in retail sales worldwide.(3)
As of January 31, 2011 , total unique gamers playing Activision Publishing’s Call of Duty: Black Ops increased by more than 49% over the number of total unique gamers that played Call of Duty®: Modern Warfare® for the first three months after each game’s release.(7)
On February 1, 2011 , Activision Publishing released Call of Duty: Black Ops First Strike, the first add-on pack for Call of Duty: Black Ops, on Xbox LIVE®. The map pack set new Xbox LIVE records with more than 1.4 million downloads in the first 24 hours, an increase of more than 25% over last year’s Call of Duty: Modern Warfare 2 Stimulus Package.(7) The map pack also will be available on the PlayStation® 3 computer entertainment system on March 3, 2011 and on the PC later in the quarter.
Activision Blizzard will continue to invest its capital and resources in the significant opportunities afforded by online gaming worldwide and will reduce its exposure to low-margin and low-potential businesses. In 2011, the company will allocate the majority of its resources and focus toward opportunities which we expect will afford us the greatest competitive advantages and the greatest potential for best-in-class quality, high-margin digital growth, and long-term success. These opportunities include Blizzard Entertainment’s games currently in development, robust investment in forthcoming Call of Duty titles, the development of a best-in-class digital community surrounding the Call of Duty franchise, a new property from Bungie and an innovative new universe with broad appeal that will be revealed at Toy Fair later this week and will bring the world of toys, video games and the Internet together in an unprecedented way. These investments should better position Activision Blizzard for long-term growth and enable it to continue expanding its position as the largest digital publisher.
At the same time, 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.
For calendar year 2011, Activision Blizzard expects GAAP net revenues to be $3.95 billion and GAAP earnings per diluted share to be $0.56 . On a non-GAAP basis, the company expects net revenues of $3.9 billion and non-GAAP earnings per diluted share to be $0.70 for the calendar year. Since Blizzard Entertainment has not confirmed a launch date for its next global release, the company’s calendar year outlook at this time does not yet include a new game from Blizzard in 2011.
For the first quarter of 2011, Activision Blizzard expects GAAP net revenues of $1.28 billion , and GAAP earnings per diluted share of $0.28 . The company’s first quarter GAAP earnings per diluted share outlook includes the impact of between $0.02 – $0.03 of expenses related to the restructuring. On a non-GAAP basis, the company expects net revenues of $640 million and $0.07 earnings per diluted share for the first quarter.
Activision Blizzard’s financial outlook is subject to significant risks and uncertainties, including declines in demand for its products, competition, the effectiveness of the company’s restructuring efforts, fluctuations in foreign exchange and tax rates, and counterparty risks relating to customers, licensees, licensors and manufacturers.
The company’s outlook is also based on assumptions about sell-through rates for its products, and the launch timing, success and pricing of its new slate of products. Current macroeconomic conditions increase those risks and uncertainties. As a result of these and other factors, actual results may deviate materially from the outlook presented above.
Board Authorizes Stock Repurchase Program and Declares Cash Dividend
Activision Blizzard today announced that its Board of Directors has authorized a new stock repurchase program under which the company can repurchase up to $1.5 billion of the company’s outstanding common stock. This program replaces the company’s $1 billion stock repurchase plan program authorized in February 2010 , which expired on December 31, 2010 . As of December 31, 2010 , Activision Blizzard had purchased an aggregate of 86 million shares of its common stock for approximately $966 million under the 2010 program.
The Board of Directors also declared a cash dividend of $0.165 per common share payable on May 11, 2011 to shareholders of record at the close of business on March 16, 2011 . This is the company’s second-ever cash dividend and it represents a 10% increase over its first-ever dividend that was issued in 2010.
Today at 4:30 p.m. EST , Activision Blizzard’s management will host a conference call and Webcast to discuss the company’s results for the quarter and year ended December 31, 2010 and management’s outlook for 2011. The company welcomes all members of the financial and media communities and other interested parties to visit the “Investor Relations” area of www.activisionblizzard.com to listen to the conference call and view a brief supporting slide presentation via live Webcast or to listen to the call live by dialing into 877-397-0292 in the U.S. with passcode 8890647.
Non-GAAP Financial Measures
Activision Blizzard provides net revenues, net income (loss), earnings (loss) per share and operating margin data and guidance both including (in accordance with GAAP) and excluding (non-GAAP) the following items: the impact of the change in deferred net revenues and related cost of sales with respect to certain of the company’s online-enabled games; expenses related to share-based payments; Activision Blizzard’s non-core exit operations (which are the operating results of products and operations of the historical Vivendi Games, Inc. businesses that the company has exited or substantially wound down); costs related to the business combination between Activision, Inc. and Vivendi Games, Inc. (including transaction costs, integration costs, and restructuring activities); expenses related to the restructuring of our Activision Publishing operations; the amortization of intangibles and impairment of intangible assets; and the associated tax benefits.
Management believes that the presentation of these non-GAAP financial measures provides investors with additional useful information to measure Activision Blizzard’s financial and operating performance because they facilitate comparison of operating performance between periods and help investors to better understand the operating results of Activision Blizzard .
Internally, management uses these non-GAAP financial measures in assessing the company’s operating results, as well as in planning and forecasting.
Non-GAAP financial measures should be considered in addition to, not as a substitute for or superior to, financial measures determined in accordance with GAAP. Activision Blizzard recognizes that there are limitations associated with the use of these non-GAAP financial measures.
Activision Blizzard’s non-GAAP financial measures are not based on a comprehensive set of accounting rules or principles, and the terms non-GAAP net revenues, non-GAAP net income, non-GAAP earnings per share, and non-GAAP operating margin do not have a standardized meaning. Therefore, other companies may use the same or similarly named measures, but exclude different items, which may not provide investors a comparable view of Activision Blizzard ‘s performance in relation to other companies.
Management compensates for the limitations resulting from the exclusion of these items by considering the impact of the items separately and by considering Activision Blizzard’s GAAP, as well as non-GAAP results and outlook and, in this release, by presenting the most comparable GAAP measures directly ahead of non-GAAP measures, and by providing a reconciliation that indicates and describes the adjustments made.