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

Written by Medievaldragon on . Posted in Activision Blizzard, Diablo 3 News, Featured Stories, StarCraft 2 News, World of Warcraft News

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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Official Diablo III Beta Starts End of 2011 Q3

Written by Medievaldragon on . Posted in Activision Blizzard, Diablo 3 News

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.

Activision Blizzard Q2 2011 Conference Call Recording

Transcript

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.

Public Q&A

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.

Media

 

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Diablo III Beta Begins Q3 2011

Written by Medievaldragon on . Posted in Activision Blizzard, Diablo 3 News, Featured Stories

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.

Transcript

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.

Thrilled? Excited? So are we. Get your official Diablo III T-shirt to celebrate Diablo III Beta details finally coming your way.

Wanna buff up your Diablo lore in advance? Check out all the Diablo novels:

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Transcript: Activision Blizzard Q4 2010 Financial Results Conference

Written by Medievaldragon on . Posted in Activision Blizzard, StarCraft 2 News, World of Warcraft News

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.

TRANSCRIPT

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.

Q&A

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.”

Business Highlights

  • 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.

Company Outlook

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.

Conference Call

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.

——————————————

activision-blizzard-logo

Activision Blizzard Announces Better-Than-Expected Third Quarter 2010 Financial Results

Written by Medievaldragon on . Posted in Activision Blizzard, StarCraft 2 News, World of Warcraft News

Third Quarter Net Revenues and EPS Exceed Prior Outlook and Prior Year. Company Increases 2010 Net Revenue and EPS Outlook.

SANTA MONICA, Calif. , Nov. 4, 2010 — Activision Blizzard, Inc. (Nasdaq: ATVI) today announced better-than-expected financial results for the third quarter of 2010.  

For the quarter ended September 30, 2010 , Activision Blizzard ‘s GAAP net revenues were $745 million , as compared to its prior third-quarter outlook of $600 million .  On a non-GAAP basis, the company’s net revenues were $857 million , as compared to its prior third-quarter outlook of $725 million .  

For the quarter ended September 30, 2010 , Activision Blizzard ‘s GAAP earnings per diluted share were $0.04 , as compared to its prior third-quarter outlook of break even GAAP earnings per share.  On a non-GAAP basis, the company’s earnings per diluted share were $0.12 , as compared to its prior third-quarter outlook of $0.08 .  

The company reports results on both a GAAP and a non-GAAP basis.  Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.

Robert Kotick , CEO of Activision Blizzard , stated, “For the third quarter, we exceeded our net revenues and earnings per share outlook and delivered strong year-over-year growth.  Our better-than-expected results are due to our leadership in online entertainment, including strong performance from Activision Publishing’s Call of Duty® franchise, and Blizzard Entertainment’s World of Warcraft® and StarCraft® II: Wings of Liberty™.  For the nine months ending September 30, 2010 , our digital offerings contributed close to half of our total non-GAAP net revenues and our digital revenues have increased more than 15% over the prior year.  Most importantly, we continue to deliver some of the world’s best games.”

 

Kotick continued, ” Activision Publishing is about to introduce what is likely to be the biggest entertainment launch of the year with Call of Duty®: Black Ops, followed by Blizzard Entertainment’s World of Warcraft: Cataclysm, which we believe will deliver an incredible breadth of new content to the world’s largest massively multiplayer online role playing game (MMORPG) community.  As a result of our over-performance, we are raising our calendar year 2010 net revenue and earnings outlook.  We expect to deliver the most profitable year in our history with record operating margins.”

Business Highlights

For the first nine months of the calendar year, Activision Publishing’s Call of Duty was the #1 third-party franchise in the U.S. and Europe , and Blizzard Entertainment’s StarCraft II: Wings of Liberty was the #1 PC title overall, according to The NPD Group , Charttrack and Gfk.  Additionally, for the third quarter of the calendar year, Activision Blizzard was the #1 PC publisher in the U.S. and Europe , according to The NPD Group , Charttrack and Gfk.  

Other highlights are as follows:

  • During the third quarter of 2010, Call of Duty remained a top-10 franchise overall in the U.S. and Europe , according to The NPD Group , Charttrack and Gfk.
  • On August 3 , Blizzard Entertainment announced that StarCraft II: Wings of Liberty sold more than one million copies within the first 24 hours of its release, instantly making it the best-selling PC game of 2010, and more than 1.5 million copies within the first 48 hours of its release, making it the fastest-selling strategy game of all time.
  • On August 31 , Blizzard Entertainment and NetEase.com Inc. launched World of Warcraft: Wrath of
    the Lich King
    ™, the second expansion for Blizzard Entertainment’s award-winning subscription-based MMORPG, in mainland China .
  • On September 1 , Blizzard Entertainment announced that StarCraft II: Wings of Liberty sold more than three million copies worldwide in the first month of its release.
  • On October 4 , Blizzard Entertainment announced that World of Warcraft: Cataclysm, the highly anticipated third expansion for the world’s most popular subscription-based MMORPG, will be released on December 7 .
  • On October 5 , Activision
    Publishing announced that Treyarch’s Call of Duty: Black Ops will be playable in stereoscopic 3D when the game launches at retail outlets worldwide on November 9 .
  • On October 7 ,  Blizzard Entertainment announced that the subscriber base for World of Warcraft has exceeded 12 million players worldwide.
  • As of September 30 , Activision Blizzard had purchased approximately 55 million shares of its common stock, for approximately $600 million , under the $1 billion stock repurchase program authorized by its Board of Directors on February 10 .


Additionally, on September 7 , advertising industry veteran Eric Hirshberg joined Activision Publishing as Chief Executive Officer, to oversee operational management of the publishing division’s studio, product development and consumer marketing functions.  

Company Outlook

In the fourth quarter of 2010, Activision Publishing expects to release six new titles including Bakugan: Defenders of the Core, a highly anticipated kids title based on the award-winning toy line and television show;  DJ Hero 2®, which delivers an exciting social multiplayer music experience where two virtual DJs can mix together while a vocalist sings along to lyrics from today’s biggest hits; Goldeneye 007™, which was designed to make full use of the Nintendo Wii’sunique interactive capabilities and allows players to channel Daniel Craig ‘s lethal and gritty James Bond in a new take on the legendary Bond adventure;   James
Bond
007
: Bloodstone, a cinematic action game that allows players to experience the brutal and dangerous style of Daniel Craig ‘s Bond as they engage in hand-to-hand fighting, cover-based shooting, and aggressive driving through dynamic environments; and Tony Hawk®: SHRED, which lets kids “ GO BIG ” and feel the exhilaration of skate and snowboarding like the pros using the game’s motion-sensing board controller.

Activision Publishing also plans to release Treyarch’s highly anticipated first-person action game Call of Duty: Black Ops globally on November 9 .  The company expects the title will be one of the top entertainment properties of the holiday season and we expect that pre-orders for the game will set an industry record.  

Additionally, on December 7 , Blizzard Entertainment expects to release World of Warcraft: Cataclysm, the highly anticipated third expansion for the world’s most popular subscription-based MMORPG, World of Warcraft.  

Activision Blizzard ‘s outlook is based on assumptions about sell through rates for its products and the launch timing, success and pricing of its new slate of products which are subject to significant risks and uncertainties, including possible declines in the overall demand for video games and in the demand for the company’s products, the dependence in the interactive software industry and by the company on an increasingly limited number of popular franchises for a disproportionately high percentage of revenues and profits, the company’s ability to predict shifts in consumer preferences among genres, such as music and casual games, and competition.  Current macroeconomic conditions and market conditions within the video game industry increase those risks and uncertainties.  

The company’s outlook is also subject to other risks and uncertainties,  including litigation and associated costs, fluctuations in foreign exchange and tax rates, counterparty risks relating to customers, licensees, licensors and manufacturers.  As a result of these and other factors, actual results may deviate materially from the outlook presented below.

For the full year 2010, Activision Blizzard is raising its outlook for GAAP net revenues to $4.28 billion and GAAP earnings per diluted share to $0.51 , as compared to its prior GAAP outlook of $4.18 billion in net revenues and $0.49 in earnings per diluted share.  On a non-GAAP basis, the company now expects net revenues of $4.45 billion and $0.74 earnings per diluted share, as compared to its prior non-GAAP net revenue outlook of $4.4 billion and $0.72 in earnings per diluted
share.

For the fourth quarter of 2010, Activision Blizzard expects GAAP net revenues of $1.26 billion , and a GAAP loss per share of $0.01 . On a non-GAAP basis, the company expects net revenues of $2.2 billion and $0.47 earnings per diluted share for the fourth quarter.

Conference Call

Today at 4:30 p.m. EDT , Activision Blizzard ‘s management will host a conference call and Webcast to discuss the company’s results for the quarter ended September 30, 2010 and management’s outlook for the remainder of the calendar year.

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 via live Webcast, or to listen to the call live by dialing into 877-397-0297 in the U.S. with the passcode 5382478.

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); 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.

About Activision Blizzard

Headquartered in Santa Monica, California , Activision Blizzard, Inc. is a worldwide online, PC, console, handheld and mobile game publisher with leading positions across every major category of the rapidly growing interactive entertainment software industry.

Activision Blizzard maintains operations in the U.S., Canada , the United Kingdom , France , Germany , Ireland , Italy , Sweden , Spain , the Netherlands , Australia , South Korea and China .  More information about Activision Blizzard and its products can be found on the company’s website, www.activisionblizzard.com.

Cautionary Note Regarding Forward-looking Statements:  Information in this press release that involves Activision Blizzard ‘s expectations, plans, intentions or strategies regarding the future, including statements under the heading “Company Outlook,” are forward-looking statements that are not facts and involve a number of risks and uncertainties.    Activision Blizzard generally uses words such as “outlook,” “will,” “could,” “would,” “might,” “remains,” “to be,” “plans,” “believes,” “may,” “expects,” “intends,” “anticipates,” “estimate,” “future,” “plan,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming” and similar expressions to identify forward-looking statements.  Factors that could cause Activision Blizzard ‘s actual future
results to differ materially from those expressed in the forward-looking statements set forth in this release include, but are not limited to, sales levels of Activision Blizzard ‘s titles, increasing concentration of titles, shifts in consumer spending trends, the impact of the current macroeconomic environment and market conditions within the video game industry, the seasonal and cyclical nature of the interactive game market, Activision Blizzard ‘s ability to predict consumer preferences among competing hardware platforms, possible declines in software pricing, product returns and price protection, product delays, retail acceptance of Activision Blizzard ‘s products,  adoption rate and availability of new hardware (including
peripherals) and related software, industry competition including from used games and other forms of entertainment, litigation risks and associated costs, rapid changes in technology, industry standards, business models including online and used games, and consumer preferences including interest in specific genres such as music, first-person action and massively multiplayer online games, protection of proprietary rights, maintenance of relationships with key personnel, customers, licensees, licensors, vendors, and third-party developers, including the ability to attract, retain and develop key personnel and developers that can create high quality “hit” titles, counterparty risks relating to customers, licensees, licensors and manufacturers, domestic and international economic, financial and political conditions and policies, foreign exchange rates and tax rates, and the identification of
suitable future acquisition opportunities and potential challenges associated with geographic expansion, and the other  factors  identified in the risk factors sections of Activision Blizzard ‘s most recent annual report on Form 10-K.   The forward-looking statements in this release are based upon information available to Activision Blizzard as of the date of this release, and Activision Blizzard assumes no obligation to update any such forward-looking statements.  Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of the future performance of Activision Blizzard and are
subject to risks, uncertainties and other factors, some of which are beyond its control and may cause actual results to differ materially from current expectations.

(Tables to Follow)

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(Amounts in millions, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2010

2009

2010

2009

Net revenues:

Product sales

$

397

$

411

$

2,025

$

1,848

Subscription, licensing and other revenues

348

292

994

874

    Total net revenues

745

703

3,019

2,722

Costs and expenses:

Cost of sales – product
costs

194

185

765

762

Cost of sales – software royalties and amortization

61

54

211

212

Cost of sales – intellectual property licenses

33

45

105

163

Cost of sales – massively multi-player online role playing game (“MMORPG”)

61

55

168

158

Product development

119

122

366

362

Sales and marketing

111

128

294

329

General and administrative

111

106

245

301

Restructuring

(1)

29

    Total costs and expenses

690

694

2,154

2,316

Operating income

55

9

865

406

Investment and other income, net

14

11

15

21

Income before income tax expense

69

20

880

427

Income tax expense

18

5

229

28

Net income

$

51

$

15

$

651

$

399

Basic earnings per common share

$

0.04

$

0.01

$

0.53

$

0.31

Weighted average common shares outstanding

1,212

1,271

1,230

1,289

Diluted earnings per common share

$

0.04

$

0.01

$

0.52

$

0.30

Weighted average common shares outstanding assuming dilution

1,227

1,297

1,245

1,320

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in millions)

September 30,

December 31,

2010

2009

ASSETS

Current assets:

Cash and cash equivalents

$

2,123

$

2,768

Short-term investments

726

477

Accounts receivable, net

246

739

Inventories

258

241

Software development

248

224

Intellectual property licenses

26

55

Deferred income taxes, net

419

498

Other current assets

102

327

    Total current assets

4,148

5,329

Long-term investments

23

23

Software development

37

10

Intellectual property licenses

36

28

Property and equipment, net

169

138

Other assets

14

9

Intangible assets, net

566

618

Trademark and trade names

433

433

Goodwill

7,144

7,154

Total assets

$

12,570

$

13,742

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current
liabilities:

Accounts payable

$

238

$

302

Deferred revenues

622

1,426

Accrued expenses and other liabilities

533

779

     Total current liabilities

1,393

2,507

Deferred income taxes, net

231

270

Other liabilities

200

209

Total liabilities

1,824

2,986

Shareholders’ equity:

Common stock

Additional paid-in capital

12,313

12,376

Treasury stock

(1,848)

(1,235)

Retained earnings (accumulated deficit)

290

(361)

Accumulated other comprehensive loss

(9)

(24)

     Total shareholders’ equity

10,746

10,756

         Total liabilities and shareholders’ equity

$

12,570

$

13,742

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except earnings per share data)

Three Months Ended September 30, 2010

Net Revenues

Cost of Sales –
Product Costs

Cost of Sales – Software
Royalties and
Amortization

Cost of Sales –
Intellectual Property
Licenses

Cost of Sales –
MMORPG

Product
Development

Sales and
Marketing

General and
Administrative

Total Costs and
Expenses

GAAP Measurement

$

745

$

194

$

61

$

33

$

61

$

119

$

111

$

111

$

690

Less:  Net effect from deferral in net revenues and related cost of sales

(a)

112

3

8

4

-

-

-

-

15

Less:  Stock-based compensation

(b)

-

-

(11)

-

-

(6)

(2)

(15)

(34)

Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)

-

(1)

(5)

(12)

-

-

-

-

(18)

Non-GAAP Measurement

$

857

$

196

$

53

$

25

$

61

$

113

$

109

$

96

$

653

Three Months Ended September 30, 2010

Operating Income

Net Income

Basic Earnings

per Share

Diluted Earnings
per Share

GAAP Measurement

$

55

$

51

$

0.04

$

0.04

Less:  Net effect from deferral in net revenues and related cost of sales

(a)

97

81

0.07

0.07

Less:  Stock-based compensation

(b)

34

21

0.02

0.02

Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)

18

(5)

-

-

Non-GAAP Measurement

$

204

$

148

$

0.12

$

0.12

Nine Months Ended September 30, 2010

Net Revenues

Cost of Sales –
Product Costs

Cost of Sales – Software
Royalties and
Amortization

Cost of Sales –
Intellectual Property
Licenses

Cost of Sales –
MMORPG

Product
Development

Sales and
Marketing

General and
Administrative

Total Costs and
Expenses

GAAP Measurement

$

3,019

$

765

$

211

$

105

$

168

$

366

$

294

$

245

$

2,154

Less:  Net effect from deferral in net revenues and related cost of sales

(a)

(765)

(198)

(16)

(12)

-

-

-

-

(226)

Less:  Stock-based compensation

(b)

-

-

(51)

-

-

(4)

(6)

(33)

(94)

Less:  Restructuring (included in general and administrative)

(c)

-

-

-

-

-

-

-

(3)

(3)

Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)

-

(3)

(10)

(33)

-

-

-

(1)

(47)

Non-GAAP Measurement

$

2,254

$

564

$

134

$

60

$

168

$

362

$

288

$

208

$

1,784

Nine Months Ended September 30, 2010

Operating Income

Net Income

Basic Earnings

per Share

Diluted Earnings
per Share

GAAP Measurement

$

865

$

651

$

0.53

$

0.52

Less:  Net effect from deferral in net revenues and related cost of sales

(a)

(539)

(392)

(0.32)

(0.31)

Less:  Stock-based compensation

(b)

94

64

0.05

0.05

Less:  Restructuring (included in general and administrative)

(c)

3

2

0.00

0.00

Less:  Amortization of intangible assets and purchase price accounting related adjustments

(d)

47

12

0.01

0.01

Non-GAAP Measurement

$

470

$

337

$

0.27

$

0.27

(a) Reflects the net change in deferred net revenues and related cost of sales.

(b) Includes expense related to stock-based compensation.  

(c) Reflects restructuring related to the Business Combination with Vivendi Games. Restructuring activities includes severance costs, facility exit costs and balance sheet write down and exit costs from the cancellation of projects.

(d) Reflects amortization of intangible assets, and the change in the fair value of assets and liabilities from purchase price accounting related adjustments.

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

RECONCILIATION OF GAAP NET INCOME TO NON-GAAP MEASURES

(Amounts in millions, except earnings per share data)

Three Months Ended September 30, 2009

Net Revenues

Cost of Sales –
Product Costs

Cost of Sales –
Software
Royalties and
Amortization

Cost of Sales – Intellectual Property Licenses

Cost of Sales –
MMORPG

Product
Development

Sales and
Marketing

General and
Administrative

Restructuring

Total Costs
and Expenses

GAAP Measurement

$

703

$

185

$

54

$

45

$

55

$

122

$

128

$

106

$

(1)

$

694

Less:  Net effect from deferral in net revenues and related cost of sales

(a)

52

20

31

5

-

-

5

-

-

61

Less:  Stock-based compensation

(b)

-

-

(3)

-

-

(11)

(2)

(20)

-

(36)

Less:  Costs related to the Business Combination, integration and restructuring

(d)

-

-

-

-

-

-

-

(7)

1

(6)

Less:  Amortization of intangible assets and purchase price accounting related adjustments

(e)

-

(1)

(8)

(24)

-

-

-

-

-

(33)

Non-GAAP Measurement

$

755

$

204

$

74

$

26

$

55

$

111

$

131

$

79

$

-

$

680

Three Months Ended September 30, 2009

Operating
Income

Net Income

Basic Earnings
per Share

Diluted
Earnings per
Share

GAAP Measurement

$

9

$

15

$

0.01

$

0.01

Less:  Net effect from deferral in net revenues and related cost of sales

(a)

(9)

5

0.00

0.00

Less:  Stock-based compensation

(b)

36

23

0.02

0.02

Less:  Costs related to the Business Combination, integration and restructuring

(d)

6

3

0.00

0.00

Less:  Amortization of intangible assets and purchase price accounting related adjustments

(e)

33

9

0.01

0.01

Non-GAAP Measurement

$

75

$

55

$

0.04

$

0.04

Nine Months Ended September 30, 2009

Net Revenues

Cost of Sales –
Product Costs

Cost of Sales –
Software
Royalties and
Amortization

Cost of Sales – Intellectual Property Licenses

Cost of Sales –
MMORPG

Product
Development

Sales and
Marketing

General and
Administrative

Restructuring

Total Costs
and Expenses

GAAP Measurement

$

2,722

$

762

$

212

$

163

$

158

$

362

$

329

$

301

$

29

$

2,316

Less:  Net effect from deferral in net revenues and related cost of sales

(a)

(441)

(79)

(20)

(6)

-

-

5

-

-

(100)

Less:  Stock-based compensation

(b)

-

-

(19)

-

-

(28)

(9)

(51)

-

(107)

Less:  Results of Activision Blizzard’s non-core exit operations

(c)

(1)

-

-

-

-

4

(3)

(10)

-

(9)

Less:  Costs related to the Business Combination, integration and restructuring

(d)

-

-

-

-

-

-

-

(24)

(29)

(53)

Less:  Amortization of intangible assets and purchase price accounting related adjustments

(e)

-

(4)

(36)

(75)

-

-

-

(2)

-

(117)

Non-GAAP Measurement

$

2,280

$

679

$

137

$

82

$

158

$

338

$

322

$

214

$

-

$

1,930

Nine Months Ended September 30, 2009

Operating
Income

Net Income

Basic Earnings
per Share

Diluted
Earnings
per Share

GAAP Measurement

$

406

$

399

$

0.31

$

0.30

Less:  Net effect from deferral in net revenues and related cost of sales

(a)

(341)

(274)

(0.21)

(0.21)

Less:  Stock-based compensation

(b)

107

67

0.05

0.05

Less:  Results of Activision Blizzard’s non-core exit operations

(c)

8

5

0.00

0.00

Less:  Costs related to the Business Combination, integration and restructuring

(d)

53

32

0.02

0.02

Less:  Amortization of intangible assets and purchase price accounting related adjustments

(e)

117

49

0.05

0.05

Non-GAAP Measurement

$

350

$

278

$

0.21

$

0.21

(a) Reflects the net change in deferred net revenues and related cost of sales.

(b) Includes expense related to stock-based compensation.

(c) Reflects the results of products and operations from the historical Vivendi Games businesses that the company has exited, divested or wound down.

(d) Reflects costs related to the Business Combination with Vivendi Games (including transaction costs, integration costs and restructuring activities). Restructuring activities includes severance costs, facility exit costs and balance sheet write down and exit costs from the cancellation of projects.

(e) Reflects amortization of intangible assets, and the change in the fair value of assets and liabilities from purchase price accounting related adjustments.

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings per share information is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three Months Ended September 30, 2010 and 2009

(Amounts in millions)

Three Months Ended

September 30, 2010

September 30, 2009

$Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

GAAP Net Revenues by Segment/Platform Mix

Activision and Blizzard:

MMORPG

$

289

39

%

$

306

44

%

$

(17)

(6)

%

PC and other

73

10

27

4

46

170

Sony PlayStation  3

109

15

73

10

36

49

Sony PlayStation  2

6

1

37

5

(31)

(84)

Microsoft Xbox 360

127

16

104

15

23

22

Nintendo Wii

56

8

72

10

(16)

(22)

Total console

298

40

286

40

12

4

Sony PlayStation Portable

3

-

9

1

(6)

(67)

Nintendo Dual Screen

20

3

21

3

(1)

(5)

Total handheld

23

3

30

4

(7)

(23)

Total Activision and Blizzard

683

92

649

92

34

5

Distribution:

Total Distribution

62

8

54

8

8

15

Total consolidated GAAP net revenues

745

100

703

100

42

6

Change in Deferred Net Revenues(1)

Activision and Blizzard:

MMORPG

(7)

(31)

PC and other

141

3

Sony PlayStation  3

(5)

34

Microsoft Xbox 360

(26)

38

Nintendo Wii

9

8

Total console

(22)

80

Total changes in deferred net revenues

112

52

Non-GAAP Net Revenues by Segment/Platform Mix

Activision and Blizzard:

MMORPG

282

33

275

36

7

3

PC and other

214

25

30

4

184

NM

Sony PlayStation  3

104

12

107

14

(3)

(3)

Sony PlayStation  2

6

1

37

5

(31)

(84)

Microsoft Xbox 360

101

12

142

19

(41)

(29)

Nintendo Wii

65

8

80

11

(15)

(19)

Total console

276

33

366

49

(90)

(25)

Sony PlayStation Portable

3

-

9

1

(6)

(67)

Nintendo Dual Screen

20

2

21

3

(1)

(5)

Total handheld

23

2

30

4

(7)

(23)

Total Activision and Blizzard

795

93

701

93

94

13

Total Distribution

62

7

54

7

8

15

Total non-GAAP net revenues(2)

$

857

100

%

$

755

100

%

$

102

14

%

(1)  We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.

(2)  Total non-GAAP net revenues presented also represents our total operating segment net revenues.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Nine Months Ended September 30, 2010 and 2009

(Amounts in millions)

Nine Months Ended

September 30, 2010

September 30, 2009

$Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

GAAP Net Revenues by Segment/Platform Mix

Activision and Blizzard:

MMORPG

$

890

29

%

$

952

35

%

$

(62)

(7)

%

PC and other

201

7

106

4

95

90

Sony PlayStation  3

595

20

356

13

239

67

Sony PlayStation  2

29

1

121

4

(92)

(76)

Microsoft Xbox 360

751

25

533

20

218

41

Nintendo Wii

267

9

324

12

(57)

(18)

Total console

1,642

55

1,334

49

308

23

Sony PlayStation Portable

11

-

32

1

(21)

(66)

Nintendo Dual Screen

90

3

95

4

(5)

(5)

Total handheld

101

3

127

5

(26)

(20)

Total Activision and Blizzard

2,834

94

2,519

93

315

13

Distribution:

Total Distribution

185

6

202

7

(17)

(8)

Total platform mix net revenues

3,019

100

2,721

100

298

11

Other(1)

-

-

1

-

(1)

NM

Total consolidated GAAP net revenues

3,019

100

2,722

100

297

11

Change in Deferred Net Revenues(1)

Activision and Blizzard:

MMORPG

(13)

(106)

PC and other

81

(26)

Sony PlayStation  3

(317)

(84)

Microsoft Xbox 360

(425)

(145)

Nintendo Wii

(91)

(80)

Total console

(833)

(309)

Total changes in deferred net revenues

(765)

(441)

Other(1)

-

(1)

Non-GAAP Net Revenues by Segment/Platform Mix

Activision and Blizzard:

MMORPG

877

39

846

37

31

4

PC and other

282

13

80

4

202

NM

Sony PlayStation  3

278

12

272

12

6

2

Sony PlayStation  2

29

1

121

5

(92)

(76)

Microsoft Xbox 360

326

14

388

17

(62)

(16)

Nintendo Wii

176

8

244

11

(68)

(28)

Total console

809

35

1,025

45

(216)

(21)

Sony PlayStation Portable

11

1

32

1

(21)

(66)

Nintendo Dual Screen

90

4

95

4

(5)

(5)

Total handheld

101

5

127

5

(26)

(20)

Total Activision and Blizzard

2,069

92

2,078

91

(9)

-

Total Distribution

185

8

202

9

(17)

(8)

Total non-GAAP net revenues(2)

$

2,254

100

%

$

2,280

100

%

$

(26)

(1)

%

(1)  We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues and other.

(2)  Total non-GAAP net revenues presented also represents our total operating segment net revenues.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

FINANCIAL INFORMATION

For the Three And Nine Months Ended September 30, 2010 and 2009

(Amounts in millions)

Three Months Ended

September 30, 2010

September 30, 2009

$Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

GAAP Net Revenues by Geographic Region

North America

$

406

54

%

$

378

54

%

$

28

7

%

Europe

281

38

287

41

(6)

(2)

Asia Pacific

58

8

38

5

20

53

Total consolidated GAAP net revenues

745

100

703

100

42

6

Change in Deferred Net Revenues(1)

North America

41

26

Europe

53

22

Asia Pacific

18

4

Total changes in net revenues

112

52

Non-GAAP Net Revenues by Geographic Region

North America

447

52

404

54

43

11

Europe

334

39

309

41

25

8

Asia Pacific

76

9

42

5

34

81

Total non-GAAP net revenues(2)

$

857

100

%

$

755

100

%

$

102

14

%

Nine Months Ended

September 30, 2010

September 30, 2009

$Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

GAAP Net Revenues by Geographic Region

North America

$

1,675

55

%

$

1,458

54

%

$

217

15

%

Europe

1,142

38

1,088

40

54

5

Asia Pacific

202

7

175

6

27

15

Total geographic region net revenues

3,019

100

2,721

100

298

11

Other(1)

-

-

1

-

(1)

NM

Total consolidated GAAP net revenues

3,019

100

2,722

100

297

11

Change in Deferred Net Revenues(1)

North America

(462)

(287)

Europe

(280)

(147)

Asia Pacific

(23)

(7)

Total changes in net revenues

(765)

(441)

Other(1)

-

(1)

Non-GAAP Net Revenues by Geographic Region

North America

1,213

54

1,171

52

42

4

Europe

862

38

941

41

(79)

(8)

Asia Pacific

179

8

168

7

11

7

Total non-GAAP net revenues(2)

$

2,254

100

%

$

2,280

100

%

$

(26)

(1)

%

(1)  We provide net revenues including (in accordance with GAAP) and excluding (non-GAAP) the impact of changes in deferred net revenues.

(2)  Total non-GAAP net revenues presented also represents our total operating segment net revenues.

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

SEGMENT INFORMATION

For the Three And Nine Months Ended September 30, 2010 and 2009

(Amounts in millions)

Three Months Ended

September 30, 2010

September 30, 2009

$Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

Segment net revenues:

Activision(i)

$

314

42

%

$

415

59

%

$

(101)

(24)

%

Blizzard(ii)

481

65

286

40

195

68

Distribution(iii)

62

8

54

8

8

15

Operating segment total

857

115

755

107

102

14

Reconciliation to consolidated net revenues:

Net effect from deferral of net revenues

(112)

(15)

(52)

(7)

Consolidated net revenues

$

745

100

%

$

703

100

%

42

6

Segment income (loss) from operations:

Activision(i)

$

(43)

$

(43)

-

NM

Blizzard(ii)

246

116

130

112

Distribution(iii)

1

2

(1)

NM

Operating segment total

204

75

129

172

Reconciliation to consolidated operating income:

Net effect from deferral of net revenues and related cost of sales

(97)

9

Stock-based compensation expense

(34)

(36)

Restructuring

-

1

Amortization of intangible assets and purchase price accounting related adjustments

(18)

(33)

Integration and transactions costs

-

(7)

Consolidated operating income

$

55

$

9

$

46

NM

Operating margin from total operating segments

24%

10%

Nine Months Ended

September 30, 2010

September 30, 2009

$Increase

% Increase

Amount

% of Total

Amount

% of Total

(Decrease)

(Decrease)

Segment net revenues:

Activision(i)

$

983

33

%

$

1,211

44

%

$

(228)

(19)

%

Blizzard(ii)

1,086

36

867

33

219

25

Distribution(iii)

185

6

202

7

(17)

(8)

Operating segment total

2,254

75

2,280

84

(26)

(1)

Reconciliation to consolidated net revenues:

Net effect from deferral of net revenues

765

25

441

16

Other(iv)

-

-

1

-

Consolidated net revenues

$

3,019

100

%

$

2,722

100

%

297

11

Segment income (loss) from operations:

Activision(i)

$

(88)

$

(49)

(39)

NM

Blizzard(ii)

559

393

166

42

Distribution(iii)

(1)

6

(7)

NM

Operating segment total

470

350

120

34

Reconciliation to consolidated operating income:

Net effect from deferral of net revenues and related cost of sales

539

341

Stock-based compensation expense

(94)

(107)

Restructuring

(3)

(29)

Amortization of intangible assets and purchase price accounting

related adjustments

(47)

(117)

Integration and transactions costs

-

(24)

Other(iv)

-

(8)

Consolidated operating income

$

865

$

406

$

459

113

%

Operating margin from total operating segments

21%

15%

(i) Activision Publishing (“Activision”) –  publishes interactive entertainment software and peripherals.

(ii) Blizzard –  Blizzard Entertainment, Inc. and its subsidiaries (“Blizzard”) publishes games and online subscription-based games in the MMORPG category.

(iii) Activision Blizzard Distribution (“Distribution”) – distributes interactive entertainment software and hardware products.

(iv) Other represents Non-Core activities, which are legacy Vivendi Games’ divisions or business units that we have exited, divested or wound down as part of our restructuring and integration efforts as a result of the Business Combination. Prior to July 1, 2009, Non-Core activities were managed as a stand alone operating segment; however, in light of the minimal activities and insignificance of Non-Core activities, as of that date we ceased their management as a separate operating segment and consequently, we are no longer providing separate operating segment disclosure.  

ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES
OUTLOOK

For the Quarter Ending December 31, 2010 and

Year Ending December 31, 2010

GAAP to Non-GAAP Reconciliation

(Amounts in millions, except per share data)

Outlook for

Outlook for

Three Months Ending

Year Ending

December 31, 2010

December 31, 2010

Net Revenues (GAAP)

$

1,260

$

4,280

Excluding the impact of:

Change in deferred net revenues

(a)

940

170

Non-GAAP Net Revenues

$

2,200

$

4,450

(Loss)/Earnings Per Diluted Share (GAAP)

$

(0.01)

$

0.51

Excluding the impact of:

Net effect from deferral in net revenues and related cost of sales

(b)

0.44

0.12

Stock-based compensation

(c)

0.01

0.06

Amortization of intangible assets

(d)

0.03

0.05

Non-GAAP Earnings Per Diluted Share

$

0.47

$

0.74

(a) Reflects the net change in deferred net revenues.

(b) Reflects the net change in deferred net revenues and related cost of sales.

(c) Reflects expense related to stock-based compensation.

(d) Reflects amortization of intangible assets.

The per share adjustments are presented as calculated, and the GAAP and non-GAAP earnings (loss) per share information

is also presented as calculated. The sum of these measures, as presented, may differ due to the impact of rounding.

Full Transcript of Blizzard Games 2010 Plans from Activision Blizzard 2009 Q4 Conference

Written by Medievaldragon on . Posted in Activision Blizzard, Blizzard Games News, StarCraft 2 News, World of Warcraft News

The Activision Blizzard 2009 Fourth Quarter Earnings Conference Call held yesterday revealed to fans all around the world the exciting news that Starcraft II Closed Beta will launch in global scale this month of February and their plans for Blizzard games in 2010. Mike Morhaime also revealed their plans to launch Starcraft II: Wings of Liberty for sale on mid-2010, this Summer.

I told you Mike Morhaime would say the sweet words on February 10 during this conference, and he didn’t disappoint us.

We have gathered the transcript of yesterday’s conference to inform you of what’s cooking:

Mike Morhaime: I’d like to begin by recapping the successful year that we had at Blizzard, with some discussion about our performance in 2009, as well as our fourth quarter’s result. I will also touch on our situation in China and outline the exciting plans that we have for 2010.

Overall, we are very pleased with our performance over the past year. Our non-GAPP net revenue for the year 2009 was about $ 1.2 Billion dollars with an operating margin of more than 46%. To the fourth quarter of 2009, our non-GAPP net revenue was $329 million dollars with an operating margin of 49%.

The fact that we have been able to maintain revenue and operating margin at this level is remarkable giving the current state of the economy, and how it has affected the industry, and the fact that we didn’t ship a new game in 2009.

The stability of our World of Warcraft business has obviously played a big role and we currently have an 11.5 million World of Warcraft subscribers. That subscribership is on par with the last time we announced subscriber figures.

Our ability to maintain subscribership at this level in a downed economy could be contributed to a number of factors:

First, we acknowledge the tremendous entertainment value that World of Warcraft offers. We believe our players recognize the huge value they get from World of Warcraft. Especially when they compare our subscription against the rising cost of Cable television and the finite amount of entertainment they could get from other options such as movies or concert tickets.

Equally important is the commitment of our developer team to continue enhancing the game with fresh new content for players to enjoy. We also benefited from successful outreach marketing efforts in the fourth quarter with the new TV commercial featuring Mr. T driving record file and high visibility at online and retail.

And last but not least, we introduced an important added bonus services in the past year which we believe has contributed towards player retention.

At this point I’d like to provide an update in the current situation with respect to World of Warcraft in China. I want to emphasize that NetEase is operating World of Warcraft normally in China right now as they have been since the launch in September 19, 2009.

I mentioned on the last call, that World of Warcraft in China hit an all time peak concurrency after the relaunch. We are still gaining strength in the region with the game as popular as ever. In celebration of the upcoming Chinese New Year holidays NetEase is running a spring festival giveback campaign. As part of this campagin, NetEase has temporarily suspended new account creation for one week and is rewarding our existing players with a 21 hours of free-game time. Three hours per day.

We continue to work hard with our local partner to bring new content to our chinese players. Wrath of the Lich King is currently under review by the relevant chinese government authorities, and NetEase has been cooperating with their very requests so that we can launch Wrath of the Lich King as soon as possible.

Meanwhile, NetEase has resubmited the Burning Crusade to the GAPP for their approval. Now I’ll like to discuss the plans we have for 2010, which promises to be the most exciting year in Blizzard’s history. We have two huge product releases planned: Starcraft II: Wings of Liberty and the Cataclysm expansion to World of Warcraft.

This will be the first time in twelve years that Blizzard has slated to ship two major products in the same calendar year. And on top of that, we will also be releasing the revamp of the Battle.net service, which will be the platform for all future Blizzard games.

I do have an exciting news regarding Starcraft II. We are slated to be in close beta testing later this month. The beta test will be conducted in a global scale, including thousands of testers in North America, Europe, Korea, Taiwan, Australia, and New Zealand.

We expect a tremendous response from our players, and we are eager to begin this phase of development as we enter the final stretch before release.

Aside from gathering feedback from our players, which is a key step of the developing cycle, the beta test will help generate new excitement for Starcraft II, building on a momentum from 2009, when Starcraft II won Game of the Show in Europe from GamesCon.

Starcraft II has also shown up on several Most Anticipated Lists for 2010, including publications like the Wall Street Journal, PCGamer and Europe Gamer. With Starcraft II continuing to receive wide acclaim and recognition in publications and shows around the world, we are very optimistic about our prospect for the game.

We are still tracking toward our goal of a mid-2010 release. In addition to helping our team balancing Starcraft II, our upcoming Beta Test is also important to our development of Battle.net, as we are building Battle.net to be the home of all Blizzard games going forward, this phase of testing will be key for preparing the service for launch.

We are designing Battle.net to be the primary destination for online gaming. When the servers launch, Starcraft II will offer several advanced communication features including the ability for players to chat between Starcraft II and World of Warcraft, or between World of Warcraft realms.

Future games like Diablo III will plug right into that massive communications network. This is significant because the friends network that players have already built with World of Warcraft and add to in Starcraft II will carry forward for all Blizzard games into the future.

The new iteration of Battle.net will help us effectively grow the community of players as each new game release will build on the momentum created by previous games. Keeping players connected to their friends at all times, no matter what games they are playing, will make the online experience more enjoyable extending the life of our games.

Separately, we have news about World of Warcraft: Cataclysm, which we announced at this past year BlizzCon. Today I would like to delve into one of the aspects of the expansion that makes it especially intriguing as it grows driver momentum for the business.

Like previous expansions, Cataclysm will introduce some great content such as new races, new dungeons, and new areas for players to explore. For a feature that will make this particular expansion stand out is that we are completely overhauling much of the existing content in the game, and bringing it up to our constantly rising design starndards.

Let me just take a moment to explain why this is important. Over the past five years since World of Warcraft initially launched, our development team has become much more skilled at creating compelling new content for the game.

The issue is that much of the low level content in World of Warcraft today, remains the same as it was when we launched in 2004. New players to the game, do not in large part, experience the game’s best content and design until they reach the end-game.

Our research shows that trial players who play World of Warcraft past level 10 are much more likely to stick with the game for a long time. Currently only about 30% of our trial players make it past this threshold. So anything we can do to improve the new players’ experience is a huge opportunity for us.

With Cataclysm, we will be overhauling the early gaming experience for players, bring all the content in World of Warcraft to our current design standards and ensuring that even new players to the game will experience the best work of our development team. This will also provide additional replayability for our veteran players as well.

We hope that this effort will capture most players and drive community growth. Development on Cataclysm is proceeding smoothly and we are making great progress to a release in the back half of 2010. In parallel with the development of Cataclysm, we are continuing to create additional value added services for our players.

One of the new services we are looking forward to introducing soon is the ability for players to access the in-game Auction House from outside of the game.

Currently in World of Warcraft, players can use an in-game eBay-like service to buy virtual items for in-game currency. This is the Auction House, and its been part of World of Warcraft since launch. Soon, we will be introducing a mechanism for players to use the Auction House remotely using the web or mobile devices like the iPhone.

Some aspects of this service will be free to use. Some will be premium. We haven’t finalized pricing just yet, so we will be discussing those details at a later date. We are also expanding on the World of Warcraft Pet Store that we introduced last quarter. Just this morning we announced two new virtual pets the Wind Rider Cub and the Gryphon Hatchling, which players will be able to purchase in the store in the coming weeks.

What is unique about these new pets is that players will also receive plush stuffed animal version of their virtual pet.

As I close out the Blizzard portion of the call, I want to summarize the huge year we have ahead of us. Not only are we going to ship two major products: Starcraft II and Cataclysm; but we will be launching Battle.net to be the home of all Blizzard games going forward. This platform is the cornerstone for the future of Blizzard Entertainment and we are very excited to take the first steps toward the future with the beta test of Starcraft II and Battle.net.

With Starcraft II and Cataclysm plans for this year and Diablo III around the corner our product outline has never looked stronger. Thanks.

Official Starcraft II beta on February 2010

Written by Medievaldragon on . Posted in Activision Blizzard, Blizzard Games News, StarCraft 2 News

Mike Morhaime said the sweet words. Starcraft II Beta starts this month. This was announced just now at 5:15pm EST during the Activision Blizzard 2009 Q4 Earnings Conference Call.

Listen to the Conference audio at 38:40 for Mike Morhaime’s announcements. Both Starcraft II and World of Warcraft: Cataclysm are confirmed to be released on 2010, and dubbed it the first time in twelve years that Blizzard ships two games in a single calendar year.

You can read the full Activision Blizzard Financial Call Breakdown at IncGamers.

Blizzard Quote:
Avarius: I know you are all very excited to hear the news about the StarCraft II beta coming soon. In order to help facilitate this discussion, please keep your comments about this announcement consolidated to this thread. Thanks! Emails to those who can participate in the beta will be sent out once it’s ready to start.

1. You should be able to download it to your other computer, however, you must be logged into your battle.net account in order to play.

2. They will exist to give beta participants a place to discuss the beta and report any issues they may find. Only participants of the beta will be able to post, but the forums can be read by everyone.

For everyone asking, we are targeting a global release for the start of the beta.