Why Activision Blizzard Will Never Be Great Again

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Why Activision Blizzard Will Never Be Great AgainBreaking sales records doesn't mean that you're on top of the world.

Activision Blizzard's (ATVI) Call of Duty: Modern Warfare 3 posted a new record last week, scoring $400 million in first-day sales through North America and the United Kingdom alone. The video game maker has every reason to be proud of its battlefield juggernaut. However, you can't judge a circus by its tent pole.

Dig a little deeper and you'll see why shares of the die-hard gamer fave have been trading in the low teens and pre-teens since an ill-advised stock split three years ago. Faltering franchises and an industry that's been in a funk for three years will keep the euphoria in check.

Activision Blizzard also wouldn't mind a few more orcs around here.

Game Face

Gamers are fickle.

Just a couple of years ago, Guitar Hero was a monster franchise for Activision Blizzard. Folks were buying plastic guitar controllers and pecking fret boards in time to commercially licensed rock songs. It was a phenomenon. Even specialty retailer GameStop (GME) pondered opening bigger stores so it could house more music game displays.

Guitar Hero proved to be a one-hit wonder. Activision Blizzard abandoned the line in February.

Now Activision Blizzard is having a problem with its World of Warcraft franchise. It closed its latest quarter with 10.3 million players, well short of the 11.1 million it watched over three months earlier. The market freaked out when Netflix (NFLX) lost 800,000 net subscribers in a single quarter -- and that was off a user base more than twice as large. There's no reason to give Activision Blizzard a pass here.

This isn't a blip. World of Warcraft's fantasy realm has been shedding more locals than Detroit in recent quarters. Its population peaked at 12 million a year ago, and now the exodus is intensifying.

Even Activision Blizzard bulls knew the WoW craze couldn't last forever, but the defections come at a difficult time for gaming companies. Video game sales at the retail level fell 6.5% during the fiscal quarter ending in October, according to industry tracker NPD Group.

Unfortunately, it's not as if Activision Blizzard is bucking the trend.

Game Over for Growth

Adjusted revenue clocked in essentially flat last year, and analysts see a top-line decline of 11% this year.

How can this be? The Call of Duty franchise keeps getting larger with every passing year. Well, the blessing also happens to be the curse. The appeal to these battle simulations is the Web-tethered multiplayer campaigns, giving new titles months -- if not more -- of viable play time. Paying $60 is a worthwhile investment, unlike the old games that cost as much and were trade-in fodder a week or two later. However, it also means that gamers can get by on buying fewer games.

Beyond die-hard gamers, casual gamers are now discovering free and nearly free social games on Facebook and smartphone apps. These experiences lack the full-blown console gaming experience, but these diversions are just enough for mainstream audiences.

Activision Blizzard is the country's most valuable publicly traded company, but that will change in a few weeks when Zynga completes its IPO. It will be more than just a symbolic market cap baton being passed. Activision Blizzard's nearest traditional rival -- Electronic Arts (ERTS) -- has been making inroads in social gaming through acquisitions and turning its Sims franchise into one of the more popular Facebook games. What has Activision Blizzard done beyond unplugging Guitar Hero and watching orcs and dwarves walk out of its virtual world?

The Digital Divide

It's easy to see why Activision Blizzard has been slow to embrace social gaming. Why trade its thinning ranks of World of Warcraft gamers paying monthly ransoms for the pocket change in ad revenue it can generate through ad-supported games and digital upgrades?

If it's going to quietly fade away, it may as well do it on its own terms.

The gaming industry is changing, and not necessarily for the better if you're a fat-cat publisher. The playing field is leveling in the digital space that's actually growing. The old days of just a handful of console game developers cornering the market are toast.

Activision Blizzard remains a sturdy company, and it's not a surprise that many stock newsletters recommend the shares -- especially at today's low prices. However, now it's simply a matter of value instead of returning to greatness. The game as Activision Blizzard knew and mastered it is over.

Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article, except for Netflix. The Motley Fool owns shares of GameStop and Activision Blizzard. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard and Netflix, creating a synthetic long position in Activision Blizzard, and writing covered calls in GameStop.


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Jorge Hernandez

World of Warcraft is dying BECAUSE ITS A 7 YEAR OLD GAME. A game that has lasted that long and kept that many suscribers is pretty succesful in my opinion. When Blizzard releases the Next MMO it will be just as popular if not more than WoW. Blizzard has made more than a billion dollars in wow alone. That's a pretty succesful game.

November 18 2011 at 4:20 PM Report abuse rate up rate down Reply
melissa engler

Why articles, that say different companies will never be great again,....will not be great again. Come on, the first couple of articles headed like this...was eyecatching...and maybe there was merit to Wal-Mart or Bank of America Never Being Great Again. But, this heading is getting worn out!...Be creative and come up with something new. Not all companies are doomed...

November 18 2011 at 8:23 AM Report abuse rate up rate down Reply
Alex

Activision Blizzard is the country's most valuable publicly traded company (this was a quote taken from above)

This is utterly wrong as it is well known Apple is and this article loses all credibility just from that point.

November 18 2011 at 1:29 AM Report abuse rate up rate down Reply
Greg

I love all these clueless journos rolling out the latest NPD figures as they predict the death of the hardcore gaming industry - it's lazy journalism. NPD sales figures are all but meaningless these days as they do not include digital sales which, coincidentally made up about 30% of Activision's sales and 40% of EA's sales this year. Game companies keep rolling out record increasing revenue figures yet somehow the industry is in decline?

I'm also not really convinced of the logic of casual gaming killing big publishers. Surely more people gaming is good for the industry as a whole. I'm not aware of any real gamers who have given up Call of Duty to go play the Sims on Facebook. No kiddies beg their parents to let them play Farmville on Christmas morning - they want to rip open the new Sklyanders package. I'd say the explosion in casual gaming is the best thing that ever happened to the industry. It's inevitable that some of these people who have been attracted to gaming for the first time by casual games will look to 'upgrade' to console/PC gaming.

November 17 2011 at 5:17 PM Report abuse rate up rate down Reply
Shayne K.

You really have no clue. 10 Million Subs for an MMO is HUGE. It used to be 300k was huge, Blizzard has far exceeded that. WOW has at least 3 more expansions planed and many people will come back and play each one. Then they have Diablo 3 coming out which will be huge and once WOW is finally done their new MMO "Titan" will be out. So ya, maybe do some research next time.

November 17 2011 at 1:27 PM Report abuse rate up rate down Reply
andrechts

If you think Activision Blizzard has lost its greatness, you're sorely mistaken. I can prove that with one item: Diablo 3.

November 17 2011 at 10:12 AM Report abuse rate up rate down Reply