Executive Memo to the CEO of Activision Blizzard Inc.,
Activision Blizzard Inc.,
To: Daniel Alegre, President
From: Mehr Un Nisa Javed
CC:
Date:
Re: Activision’s need to shift focus towards mobile gaming platform and development of new titles across all platforms
Activision Blizzard, Inc., founded on October 1 1979, is a Santa Monica, CA, based company that creates video games. It is a leader in personal computer, tablet, mobile games and video game consoles. There are three main divisions of the company: Blizzard Entertainment, Activision Publishing, and King Digital Entertainment. These three divisions work towards creating video games which are accessible across different platforms. Blizzard Entertainment produces online subscription based games. Activision’s main focus is on the console.King Digital Entertainment works on producing mobile games. Activision Blizzard’s highly refined games, and profitable game franchises like Candy Crush and Call of Duty give it a cutting edge in the industry and hence, make it one of the market leaders by capitalizing on the strong growth of its franchises.
As of June 30, 2020, Activision Blizzard total revenue is $1.932B which is a “38.4% increase year-over-year(YOY)” [1]. Activision Blizzard’s start of 2020 was not very strong but the Monthly Active Users(MAU) increased by 18% in the second quarter. Analysts also predict a “third straight quarter of YOY MAU growth, albeit a more modest increase of 7.0% to 350 million” [2] and this will prove to be the robust growth since the 2016 Q4. Whereas, a year ago in 2019 the revenue was about $1.40 billion which makes the earnings in 2019 quite disappointing. There were five consecutive quarters of YOY declines between Q1of FY 2019 and 2020.
The growth of the company is expected to continue and this rise in sharp revenues can be attributed to Call of Duty games and Covid-19. Laura Martin, Needham analyst said “We believe that lock-downs have accelerated several media trends and Activision-Blizzard is among the biggest beneficiaries. We raise our ATVI estimates for FY20 and FY21 and discuss recent trends in viewing and play times across the video game industry that benefits the stock..”[3] Due to worldwide lockdown, people stayed at their homes for a long time and utilized their time to play indoor video games because outdoor entertainment like theatres, sports etc were shut and people were practicing social distancing. In addition, the company benefited during the Covid-19 from its online game, Overwatch team shooter , World of Warcraft and Candy Crush Saga.
Activision Blizzard has been a tough competitor and a market leader in different areas of the gaming industry therefore, it keeps a close eye towards the market trends and opportunities for growth. Activision Blizzard does a good job in bringing creativity and following the trends; recently Activision Blizzard is trying to capitalize on the launch of a Call of Duty esports league and later in October 27,2020, with the release of World of Warcraft: Shadowlands. But, Activision Blizzard has so far not been able to capitalize on mobile gaming as it can prove to be a major catalyst of growth for the company especially in the Asian markets.
There is a major shift in the gaming industry as it is heading more towards mobile phones and tablets period instead of console and PC games. The mobile gaming industry has surged 24% since the lockdown after Covid-19 outbreak. It is also considered that in the US, the time spent on mobile devices has greatly increased and “ by 2021, this number is predicted to increase to more than 30 minutes. Apps are the new prime time, and games have grabbed the lion’s share”. [4] Moreover, the revenues for divisions such as console games, PC games, web games and handheld games etc have decreased for the company since 2015. It is also predicted by the analysts that the revenues produced by PC games and handheld gaming will further decrease in the coming years because the other mediums to play these games perform better.
The mobile/tablet gaming industry is anticipated to account for more than 55% proceeds by 2021. The mobile gaming industry is going to expand further as more people gain access to mobile phones in Asia. In 2019, the revenue generated in China was about ¥230 billion. This makes China one of the most lucrative countries to be targeted especially for mobile gaming and also because as Bobby Kotick said,“China is one of the most exciting places in the world for us to grow our business and develop new innovative games” [5]. The current penetration of the smartphones in the region is about 51% which is anticipated to rise in 2022 to 63%. In addition, in the Asia-Pacific region it is predicted that in the coming years the average household income will increase. This will make video games easily accessible via smartphones because both the interest in the smart phones and the purchasing power of the people is widely increasing.
Similarly, Activision needs to focus more on bringing new genres to the market. In 2017, the new Battle Royale genre, with its new features and gameplay took the gaming industry by surprise and it immediately became a billion dollar industry. The annual revenue from Battle Royale increased from $1.7 billion in 2017 to over $20 billion in 2019 and analysts predict it will continue to grow in the future. The Battle Royale was something new for the market and it has since become a trend. [6] On the other hand, Actvision’s top franchises are extremely old. Activision’s top franchises Call of Duty and World of Warcraft are over 16 years old. While entertainment can be considered timeless, Activision needs to devote more time in coming out with fresher titles with new features and gameplay in order to avoid looking more stale.
As a result, in order to target more consumers and thrive in the competitive gaming industry it is important that Activision Blizzard makes an effort to focus more on the mobile gaming market as it has previously struggled to create compelling offers. Nowadays, more people have mobile phones so the sales of consoles are decreasing, hence making console games like Call of Duty would not be very popular and profitable. Starting 2019, revenue from mobile gaming became Activision’s biggest source of revenue [7]. Activision only has a handful of mobile titles but many PC and console titles. Regardless of that, in 2019, Mobile gaming had a 34% revenue share as compared to 26% PC and 30% console [8]. This highlights the need for Activision to focus more on revenue generating mobile titles.Secondly, in order to further increase the revenues and to continue growing in the future, Activision also needs to develop new franchises hence it is advisable for them to accelerate their future development of new franchises.
Sources
[1] https://www.macrotrends.net/stocks/charts/ATVI/activision-blizzard/revenue
[4] https://techcrunch.com/2019/08/22/mobile-gaming-mints-money/
[5] https://www.bbc.com/news/technology-18704188
[6] https://www.statista.com/chart/14793/battle-royale-revenue/
[7]https://www.gamespot.com/articles/mobile-becomes-activisions-biggest-platform-more-g/1100-6473487/
[8]https://www.statista.com/statistics/269667/activision-blizzards-revenue-by-platform/
