3. Business Overview3.1 HistoryActivision Blizzard, Inc. is a U.S.
-based leading global developer and publisher of interactive video game content and services. The company develops and distributes content and services across all of the major gaming platforms: personal computers (PC), consoles and mobile devices.Activision, Inc. was originally incorporated in 1979. In 2008, Activision Blizzard was established by the merger of Activision, Inc.
and Vivendi S.A. In 2013, ATVI repurchased 429 million shares of common stock from Vivendi S.A. for $5,83 billion. This was financed partially by a term loan.
Throughout 2014 and 2016, Vivendi S.A. sold all of its remaining ATVI shares in public offerings making ATVI independent from its parent company. Moreover, on February 2016, ATVI acquired all the outstanding shares of King Digital Entertainment (King) by $5,8 billion, financed with $3,6 billion of existing cash and $2,2 billion from new debt proceeds. Nowadays, ATVI aims to strengthen its position as the leader in the video games software industry. 3.2 SegmentsATVI consists of four major operating divisions and each division is independent of each other. 3.
2.1 Activision Publishing Activision develops and publishes games based on internally-developed intellectual properties (IP) and licensed properties. In the latter case, the company acquires IP licenses to publish and/or distribute software products that are created by third-party developers. Additionally, the firm also pays royalties to developers for the games created based on a percentage of the revenues generated by the certain game. Activision’s key franchises include Call of Duty (CoD) and Destiny. 3.
2.2 Blizzard EntertainmentBlizzard is a leader in online PC gaming. Its key well-appraised franchises include World of Warcraft (WoW), Hearthstone and Overwatch. Blizzard is admired for its reputation and ability to create long-lasting franchises with great financial success. Therefore, it will continue to leverage its internally-developed IP’s and create new franchises. 3.
2.3 King Digital EntertainmentKing is a leading global developer and publisher of games on mobile and social platforms. Before the acquisition, King was a publicly-owned company that published bestselling games on mobile platforms and online social platforms. Candy Crush Saga is its most well-known franchise. King will now provide its proven mobile gaming expertise to facilitate the development of ATVI’s franchises in the mobile space.
3.2.4 OtherThe company engages in other businesses such as the studios business, which specializes in creating original film and television content based on the firm’s IPs, and the distribution business, which consists of distribution services on Europe. Besides, the activities of Major League Gaming (MLG) business are also included in this segment. ATVI acquired this business to capture the latest trend in eSports, a popular form of competition through video games. This business is devoted to monetizing eSports through advertising, sponsorship, and tournaments. 3.
3 Products and Distribution ChannelsThe company develops content and services principally for console, PC, and mobile devices. Its products include full-games and in-game content, such as downloadable content, microtransactions, and subscriptions. The video game industry is rather seasonal, with the highest level of sales occurring during the last quarter of the year. Providing additional in-game content other than full-game purchases has allowed ATVI to shift this trend to a more recurring revenue model while increasing player engagement. Moreover, games are sold through retail and digital distribution channels. The former include the direct sale of physical copies of full-games to retailers, electronic stores, and gaming stores.
The latter include the digital distribution of full-games and in-game content. Consumers can purchase and subsequently download the content at their convenience directly to their favorite devices through the firm’s platform partners. Digital games offer a significant reduction in production, developing and warehousing costs. It takes far less capital to produce a digital game than one that is purchased through retail distribution. This implies higher profit margins when compared to retail sales. Figure 1 shows revenue per distribution channel from 2014 to the third-quarter of 2017 (Q3 2017).
In 2015, revenues from digital channels outweighed the ones from retail channels. Focusing on delivering superior digital content is one of ATVI’s key strategies as this delivery method presents a source of value, boosting revenues and increasing profitability. Also, the addition of King, which only delivers content digitally, supports this improvement.