I met Bobby Kotick (Activision CEO) as an Intern at Activision in 2008 and I asked him specifically if they were considering getting into "casual games" which were just starting to come into their own.
I'll never forget his answer: "No one has figured out how to really make money with casual games yet, but once someone does, we'll just buy them."
Companies like Activision are too big to innovate and they know it. They exist to provide stable cash flows to investors, and big payouts (exits) to the companies that do innovate. There's nothing wrong with that; but growth by acquisition is a double edged sword: a few bad purchases can sink your company.
The video game industry is largely moving toward the studio model used by Hollywood as a result.
The floor of that chart is 4.4 billion a quarter, there peak is 5 billion a quarter. That is stable income especially when compared to most game companies.
As an investment, you should treat Activision (or EA, or any other dev studio) like you would a movie studio. The business model is fundamentally the same, albeit with potentially bigger numbers on a per-project basis. Hell, most movies use a lot of the same production techniques that games do (motion capture, 3d modeling, etc).
As a result of that, it's a boom-bust company. A few bad releases can put them in trouble. Media is volatile because consumer tastes are fickle, and video games are no exception.
That's only partially true in the case of Activision Blizzard. World of Warcraft has provided them with something that very few gaming companies have ever had: massive, dependable monthly payments.
That has gradually declined of course, over a decade. They still have ~5.6 million paying subscribers to WoW, generate a billion in sales annually from it, and hundreds of millions in profit.
Yeah, but WoW is a once in a generation type of game. No MMO since (or likely ever to come) will capture the type of mindshare that WoW did. It's got staying power that can be rivaled by very few games -- CounterStrike and Starcraft the only other games that come to mind for maintaining that level of popularity for that long.
Yes. Like movies and music, games is a "hits" business. The model is wholly dependent on churning out 99% formulaic content and having 60% of it at least break even (and 10% breakaway hit, making back many times production costs to pay for the 30% of projects that don't meet expectations).
Games may have a longer shelf life than movies, but at the macro level, the same principles apply. EA and Activision are the MGM and Paramount of the games industry because they know and practice this. As unpopular as it may make them among industry insiders or hardcore fans, this is the way the hits business (as applied to conventional notions of a stable company) works.
And really, most of Apple's "innovations" are taking innovations created elsewhere and applying them to mass-produced consumer products. Not that what Apple does isn't innovative; but it's industrial-scale innovation.
Activision is a media marketing and investment company. Why bother being innovative when the mass-market AAA games they churn out earn $1-2 billion each in global sales? They're not trying to be innovative; they're trying to make mainstream video games.
Oh it is, but they sold half the company for $1.5 billion in 2013. Seems like a steal today, the other big mobile studios must be chomping at the bit seeing King go for $6 billion and knowing they are all that's left.
This is the exact same as Zynga buying OMGPOP just for Draw Something, and we know how turned out. Except with 10x bigger numbers.
King, in fairness, has multiple games in the App Store at the top of the Top Grossing charts in addition to Candy Crush Saga. No idea what Activision gets out of this. (games like Call of Duty have been sneaking ad-hoc microtransactions similar to F2P games)
I realize analogies aren't meant to be perfect but when you stress the 'exact same'-ness I'll confess I find Activision is nothing like Zynga here. Zynga was already focused on social/mobile games like OMGPOP and bought them defensively (Words WF was hemorrhaging daily users to Draw Something at time of the purchase). Meanwhile Activision and King are focused in completely different niches and Activision isn't in danger of disappearing or cannibalized to bits by copycats overnight.
Second, King appears to be remarkably safer investment than one hit wonder OMGPOP. They've kept multiple titles in the top 20 for several years running and their annual gaming revenue is on scale with Nintendo[1].
Given that Supercell is not on the market is there an aquisition target remotely as good as King which is demonstrably great at the one thing Activision is terrible at? (granted Blizzard is doing well in mobile with Hearthstone).
Fair differentiation. I may be too addicted to hyperbole. :P
The F2P environment has been shifting to be more user friendly, and consequently less revenue-generating. I'm still uncertain that King's brand of F2P is sustainable in the long term.
I think revenue is up right alongside user friendliness.
Exploitative f2p games fall by the wayside and the most successful formula seems to be: (1) make a game that's great even for people who spend nothing, (2) take advantage of network effects to get a large sticky playerbase and (3) profit off a fraction of the players.
Boom Beach is my favorite mobile game by a large margin, I've spent a whopping $5 (on account of relying on the wiki for costs) and there are players in global top 50 who have spent nothing. I feel zero compulsion to spend anything except perhaps to reward the company for hundreds of hours of ad-free gaming.
Slightly off-topic, but OMGPOP had the best version of Tetris I've ever played. It was multiplayer, had lots of powerups, it was really well done. But then the fucking Tetris Company came (as expected). Can't understand how they can get away with it.
Risk, Scrabble games have been taken down, but I don't think it was because of trademark. Civilization is the opposit with lots of clones, no take downs nor trademark suits, even for http://freeciv.org which uses "Civ".
Not really, the main difference is retention. Candy Crush Saga and Candy Crush Soda Saga have been in the top of the charts for years consistently, whereas Draw Something (or Draw My Thing, the web version) never had good retention from what I hear, or what you'll see if you look up the games in the charts. That being said, it remains to be seen what will happen once Activision takes over.
That was my first reaction. I played Draw Something for a week or so, 3 years ago. I know many people still play Candy Crush Daily. The purchase to get Draw Something was probably premature, whereas this is a more established market.
I can't help but wonder how much this has to do with the style of game. As far as software enforced rules go, Draw Something is VERY open, where a game like Candy Crush only accepts input that moves the game in the direction of their choosing (towards purchases usually). Most of my experience with Draw Something comes from watching a child play, and by "play", I mean they would write the word out. I failed to find a way to convincingly explain that this ruins the game. At 8 years old, it's extremely difficult to explain why someone should be following rules that the software doesn't enforce.
Certainly it beats Draw Something in sticking power, but are people still going to be playing Candy Crush in five years, ten years? There's a lot of other companies I can buy for five billion dollars and be confident that they'll still be selling stuff in a few decades' time, but this one doesn't fill me with confidence.
Worse news: the thing that they sell is something that people regret buying.
very few people are going to be playing anything for five years or ten years. few games last that long. activision's world of warcraft has defied all expectation. by all standards the graphics look extremely dated. ea has been making sports games with annual refreshes, and this other major studio that makes the assassins creed series are also doing the same thing - large AAA-level open world games with in app purchases AND annual refreshes, which seems to be the way forward now in video game profitability.
Blizzard has no idea how to make money from mobile. King makes an absolutely ungodly amount of money (especially measuring per user). Blizzard knows it needs to be able to make money from mobile eventually. Hence, a huge price.
Blizzard isn't just buying King for Candy Crush. They're buying King because they know how to make Candy Crush.
> They're buying King because they know how to make Candy Crush.
A coworker was under the impression that King had trouble duplicating the success of Candy Crush. No idea if that's true, but if it is, it could be that it was a lucky hit, and King actually had no idea how to make these games successful.
Perhaps Supercell would have been a better target; they seem to have a number of reasonably successful games. More minor successes might be better than a single smash hit if you're more interested in the underlying knowledge.
King has had many top hits in the same vein as CCS. Farm Heroes, Bubble Witch, Pet Rescue etc. None as enduring as CCS, but profitable hits just the same. They have a good formula: get it up cheaply on their web portal, iterate, and launch the winners on mobile.
soda, candy and farm are the same game with slightly tweaked skins and account for 80%+ of King's shrinking share of the Western Casual games market. Meanwhile their non-match games struggle. Your friend was correct...
I'm genuinely curious what you're talking about here. Hearthstone alone acccounts for around a quarter of all of Activision/Blizzard's digital revenue.
One, King has more sustainable revenues than OMGPOP. Two, they get to tell their shareholders they are competing in an established area of high growth (i.e. mobile apps).
They get one of the very few companies in mobile gaming who are able to repeatedly make hits. There are lots and lots of one hit wonders, and maybe that's all that King is, but they seem to have somewhat of a leg up on anyone else.
Draw Something didn't make nearly the amount of money that King is making with all of its games at the top of the grossing charts. OMGPOP's aquisition if I remember correctly was more about users directly competing in Zynga's space, and you're right it didn't work out well for them.
Activision/Blizzard doesn't have a huge presence in the casual space. This expands their market and doing so with success. It should at the very least turn out better for them.
To echo another commentator's post, King has had sustainable revenue across multiple titles for years. Mobile isn't going away, and I don't suspect King will either.
The synergy is obvious: King will share plenty of F2P monetization design + data to Activision's other mobile titles. Activision will supply King with basically unlimited funds for expansion + very valuable IP.
Any hit that King has on FB/mobile, Activision can bring it onto consoles. And any hit Activision has on the consoles, King can try to bring it on mobile.
It occurs to me that this is an interesting outlet for all these US megacorps with tons of money overseas that they're unwilling to take back to the US for tax avoidance reasons -- can they purchase non-US companies with that money without repatriating it?
To elaborate on the nature of Call of Duty's microtransactions I mentioned above:
Call of Duty: Advanced Warfare has Supply Drops (http://callofduty.wikia.com/wiki/Supply_Drop ). At the game's release, you get Supply Drops every few multiplayer games, which have chances of dropping cosmetic gear for your character, or weapons with statistical modifiers. (naturally, you mostly got cosmetic gear). While the weapons w/ modifiers were technically balance, some weapon modifiers synergize a little too well with a given weapon and they became the most-used weapons in the game.
Then Infinity Ward added the ability to buy as many Supply Drops as you want for $1.99 each.
(Later, they did implement daily challenges for a bonus Supply Drops along with Prestige challenges for the good weapons, in order to make things more fair.)
Infinity ward didn't make Call of Duty Advanced warfare, it was Sledgehammer games. Everything else seems to check out though. I'm a Sledgehammer employee that worked on the Daily Challenge feature.
Guess what. All the CoD players will pay and praise the company as someone who finally got free-to-play right. Just because they like the franchise. The same happened with Fallout Shelter and you can see people arguing that micro-transactions in FS are fair - when it's the same thing that Candy Crush and similar games pull.
My estimate is that Blizzard will make this money back in less then 5 years. They just need to put the proper money-milking free-to-play model into their next big game and all the "core" gamers will shell out the money.
After that, we will see the entire industry shifting to free-to-play and the way games are currently monetized on mobile will dominate PC as well.
If I were Google, I'd start developing AdSense plugins to Unity, Unreal and other game engines.
Actually, Activision suffered from that when they were controlled by Vivendi. But since Vivendi is no longer in charge their games are improving by a lot.
King is far from being a "one game company". I had the chance to visit their Stockholm offices two weeks ago (they hosted Lua Workshop 2015) and I was rather impressed. They have a whole pipeline in place that results in a few successful games, but for every successful game many more come out of their creation studio, are playtested, evaluated and (for the most part) killed.
They have also invested in a new engine, Defold (http://www.defold.com/), that should let them iterate faster and that they let other developers use. I hope it will thrive under Activision management.
I've played with Defold it's pretty impressive (apart from Lua ;-), has most things a 2d engine and editor needs, but even gives you access to the lower stuff that I wouldn't know what to do with anyway.
It's easy to forget if you run in geekier circles, but in fact not everyone is in love with the Star Wars universe. I think we underestimate how many people thought it was a great movie, but have no real desire to engage the universe deeper than that.
Except when the movie was announced it literally crashed every online ticketing site known to man, and last I heard first day sales were something like 8x the previous record. Star Wars is biggest in geek circles, but it is a full on cultural phenomenon.
Isn't "the star wars franchise" a bit like what the Angry Birds franchise will be in 20 years? I.e. a zombie cow, pretty much dead, but still occasionally gives some milk
Star Wars has been a popular franchise for the last 38 years. Its popularity has gone up and down, but there hasn't been a holiday season in all those years where there wasn't some Star Wars toy on the shelves.
Four billion dollars in box office revenue, and over three billion more in home video sales. When you're done thinking about just how much money that is, take a look at how that pales in comparison to the merchandise.
That's actually unbelievable when you think about it. One could make the argument that Disney purchased Lucasfilms for a a great price. Disney bought them at a time when Star Wars games and the latest films were sub par.
Now Star War games look great + are on multiple new platforms (namely mobile), and the Star Wars films look great.
Hahaha, I remember when Activision said that the mobile space was not worth getting into. Now five years later they're having to spend $5.9B just to continue to be relevant.
Riccitello is the reason why EA is still relevant, shame they got rid of him before his mobile efforts paid off.
To be fair, King IPO'd at $22.50 a share so a lot of people lost out on this deal regardless of the premium. It may not be all cash, the details are still pretty scarce.
Update: even worse, nearly 30% of the float is short. There will be a lot of red tomorrow.
A lot of people were short the stock (e.g. borrowed shares to sell them) and are now on the hook to buy them back for very close to $18 where it will open tomorrow. Shorting is a way to make money when the share price falls. There are always shorts, but King had a ton.
If you shorted KING at something greater than $18 you lucked out and have made money, but if you shorted at say $17 you will end up losing $1 per share. It has been under $13 in the past three months so some shorts are going to be losing a fair amount of cash.
Just so I have it straight, I borrow 1000 shares of KING from you and sell them all at $15 each. At some stage, I have to give you back those 1000 shares, so I have to re-buy them. If the price of KING goes down to $12, I can get 1000 shares for $12000, and because I sold the original lot of shares for $15000, I've made $3000. But if KING goes up to $18, then when my loan comes due it costs me $3000 more than what I sold the shares for.
Exactly. It's slightly more complicated since you pay to borrow the shares, but that's exactly it in concept. It's risky as there are theoretically unlimited losses (shares can keep going up, but they can only fall to $0).
Another common, but less risky way to be short is through put options. You buy the right to sell shares at a given price. If you had a put for less $18 you have now lost all your money. Safe to say there will be a lot of money made and a lot of money lost tomorrow when options start trading.
Activision still refuses to release VtM: Bloodlines on GOG. That's about all I care in their context. May be Paradox should buy the rights for it from Activision, like they did with CCP and White Wolf in general.
You know they might be primarily trying to buy user data and analytics data here. I mean the games are good too, but they must have a crazy treasure trove of user data.
That can't be correct given the price, and the fact that King had over $2B revenue and $500MM net income last year. These games make millions of dollars a day. They don't get bought just for data. The simplest explanation is that Activision Blizzard wants to go bigger into mobile gaming and sees King as a good acquisition for this.
(But yeah, it's been a long time since Activision has been relevant, and they haven't done mobile right, obviously, this might be a good first step for them.)
By what measure do you say that it's been a long time since Activision has been relevant? They have decades long franchises that print money and they've tripled in price in the last 5 years, up 5x over the last decade and 33x in the last 12 years.
Well, Blizzard was doing its own thing before Activision, and is still doing it now. It's somewhat off on its own thing still in my mind, despite the combined company.
I'll never forget his answer: "No one has figured out how to really make money with casual games yet, but once someone does, we'll just buy them."