What Does Amazon’s New Tablet Mean for Dolby and Activision Blizzard?
Ser Jing is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On Thursday, Amazon (NASDAQ: AMZN) announced its newest lineup of tablets to challenge Apple’s iPad – the Kindle Fire HD tablets. The Kindle Fire HD range of tablets are priced from $199 to $499 depending on the specs. There will certainly be concerns over the iPad’s ability to continue dominating the tablet market with the release of the Kindle Fire HD. It is still too early to make any conclusions as the new iPad (or iPad 3 as it is unofficially termed by consumers) is six months old and no sales figures or reliable user reviews have emerged for the Kindle Fire HD tablets yet.
However, lost amidst the Apple versus Amazon slugfest is the news that Dolby Laboratories' (NYSE: DLB) newest audio technology offering for mobile products, Dolby Digital Plus, is being introduced into a tablet for the first time. The fact that Dolby Digital Plus is being incorporated in the highly anticipated Kindle Fire HD tablet is good news for the audio technology giant.
As I mentioned in a previous blog post, Dolby has been plagued by skepticism from investors who question whether Dolby can grow its revenue stream outside its traditional stranglehold on the PC licensing market. According to Dolby's CEO Kevin Yeaman in their Q3 2012 Earnings Conference Call, attach-rates for Dolby’s technology in smartphones remains on track to finish FY 2012 in the low teens figure but before the Kindle Fire HD, no significant tablet manufacturer has tried to use Dolby’s technology in their product. The Kindle Fire HD marks Dolby’s first foray into the Tablet licensing market and could probably be a catalyst for other producers to start offering Dolby Digital Plus or other forms of Dolby’s audio technologies in their tablets. Estimates of the market share of tablets for the older Kindle Fire stands at 22% and if Amazon can hold on to its current market share (let’s not forget that the number of tablet buyers have been increasing all the time) with its new tablet offerings, Dolby has a very strong stream of new licensing revenue which might be able to more than offset any highly probable decline in its PC licensing revenue.
The tablet war is brutal with producers claiming best-of-class specifications with each new release. If a huge tablet competitor like Amazon has included quality audio technology into its tablets, other manufacturers should follow suit. They might incorporate technologies from Dolby’s competitors like DTS, however, such a development would only be beneficial for both Dolby and DTS as manufacturers start to utilise such audio technologies more. Dolby has a far greater reach in terms of exposure and ubiquity and so, stands a better chance of coming out tops.
There is the possibility of the revenue per license for Dolby Digital Plus being much lower than the revenue per license for the PC licensing market. Before any figures are released from Dolby, it would be hard to make an informed guess and it would definitely be something to keep an eye out for. However, the situation looks pretty optimistic overall for Dolby.
Amazon also unveiled new games for the Kindle Fire HD which includes Activision Blizzard’s (NASDAQ: ATVI) Skylanders Cloud Patrol. The console and computer games giant has often been accused by some investors that they have neglected the ‘social/mobile’ gaming market that is characterised by games like Farmville and Draw Something from OMGPop (that was later acquired by Zynga for an estimated $200 million USD).
Activision Blizzard’s CEO Bobby Kotick had mentioned before that the company is focused on making quality games and that they are observing the nascent social/mobile gaming market to see how they can introduce games of high quality. Investors and analysts were unconvinced and some have used the company’s slow entry into the social/mobile gaming market as a reason for Activision’s range-bound stock price over the last 3-4 years. The introduction of Skylanders Cloud Patrol on the Kindle Fire HD tablet could change that impression, depending on the success of the game.
Skylanders Cloud Patrol is the newest addition to the Skylanders series of games. The first was Skylanders: Spyro’s Adventure and it has been a smashing success and has managed to capture an entirely new age-demographic (5-12 year olds) for Activision’s games. Skylanders Cloud Patrol is Activision’s attempt to translate the game onto a mobile device and I am eagerly awaiting sales results and user reviews after a few months of its release. What is interesting is that Skylanders Cloud Patrol allows players to purchase the actual action figurines while playing the game on the Kindle Fire HD tablet . The figurines are an integral part of the Spyro universe and the convenience and ease of purchase might make it easier to convince parents to shell out that $8.99 for it to satisfy their child’s craving. This looks like a very good move on Activision’s part - the success or failure of this game launch on Kindle Fire HD will likely give Activision’s game producers good lessons on how to improve and fine tune the gaming experience on mobile devices.
With the release of Amazon’s new Kindle Fire HD tablets, perhaps Dolby and Activision might finally get some love from investors after all.
serjing owns shares of Activision Blizzard and Dolby Laboratories. The Motley Fool owns shares of Amazon.com and Activision Blizzard. Motley Fool newsletter services recommend Activision Blizzard, Amazon.com, and Dolby Laboratories. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.