Activision-Blizzard's Pattern of Success Will Continue

Nihar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

During the first 24 hours Call of Duty: Black Ops II was on store shelves, it raked in half a billion dollars. This broke the previous record for opening day sales, originally set by Call of Duty: Modern Warfare 3 one year ago. Activision-Blizzard (NASDAQ: ATVI) really hit it out of the park with the Call of Duty series. Even lumping it together as one franchise does not do it justice anymore. There is the World War 2-era games, Modern Warfare, and Black Ops that form mini-franchises and have different developers. I'm impressed, because being able to manage all of these moving parts at the same time is amazing.

I only wish some of the other properties in Activision-Blizzard were as successful; for instance, the recent Prototype 2 did not do as well as I would have hoped. I liked it less than the first game, and I think the series ends with the second. More Call of Duty games are in the works, but I would like to see some other properties take-off.

The Blizzard side is slow, but strong. Diablo 3 was quite successful  and broke many records of its own. However, it has the issue of being a PC-only title, and those will never compete with cross-platform games in terms of sheer sales. I have never been a big fan of first-person shooters, so Black Ops escaped my notice, but I have gone and bought the first and second ones now. I assumed they were normal video game successes of great quality. I was aware of the reviews, but not of the massive sales.

Black Ops II have not entered into an earnings report yet, since the release date was Nov. 13, 2012. It will be nice to see all that revenue, though last quarter Activision had Diablo 3, so the comparison might not be as extreme as it could be. Video games tend to make most of their money around release, just like movies. Also, it is not uncommon to put off purchases to the holiday season, though that is a decision by the parents of gamers who cannot save enough money to buy it on their own; this means that with two quarters of record-breaking games in a row, 2012 is shaping up to be a fantastic year for Activision-Blizzard.

It is hard to criticize Blizzard with the success they have had. However, the long lead time with the expansions of the company's hit game, StarCraft, worries me. There are some graphics updates in the new Heart of the Swarm, but the minimum requirements are the same. I will compromise and say Heart of the Swarm will look amazing, but if the third expansion (Legacy of the Void) takes another year or two I imagine it would look dated. Between the game and the second expansion, enough time has passed that many companies would have created a completely new engine. Perhaps I am worried for nothing, but I would hate to see a review that says amazing gameplay but graphics look dated.

PC gaming is in dire straits, and Legacy of the Void will have a hard time if people have consoles, iPads, and netbooks instead of high-powered PCs. You cannot rely on hardcore gamers, since they focus on consoles too. There are not many stalwart PC gamers left. Gamers are sometimes fickle creatures, though every now and then you will see admirable loyalty among fans. To that end, looking at competitors' offerings is critical to evaluating the continued success of Activision-Blizzard.

Electronic Arts (NASDAQ: EA) has its own strong properties. EA always strikes me as a sprawling company compared to Activision-Blizzard. It has so many arms and properties. The sports games like Madden are bound to be winners, bringing in steady profits. There is also The Sims, Battlefield, and Need for Speed. On the other hand, I do not think most people want hear about the World Series of Yahtzee. I am sure the game will turn a profit, but I doubt it will be a blockbuster. Games like Medal of Honor were great in their heyday, but that became supplanted by Call of Duty. EA is not the only competitor out there, though.

I am disappointed that THQ's (NASDAQOTH: THQIQ) Darksiders 2 did not sell too well. After an October release, about 1.5 million copies have been sold. Considering its cross-platform nature and the quality of the game I would have hoped for at least 3 million sales. Saints Row 3 is doing okay too, but THQ really needs to turn itself around. I really am surprised at the weakness, because some of their properties and licenses are amazing. Darksiders, Dawn of War, and Saints Row are all quality franchises. I say from personal experience that both Darksiders games are incredibly addicting and fun, with a top-notch setting and mythology.

If THQ can get its house in order it has some strong properties to leverage, but I will admit that the games appeal to a smaller section of gamers. In that case, it needs to do something about expenses, because its almost -20% profit margin is abhorrent. All-in-all THQ has some quality products, and I am not willing to resign it to history yet. I want to take a closer look at THQ in the future.

For the sane and safe, Activision-Blizzard is a fantastic choice. I just see Electronic Arts as a bit too all over the place. I like companies that I can quickly glance at and see if they are strong or weak. The Activision side of Activision-Blizzard makes that a bit difficult, but nowhere near as tough as with Electronic Arts. Also, all experience with the company has led me to believe that Activision-Blizzard only wants to indulge in the most top-notch properties, and even average games are cut. Prototype 2 did okay, but not great. Subsequently, the company is shrinking the studio that made it.


TheArchivist has no positions in the stocks mentioned above. The Motley Fool owns shares of Activision Blizzard. Motley Fool newsletter services recommend Activision Blizzard and Electronic Arts. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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