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Is Activision Blizzard overly reliant on core titles?


An Activision Blizzard Amended Investor Report was discovered yesterday by VG247, OXM reports. The report itself makes interesting reading, particularly the risks section. Firstly, though, a word of warning. It is good practice in Financial Services to have a grasp of potential risks to your business, forward-looking and current, in order to address them. In order to calculate for risk, and act, it is necessary to identify it. Only then can steps be taken toward mitigation.

And Activision Blizzard has done a thorough job. The "risks" section is 13,000 words long, so we cannot cover it in full, but one of the more interesting aspects of it is the company's reliance on core titles for their revenue. For example, quoting from the report:
"Revenues associated with the World of Warcraft franchise accounted for 61%, 90%, and 89% of Blizzard's net revenues for the years ended December 31, 2012, 2011, and 2010, respectively." (page 11)
And, furthermore, also from the report:
According to The NPD Group, the top 10 titles accounted for 30% of the sales in the U.S. video game industry in 2012 as compared to 26% in 2011. Similarly, a significant portion of our revenues has historically been derived from video games based on a few popular franchises and these video games are responsible for a disproportionately high percentage of our profits. For example, our four largest franchises in 2012-Call of Duty, Diablo, Skylanders and World of Warcraft-accounted for approximately 83% of our net revenues, and a significantly higher percentage of our operating income, for the year (page 44)
Why is this reliance on what are currently very successful titles a cause for concern?

Simply because of the old adage that putting all your eggs in one basket is probably not a wise move. This trend puts a considerable amount of pressure on Activision Blizzard to maintain high earnings and high quality in those games, and while they've obviously not done a terrible job so far, even the most wildly successful game has a finite life. As the report itself states:

Due to this dependence on a limited number of franchises, the failure to achieve anticipated results by one or more products based on these franchises may significantly harm our business and financial results (page 14)

If you want the full story, have a look at the full report. In the meantime, don't panic! While this is certainly interesting to observe and discuss, it's far from catastrophic.

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