Tag Archives: Activision

The Federal Trade Commission Sues to Block Microsoft’s Acquisition of Activision Blizzard

It has been nearly 11 months since Microsoft’s bombshell announcement about signing a deal to acquire Activision Blizzard for almost $69 billion dollars.

XBox plus Activision Blizzard equals something

Since then there has been rumblings that somebody in the US or EU might challenge the merger and… the rumblings turned out to be true as the US Federal Trade Commission announced their intent to sue to block the merger.

Among the FTC’s mandates is to oversee such mergers to assure that they do not lead to monopolistic anti-competitive situations or unduly harm consumers, something that they have been spectacularly bad/naive about my entire life.  See the T-Mobile acquisition of Sprint where literally every promise made by T-Mobile to keep the deal from being blocked by the FTC was broken.

It seems unlikely that Microsoft and Activision aren’t lying hard enough.  They have been out promising that the swath of games they will soon control will be allowed on platforms like PlayStation or Steam.  But the FTC isn’t buying Microsoft’s reassurances… like maybe there is a history of anti-competitive practices there… and stated in their press release:

With control over Activision’s blockbuster franchises, Microsoft would have both the means and motive to harm competition by manipulating Activision’s pricing, degrading Activision’s game quality or player experience on rival consoles and gaming services, changing the terms and timing of access to Activision’s content, or withholding content from competitors entirely, resulting in harm to consumers.

If we have learned anything over the years, it is that a corporation’s promises are worthless without contractual weight behind them… and Microsoft was clearly already aware of the FTC’s interest, announcing a deal to keep Call of Duty on the Switch just this week in an attempt to build a case for itself.

And yes, I am swinging hard against Microsoft so far in this post, but I am conflicted on the whole deal.

Microsoft is, by all reports, a much better place to work that Activision Blizzard and it might be good to have a major studio like ActiBlizz, which has been facing so many problems with the state of California, cleaned up, something that will never happen with the current ActiBlizz management in place.  Literally every c-level exec needs to be cast out before there to be any change, and there are probably a good number of VPs and directors that should be on the list as well.

Of course, part of my conflict is that the one person who drives the culture at ActiBlizz, Bobby Kotick, is also the person who will benefit the most from this merger.  If the merger goes through all his sins will be rewarded with dump trucks full of cash… but if the merger does not go through, then he’ll just remain obscenely over-compensated while beating down unions that are only being proposed because of poor working conditions and compensation.

As such, Kotick is keen to reassure people that the deal is going through.

I wanted to provide a brief update on our pending merger with Microsoft. This week the U.S. Federal Trade Commission (FTC) announced its decision to challenge the deal. This means they will file a lawsuit to block the merger, and arguments will be heard by a judge.

This sounds alarming, so I want to reinforce my confidence that this deal will close. The allegation that this deal is anti-competitive doesn’t align with the facts, and we believe we’ll win this challenge.

As I may have suggested, facts are few and far between.  It is the potential for how the company could use the weight of its combined influence of XBox Live for PC and Console plus the titles like Call of Duty that they will control if this deal goes through.

So will the deal go through?

As much as I hate to agree with anything Bobby says, I strongly suspect the acquisition will be allowed.  In fact, I doubt the FTC has in mind any plan to actually stop the deal cold.  Instead, they will probably want some of the promises Microsoft is making to be legally mandated by an enforceable agreement, like not screwing over competing platforms by making all their titles exclusive to Microsoft channels, in order to acquiesce on the deal.

So that is my guess.  But we shall see.  A bit of a shake up in the status quo at least.  Something to distract us from whatever Elon Musk has been up to today.

Related:

Blizzard Resurgent in Q3 2022

The Activision Blizzard Q3 2022 financial were delivered at the start of the week, but I had some much other stuff queued up that I am only getting to them now.  Also, the whole financials routine remains very low key because the company believes that the Microsoft acquisition means they don’t have to put in the effort for the public, just their new overlords.

Activision Blizzard

The overall company reported revenue of $1.78 billion, up from the $1.64 billion earned in Q1 2022, but still well off from the $2 billion a year ago in Q3 2021. Blizzard, once again, was not the problem this time around, with blame landing on “reduced engagement” with Call of Duty on the Activision side of the house.

Blizzard itself was up, ringing in $543 million in revenue for Q3 2022, up from the $401 million in Q2 2022 when Diablo Immortal gave them a boost, and the largest quarterly numbers in well over a year.

The company has the Diablo Immortal launch in China as well as the run up to and launch of Wrath of the Lich King Classic to help buoy its numbers, as well as pending anticipation for the Dragonflight expansion.

Blizzard highlights from the financials:

October 4 saw the global launch of Overwatch 2, with a free-to-play model designed to allow more people than ever before to experience the acclaimed team-based action game. Over 35 million people played the game in its first month, including many who were new to Overwatch. The expanded community is engaging deeply, with average daily player numbers for the first month of Overwatch 2 more than double that of its acclaimed predecessor. Player investment is also off to a strong start, positioning the title to be a meaningful contributor to Blizzard’s business in the fourth quarter. Blizzard is looking forward to delivering an ambitious slate of regular seasonal updates for Overwatch 2 that introduce new characters, maps and modes, including the game’s much-anticipated PvE mode planned for 2023.

In the Warcraft franchise, the September 26 release of World of Warcraft: Wrath of the Lich King® Classic contributed to a strong increase in WoW reach and engagement at the end of the third quarter. On November 28, Blizzard will release World of Warcraft: Dragonflight, the innovative next expansion for the modern game, as the team increases the cadence of WoW content for the community. Elsewhere in the Warcraft franchise, mobile title Warcraft: Arclight Rumble is progressing well through regional testing.

On mobile, Diablo Immortal expanded its global reach with a strong launch in China in July. The title reached the top of the download charts and has ranked in the top 10 grossing mobile games in China since launch. Around the world, Diablo Immortal is being supported with major new content, features, and events aimed at keeping the community engaged. Meanwhile, work on Diablo IV and its substantial ongoing post-launch content continues to progress very well ahead of its launch planned for 2023.

Blizzard’s third quarter segment revenue grew double-digits year-over-year against a year ago quarter that included the release of Diablo II: Resurrected. The third quarter benefited from the recent launch of Diablo Immortal, while Warcraft franchise net bookings were stable year-over-year. Segment operating margin was lower year-over-year, due to marketing investment to support the strong release slate and the shift in the mix of business in the quarter.

Currently, we have licensing agreements with a third party covering the publication of several Blizzard titles in China. These agreements, which contributed approximately 3% of Activision Blizzard’s consolidated net revenues in 2021, expire in January 2023. We are in discussions regarding the renewal of these agreements, but a mutually-satisfactory deal may not be reached. We continue to see substantial long-term growth opportunities for our business in the country. The co-development and publishing of Diablo Immortal is covered by a separate long-term agreement.

So they should have some good news coming in Q4, with Overwatch 2 and Dragonflight launching, which will help boost numbers even further.  Quarters with a WoW expansion launch tend to be peak financial moments.

Even MAUs have climbed up.  They keep an eye on that over at Massively OP but, as both I and they agree, MAUs are still a bullshit metric used to obstifcate what is really going on with titles in the company.  MAUs may have hit 31 million in Q3 2022, but a subscribed WoW player and a free Diablo Immortal player have considerably different effects on the company’s actual bottom line.

Then there is that last paragraph from the Blizzard notes about the licensing agreements in China, which highlights the problem with MAUs.  In Q3 2022 they were up, no doubt in large part due to the launch of Diablo Immortal in China, but the China market contributes just 3% to the company’s revenue.

Remember that.  Blizzard beshat itself over the Blitzchung incident to make sure they held onto that 3%.  Granted, we have learned since then that kow towing to China was only one of their sins.  But the upshot it that any MAU counts that include China are a doubly garbage numbers.

And all the while Activision Blizzard is whistling a happy tune about being purchased by Microsoft, something that is not a done deal yet.

Related:

Blizzard Gets a Boost in Q2 2022 from Diablo Immortal

It is time once again for the Activision Blizzard quarterly financials and once again they are playing the “we’re being acquired so we don’t have to answer questions” card, just dropping the numbers on the investor relations site and calling it a day.

Activision Blizzard

Whatever.  Bobby Kotick is going to get even richer out of this.  There is no justice, but we were already pretty sure of that.

The overall company reported revenue of $1.64 billion, down from the $1.77 billion earned in Q1 2022, and even further down from the $2.3 billion a year ago in Q2 2021, but this time around it wasn’t Blizzard dragging down the team… not as much as last quarter at least.

Blizzard revenue in Q2 2022 was $401 million.

For once of late that was an uptick, as Blizz brought in just $274 million in Q1 2022.

Still, that was down from $419 million in Q4 2021, the $493 million posted in Q3 2021, the $433 posted in Q2 2021, and the $483 million posted in Q1 2021.

As for news about Blizzard, which is the only part of the company that I can be bothered to care about, the report had this to say:

The June launch of Diablo Immortal™, a deep and authentic Diablo experience designed for the mobile platform, marked the start of a rollout of substantial content across Blizzard’s key franchises. Diablo Immortal received high player ratings on mobile app stores around the world, and reached the top of the game download charts in more than 100 countries and regions following its launch. Over half of the game’s player accounts to date are new to Blizzard. The game ranked in the top-10 grossing games in U.S. app stores for the month of June.

Diablo IV, the next-generation installment in the genre-defining series, is planned for launch on PC and console in 2023. The title will support cross-play and cross-progression across platforms, and is designed to be the foundation for an engaging live service, providing ongoing storytelling and new content for many years to come.

In the Warcraft franchise, Blizzard plans to deliver an unprecedented level of WoW content in the coming months, with Wrath of the Lich King Classic launching on September 26 and World of Warcraft: Dragonflight, the innovative next expansion for the modern game, slated for release later in the year. Blizzard is committed to growing its development resources to meet and exceed its community’s expectations, and at the end of the second quarter significantly bolstered its World of Warcraft team through the acquisition of Boston-based studio Proletariat.

During the second quarter, Blizzard unveiled Warcraft: Arclight Rumble™, an action-packed mobile strategy game that gives both new and existing fans an entirely different way to experience the Warcraft universe. Public testing of the game is underway in select regions.

Overwatch 2 is planned to launch in early access on PC and console on October 4. With a free-to-play live service model designed to provide frequent and substantial seasonal updates, this launch kicks off the next chapter for the acclaimed team-based action game.

Blizzard’s second quarter segment revenue and operating income were lower year-over-year but higher versus the first quarter. World of Warcraft net bookings declined versus a year-ago quarter that included the launch of Burning Crusade™ Classic, offsetting year-over-year growth for Hearthstone® and the contribution from the June launch of Diablo Immortal.

The one other thing that Diablo Immortal did was revive the long sinking Monthly Active Users number, the BS metric that Blizzard pulled out when reporting WoW subscribers became a litany of woe.  But they couldn’t even keep that metric up, and it has been in a steady decline since 2018, as noted over at Massively OP.   But Q2 2022 saw the MAU finally rise to 27 million, up from the 22 million in Q1, the nadir of the MAU reporting.

So Blizz has had some luck with Diablo Immortal, but they really need a strong Q3 with Overwatch 2 and Wrath of the Lich King Classic as well as a big Q4 with the WoW Dragonflight expansion to get back on track.

Related:

Blizzard Declines Hard in Q1 2022 While Diablo Immortal Finally Gets a Launch Date

Activision Blizzard pushed out their Q1 2022 financials at 7:30am Eastern Time yesterday which, while it isn’t the Friday at 4pm routine, still strikes me as an hour suited to attracting less attention or getting bad news out of the way quickly.  And Elon Musk promptly buried that news by buying Twitter.  So there you go.

The date was a bit earlier than I expected as well, the pattern generally being that one gets the announcement in the first week of the second month of the quarter.  But I guess if you aren’t going to do anything fancy you can get things out more quickly.

And Activision Blizzard isn’t doing anything fancy because of the Microsoft acquisition.  They don’t have to impress analysts with a cool slide deck or an engaging conference call or throw out a buzzword salad because Microsoft has said they are going to pay $95 a share when the deal closes, which puts a pretty hard ceiling on the share price.

Of course, Activision Blizzard also has to not screw things up between now and when the deal closes because I am sure the contract for the acquisition is miles long and contains many provisions where by Microsoft can pay less or walk away if Bobby Kotick and company degrade the value of the company in any substantial way… or more so than they have already in any case.

This is the part where I tell you that they aren’t doing very well on that front at the moment.

The overall company reported revenue of $1.77 billion, down from $2.28 billion a year ago in Q1 2021 as both the Activision and Blizzard portions of the company slipped hard so far in 2022.

King, however, was up.  Candy Crush Saga abides while Call of Duty and World of Warcraft fall.

I am only really interested in the Blizzard corner of the business, so how badly did they tank in Irvine?

Blizzard revenue in Q1 2022 was $274 million.

For comparison, Blizz brought in $419 million in Q4 2021, which itself was down noticeably from the $493 million posted in Q3.  That was also off from the $433 posted in Q2 and the $483 million posted in Q1.

The holiday season was off for Blizz because they had nothing new to sell, but the new year was brutal, as even the low point of 2021 looks pretty sweet when compared to how 2022 is breaking for the division.

To go along with that, the Blizzard Monthly Active User count went down another 2 million users in Q1 2022.  Over at Massively OP they have been tracking the user count decline, which went from 38 million users in Q1 2018 to just 22 million users in Q1 2022.  Even during the peak COVID lockdown Blizzard’s user numbers were flat.  Now we’re closing in on losing half of their user count in four years.

So not happy times down in Irvine.

What did they have to say about it?  It was the usual hand waving about the product cycle of World of Warcraft and promises of better things to come.

Blizzard’s first quarter financial results were lower year-over-year, primarily reflecting product cycle timing for the Warcraft® franchise. Blizzard’s teams reached important milestones across its key franchises in recent months, and the second quarter represents the start of a period of planned substantial releases across Blizzard’s portfolio.

Blizzard continues to work on numerous new experiences to delight and expand the Warcraft community. The newest Hearthstone® expansion, Voyage to the Sunken City™, launched on April 12. Blizzard’s teams are working on major new content for World of Warcraft® including World of Warcraft: Dragonflight, the innovative upcoming expansion for the modern game, and World of Warcraft: Wrath of the Lich King® Classic. Blizzard is also planning to unveil more details about its first Warcraft mobile experience in the coming weeks.

Diablo® Immortal™ will launch on June 2, 2022 in most regions around the world, with the remaining regions in Asia-Pacific gaining access a few weeks later. Over 30 million people have already pre-registered for the game. In addition to offering a deep, authentic, and free-to-play Diablo experience on the mobile platform, Diablo Immortal will also be available free-to-play on Windows® PC, initially as an open beta starting on June 2, 2022, and will support cross-play and cross-progression.

Development on Diablo 4 and Overwatch® 2 is also progressing well. Company-wide internal testing of Diablo 4 is underway, and external testing of the player-versus-player mode of Overwatch 2 begins tomorrow, April 26, 2022.

This is a reminder, once again, as to how important World of Warcraft is to the company and its bottom line.  Nothing delivers as much revenue as reliably as WoW, so the company is chained to it.  They can never walk away from WoW as it keeps the lights on and the paychecks flowing while the company farts around trying to create a new cash spigot from one of its other franchises.

So the forward looking good news was about WoW Dragonflight and Wrath of the Lich King Classic and the recent Hearthstone expansion and some empty milestones related to the Diablo and Overwatch franchises that won’t be anywhere close to launch in 2022.  I think they would have pre-orders open if they had any confidence in a 2022 release.  Remember how far in advance Shadowlands pre-orders started?

The one release with a hard date, the one new thing that Blizzard has lined up to sell in 2022, is Diablo Immortal.

I have been more than a bit dismissive of Diablo Immortal since it was announced at BlizzCon 2018, referring to it as Candy Crush Diablo at the time.  But it was primarily the tone deaf aspect of the announcement… gather all your PC and console fans in a big room and tell them you’re launching a mobile game… that struck me.  How do you get that so wrong?  The phrase “Don’t you guys have phones?” will live on for a decade or more due to that event.

And, the other thing I have harped on about Diablo Immortal was its long development time.  They had a playable demo version at BlizzCon 2018.  Here we are in 2022 and we’re just now getting a release date.  Diablo Immortal will finally launch on June 2, 2022.  How does this take so long?

As it turns out, Blizzard seemed to get it that their core player base was not on mobile, so they ported Diablo Immortal so we could play it on PC as well.

That is actually a pretty impressive demonstration of the company actually trying to listen and respond to user feedback.

I am not sure I would have delayed the mobile release for too long, and technically PC users are only getting access to the open beta of Diablo Immortal on PC on June 2nd, but getting it at all on PC was completely unexpected for me.  (System requirements for phone and PC are up now.)

Pretty exciting stuff in that.  But is it enough?

I am going to guess that the Diablo Immortal release date, with PC only in open beta, is primarily in place to shore up expected ongoing declining numbers for Blizzard.  They need people to get in and spend on that cash shop.

After that, though, 2022 is looking light.  Wrath of the Lich King Classic could easily be a Q3 2022 launch, which would carry the company another quarter, but I am not really feeling like WoW Dragonflight is going to make Q4 2022, which would make for another light holiday season.  And, as I noted above, WoW is what makes or breaks Blizzard.  They need players subscribed.

There we go.

I will say that at least Activision Blizzard knows how to mitigate bad news.  They hit us with the bad news in the earnings announcement, then turned around and gave us the Diablo Immortal announcement with the good news about it being available on PC.  Going through the gaming news headlines, there are bland entries about financials and excited ones about the ship date, PC compatibility, cross platform play, and all of that.  Diablo Immortal on PC will dominate the news cycle compared to the financials.

They did not, pulling a random example out of the air, give us a bunch of bad news on a Friday afternoon and then opt to let it fester for two weeks with a vague promise of good news to come.

You may not like Activision Blizzard, but they know what they are doing in many regards… though that is sometimes the problem as well.

Related:

Blizzard Sinks Slightly in the Low Key 2021 Financial Results Announcement

Citing the planned Microsoft acquisition, Activision Blizzard did not feel the need to go through the full dog and pony show when announcing their Q4 2021 and full 2021 financial results.

No fun graphics, no fancy slide deck, and no investor call for questions.   The minimum financial reporting requirements were met and that was it, no time for awkward questions about unions, the ongoing problems with the state of California, Blizzard’s product roadmap, or exactly how much cash Bobby Kotick will walk away with when he hands over the keys to Phil Spencer.

It will all be Microsoft’s problem soon enough I suppose… if the FTC is good with that.

As I noted at the end of my month in review post, should Microsoft’s purchase go through, we’ll probably be getting even less detail about what is going on at Blizzard, as they’ll be a part of a much bigger organization.  I’m not sure it will be like SOE being completely invisible in Sony’s financial statements back in the day, but they probably won’t get their own slide in a presentation once it happens.

Anyway, over on the investor relations site… and that will go away once the deal is done, so somebody back that up… you can find a press release and a PDF file that has all the bits and pieces of information we usually get.  Just, as I noted, no snappy graphics.

Overall the company earned $2,163 billion in Q4 2021, down from the $2.413 billion earned in the same quarter in 2020, but that was still a bit more than the advisory they put out in Q3 2021.

Blizzard itself earned $419 million in Q4 2021, down noticeably from the $493 million posted in Q3.  That is also off from the $433 posted in Q2 and the $483 million posted in Q1, making the normally lucrative holiday season the lowest quarter for the division.  But that is what happens when you don’t have anything new to sell for the holidays.

Overall Activision Blizzard brought in $8.8 billion in 2021, up from the $8.09 billion they booked in 2020, largely on the back of Activision figuring out new ways to make the Call of Duty franchise pay.

By itself Blizzard brought in $1.827 billion of that in 2021, down from the $1.905 billion the division earned in 2020, but that is what you get when you ship zero new products and have to rely on remakes and remasters.  Over at Massively OP, where they have been tracking the Monthly Active User numbers (MAU), they reported that Blizz only pulled in 24 million MAUs in Q3, down again, with the long term trend showing 14 million monthly users fewer than back in Q1 2018.

The report had this to say for Blizzard and its prospects:

  • Within the Warcraft franchise, fourth quarter World of Warcraft reach and engagement continued to benefit from the combination of the Modern game and Classic under a single subscription. In 2021, World of Warcraft delivered its strongest engagement and net bookings outside of a Modern expansion year in a decade. Hearthstone fourth quarter net bookings grew year-over-year, driven by a steady cadence of new content.
  • Blizzard is planning substantial new content for the Warcraft franchise in 2022, including new experiences in World of Warcraft and Hearthstone, and getting all-new mobile Warcraft content into players’ hands for the first time.
  • In the Diablo franchise, Diablo II: Resurrected sold through more units from its September release until the year end than any other Activision Blizzard remaster over an equivalent period. On mobile, Diablo Immortal concluded its public testing with positive feedback.
  • Blizzard is making strong progress on its pipeline, including new experiences in Warcraft, ongoing development in Diablo and Overwatch, and an exciting new IP.

Basically, various flavors of WoW, along with Diablo II Resurrected, carried most of the water for the division, though the company does like to be coy and put Hearthstone under the Warcraft IP banner.  But WoW still probably brought in close to a billion dollars in 2021, even with a foundering retail experience.

Nostalgia has paid off as WoW Classic has turned out to be as popular as many of us thought it would be.  I know I said I’d lay off him on his famous quote, but I really want to ask J. Allen Brack where Blizz numbers would be today if we really didn’t want vanilla.

As for the future, Diablo Immortal is still being dangled out there, as is the threat of some sort of mobile Warcraft related experience. (Some speculation on that here.)  Wake me when they have something to ship.  And there is a reference to the unannounced survival game that Blizzard announced last week, but it is so far out in the future it doesn’t even have a name yet, putting it somewhere behind Diablo IV and Overwatch 2, neither of which will see the light of day in 2022.

Still, things went pretty well for Blizzard considering their legal problems and the fact that they spent much of 2021 living off of 15-20 year old content.  But I suspect they’ll need to ship something new in 2022.

Microsoft Plans to Acquire Activision Blizzard for $68.7 Billion, Promises Joy and Community

The news that will be dominating the video games headlines this week will be this morning’s announcement that Microsoft intends to purchase Activision Blizzard for, as the headline says, $68.7 billion.

XBox plus Activision Blizzard equals something

That’s it, that’s the joke.

It will also be an opportunity to see which online media sites even understand how public companies work or how the merger dance is performed.  I have already seen headlines and stories that say that the deal is already done.  But if those sites had bothered to even read the official Microsoft press release on the subject, the might have seen:

The transaction is subject to customary closing conditions and completion of regulatory review and Activision Blizzard’s shareholder approval. The deal is expected to close in fiscal year 2023 and will be accretive to non-GAAP earnings per share upon close. The transaction has been approved by the boards of directors of both Microsoft and Activision Blizzard.

The boards can approve what they want, but a lot of people have to get involved before it is done, and even Microsoft is putting the close of the deal out in fiscal year 2023.

The price, which has been reported as being “all cash” is no doubt subject to some performance incentives, so Bobby Kotick and crew will have to keep things going… and likely “solve” their problems with the state of California and their disgruntles employees… if they want the full, big bucks payout.  It isn’t the announced number that matters, it is what the final price is when the deal closes.

Remember CCP?  Pearl Abyss was set to acquire them for $425 million, but the final price ended up being $225 million because CCP fumbled their performance requirements.

As for why this acquisition… well, Microsoft’s biggest problem for the last 25 years has been what to do with the giant pile of money that its twin behemoths, Windows and Office, earn for it every year through almost complete domination of the desktop market.  You can’t just stick it all in a bank account, and for a long stretch tech companies were loathe to pay dividends as they felt they could earn more money by just re-investing.  And while they have had to pay dividends since, or buy back stock to inflate share prices, companies like Apple and Microsoft are still sitting on huge war chests of cash they hold aside for such opportunities.

So Microsoft needed to spend some money and they have been big on XBox and video games of late, so that was the direction they went.  That’s my initial take.  I am not sure if the state of affairs at Activision-Blizzard helped or hurt the idea.

Phil Spencer, head of Microsoft’s XBox group, which owns all video gaming at the company, and who has been publicly critical of Activision-Blizzard’s behavior, will get his chance to run that show as the company will report up into him when acquired.

Microsoft says it wants to bring the joy and community of gaming across all devices, though I am sure the XBox console will be first among equals should a list of devices actually be ranked.

More specifically, the press release says:

This acquisition will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse.

Growth and getting into mobile are probably the key items here.  King’s Candy Crush Saga will mean a Microsoft product on a lot of mobile devices.  Nothing about the deal helps along cloud gaming… Micrsoft already has Azure for cloud… the “metaverse” is just a buzzword that makes investors happy but which has no substantial meaning when a company like Microsoft uses it.

No, the reality seems to be Microsoft seeking to bulk up their gaming portfolio and getting deeper into mobile… which makes business sense.  For all of its troubles, Activision Blizzard brings a lot of brand heft with it.

At least they didn’t throw in crypto and NFTs just to get attention.

For those of us who have been paying attention to what has been going on at Blizzard for more than half a year now, the fate of Bobby Kotick seems set; he will be sent packing.

Granted, he will get to walk away dragging a giant sack of money like the goblin he is… sorry, that might be unfair to goblins… but he will still be gone in the end.

Yes, I know the press release says he will stay in place for now, but the deal isn’t done yet and Microsoft can’t send him away until they own his company.  So my New Years prediction about him still being in the company seems secure… even more secure than it was before.  He has just effectively boosted the stock price to $95 a share.  he is a shareholder hero.  Hell, even if the deal falls through Micrsoft might have to pay them $3 billion for the effort.  So if he is still there on December 15th I’ll have made at least one accurate guess… erm, prediction for 2022.

In 2023 though, if the deal goes through, he is out for being as useful as a nipple on a bull in the Microsoft organization. (Available as needed I guess, which means he’ll probably have to stay on the shelf somewhere rather than jumping in to form a competitor.)  Until then though he has to make sure the company performs, so I am still looking forward to that Q4 2021 earnings call next month.

Anyway, lots of people have been writing up wildly inaccurate assessments of the deal this morning, obviously having to get to work before their first cup of coffee.  We’ll probably have to wait a few days before somebody somebody finds something truly insightful to say about the proposed deal.  Until then, I have a few links.

Related:

Nostalgia and the Legacy of Blizzard North Keeps Blizzard Strong in the Q3 2021 Results

For Diablo, our plan to enter an era of unprecedented content scale for the franchise has experienced a strong start with the September release of Diablo II: Resurrected, the return of one of the most acclaimed titles in PC gaming history. First week sales of the title were the highest recorded for a remaster from the company.

-Activision-Blizzard Q3 2021 Presentation

As anticipated, yesterday saw the Activision-Blizzard Q3 2021 financials announced, which covers the period from July 1 through September 30 2021.

I put those dates in there just to be clear as to why I expected at least a little drama on the Blizzard front being that is the timeline when the California Department of Fair Employment and Housing hostile workplace lawsuit was headline news in the gaming community.

If players were really mad at Blizzard for being a horrible company, then it feels like there should have been some pain on their bottom line.  Instead, Blizzard posted its strongest quarter in 2021, bringing in $493 million, up $60 million from the $433 posted in Q2 and $10 million ahead of the $483 million posted in Q1.

Those were not “launch a new WoW expansion” numbers like Q4 2020, but they were still ahead of “its a pandemic and we’re all stuck at home playing video games” numbers.

Activision Blizzard Q3 2021 Financial Results Presentation – Slide 13

Margins were down a bit, 38% in Q3 compared to 43% in Q1, but still up when measured against Q2, when they dipped to 33%.

Overall, things were looking up for Blizzard in Q3, which might have been expected to have been the summer of their discontent.  What saved Blizzard’s bacon?

Apparently Diablo II Resurrected is a very popular title.  According to the earnings call it was a huge hit in South Korea, which might explain why I see Battle.net queues close to midnight Pacific time.  While people have been upset about BNet’s performance, it is apparently one of those problems related to being too successful.

That, however, was the extent of the good news at Blizzard as their achievements slide in the presentation deck shows.

Activision Blizzard Q3 2021 Financial Results Presentation – Slide 8

It opens with the quote I have at the top of the post, which honestly could have been taken as faint praise given how the Warcraft III remaster went.  Even the StarCraft remaster wasn’t a huge of a deal.  But Diablo II Resurrected, which launched on PC and consoles in September, was enough to carry the quarter, because the rest of that slide is excuses and qualified successes.

Diablo Immortal, which I keep reminding people had a playable demo at BlizzCon 2018, is now slated for some point in the first half of Q2 2022, while Diablo IV is nowhere in sight.  It seems unlikely for 2022.

The Overwatch 2 entry is likewise vague on when it might be a thing that can generate revenue.  2022 doesn’t seem to be the target anymore.

Hearthstone is hard to judge, so whatever “stable” means, that was what it was.  We’ll see if the new game mode warrants a big mention when they review Q4.

And World of Warcraft, which is running both retail and classic modes now, recorded the strongest engagement for a non-expansion year which, given the cliffs the subscriber base has been driven off of for some of those years, might not be as big of a brag as you might think, especially when they’re running Shadowlands and Burning Crusade Classic in parallel.  That the Monthly Active Users for Q3 2021 stayed stable at 26 million for Blizz while D2R was booming probably means WoW was down by quite a bit.

So I guess a qualified good quarter for the Blizzard side of the house, even if they are the third place studio, such that people are starting to refer to the company as “ABK,” for Activision Blizzard King.

It also seems that bad behavior didn’t harm them as much as it might have.  But gamers are not, as a larger group, an especially politically aware group I imagine.  I noted yesterday that Riot didn’t seem to suffer from bad behavior, with League of Legends remaining hugely popular even as headlines haunted them.  Maybe being a bad place to work doesn’t hurt your bottom line, which I am sure will make everybody toiling in the video games industry happy.

You can certainly argue that the lack of a strong plan for Shadowlands and having no other fresh titles on deck hurt them as much, if not more than, the investigation by the state of California did.

We will see have to see what Q4 looks like, with the new Hearthstone game mode, WoW Classic Season of Mastery, and the cat mount being the only big items visible.  I’m surprised the cat mount didn’t get a mention on the Blizzard slide.

But we won’t get the Q4 news until February, so we’ll see what happens then.

Related:

The Blizzard Name Will Go

The California Department of Fair Employment and Housing lawsuit against Activision Blizzard has revealed a carbuncle of toxic culture within the company and exposed it to the world.

In fact, it hasn’t just exposed it.  The whole thing has encouraged many current and former employees to come forward and confirm the situation.  The headlines just keep rolling in and every day or two some employee of note is fired for their involvement.  The whole thing has been a disaster for the company, one of its own making.  The state only sued after a two year investigation because the company clearly wasn’t serious about making any changes.

And, when the lawsuit hit, they doubled down on the line, claiming that these were all old issues and that everything was fine now… right up until it became clear to everybody that everything was not fine.  Then it was suddenly expedient to reverse course and talk about change.

The fact that the company is now firing people who were implicated in the toxic behavior at least puts them moving in the right direction.  Key members of the Diablo IV team were in the latest round who got the chop, which at least indicates some level of seriousness.

It would have been a lot easier if they had cooperated with the state before the lawsuit, but Bobby Kotick, the subject of a sexual harassment lawsuit himself back in 2010, felt he could brazen it out.  Now the company pays the price.

And with the state now committed, things will have to change at the company.  I’ve worked for a few companies that have been sued for bad behavior.  The state will make sure every employee gets the word, usually through some sort of mandatory training at regular intervals.  Sometimes it takes.  Sometimes management buys in on doing the right thing.   And sometimes your CEO gets up and snarks about how they have to play nice now and respect everybody since they got sued when they fired somebody because they got a sex change operation. (A Texas company that no longer exists.)

Activision Blizzard might very well be a better place at some future point.  But that is not likely to be enough.  We didn’t think the company was this bad until the lawsuit hit, so how can we possibly tell if things change.  Meanwhile those tales from the lawsuit will continue to dog the company.  Something will need to visibly change, and when a reputation has been damage, a name change often seems the easiest plan.  It nearly worked for ValueJet.

The thing is, while the lawsuit names Activision Blizzard in general, and includes Activision in some sections, the vast majority of the dirt seems to be on Blizzard specifically.  They are getting all the headlines.  Maybe I am just reading the wrong news sites, but I have yet to see anything about, say, the Call of Duty team at Infinity Ward making booze-fueled work day tours through the cubes to harass female employees or the like.  The Activision name might be safe.

But the Blizzard name has to go.

The company name will be changed.  Maybe it will be Activision.  Maybe it will become Activision King.  Hell, if they’re worried, the whole thing might become King., though that might be a little too tied to the patriarchy I suppose.  But it is always easier to rebrand to a name you already own.

Blizzard will become just another studio under the new company.  Its special standing gone.  That special standing, which it has managed to hold onto since it was first acquired back in 1994, has been largely based on the success of WoW during the Activision era.  Mike Morhaime got the CEO of Blizzard title because the game was bringing in a billion dollars a year.  J. Allen Brack got to be President because, though WoW was no longer as big of a deal, it was still a consistent money maker.

Now though, WoW seems headed for a fall with the bad news while Activision has figured out how to make Call of Duty pay out big for more than one quarter a year.  Blizzard is not so special anymore.

The name will have to go.  There will be a studio re-org, at least on paper.  I suspect that they might do a Daybreak and give each respective group their own studio name, at least for WoW, Diablo, and Overwatch.  But maybe they will keep it all one group, just under a different name.

Anyway, that is my Friday prediction, that the Blizzard name will go away before all of this is over, and with it Blizzard’s special status within the company.  At a minimum it gets dropped from the main company name.

Meanwhile, if I were Activision I might emphasize that their upcoming title, Diablo II Resurrected, was done by Vicarious Visions, which is in Albany, New York, far from the current scandal.  Maybe get them on board for Diablo IV as well.

Activision Blizzard, the Lawsuit, and the Q2 2021 Financials

You don’t want to do that either. You think you do, but you don’t.

-J. Allen Brack, BlizzCon 2013

I am pretty sure that J. Allen Brack would be pretty happy just being known as the guy who arrogantly pissed all over, and probably helped delay, the huge money maker that WoW Classic turned out to be.

I am also pretty sure both he and the company wish that statement was worst thing to come out of BlizzCon 2013.

But yesterday saw him step down as President Blizzard… a polite way to say he was the first big sacrifice in the wake of the California Department of Fair Employment and Housing hostile workplace lawsuit.  He was joined by the SVP of HR, Jesse Meschuk

Not that he didn’t deserve it.  Sure, a lot of the most egregious behavior happened on Morhaime’s watch, but Brack was still in the thick of things, still a leader in the company during that time as well.

Brack was replaced by new Blizzard “co-leaders” Jen Oneal and Mike Ybarra, both of whom have roots outside of Blizzard.

For those of you who like the “Bobby Kotick is cementing his dominion over Blizzard” narrative, it has been noted that Morhaime was CEO of Blizzard, Brack was President of Blizzard when he replaced Morhaime, and Oneal and YBarra are co-leaders now, whatever that means.

And the Brack announcement went out in advance of the Activision Blizzard Q2 2021 financial results announcement, no doubt following the theory that you get bad news out of the way before and hope that you have good news during and after.  So was it a good thing that Kotaku pointed out that the company is losing T-Mobile as a sponsor of their Call of Duty and Overwatch esports league before the call as well?  And then there was the expected shareholder lawsuit.

Which brings us to the report.  You can find the detailed financials, the presentation, and the recording of the call over at the investor relations page.

The presentation opened right up with five actions the company is taking in light of the lawsuit and the protests both from outside and within the company.  They are:

  1. We have asked Jennifer Oneal and Mike Ybarra to assume responsibility for development and operational accountability for Blizzard.
  2. We will continue to investigate each and every claim and complaint that we receive. When we learn of shortcomings, we will take decisive action. To strengthen our capabilities in this area we will be adding additional staff and resources.
  3. We will terminate any manager or leader found to have impeded the integrity of our processes for evaluating claims and imposing appropriate consequences.
  4. We will be adding resources to ensure and enhance our consideration of diverse candidate slates for all open positions.
  5. We have heard the input from employee and player communities that some of our in-game content is inappropriate. We will be actively reviewing that content and removing it, as appropriate.

Again, this is a change from the stubborn defiance that was the hallmark of the initial response from the company, but is unlikely to be enough in itself to soothe anybody.  The employee organizers are still not buying the company’s new tack.

When it came to the numbers, all three pieces of the company saw a decline in revenue from Q1 2021, though that is not unexpected given the roll back in pandemic restrictions we saw midway through the quarter.  People went outside and did things, a trend that will no doubt continue into Q3 if the price of airline tickets and rental cars are any indication.

Activision Blizzard Q2 2021 Financial Results Presentation – Slide 11

Blizzard alone was down $50 million in revenue when compared to Q1, which was a direct hit to margins.

When it came to singing Blizzard’s praises, the song remained the same, a tale of Azeroth making the money while other franchises languish.

Activision Blizzard Q2 2021 Financial Results Presentation – Slide 7

WoW bookings doubled year over year, with much of the credit going to the launch of Burning Crusade Classic.  A lot of people bought that pack with the lizard mount.

Hearthstone kept on rolling as well, cranking out yet more expansions.

And while Diablo II Resurrected holds promise for the company, Diablo IV is still on the distant horizon and Diablo Immortal has been pushed back again, this time to the first half of 2022.  We could see a four year gap between when it was announced at BlizzCon 2018 with a playable demo and when it finally ships.

Meanwhile over at Massively OP, where they have been keeping score, the running tally of monthly active users for Blizzard continued its downward trend, with the company shedding another million users.  We don’t know where they came from or where they went, but they aren’t hanging out in Blizzard games anymore.

After being down in revenue and players in Q2, we have yet to reckon with Q3 and the iceberg that is the California lawsuit.  The only thing Blizz has in the near future is Diablo II Resurrected and some likely misguided hope about “stronger engagement” with the Shadowlands expansion.  But people were already leaving retail WoW for FFXIV before the shit hit the fan.

I appreciate that Activision Blizzard seems to have finally decided that they need to clean house, though the cut off for responsibility is clearly enforced before you get to the C-level suite, but the company clearly needs to step things up a couple notches or the Q3 results will be a bloodbath.

Blizzard Still Depends on WoW but is Pinning Some Hope on Diablo II

It was time for the Activision Blizzard Q1 2021 fiscal reports, so we can once again see what the company is hyping and what they are mysteriously failing to mentions.  You can find everything I reference on the Activision Blizzard investor relations site.

As usual, it is nice I guess that Activision is doing well with yet another spin of the Call of Duty wheel and that a bazillion people still play Candy Crush Saga, but my interest resides in Blizzard camp where they continue to talk up World of Warcraft and WoW Classic.

Overall revenue was down from Q4 2020, but that was also when Blizzard launched the Shadowlands expansion, which is usually a peak item in their financials.

Activision Blizzard Q1 2021 Financial Results Presentation – Slide 9

Margins are very good, but the only title they mention is WoW, while pointing towards “product timing” as a drag on the overall numbers.  Somebody else isn’t pulling their weight.

Details from the quarter again rely heavily on WoW.

Activision Blizzard Q1 2021 Financial Results Presentation – Slide 7

Shadowlands and the coming of Burning Crusade Classic are up top, followed by another Hearthstone expansion.  But there is always another Hearthstone expansion, isn’t there?  They’ve had so many they’ve got Hearthstone Classic option in the game now.

The only “hope for the future” item on the list that isn’t invested in Azeroth is Diablo II Resurrected, which I will admit I am a bit hyped for myself.  And then there is Diablo Immortal, which continues to take its sweet time getting to a point where it can launch.

After that we have Overwatch League and nothing else.  We heard last report that Overwatch 2 and Diablo IV are not slated for this year.

Meanwhile, the reported MAUs, monthly active users, for Q1 was 27 million which, according to Massively OP, which has been keeping track, down 29% from the Q1 2018 peak of 38 million.  If WoW is still booming… and carrying the company… that means 10 million fewer people are engaged with other Blizz properties.  For those interested, slide 13 defines MAUs as:

Monthly Active Users (“MAUs”) We monitor MAUs as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period.

An individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user. In certain instances, we rely on third parties to publish our games. In these instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable estimates of MAUs for these third-party published games

Since I played WoW and WoW Classic a bit each month over the last quarter I guess I count as two users, which seems to imply that Azeroth is possibly propping up the MAU count even more than I might have suspected.

Massively OP also has some notes from the investor calls including some inconsistencies from the company.

Anyway, that is what we have from Activision Blizzard for Q1 2021.