Activision and Blizzard Games Merger

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28th Feb 2020 Report Reference this

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Activision Blizzard

Activision Blizzard is a and entertainment company that came to fruition in the year 2007 when two entertainment companies, Activision and Blizzard Games announced a merger. Both companies have been successful over the years, providing their audience with great products. However, over the past couple of years their growth has begun to stagnate. They have taken questionable actions with their products and with the treatment of their consumers. I will be looking at Blizzard Entertainments business practices and the competitive positions they took with their products. The mission statement that Blizzard provides is “Dedicated to creating the most epic entertainment experiences ... ever.”[1] Over the years they have been active as a company they have been true to the mission statement, however in the recent years they have received less praise for their products. When the gaming industry was in its infancy Activision Blizzard created products that surpassed the boundaries of what people thought was possible. Currently the gaming industry is saturated with new high-quality innovative products being released year-round. Activision Blizzard has stopped creating innovative products and instead has focused on maximizing the profitability of the products. They have been largely successful in maximizing the profitability of their existing products and are beginning to expand into the mobile gaming market which is gaining popularity all around the world. The mobile gaming market already accounts for more than 50% of the global games market and is projected to grow substantially in the future.[2] Blizzard is shifting away from the pricing strategies that they have been using for years. Blizzard currently employs a subscription-based payment model for their most popular game World of Warcraft, where customers must pay monthly to play the game. Blizzard also has a one-time payment for the initial purchase of expansions to the game. They are moving away from this business model for their other franchises, making them free to play and including downloadable content as well as in game micro transactions. The business model has become more popular over the years and has seen large success specifically in the mobile game market. This can be ineffective given the initial investment needed to develop a game. One of the reasons Blizzard has decided to move away from the subscription-based model is because pressures them into regularly releasing expansions for their products. If the product is not up to the consumers standards, then they will see a decline in subscriptions. A recent expansion boosted the number of active subscribers to 3.2 million however after people found the expansion to be lackluster the number of subscribers fell to 1.7 million.[3] Although the subscriptions have fallen there is still a substantial number of subscribers to their game. Activision Blizzard relies and a small amount of franchises for their revenues and profits, Call of Duty, Candy Crush, World of Warcraft, and Overwatch franchises account for 66% of their net revenues.[4] Failure to reach consumer expectations in any of these franchises will heavily impact their net revenues. This has been the case recently for their World of Warcraft franchise when the new expansion, Battle for Azeroth did not meet consumer expectations. Currently Activision Blizzard is down about 40% from its 52-week high.[5] Much of the time Blizzard can deliver high quality content that its consumers enjoy however over the past five years there has been a pattern where they failed to meet consumer expectations with their products. Not meeting consumer expectations is becoming a more common occurrence with Blizzard. As an investor this seems like an easy fix for Blizzard. The large community that they have are very vocal about what they like and don’t like about their products. They are very passionate about that products that Blizzard creates. Even though the consumers are vocal about Blizzard products and tell the company in which direction they would like to see their franchises and products go, Blizzard continues to release products that the community does not like. One of the problems I see that Blizzard has is the communication between their consumers. Blizzard believes that they know what their consumers want best. There have been examples of this throughout Blizzards history, and infamous example took place during the 2016 Blizzcon, a convention where Blizzard displays their newest products. During the convention a fan of their World of Warcraft franchise asks whether they will release previous editions of the game as a stand-alone title, a feature that a large portion of the consumers were asking for. World of Warcraft’s executive producer J. Allen Brack responded by saying “No… and by the way you don’t want to do that either. You think you do, but you don’t.” [6]The response itself caused a huge outcry among their community. A more recent example of Blizzard thinking they know what their consumers want better than the consumers themselves was during BlizzCon 2018 where they announced the release of a phone game for one of their franchises instead of a PC release. Financially this seems like a move in the right direction for Blizzard however the community was not pleased with this announcement. The decision to not release previous editions of the game were eventually reverted and Blizzard announced that they will be releasing the previous edition of the game as a stand-alone title in 2019. This tells me that with enough push from their consumers Blizzard will give their consumers what they want. The company recently announced that J. Allen Brack will be replacing Michael Morhaime as the new president of Blizzard Entertainment.[7] The consumers are somewhat skeptical of Brack because of the events that took place during the 2016 BlizzCon. The consumers feel that Brack might not have the consumers best wishes in mind and that he will not provide the consumers with what they want. There seems to be a bigger disconnect between the consumers and the developers at Activision Blizzard and this can be detrimental to their business, especially in a field such as entertainment where consumer preferences quickly shift from products. If Blizzard continues to dismiss their consumers and continue to keep this mind set where they think they know what’s best for their consumers then eventually they will drop the franchises and move to companies where the developers value the consumers opinions and try to provide them with the features and products that they want. Blizzard reports their monthly active users which are the number of active users of all their franchises. From June 30, 2017 to June 30,2018 the amount of monthly active users fell from 46 million to 37 million.[8] Blizzard reports that this is due to the decrease in their Hearthstone and Overwatch franchises. The reason for this fall in active user in their other franchises can be attributed to Blizzards failure to meet the demands of their consumers. Blizzard has consistently shown that they do not have the best interest of their consumers in mind. This is causing their consumers to migrate to other franchises with reliable developers that have the consumers best interests in mind and provide them with features that they want. There are many risk factors in the entertainment industry one of them being the high amount of competition among companies. The companies compete on a global scale with companies all around the globe. Many competitors to Activision Blizzard are larger and in turn have more resources.  The competition with larger product line and popular games have a higher leverage with retailers. On top of competing with other game companies Activision Blizzard is also competing with other entertainments industries. Retaining skilled personnel can become a problem because of the opportunities other companies provide for employment. Another risk factor that Activision Blizzard faces comes in the form of relying on external developers to develop their products. Out sourcing is becoming a common occurrence in the industry however this comes with a few risks that a company must take. They forfeit some of the control over the development schedules and outcomes of the development. This can lead to the creation of products that are not of the same quality as products that were created internally. Blizzard Entertainment is well known for their PC franchises that have gathered giant following all around the world. They produced high quality entertainment for their customers and were able to gain wide spread success all around the world. Over the years Blizzard has expanded their franchise catalogue which have been hugely successful thanks to the reputation that Blizzard has established over the years. Although they have been largely successful there are a few aspects within the company that can be improved on to continue the company’s growth in the future. Some of the aspects I think Blizzard entertainment can improve on are consumer relations, expanding into other entertainment segments, and lastly expanding into the mobile gaming market. In the next part of this paper I will be going over how they could implement these recommendations and how they will benefit their business. The first recommendation I have for Blizzard would be to increase their communication with their consumers to discuss their products and ask for their opinions. Blizzard has shown over the course of the last few years that they believe they know what their consumers want and have been proven wrong. Increasing communication could lead to an understanding between the consumers and the developers in which they make it known what is possible and what is not and adjust their products to have the traits that they consumers want. For a company such as Blizzard retaining consumers should be very important because the subscription payment model relies on retaining consumers however constantly going against their consumers desires can drive the number of subscribers down and turn them away from the other franchises that Blizzard produces. If they begin to implement features that the consumers have been asking for in their products, then it will lead to the increase of average monthly users across all their products. Not only will this give them an increase in revenue and improve their image among their consumers and the whole gaming community. Another recommendation I have for Activision Blizzard would be to expand into other forms of media in the entertainment industry. Things like movies, and tv shows could allow them to reach customers that do not consume video games as their primary form of entertainment. This allows the brand to grow and gain more recognition worldwide. Although branching out into different forms of media will require substantial investment from the company, they will receive more brand recognition which in turn can turn into people buying their other franchises. Lastly, I would recommend that Blizzard expands into the mobile gaming market because it is the fastest growing entertainment market in the world. Expansion into mobile gaming would allow Blizzard to reach consumers who do not have access to personal computers or gaming consoles which are not as common in the emerging markets in the world such as south east Asia. This will allow them to gain new customers and increase their revenues because they will be bringing in new consumers from all around the world. In conclusion Activision Blizzard has had a hard time communicating with their consumers which caused them to lose monthly active users over the course of the last year however if they improve upon communication between their consumers, they will be able to regain many of their consumers. Activision Blizzard has also begun to expand into the Mobile gaming market which will benefit them greatly in the future.

Bibliography


[1] http://us.blizzard.com/en-us/company/about/mission.html [2] https://www.mobvista.com/en/blog/mobile-gaming-now-bigger-console-pc-gaming-combined-still-growing-always-changing/ [3] https://gadgets.ndtv.com/games/news/world-of-warcraft-wow-subscription-numbers-battle-of-azeroth-1932930 [4] https://investor.activision.com/static-files/24da58ff-4731-4880-80da-af51747d1dfb (Page 46) [5] https://www.barrons.com/articles/activision-stock-plunges-as-gamers-seethe-over-diablo-immortal-1541454495 [6] https://www.youtube.com/watch?v=0Wrw3c2NjeE [7] https://www.businesswire.com/news/home/20181003005928/en/Activision-Blizzard-Names-World-Warcraft%C2%AE-Executive-Producer [8] https://investor.activision.com/static-files/24da58ff-4731-4880-80da-af51747d1dfb (Page 46)

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