Activision Blizzard (NASDAQ:ATVI) and its shareholders have a small problem on their hands when it comes to fiscal performance during the back half of 2011: It looks very likely the video game publisher won’t have a single new product from Blizzard on store shelves.
Even if you don’t recognize the company, you will recognize the studio’s signature game, World of Warcraft, the game (called a massively multiplayer online role-playing game) that has earned Activision a base of more than 11 million players paying a monthly subscription in the past seven years.
The company had two titles out in 2010 — an expansion of Warcraft titled World of Warcraft: Cataclysm that sold nearly 5 million copies in its first month, and Starcraft II, a science fiction strategy game so popular abroad that it is recognized by some as South Korea’s national pastime. Though Blizzard has multiple products in the pipeline — including two new Starcraft II titles and a new online game poised to take over for Warcraft, codenamed “Titan” — it’s looking increasingly likely that not one will be out before the start of the fourth quarter, when Blizzard holds its annual fan event and conference, BlizzCon.
ATVI has been prepared for these circumstances and even adjusted its expectations for the fiscal year to reflect a Blizzard-less release schedule. The company won’t hurt too badly. It still will release Call of Duty: Modern Warfare 3 in November — just the latest release in the Activision-owned franchise that is poised to become the best-selling game series in history. (Last year’s title, Call of Duty: Black Ops, sold nearly 14 million copies between last November and March 2011.)
Still, this year is a crucial moment for Activision Blizzard. Its standing as the single-biggest publisher of large-scale PC games is under threat. Electronic Arts (NASDAQ:ERTS) plans to release Star Wars: The Old Republic, an online game and Warcraft competitor, before the year is out. Casual fans of strategy games like the Starcraft series are increasingly turning to social games on Facebook and cheaper titles on mobile devices like Apple‘s (NASDAQ:AAPL) iPhone for their fix.
There is a slim chance that one game from Blizzard’s stable might make out before 2011 ends. Diablo III, a sequel in Blizzard’s cult classic action and role-playing series that has been dormant for more than a decade, entered beta testing — when an incomplete but playable version of a game is released to a limited number of players for quality and balancing checks — at the end of July.
After three years in development, Diablo III is close to release, and while it is not a product that will garner the sort of success ATVI has had with Warcraft, it will go a long way toward merging Blizzard’s long-standing fan base with a newer audience weaned on social and mobile games.
Although the game can be played by multiple people, it will not allow for thousands of players at the same time as Warcraft does. It will, however, require players to be constantly connected to Blizzard’s network on the Internet, Battle.net. This will limit cheating, as well as create a strong social aspect for the audience.
The game also represents a dramatic shift in how Activision Blizzard will generate revenue from a game. A secondary economy has surrounded virtual goods in Warcraft for years, with real-world businesses selling in-game items for real-world money, with none of those sales filling ATVI’s coffers. It is a business model that has made Facebook game-makers like Zynga (FarmVille) monumentally successful. Blizzard announced on Monday that it will allow users to sell each other goods in Diablo III for actual currency, collecting a “nominal fixed transaction fee” after each sale.
ATVI doesn’t need Diablo III to release this year. As said, Call of Duty: Modern Warfare 3, not to mention the new premium subscription service attached to that series called Call of Duty Elite, should keep the publisher’s earnings strong. By early 2012, though, Diablo III will be instrumental in keeping the company’s PC business strong, as well as evolving it for a changing market.