In an address at the Merrill Lynch Media, Comms and Entertainment Conference, Activision Blizzard (NASDAQ: ATVI) CEO Bobby Kotick made a number of bold claims to the gathered attendees – the least of which was calling out Facebook as more of a competitor than video game studios at Disney (NYSE: DIS), console heavyweight Nintendo (PINK: NTDOY) or software leader Electronic Arts (NASDAQ: ERTS).
Some of Kotick’s comments were merely boastful. Speaking of his company’s recent 10-year exclusivity contract with Bungie Studios, Kotick claimed that the development house represents the “last remaining high quality independent developer” in the world. While Bungie, the creators of the Halo franchise whose latest entry Halo: Reach made Microsoft (NASDAQ: MSFT) a cool $200 million in sales within its first two days, are certainly in the business of making quality software that sells, Kotick’s dismissal of other independents exemplifies ATVI’s corporate arrogance. While ATVI shares have been flat since 2008 and the revenue has dropped for two quarters straight in 2010, independent development houses like Epic and Valve, whose Steam portal has beaten out Activision Blizzard’s portals as the number one digital game distributor online, have been doing big business this year. Which is telling in light of Kotick’s other claims about ATVI’s future as an online business.
“Our competitor online [is] Facebook in some respects,” said Kotick at yesterday’s conference. “Even though they don’t create content, they provide it. There are a lot of new social gaming companies that are emerging and take mindshare—not from our consumer, [because they’re] a different demographic. But there’s the potential that some of the social games will start appealing to our consumers so we’re making a lot of investments in that area.” Kotick went on to describe how “console-based” video game publishers like Disney, Nintendo, Electronic Arts, and Microsoft are no longer competitors of Activision Blizzard because these companies “haven’t figured out how to get into these online businesses we’re in today.”
While Kotick’s address should bolster ATVI shareholder confidence, declining 2010 revenue most likely does not. ATVI stock has fallen 41% in the past 24 months, and has fluctuated between $12.00 and $10.00 per share for the past twelve months. This is during a period when ATVI has had the single best selling piece of software on the market. Call of Duty: Modern Warfare 2 and World of Warcraft remain earners for ATVI, but the rest of their business continues to lose ground to competitors just like Electronic Arts.
A report from NPD Group yesterday showed that Electronic Arts maintains significantly more market share in the downloadable PC game and casual/Web browser game market than ATVI.
ATVI may see Facebook as its chief competitor at the moment, but it’s the rest of the traditional game market that’s stealing away the company’s revenue with each passing day. Shareholders should hope that ATVI is focusing on how to combat declines in the broader game market rather than who their corporate nemeses are.
As of this writing, Anthony Agnello did not own a position in any of the stocks named here.
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