Blizzard’s Q3 2015 Report

Rather than risking burying the lede, it feels more like there’s a risk of being buried by them.

First, WoW “only” dropped by 100k subscriptions in Q3:

Pump the brakes, kid.

Pump the brakes, kid.

I did not specifically offer a prediction for this quarter last time, and I’m glad I didn’t. Is it weird to say, though, that I’m both surprised and not surprised at only a 100k loss? It is one thing to expect the WoW house of cards to continue collapsing after seeing 1.5 million subs evaporate in the three months prior. But it is also entirely true that there are people still playing the first EverQuest and Ultima Online like it’s 1999. Is there any doubt in anyone’s mind that there would still be people out there playing Star Wars Galaxies or City of Heroes if they could? In that sense, we kinda know already that there will be some kind of baseline level of WoW subscriptions that will always remain. The question is just where that floor is.

Of course, we may never end up knowing where the floor is because Blizzard has decided to stop reporting WoW sub numbers. I pretty much agree with the rest of the internet that this is a rather embarrassing PR maneuver meant to obfuscate the declining success of the game. It’s a shameful, shameful display, Blizzard… how could you sink to the level of EVE Online and FF14’s “lifetime total subscriber” tactics?!

That said, I do find this brave new world of faux news amusing. For example, from the last link:

Instead of subscriber numbers, Activision Blizzard intends to use unspecified engagement metrics.

As the company has pushed toward a “year-round engagement model” with its franchises, it has similarly de-emphasized traditional performance metrics like sales figures. It has never reported sales figures for Destiny, instead relying on “registered users” numbers, sometimes even pairing that with the number of registered users for the free-to-play Hearthstone and reporting a combined number. In its quarterly earnings, Activision Blizzard pointed to “key engagement metrics” for Hearthstone being up 77 percent, but neglected to detail what those metrics were.

I wonder how the job interview went for the person who writes these press releases. “Why should we hire you?” “I’m 77% better than the other applicants.” “In what way?” “Key ways.” I did end up listening to the entire Investor Call for more Hearthstone tidbits, but the only non-zero piece of news was it achieved its highest quarterly revenue in Q3. So… X+1 > X, at a minimum. I suppose we could extrapolate that Hearthstone is still growing, but without a baseline, we’re back in the weeds.

The lede of ledes though, is Activision Blizzard buying King (aka Candy Crush) for $5.9 billion. Pretty much everyone, everywhere has questioned the sanity of this move, and I’m a bit inclined to agree. King is on the decline, even Activision Blizzard agrees there are no synergies between the franchises, and this move has drained the company’s cash reserves of $4.5 billion down to… next to nothing. We can even envision a scenario is which the WoW movie flops – and that’s a real chance – and suddenly things could start looking unexpectedly grim.

At the same time… you kinda have to look at this from a business perspective. Throughout the Investor Call, Kotick and crew repeatedly stressed how they more or less bought ~340 million mobile customers. The sum total of Activision Blizzard’s exposure to to the mobile space up to this point has been Hearthstone and some Call of Duty apps. Could they build some amazing mobile games with $5.9 billion? Maybe. King is on the decline from its heights, but at least they demonstrated that they were successful at some point. If they can release/steal another hit, or start leveraging the mobile eyeballs to cross-pollinate franchises, this could suddenly seem like amazing foresight.

The other thing to look at? King is based in Ireland, which is famous for its double…. sandwiches. Or was that the Dutch? On top of that, of Blizzard’s $4.5 billion in cash they had prior to this deal, $3.6 billion of it was held overseas. As in, evading US taxes. Spending it this way gets the maximum value purchasing power which they may not have been able to realize any other way. And, of course, it moves Activision Blizzard from having little mobile presence to being a dominate player in the field. Even if King turns into Zynga.

So maybe this deal is a bit better than people think.

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Posted on November 4, 2015, in WoW and tagged , , , , . Bookmark the permalink. 7 Comments.

  1. Whether or not we’ve reached WoW’s subscriber floor, I’m curious to know what caused the nosedive to level off. Was it the introduction of flying in Dreanor, albeit gated behind an “attunement”? Was the announcement of Legion enough to keep some around? Or are we looking at the number of ultra-dedicated WoW players who will stay subbed no matter what?

    We’re in a bit of a gaming lull right now, too, but with titles like Black Ops III, Fallout 4 and Star Wars Battlefront just around the corner, I wonder how subscriber numbers will fair over the next few months. I guess we’ll never know.

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    • I have to imagine it was the last possibility, e.g. we’re approaching the floor. I mean, I’m a diehard flying supporter, but reintroducing it gated behind a grind-wall certainly did nothing to draw me back in. Meanwhile, three more months of basically no content and only a 100k drop after losing 1.5 million in the months before? The people still playing certainly aren’t caring about the lack of content.

      Actually, now that I think about it, maybe it’s possible it was due to the introduction of Timewalking dungeons and other weekend activities. Hell, even Valor is back.

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  2. The King ‘eyeballs’ is a fallacy anyway. Someone who two years ago spent some money on candy crush but has long since stopped playing or even paying attention to the game is still counted in the King metric, but they have zero point zero pull on that customer anymore. Blizzard bought the CURRENT Candy Crush players, which is a declining number of people who are ultra-casual anyway, so much harder to influence. The conversion number for, say, Candy Crush suddenly putting up a “Go play WoW!” ad would be pathetically low, and that’s basically what they paid 5.9b for (because the game development skill at King is Zynga-like).

    Earnings Reports overall need an overhaul, because this was a total waste of time. How the hell is it legal to lump Destiny, a buy-the-box title, with HS, a F2P title, and give out total accounts like its something useful?

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    • According to this page, King has 474 million monthly active users in Q3 2015. Clearly they aren’t able to translate that into as much money as they were before, but that’s still a lot of eyeballs. And as I was trying to say in the post, even if there was zero cross-pollination between Candy Crush and WoW (it’s more likely there would be a Hearthstone ad in Candy Crush, no?), the value to Activision Blizzard is that they get investment exposure to mobile gaming. In other words, even if there is zero synergy between the franchises, there is still value in throwing (more of) their hat into the mobile gaming ring. Diversify and all that.

      I agree with you regarding the earnings report, generally. I listened to the whole hour and I came away feeling like I knew less about what was going on than before I started.

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  3. *Meeting #1, at least 12 months ago*

    Kotick: “So, everyone wants Garrisons as a mobile game. Why aren’t we doing it?”

    Dev Team: “Well, no one here is a mobile developer anymore, we could toss something together, but…you see how Warlords of Draenor turned out when we tried that…”

    Kotick: “Fine. But I don’t like to leave money on the table like this.”

    *Meeting #2, at least 6 months later*

    Accountant #1: “So, we’ve got billions of dollars sitting overseas, and the way things are looking, we won’t be getting a repatriation holiday anytime soon. I suggest we make a strategic investment overseas that will drive sales in the US back into our pockets.”

    Kotick: “Sounds good. Suggestions?”

    Accountant #2: “We could buy Vivendi…hahaha just kidding.”

    Kotick: “While I might enjoy that, no, only profitable suggestions please.

    Accountant #3: “Well, Microsoft already got Minecraft, I don’t see any worthwhile hardware out there either…”

    Accountant #1: “How about Konami, they seem to be in trouble, pulling out of the NASDAQ, but had a huge success with some mobile game in 2014.”

    Kotick: “Mobile you say…”

    Kotick: “Who owns Candy Crush?”

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    • Not enough demonic gibbering or self-congratulatory talk about inspiring fear in the hearts of mortal men to be confused with actual Kotick lines.

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  4. Keep in mind too, companies in tech buy other companies to get “talent” i.e. top level developers.

    I wouldn’t be surprised if that was another factor in Activision buying King, access to the best in mobile games.

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