When it comes to making cool video games, Activision Blizzard aims to be sub-zero. The leading global video game publisher (especially in console and handheld games in the US) is best known for industry-dominating franchises such as World of Warcraft from Blizzard Entertainment, and Call of Duty through Activision. The latter division also makes games based on licensed properties from Marvel (Spider-Man and X-Men), DreamWorks Animation (Shrek), MGM and the UK's EON Productions (James Bond), Hasbro (Transformers). Other popular franchises include Diablo III and the children's hit Skylanders. Its games are produced for Sony's PlayStation, Nintendos' Wii, and Microsoft's Xbox, as well as for PC and mobile phones and tablets.
Activision is the company's biggest segment, accounting for 56% of revenue, followed by Blizzard, 36%, and Distribution, 8%.
In terms of the devices on which the company's games are played, most of its revenue (51%) is from consoles, followed by online (18%), personal computers (14%), mobile (9%), and other (8%).
The company will add another segment for the King Digital Entertainment acquisition with its 2016 reporting.
An international company, Activision Blizzard has more than 60 offices in some 20 countries across the Americas, Asia, and Europe. North America accounts for more than half of sales, while European gamers make up 37% and Asia accounts for the remaining 11%.
Like many major video game publishers, Activision Blizzard also maintains a distribution business that provides warehousing, logistical, and distribution services for its own games as well as for third-party publishers. The company's distribution operations are concentrated in Europe.
Sales and Marketing
The company’s games are sold internationally on a direct-to-retail basis, through third-party distribution and licensing arrangements, and through its wholly-owned European distribution subsidiaries: Centresoft in the UK and NBG in Germany.
North American customers include GameStop, Amazon, Best Buy, Target, Toys R Us, and Wal-Mart. Acitivision Blizzard also sells games to Sony and Microsoft, which load them on their game consoles. No customer accounts for more than 10% of revenue, but Sony, Microsoft, and Wal-Mart respectively accounted for 18%, 13%, 11% of consolidated gross receivables in 2015.
Activision Blizzard's revenue perked up with a 6% increase in 2015 to $4.6 billion after two years of sliding revenue. The company gained from positive account deferral of net revenue and related cost of sales in 2015 over decline in 2014. The Activision segment posted higher sales on performance by the Call of Duty: Black Ops III and Guitar Hero Live, both released in 2015. Blizzard's revenue, however, dropped 9% for the year.
In 2015, net income increased by 7% to $892 million. Besides higher revenue the company had gains from its foreign currency derivative contracts and lower stock-based compensation expense. It had higher professional service fees from the King Digital acquisition.
Cash flow from operations dipped to $1.2 billion in 2015 from $1.3 billion in 2014.
Activision Blizzard continues to shift towards digital delivery of content and develop deeper relationships with the people who play its games. In digital delivery, the company offers free-to-play games, but charges for some in-game microtransactions. It also is increasing its presence in mobile devices such as smartphones and tablets.
Borrowing from Hollywood's playbook, Activision Blizzard is publishing fewer, more focused blockbuster titles, as fewer titles dominate more of both the company's and total industry sales.
In 2015, the company offered the World of Warcraft Token System, which enables the game's players to exchange game-time Tokens. In an effort to increase sales in China, Activision in 2015 entered open beta for Call of Duty Online, a free-to-play game available in China, and Blizzard began open beta for the action role-playing game Diablo III: Reaper of Souls in China.
The acquisition of King Digital Entertainment should generate more mobile gaming for Activision Blizzard as should the deal the company reached with Facebook. In 2016 Activision Blizzard and Facebook agreed to like stream games on Facebook and add the capability to log in to games with Facebook user names and passwords. The featured games are Overwatch, Hearthstone: Heroes of Warcraft, and World of Warcraft.
Through its Skylanders franchise Activision Blizzard is in the toy business and the emerging "toys to life" category in which games incorporate toys into the action.
Mergers and Acquisitions
With its $5.9 billion purchase of King Digital Entertainment, Activision Blizzard is putting its money where people play games: on mobile devices. King developed the popular Candy Crush game, but other efforts such as Farm Heroes and Pet Rescue haven't been as successful. Mobile games are growing faster than console or PC-based games and some, such as Candy Crush, reach a female demographic. Competitors waiting for Activision Blizzard in the mobile game arena include Zynga, maker of Farmville, and Rovio, the creator of Angry Birds. The deal, which has been approved by both companies, is expected to close in spring 2016.
In December 2015 Activision Blizzard got into the live gaming business with its acquisition of Major League Gaming (MLG) for $46 million. MLG stream game competitions that it organizes as they happen.