Activision Blizzard, Inc., formerly Activision, Inc. (NASDAQ: ATVI) is the American holding company for Activision and Blizzard Entertainment. The company is majority owned by French conglomerate Vivendi SA and was created through the merger of Activision and Vivendi Games, announced on December 2, 2007,[3] in a deal worth USD$18.8 billion.[4] The deal closed July 9, 2008. The company believed that the merging of the two companies would create "the world's largest and most subtle pure-play video game publisher".[5] It believes that it is the only publisher that has "leading market positions across all categories" of the video game industry.
a) Managing financial risk:
i) Acquisition and development costs:
Acquisition costs on this product will be mitigated through several
means. The company that we are purchasing the game from, as it is
small and local, has offered to sell all rights, and our options contract
does not include any residual license fees. The game will be the sole
property of Blizzard after purchase. In order to minimize huge jumps in
production costs, we will be relying on in house development that is
already familiar with the Warcraft gaming engine. Using the existing
gaming engine will help to keep development costs as low as possible.
ii) Distribution risks:
Several steps are keys to mitigating issues with game distribution. The
primary method of dealing with this is to release the game in the same
channels and outlets that have historically been proven reliable. We
will be releasing the game in an industry standard format and will be
releasing it to the top tier resellers and vendors. We will not be looking
to distribute it in new outlets, rather we will be depending on the
existing vendors’ chain, as that is what our sales forecasts are based
on and driven by.
iii) Sales volume risks:
There are several methods of mitigating and responding to sales
volume declines. One key factor is good market research and a heavy
dependency on an existing customer base for word of mouth and viral
marketing. As production costs are fairly low, we will make sure that
the volume produced is not extended too far beyond sales forecasts,
and then we will use sales volume metrics gathered monthly over the
first year to determine increase or decrease in sales volume in order to
avoid production over-runs beyond sales. This will allow us reduce
mass over-expenditures in the event of severe market or sales
declines.
b) Managing product risks:
i) Product quality risks:
Product quality issues are the easiest issues to avoid or reduce. With a
significant quality control system in place, and an online model that
allows for easier remote update of affected code on client systems,
quality control has been calculated as part of the development and
support costs.ii) Product competition risks:
This is one of the most difficult risks to deal with. The market is volatile,
and financial information can be projected with some degree of
accuracy, but competitors do not tend to tell us what they plan to do
next to address our releases. Mitigating this risk is more about a proactive approach involving forward thinking strategies, high quality
products and quality assurance, intensive market research that
continues throughout a product lifespan, and expansion into new
territories.
iii) Piracy risks:
Piracy risk, while especially difficult to control, can be reduced through
the use of the online systems that are associated with a subscription
based service. It is very difficult for individuals to create accounts that
allow them to play online with pirated software without being tracked or
charged in some fashion. This is the benefit of a subscription based
system, it has product controls built-in. The best way to mitigate piracy
risks is to evaluate the available technologies to prevent piracy, and
compare that to estimated true piracy losses, then select the
appropriate blend of technologies that will cost less than the estimated
losses from piracy when those techniques are utilized.
Activision has been best known for our action/adventure, action sports, role-playing, simulation, first-person action, and music video game
products. We have had long-term success in the first person action categories through the Call of Duty original intellectual property, including
the latest release, Call of Duty: Modern Warfare 2, and we plan on continuing to develop this franchise. Call of Duty has achieved
approximately $3 billion life-to-date revenue. We are a leading company in the music-based gaming genre with the Guitar Hero franchise, which
combines interactive software with hardware peripherals. We expanded the franchise with the additions of DJ Hero and Band Hero releases
during 2009. Band Hero is accompanied by hardware peripherals consisting of a guitar, drum, and microphone, and DJ Hero is accompanied
with a turntable peripheral. We have been successful in the superheroes category with our releases of titles based on the Spider-Man and X-Men
properties, including the 2009 release of Marvel Ultimate Alliance 2 and X-Men Origins: Wolverine . Our Tony Hawk franchise has been a
leader in the action sports genre, and we have a recently released game, Tony Hawk: Ride , to continue the strength of this franchise with an
innovative skateboard controller. We have continued our success with the DreamWorks animated movie titles, with the 2009 release of Monsters
vs. Aliens . We have expanded our portfolio in the action/adventure genre with the launch of a new internally developed intellectual property,
PROTOTYPE . Further, we released Bakugan Battle Brawlers , which is based on the top-rated television series and a best-selling toy.
In 2010, we plan to release a diversified lineup of games based on Activision's best-selling franchises including Call of Duty, Guitar Hero,
and Tony Hawk, together with other well-known titles such as True Crime, Spider-Man, and Bakugan, and a select number of new intellectual
property franchises such as Blur and Singularity .
Product Development and Support
Activision develops and produces titles using a model in which a core group of creative, production, and technical professionals, in
coordination with our marketing and finance departments, have responsibility for the entire development and production process including the
supervision and coordination of internal and external resources. This team assembles the necessary creative elements to complete a title using,
where appropriate, outside programmers, artists, animators, scriptwriters, musicians and songwriters, sound effects and special effects experts,
and sound and video studios. Activision believes that this model allows us to supplement internal expertise with top quality external resources on
an as-needed basis.
In addition, Activision often seeks out and engages independent third-party developers to create products on our behalf. We either own
these products or have unlimited rights to commercially exploit these products. In other circumstances, a third-party developer may retain
ownership of the intellectual property and/or technology included in the product and reserves certain exploitation rights. Activision typically
selects these independent third-party developers based on their expertise in developing products in a specific category for specific platforms.
Each of our third-party developers is under contract with us for specific or multiple titles. From time to time, Activision also acquires the license
rights to publish and/or distribute software products that are or will be independently created by third-party developers. In such cases, the
agreements with these developers provide us with exclusive publishing and/or distribution rights for a specific period of time, often for specified
platforms and territories. In either case, Activision often has the ability to publish and/or distribute sequels, conversions, enhancements, and addons to the product initially being produced by the independent developer and Activision frequently has the right to engage the services of the
original developer with regard to the further product development.
In consideration for the services that independent third-party developers provide, the developers receive a royalty, which is generally based
on net sales of the developed products. Typically, developers also receive an advance, which Activision recoups from the royalties otherwise
payable to the developers. The advance generally is paid in "milestone" stages. The payment at each stage is tied to the completion and delivery
of a detailed performance milestone. Working with independent developers allows us to reduce our fixed development costs, share development
risks with the third-party developers, take advantage of the third-party developers' expertise in connection with certain categories of products or
certain platforms, and gain access to proprietary development technologies.
Activision provides various forms of product support to both our internally and externally developed titles. Activision quality assurance
personnel are involved throughout the development and production of each title published. Activision subjects all such products to extensive
testing before release to ensure compatibility with all appropriate hardware systems and configurations and to minimize the number of bugs and
other defects found in the products. To support our products after release, Activision provides its customers online access on a 24-hour basis as
well as live telephone operators who answer the help lines during regular business hours.
a) Managing financial risk:
i) Acquisition and development costs:
Acquisition costs on this product will be mitigated through several
means. The company that we are purchasing the game from, as it is
small and local, has offered to sell all rights, and our options contract
does not include any residual license fees. The game will be the sole
property of Blizzard after purchase. In order to minimize huge jumps in
production costs, we will be relying on in house development that is
already familiar with the Warcraft gaming engine. Using the existing
gaming engine will help to keep development costs as low as possible.
ii) Distribution risks:
Several steps are keys to mitigating issues with game distribution. The
primary method of dealing with this is to release the game in the same
channels and outlets that have historically been proven reliable. We
will be releasing the game in an industry standard format and will be
releasing it to the top tier resellers and vendors. We will not be looking
to distribute it in new outlets, rather we will be depending on the
existing vendors’ chain, as that is what our sales forecasts are based
on and driven by.
iii) Sales volume risks:
There are several methods of mitigating and responding to sales
volume declines. One key factor is good market research and a heavy
dependency on an existing customer base for word of mouth and viral
marketing. As production costs are fairly low, we will make sure that
the volume produced is not extended too far beyond sales forecasts,
and then we will use sales volume metrics gathered monthly over the
first year to determine increase or decrease in sales volume in order to
avoid production over-runs beyond sales. This will allow us reduce
mass over-expenditures in the event of severe market or sales
declines.
b) Managing product risks:
i) Product quality risks:
Product quality issues are the easiest issues to avoid or reduce. With a
significant quality control system in place, and an online model that
allows for easier remote update of affected code on client systems,
quality control has been calculated as part of the development and
support costs.ii) Product competition risks:
This is one of the most difficult risks to deal with. The market is volatile,
and financial information can be projected with some degree of
accuracy, but competitors do not tend to tell us what they plan to do
next to address our releases. Mitigating this risk is more about a proactive approach involving forward thinking strategies, high quality
products and quality assurance, intensive market research that
continues throughout a product lifespan, and expansion into new
territories.
iii) Piracy risks:
Piracy risk, while especially difficult to control, can be reduced through
the use of the online systems that are associated with a subscription
based service. It is very difficult for individuals to create accounts that
allow them to play online with pirated software without being tracked or
charged in some fashion. This is the benefit of a subscription based
system, it has product controls built-in. The best way to mitigate piracy
risks is to evaluate the available technologies to prevent piracy, and
compare that to estimated true piracy losses, then select the
appropriate blend of technologies that will cost less than the estimated
losses from piracy when those techniques are utilized.
Activision has been best known for our action/adventure, action sports, role-playing, simulation, first-person action, and music video game
products. We have had long-term success in the first person action categories through the Call of Duty original intellectual property, including
the latest release, Call of Duty: Modern Warfare 2, and we plan on continuing to develop this franchise. Call of Duty has achieved
approximately $3 billion life-to-date revenue. We are a leading company in the music-based gaming genre with the Guitar Hero franchise, which
combines interactive software with hardware peripherals. We expanded the franchise with the additions of DJ Hero and Band Hero releases
during 2009. Band Hero is accompanied by hardware peripherals consisting of a guitar, drum, and microphone, and DJ Hero is accompanied
with a turntable peripheral. We have been successful in the superheroes category with our releases of titles based on the Spider-Man and X-Men
properties, including the 2009 release of Marvel Ultimate Alliance 2 and X-Men Origins: Wolverine . Our Tony Hawk franchise has been a
leader in the action sports genre, and we have a recently released game, Tony Hawk: Ride , to continue the strength of this franchise with an
innovative skateboard controller. We have continued our success with the DreamWorks animated movie titles, with the 2009 release of Monsters
vs. Aliens . We have expanded our portfolio in the action/adventure genre with the launch of a new internally developed intellectual property,
PROTOTYPE . Further, we released Bakugan Battle Brawlers , which is based on the top-rated television series and a best-selling toy.
In 2010, we plan to release a diversified lineup of games based on Activision's best-selling franchises including Call of Duty, Guitar Hero,
and Tony Hawk, together with other well-known titles such as True Crime, Spider-Man, and Bakugan, and a select number of new intellectual
property franchises such as Blur and Singularity .
Product Development and Support
Activision develops and produces titles using a model in which a core group of creative, production, and technical professionals, in
coordination with our marketing and finance departments, have responsibility for the entire development and production process including the
supervision and coordination of internal and external resources. This team assembles the necessary creative elements to complete a title using,
where appropriate, outside programmers, artists, animators, scriptwriters, musicians and songwriters, sound effects and special effects experts,
and sound and video studios. Activision believes that this model allows us to supplement internal expertise with top quality external resources on
an as-needed basis.
In addition, Activision often seeks out and engages independent third-party developers to create products on our behalf. We either own
these products or have unlimited rights to commercially exploit these products. In other circumstances, a third-party developer may retain
ownership of the intellectual property and/or technology included in the product and reserves certain exploitation rights. Activision typically
selects these independent third-party developers based on their expertise in developing products in a specific category for specific platforms.
Each of our third-party developers is under contract with us for specific or multiple titles. From time to time, Activision also acquires the license
rights to publish and/or distribute software products that are or will be independently created by third-party developers. In such cases, the
agreements with these developers provide us with exclusive publishing and/or distribution rights for a specific period of time, often for specified
platforms and territories. In either case, Activision often has the ability to publish and/or distribute sequels, conversions, enhancements, and addons to the product initially being produced by the independent developer and Activision frequently has the right to engage the services of the
original developer with regard to the further product development.
In consideration for the services that independent third-party developers provide, the developers receive a royalty, which is generally based
on net sales of the developed products. Typically, developers also receive an advance, which Activision recoups from the royalties otherwise
payable to the developers. The advance generally is paid in "milestone" stages. The payment at each stage is tied to the completion and delivery
of a detailed performance milestone. Working with independent developers allows us to reduce our fixed development costs, share development
risks with the third-party developers, take advantage of the third-party developers' expertise in connection with certain categories of products or
certain platforms, and gain access to proprietary development technologies.
Activision provides various forms of product support to both our internally and externally developed titles. Activision quality assurance
personnel are involved throughout the development and production of each title published. Activision subjects all such products to extensive
testing before release to ensure compatibility with all appropriate hardware systems and configurations and to minimize the number of bugs and
other defects found in the products. To support our products after release, Activision provides its customers online access on a 24-hour basis as
well as live telephone operators who answer the help lines during regular business hours.
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