The Main Lines From Activision Blizzard's Earnings Call

Image: Randy Shropshire/Getty Images for Activision

Earlier this morning, Blizzard management began informing staff that employees would start being made redundant from today, with layoffs to affect the company worldwide. Around the same time, Activision Blizzard executives were holding an earnings call with investors, outlining more detail about the company's future strategy and the layoffs that were afoot.

Activision Blizzard Lays Off Hundreds Of Employees

Publisher Activision Blizzard has begun its long-rumored layoff process, informing employees this afternoon that it will be cutting staff. On an earnings call this morning, the company said that it would be eliminating 8% of its staff. In 2018, Activision Blizzard had roughly 9,600 employees, which would mean nearly 800 people are now out of work.

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In the earnings report, which is now publicly available, Activision CEO Bobby Kotick noted that Activision Blizzard's 2018 financial results were "the best in our history":

"To help us reach our full potential, we have made a number of important leadership changes. These changes should enable us to achieve the many opportunities our industry affords us, especially with our powerful owned franchises, our strong commercial capabilities, our direct digital connections to hundreds of millions of players, and our extraordinarily talented employees.”

On hiring developers over the course of the next year:

In 2019, the company will increase development investment in its biggest franchises, enabling teams to accelerate the pace and quality of content for their communities and supporting a number of new product initiatives. The number of developers working on Call of Duty, Candy Crush, Overwatch, Warcraft, Hearthstone and Diablo in aggregate will increase approximately 20% over the course of 2019.

The company is in the process of making approximately 8% of its workforce redundant as of today. The 20% increase in "development resources" was also listed alongside a slide shown to investors, which noted that they would cover those costs by "reducing certain non-development and administrative-related costs across our business":

Bobby Kotick on the mutual separation with Bungie and Destiny 2:

Turning to Destiny the mutual agreement with Bungie to sell back the commercial rights to Destiny and eliminate our ongoing investment in the game did not have a material impact on Activision's segment operating income in the quarter, but will free up capital and development resources for the future.

On the success of Black Ops 4, particularly on PC, in the last year:

Call of Duty was again the number-one selling console franchise worldwide for the year, a franchise feat accomplished for nine of the last 10 years. In its launch quarter, Call of Duty: Black Ops 4 sold-through more units than Call of Duty: Black Ops III, with PC units more than tripling. Full-game downloads were over 40% of Call of Duty: Black Ops 4 console sell-through, versus approximately 30% for the prior release, Call of Duty: WWII.

The company also noted that Call of Duty: Black Ops 4 had more average hours per player than Black Ops 3:

Revenue for the year is expected to be down 13 percent year on year - primarily driven by Blizzard. Investors were told that the focus would be on this year's Call of Duty, which would also be coming to mobiles in partnership with Tencent.

Consoles remain the highest generating platform for the company, accounting for $US808 million net revenue for the fourth quarter of the 2018 calendar year, with the PC market generating $US727 million in net revenue and $US596 million coming from the mobile market.

Activision chief operating officer COO Coddy Johnson on microtransactions and planned releases for 2019, according to CNBC:

"In-game execution was inadequate in some of our franchises, and we saw weaker than anticipated retail demand ... our 2019 outlook assumes that we will not improve in-game monetisation as quickly as we would like and that it is a transition year where we have less new major content to release than we should."

Notably, the cost of software development for Activision Blizzard shrunk last year, dropping from $US174 million in the third quarter of 2018 to $US65 million in the fourth quarter. The quarterly development cost is also down year on year, with Activision's development expenses totalling $US86 million in CY2017.

People Are Buying Fewer Overwatch Loot Boxes And Hearthstone Packs

While Blizzard employees and staffers began learning of their fate, investors were also getting an update from Activision Blizzard management about the company's outlook for the next year. Part of that warranted an explanation into what Activision expects will be a downturn in revenue over the coming year, and what is affecting the Blizzard side of the business in particular.

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Comments

    I wonder what they'll say about the separation of Activision-Blizzard and Bungie.

    it's sad to see Candy crush mentioned in the same sentence as Warcraft and Diablo but maybe it's a good thing they are doubling down on internal franchises

    also incoming more microtransactions, whoo can't wait for that... said no one ever

      Well when you lose Destiny, you gotta replace it with something!

      Candycrush is still Activi$$$ion's primary "prey on vulnerably addicted women and children" business model so it's probably better in thier eyes than the whole blizzard lineup :\

        Jokes on them, my mum got to over level 2800 without paying a cent.

      It's sad to see mobile and Diablo in the same sentence but Diablo Immortal is a thing...

    1) I get the idea behind leaning up the back office and beefing up the R&D. R&D makes money (maybe), backoffice never recoups, but those people theoretically should be dealing with things so R&D can R&D. Hopefully they don't over-cut.

    2) Microtransactions.The first time I saw the Activision logo was on Mechwarrior and later Mechwarrior 2 (1989 and 1995). They are a company that survives. They do this by being ruthless, by doing what others won't. The entire gaming industry could go in the toilet, but Activision will still post a profit because ultimately- they're the honey badger of software publishers. I feel sorry for the captive devs that Activision essentially owns.

    I seriously wonder with Apex Legends basically doing the first-person battle royale both better and free-er than COD (and I have BO4 so I can compare)

    What is Activision's plan for this year's call of duty? Does this one ship with its own battle royale separate from Blackout, does Blackout continue in the new game, do they make Blackout F2P? Will the next COD have a campaign?

    Lots of questions for what shape the next COD takes and given that this is now their only non-kids IP, the stakes are high.

      Splitting Blackout off into its own thing would be a winner, especially if it was free and not egregiously monetised.

        I agree - I don't think the suits at Activision are smart enough to do it though

    Reducing your playerbase to a simple "MAUs" stat is a special kind of evil, really.

      Played WoW recently?

      It's specifically designed with MAUs in mind. It's disgusting.

        Yep, they time things so just as your monthly sub runs out there's something else to bring you back in.

        They truly are "Activision" Blizzard.

    "World of Warcraft saw expected declines post the expansion release this summer". Well they downplayed that a lot. Sure, it's expected to lose some player, not the mass exodus of players that quit due to the terrible state of BFA.

    Think I'm done with WoW forever now...only possibility is I might fire up classic for a month or two but that would mainly be for a nostalgia kick and/or to play with friends.

    The rest of Blizzard in general though no longer has anything that interests me and I have very little confidence that they're able to produce a quality product in terms of what is fun for the user.

      I still play Overwatch but I haven't spent one red cent on lootboxes!

    My favourite? part

    our 2019 outlook assumes that we will not improve in-game monetisation as quickly as we would like and that it is a transition year where we have less new major content to release than we should.

    knowing full well that their version of improving in-game monetisation and the players version of that same sentence are wildly different.

    Fucking shareholders. Insane.

      I mean, I get it... Return on Investment matters. If you have $1000, and you need to invest it in something, you want to invest it in something that's going to give you money back. And when you have the choice between psychological manipulation that is basically pure evil but gives $5000 back, rather than something that has great artistic integrity but gives you $1500 back, you're picking the evil one, because you're an investor, your concern is not the art, but making money.

      And if your ROI is low, you need to scrap it so you can recover that investment and put it somewhere else, because no-one has unlimited capital. And if your ROI is low, then it's not attractive to investors, which means your share price is low, which reduces your capital anyway... but it makes for management which is incentivized to create a good return on investment, rather than create a good artistic work. And there's some overlap in that good artistic works have - in the past - generated good returns, but it's not reliable enough to bank on.

      Frankly, this is why big-scale, creative-controlled publishing should never be done by publicly listed companies who have to answer to shareholders, but rather by business-minded folks who want to be stewards for great creative talent, who will consider just simply profiting enough to fund the next title enough of a 'win' to justify continuing to pay developers to make great things.

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