Online Game Sales Surpassed Retail Sales Q2, Activision Says

Q2 marked the first quarter in which Activision Blizzard’s sales from online channels “outweighed our retail sales,” CEO Robert Kotick said on a Thursday earnings call. The publisher continues “to see a shift to the high-margin digital side” of its business, which he said “yields faster growth, better returns on invested capital and reduces our exposure to the volatility that has historically characterized videogame companies."

There’s now “an industry-wide urgency to invest in online games and game companies,” Kotick said. What stands to help Activision Blizzard is that the company “saw the changes taking place a number of years ago, and as a result, our competitive lead is significant,” he said.

StarCraft II: Wings of Liberty from the publisher’s Blizzard Entertainment division got “off to a strong start worldwide” after midnight openings on July 27 at 3,100 GameStop stores in the U.S. and 8,000 retailers globally, Kotick said (CED Aug 6 p7). Helping to “drive global awareness” for the online computer game ahead of its launch were “several promotions,” Blizzard CEO Michael Morhaime said. The company bowed an extended trailer for the game on YouTube one week before the game’s launch, and “that generated more than 2 million views in just two days and more than 4 million views in a week,” he said. “The popularity of the trailer made it the number one video on YouTube for that week,” he said. In June, the publisher also started a promotion with Korean Air in which the airline “wrapped a pair of passenger jets in StarCraft II artwork,” he said. The planes are “already in service around the world and will continue to serve as vibrant mobile billboards for StarCraft II for the rest of the year,” he said. “Thousands of people came out to support a dozen official launch events in countries around the world for” the game also, Morhaime said. The company estimated that it sold through more than 1 million copies of the game in the first 24 hours of its release and 1.5 million in the first 48 hours.

Morhaime also said the company’s online partner NetEase received “official written approval” for the World of Warcraft: Wrath of the Lich King expansion pack to launch in China after launches in the U.S. and other markets. “There is one remaining regulatory approval needed before the expansion can launch” there, but he said that was “a positive sign for bringing our latest content to Chinese players."

The company said its profit for Q2 ended June 30 grew to $219 million, 17 cents per share, from $195 million, 15 cents, in Q2 last year. But revenue fell to $967 million from $1.038 billion. The results “were fueled by continued strong consumer response to” the company’s Call of Duty franchise and massively multiplayer online game World of Warcraft, Kotick said.

Games that disappointed for Activision Blizzard in Q2 were Singularity and Blur, said Chief Financial Officer and Chief Operating Officer Thomas Tippl. Singularity “fell short of meeting what is now an exceptionally high bar within the shooter genre,” he said. On the plus side, he said, “the shortfall of Singularity was offset by” Call of Duty’s catalog and downloadable content performance. Blur “was not able to break out in what turned out to be a relatively soft racing genre despite the number of high-quality releases,” he said. The company didn’t specify how many copies of those games it shipped or sold through.

Despite delaying the game True Crime: Hong Kong until 2011, Tippl said, the company’s forecast for calendar 2010 “remains unchanged due mainly to an increase in our expectations for the Call of Duty franchise in Q4, which is shaping up great.” For the fiscal year, Activision Blizzard still expects to report revenue of $4.2 billion and earnings per share of 49 cents, he said.

Activision Blizzard is “still evaluating various possibilities for greater participation in the used games business,” Tippl also said. “What’s been working the best so far is providing additional content” to consumers who have bought new copies of games, “limiting the supply to used games,” he said. “That’s a proven strategy that we will continue, and any other initiatives, we will be talking about when we get closer to it,” he said.

As of June 30, the installed base of hardware in North America and Europe for all current-generation videogame systems was 235 million units, an increase of 31 percent over the prior year, Tippl said. The company’s “2010 aggregate hardware installed base forecast remains unchanged, and we expect to end the year with a massive installed base of about 265 million units of consoles and handhelds,” he said. For the same markets in that time period, the company expects the Nintendo and legacy platforms to see sales declines this year, he said. But it expects that “the core gamer platforms, where we generate the majority of our revenues, including the PS3, Xbox 360 and PC, collectively will be up high single digits this year, and that online sales will be up double digits,” he said. It expects the combined retail and digital software market will grow “in single digits” this year, he said.