About 500 Activision Jobs to Be Cut As Company Scraps ‘Guitar Hero’

Activision Blizzard will cut about 500 jobs, about 7 percent of its global workforce, in “streamlining” its Activision Publishing division through a plan that includes scrapping its ailing Guitar Hero business, Chief Operating Officer Thomas Tippl said in a Wednesday earnings call. The company’s “net headcount at the end of the year is probably not going to be materially different” from the more than 7,000 employees now, he said, because it’s “ramping up development teams around” the Blizzard Entertainment division’s new massively multiplayer online game and Activision Publishing’s Call of Duty initiatives.

The job cuts cited also factor in changes in the company’s casual game business, Tippl said. Headcount “will just be allocated to more profitable growth opportunities for the next few years to come,” he said. The changes are being made “to position us for future growth, higher profitability and online expansion,” he said, predicting the moves will “significantly expand” the company’s operating income and operating margin year-over-year.

Guitar Hero had been one of Activision’s most popular game franchises and the company invested heavily in it. But sales of the games, as well as those of the rival Rock Band franchise from MTV Games and Harmonix Music Systems and the entire music game genre overall, weakened in the past couple of years. “After two years of steeply declining sales, we've made the decision to close our Guitar Hero business unit and discontinue development on our previously planned Guitar Hero title for 2011,” said Activision Publishing CEO Eric Hirshberg. “Demand for peripheral-based music games declined at a dramatic pace. Given the considerable licensing and manufacturing costs associated with this genre, we simply cannot make these games profitably based on current economics and demand. Instead, what we'll do is focus our time and energies on marketing and supporting our strong catalog of titles and downloadable content, especially to new consumers, as the installed base for hardware continues to grow.”

Activision also said it stopped development on the game True Crime: Hong Kong. It pulled the plug because “even our most optimistic internal projections show that continued investment is not going to lead to a title at or near the top of the competitive open-world genre,” said Hirshberg. “In an industry where only the best games in each category are flourishing, to be blunt, it just wasn’t going to be good enough."

The publisher’s main “areas of focus for the next few years” will be on Call of Duty, downloadable content, China, a new entertainment franchise that will be bowing on Friday in New York in conjunction with the American International Toy Fair, licensed properties and games from the company’s Bungie development team, said Hirshberg.

Activision started a new Beachhead development studio that Hirshberg said “will lead the creation of our all-new digital platform for the Call of Duty franchise,” creating “a best-in-class online community, exclusive content and a suite of services for our Call of Duty fans.” The new platform “will support in-game integration and bring online experiences and console play together for the first time,” and “has been in development for over a year,” he said.

The company is developing “a free-to-play micro-transaction based Call of Duty title for the exploding market in China,” said Hirshberg. That effort, “although not slated for this year, has tremendous potential in its own right, but will also offer learnings that we can use throughout our organization,” he said.

Hirshberg said the company will introduce “an all-new gaming universe" in New York on Friday that brings together the worlds of toys, videogames and online play in a way that I believe to be unprecedented.” The “new universe has tested incredibly well and has generated tremendous support from our retail partners and is expected to launch in the back half of this year,” he said.

Activision Blizzard’s Q4 sales fell to $1.43 billion from $1.56 billion in the year-ago quarter, it said. But the company said revenue from digital channels jumped 40 percent to more than $470 million. The loss narrowed to $233 million, or 20 cents a share, from $286 million, 23 cents. It cited continued strong demand for Call of Duty and Blizzard’s World of Warcraft. Although its digital business is, “by far, the largest in the industry and growing double digits over the last three years, today, digital revenues represent only a third of our total revenues, suggesting significant opportunity for profitable growth,” Tippl said.

"There continues to be tremendous reason for optimism, starting with hardware,” said Hirshberg. The company expects the installed base of current-generation systems in the U.S. and Europe to grow 16 percent to 312 million units this year, he said. Of that, it expects the installed base of the online-enabled consoles, the Xbox 360 and PS3, to increase 24 percent to 92 million units and that software sales on those platforms “will once again grow this year,” he said. The company expects growth of more than 20 percent in the U.S. and Europe in 2011 in digital sales, due to “higher broadband penetration, complete consumer adoption and additional content,” he said.

The company was “once again the number one independent digital publisher and provider in interactive entertainment” in 2010, and was “also number one, again, in retail sales for the industry across North America and Europe,” said Activision Blizzard CEO Robert Kotick.

Activision Blizzard expects to report 2011 revenue of $3.95 billion, with “about $500 million of the reduction” from last year “coming from … low-margin businesses,” said Tippl. It expects to report earnings per share of 56 cents, he said. The company “will release no new music or skateboarding games” this year, and “we expect our distribution and affiliate businesses to decline,” he warned. “Earnings will perform better than revenues, due to contribution from our high-margin digital business and the lack of new peripheral releases, which were unprofitable in 2010.” For Q1, the company said it expects to report revenue of $1.28 billion and EPS of 28 cents.

The company’s board also authorized a new stock repurchase program under which Activision Blizzard said it can repurchase up to $1.5 billion of its common stock. The program replaces its $1 billion stock repurchase plan program authorized in February 2010 that expired Dec. 31, it said. As of year-end, Activision Blizzard had bought an aggregate of 86 million shares for about $966 million under the 2010 program, it said. The board also declared a cash dividend of $0.165 per common share payable May 11, to shareholders of record at the close of business March 16, it said. This is the company’s “second-ever cash dividend and it represents a 10 percent increase over its first-ever dividend that was issued in 2010,” it said.