Activision Blizzard is a leading global video game publisher headquartered in California. It has strong franchises like Call of Duty, World of Warcraft, and Guitar Hero. However, it relies heavily on a small number of successful franchises and faces threats from delays in new releases, loss of interest in current games, and rising development costs.
2. Activision-Blizzard
Summary
Headquartered in Santa Monica, California, Activision
Blizzard, Inc. is a worldwide pure-play online and
console game publisher with leading market positions
across all categories of the rapidly growing interactive
entertainment software industry.
Activision Blizzard's portfolio includes best-selling video
games such as Guitar Hero, Call of Duty, and Tony
Hawk, as well as Spider-Man, X-Men, Shrek, James
Bond and TRANSFORMERS, leading franchises such as
Crash Bandicoot and Spyro and Blizzard
Entertainment's StarCraft, Diablo, and Warcraft
franchises including the global #1 subscription-based
massively multi-player online role-playing game, World
of Warcraft.
3. Porter’s Five
Supplier Power
• Industry is rather concentrated
– Most successful titles are almost exclusively developed by established
companies rather than new startups.
• Volume of sold games is of utmost importance
– Fixed development cost but minimal distribution costs
– Failing to cover the development costs can therefore ruin a company
• Products in the market are differentiated
– Differences in quality are large
– Gamers are usually loyal to certain types of games and are unlikely to
accept substitutes
• Even major publishers are not forward integrated
– Rely on the customary types of distribution.
• Compared with the rest of the computer industry, the average
cost of computer games lies well below the average cost of
the whole software industry.
4. Porter’s Five
Barriers to Entry
• Technically no barriers to enter the market of computer
games as any teenager with a computer and sufficient
knowledge can develop a game.
• Nevertheless, starting a larger company requires major
investments (teams consisting of coders, graphical designers,
music composers, game designers, and marketers). With
increasing complexities of the games, these costs are
understandably increasing.
• The companies have very limited absolute cost advantages as
they cannot patent their technologies and development costs
are very similar for the single companies.
• The possibility that governments might outlaw certain types of
games because of objectionable content poses a risk for game
publishers. Nevertheless, it is very unlikely that any such
steps will be actually taken.
5. Porter’s Five
Threat of substitutes
• The switching costs on the market are virtually non-
existent and the market is very competitive.
• Nevertheless, the buyers are very unlikely to accept
substitutes and the aggregate game sales are usually
down prior to the release of a long awaited title.
6. Porter’s Five
Buyer Power
• The companies do not have long-term
agreements and are dependent on a small
number of customers who generate large
percentages of the sales (game store etc.).
These have large bargaining power as the
companies must reach an agreement with
every single one of these chain stores whereas
the stores do not.
7. Porter’s Five
Degree of Rivalry
• The industry is growing rapidly. The size of the
whole market is now almost USD 12 billion.
• The corporate stakes are high as the single
corporations are dependent on the revenue
solely from the one sub-industry (apart from
giants such as Sony or Microsoft).
• There are very few exit barriers as the
companies, apart from its staff and computers,
do not own much.
• Companies who want to exit the market are
more likely to be acquired by another
company rather than go out of business
completely.
8. SWOT Analysis
Strengths
• Very strong franchises (Starcraft, Diablo, World of
Warcraft, Guitar Hero, Call of Duty); the previous
titles in the various series were critically acclaimed
and sold in the millions
• The Blizzard name is highly valued by customers;
arguably the most highly esteemed in PC gaming
• Multi-year agreements with companies like
DreamWorks granting exclusive rights to create
video games based on their theatrical releases
(games based on movies tend to sell very well)
• Diversity: the company releases products on all
major gaming platforms, including PC
9. SWOT Analysis
Weaknesses
• Near total reliance on a limited
number of franchises
• Failure of any of these would pose
a significant threat to the
company’s profitability
11. SWOT Analysis
Opportunities
• Growing gaming industry
• Another MMORPG in the works; their current one is the
most successful in the genre and provides approximately
$165 million in revenue per month
• Sequels to their Starcraft and Diablo franchises slated for
release in late 2009 / early 2010; previous titles in the
series sold millions of copies
• Releases of more Guitar Hero titles later this year
• X-Men Origins game, Transformers 2 game in time for
the movie releases
• The company has expressed interest in future
acquisitions of successful small- to mid-size game
developers
12. SWOT Analysis
Threats
• Delays in product releases; the life of most games is
relatively short and the vast majority of revenues from a
given title come within the first few months of release
• Loss of customer interest in current franchises (like
Guitar Hero, which will likely prove to be a “fad”)
• Every game title that is produced for a specific gaming
console requires a license from the manufacturer of that
console; if said manufacturers were to increase their
licensing fees, ATVI would suffer
• Product development costs are likely to increase with the
advent of new technology; new technology forces
developers to make ever more sophisticated games,
which in turn raises the cost of their development