Thursday, September 21

This is how Activision Blizzard makes money: its three major franchises generate 76% of its income

This is how you make money… is a series of articles Xataka in which we analyze the business model of the big technology companies: which divisions give them real benefits and which do not, what are the true core of these companies that have transformed the world. Today, the company that has just bought Microsoft for more than 60,000 million euros. Today, Activision Blizzard.

A historical operation, much higher than what Microsoft also did a little over a year ago when it bought Bethesda for 7,500 million dollars or the one it did in 2014 when it bought Minecraft for 2,500 million dollars, small change compared to what it has just disbursed.

$8 billion and counting

Activision Blizzard had record revenue in 2020, the last full calendar year with published financial reports, when it managed to bill just over $8 billion. In 2021 and until September 30, that is, during the first three quarters, it exceeded 6,000 million, so taking previous years as a reference, when the last quarter of the year (that of the Christmas campaign) has traditionally been the most strong for the company we can expect it to top $9 billion in revenue for the full year of 2021, something that we will know at the end of January.

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The net result for 2020 was almost 2.2 billion dollars, just over 25% of revenues. Taking a similar margin for the 2021 projection, we can expect a slight increase in the net result for this year.

How does the company achieve this turnover? Has three main legs, three subsidiaries that support your business. Other activities are residual on your accounts. The first two are the ones that give the company its name since both, Activision and Blizzard, merged in 2008. King has joined them since it was bought in November 2015 for 5.9 billion dollars, going on to integrate into the company a smartphone games division and opening a door for the Chinese market. Each of those affiliates has its own top franchises.

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There are companies with their subsidiaries that are quite balanced in terms of billing, such as Microsoft. Others have a large division that accumulates almost all the income or directly all the profits, like Google. Activision Blizzard is halfway there: one of its subsidiaries, Activision, accounts for half of the turnover. The other two share the other half, leaving an approximate proportion 50-25-25.

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These revenues are not achieved in the same way in each of the divisions. Activision monetizes its games both through direct sales and microtransactions, being Call of Duty its main franchise. Blizzard monetizes them in the same way, adding subscriptions and software licenses to third parties, being World of Warcraft his first sword. However, King leans on the free-to-play offering free games that are monetized through internal purchases and advertising, and here Candy Crush is the main product.

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Said that, each subsidiary has a large franchise, those mentioned, which combined concentrate the vast majority of the company’s income, with a trend that goes to more. In 2018, these three franchises accounted for 58% of revenue. In 2020 this percentage already rose to 76%. None of the others reaches 10% of turnover on its own.

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The company sells its games directly to consumers, but also relies on third parties to sell on its platforms (Sony and Microsoft on consoles, Google and Apple on mobile) or in physical stores (Walmart and GameStop) depending on the type of game. According the 2020 financial report, Sony, Apple, Google and Microsoft are, in that order, its main distributors, above physical stores.

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Three years ago Ted Sarandos, co-CEO of Netflix, made famous the phrase in which he revealed that he not only competes against other video-on-demand platforms, such as HBO, but with any other form of entertainment, such as Fortnite. Activision Blizzard has the same consideration: it claims to compete against other video game companies, but also against cinema, television, social networks or music “among other consumer products.”

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They also point to Microsoft (before the purchase, of course), Sony and Nintendo as competitors due to the fact that in addition to making video games they also manufacture video game consoles and have their own distribution channels and payment gateways, something similar to Google and Apple in devices mobiles. Now they have one less rival.

This is how you make money…

I. This is how Amazon makes money: more and more cloud and a future of audiovisual productions.

II. This is how Alphabet makes money: the absolute king of advertising has a big problem with the rest of its products and services.

III. This is how Apple makes money: with the iPhone reaching its peak, it’s time to get more money out of its owners.

IV. This is how Facebook makes money: the other advertising giant has two aces up its sleeve.

V. This is how Twitter makes money: its advertising and segmenting us better and better makes it profitable for the first time.

SAW. This is how Microsoft makes money: more and more cloud to compensate for the disaster in mobile.

VII. This is how Samsung makes money: neither TVs nor smartphones are the basis of its business.

VII. This is how Sony makes money: PlayStation in hand is worth more than Xperia flying.

XIX. This is how Xiaomi makes money: I came for the price of the smartphone and I stayed for the services.

X. This is how Netflix makes money: when 140 million subscribers are not enough.

XI. This is how Huawei makes money: its mobile phones are not (yet) its main activity.

XII. This is how LG makes money: the smartphone era has not gone down well with it.

XIII. This is how Dropbox makes money: a poor 3% and an unblemished track record.

XIV. This is how Spotify makes money: profitable for the first time in its history and a logical focus on podcasts.

XV. This is how HTC makes money: the abdication of a king.

XVI. This is how Disney makes money: theme parks and merchandising are sweeping, while streaming is (still) testimonial.