Financial Wizards Call World of Warcraft Activision's "Achilles' Heel"

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Financial Wizards Call World of Warcraft Activision's "Achilles' Heel"

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Activision's dependance on World of Warcraft may mean that any subscriber loss will affect the bottom line.

We've seen the writing on the wall for some time now. After years of dominating the entire MMO marketplace, World of Warcraft is slowly but surely declining. That's not to say the game is in trouble just yet; even if WoW didn't have at least one major expansion to go, it continues to rake in millions of dollars in revenue. According to hedge fund experts Leonid Levit and Derek Cheung, however, those millions actually represent a much bigger problem. After taking a closer look at Activision Blizzard's finances, they concluded that the publisher is so dependent on World of Warcraft's massive revenue that the game has actually become the publisher's greatest weakness.

"After looking into Activision Blizzard, Inc. ... we discovered an amazing looking company that is unfortunately almost completely sustained by the revenue it reaps from one game, World of Warcraft," Levit and Cheung wrote in a Forbes guest post. "[WoW] has helped ATVI maintain its stock price, with this one single game providing roughly 30% of the revenue for the entire company via its expansion packs and monthly payments ... Since WoW has very high operating leverage any decline in revenue will have dramatic effects on the bottom line."

To prove their point, Levit and Cheung did some number crunching to see what would happen if World of Warcraft had a 25% drop of subscriptions, which is a lower percentage than Star Wars: The Old Republic recently suffered. "We estimate that ATVI's gross profit of the subscription business could drop to $779 million from the current $1.12 billion and software gross profit could drop to $75 million from $100 million if a mere 25% of current subscribers stop playing WoW," the report reads. "With the combination of these numbers, we project ATVI could experience a drop of up to $366 million in gross profit in the 6 months following the release of Guild Wars 2 at the end of August 2012." At that point, even popular franchises like Diablo or Call of Duty won't be enough to keep stock prices from dropping by $7 this fiscal year alone.

Levit and Cheung seem to think that Guild Wars 2 is a "fierce competitor" to WoW, since its popularity and lack of subscription fees puts it in an ideal position to be the fabled WoW killer gamers have been hearing about for years now. Whether that will actually happen or not remains to be seen, but the stark fact is that Activision isn't just facing lack of interest in a flagship title; it might actually be facing losses for the entire company.

Source: Forbes

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"Any decline in revenue will have dramatic effects on the bottom line."

I'm not normally one for sarcasm or being mean, but...

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i have a hard time not laughing at this, WoW, the multi million dollar a year game, is its company greatest weakness, oh, the irony.

kinda what they get for putting all they're eggs in one basket though, thus i choose to sit back, nom popcorn and laugh when WoW final goes down and takes 2 worthless company's with it

I don't think Guild Wars 2 is a WoW killer per say, but it certainly will hurt WoW's subscriptions.

Fappy:
I don't think Guild Wars 2 is a WoW killer per say, but it certainly will hurt WoW's subscriptions.

A person can play GW2 and still enjoy WoW at the same time, I know I will. Its just a nice alternative since you only have to Pay for GW2 once and be able to enjoy all the main content. Yes they have a micro transaction store, but it's mostly optional.

dragongit:

Fappy:
I don't think Guild Wars 2 is a WoW killer per say, but it certainly will hurt WoW's subscriptions.

A person can play GW2 and still enjoy WoW at the same time, I know I will. Its just a nice alternative since you only have to Pay for GW2 once and be able to enjoy all the main content. Yes they have a micro transaction store, but it's mostly optional.

That's certainly true, but most people don't really play more than one MMO at a time. There will be plenty of people cancelling their WoW sub when GW2 comes out just like they have for every other major MMO release since Warhammer. A lot of these people eventually return to WoW.

I don't think they know the meaning of the words achilles' heel.
WOW is Blizzard's strength, so the exact opposite thing.

Yes, if Blizzard hypothetically get beaten fair and square at their own game, they will lose, but it's very unlikely and every contender sofar has failed terribly.

veloper:
I don't think they know the meaning of the words achilles' heel.
WOW is Blizzard's strength, so the exact opposite thing.

Yes, if Blizzard hypothetically get beaten fair and square at their own game, they will lose, but it's very unlikely and every contender sofar has failed terribly.

I don't think they are saying WoW is bad for Activision Blizzard, I think they are saying that the companies finances rely on WoW's continued success to much.

Lets ignore the fact that an expansion is <2 months off so doing anything in WoW right now is wasted effort, only reason I'm still logging on is for guild raids once a week because people still don't have BiS gear/Heroic Madness mounts. ¯\(°_o)/¯

That last paragraph seems a bit messed up to me. Just pointing that out.

I think many people are quitting WOW just because they are bored of it after playing it for so long rather than other games drawing their attention away.

That said I'm sure Guild Wars 2 will strip a quite a few subs from WOW. Especially those looking for jump in and play pvp.

Wow.

Were these financial wizards all related to John Madden or something?

"Now, if you lose 25% of your income, then your bottom line is just going to be lower than it was. That's just how the game is played!"

I get the overall message that subscription numbers are not specifically as predictable as cowards with millions of dollars to invest would like, and maybe you shouldn't build your entire house on sand, but it's not really any more or less predictable than anything else if you take any time to actually research what you're investing in.

It's kind of like these guys went to the wow forums once and decided that it was somehow representative of the entire playerbase.

Bricky:

veloper:
I don't think they know the meaning of the words achilles' heel.
WOW is Blizzard's strength, so the exact opposite thing.

Yes, if Blizzard hypothetically get beaten fair and square at their own game, they will lose, but it's very unlikely and every contender sofar has failed terribly.

I don't think they are saying WoW is bad for Activision Blizzard, I think they are saying that the companies finances rely on WoW's continued success to much.

Should they start refusing subscribers instead? Ofcourse they milk WOW for all it's worth!

Maybe WOW is getting a bit long in tooth, but it is still far too soon for all the doom and gloom. WOW still has to sink to great depths first, before a new MMO should be launched.

Unless Blizzard are pissing away their mega profits instead of reinvesting, there's no reason to assume WOW will be their last success. I wouldn't sell shares based on this crap.

New expansion in less than 2 months. WoW isn't going anywhere.

World of Warcraft. "Dying" Since 2007!

With an Expansion about to drop which will probably boost subs a couple million WoW is not in any danger of dying anytime soon. Heck even at 9 million it has more subs then many of the other triple A mmos COMBINED. I swear these doom and gloom articles about WoW dying or somehow going to drag Acti-Blizz under are funny.

QUICK!!! Whip out another 5 Call of Duty games.

Too big to fail eh?

But seriously yeah it makes sense that the second world of warcraft subscribers start to leave, Activision won't be taking on so many risks or be able to publish games on a consistent basis like they currently have.

If anything what you will see if the bottom line and developers taking the hit instead of the main branch itself. So Blizzard better watch out for itself and be able to convince Activision that despite not developing games quick enough they are worth the long term investment.

As soon as WoW starts to really die it will turn free to play and it will resurrect.

Moonlight Butterfly:

I think many people are quitting WOW just because they are bored of it after playing it for so long rather than other games drawing their attention away.

That's why I quit. Cataclysms end game just bored the hell out of me and killed what little interest I had left in the game. I was hoping Cataclysm would bring back my interest in the game as I was already getting bored towards the end of Wrath of the Lich King. It was off to a good start, I loved the questing areas in Cataclysm, but the end game, which is what I played World of Warcraft for, was even worse than Wrath of the Lich Kings end game.

Fappy:

dragongit:

Fappy:
I don't think Guild Wars 2 is a WoW killer per say, but it certainly will hurt WoW's subscriptions.

A person can play GW2 and still enjoy WoW at the same time, I know I will. Its just a nice alternative since you only have to Pay for GW2 once and be able to enjoy all the main content. Yes they have a micro transaction store, but it's mostly optional.

That's certainly true, but most people don't really play more than one MMO at a time. There will be plenty of people cancelling their WoW sub when GW2 comes out just like they have for every other major MMO release since Warhammer. A lot of these people eventually return to WoW.

All the same Guild Wars 2's lack of subscription means that it'll actually be possible for players of modest means to enjoy both WoW and GW2. I'm not planning on getting GW2, but the option is on the table because I'd only have to pay once.

MDSnowman:

Fappy:

dragongit:

A person can play GW2 and still enjoy WoW at the same time, I know I will. Its just a nice alternative since you only have to Pay for GW2 once and be able to enjoy all the main content. Yes they have a micro transaction store, but it's mostly optional.

That's certainly true, but most people don't really play more than one MMO at a time. There will be plenty of people cancelling their WoW sub when GW2 comes out just like they have for every other major MMO release since Warhammer. A lot of these people eventually return to WoW.

All the same Guild Wars 2's lack of subscription means that it'll actually be possible for players of modest means to enjoy both WoW and GW2. I'm not planning on getting GW2, but the option is on the table because I'd only have to pay once.

Yeah, that's actually one of the primary reasons I am picking it up.

How do we prove that a loss of subscribers equals a loss of income?

Wouldn't the CoD franchise have to die as well as WoW to put Activision-Blizzard into real trouble? If WoW lost enough subscribers job cuts would be the obvious result but the publishers would still be raking it in from other franchises and IPs.

with so much of their bottom line being related to WOW profits yeah loosing that or a substantial subscriber loss would be devestating for them. although that said going FTP would work in the short to medium term for that.

Fappy:

dragongit:

Fappy:
I don't think Guild Wars 2 is a WoW killer per say, but it certainly will hurt WoW's subscriptions.

A person can play GW2 and still enjoy WoW at the same time, I know I will. Its just a nice alternative since you only have to Pay for GW2 once and be able to enjoy all the main content. Yes they have a micro transaction store, but it's mostly optional.

That's certainly true, but most people don't really play more than one MMO at a time. There will be plenty of people cancelling their WoW sub when GW2 comes out just like they have for every other major MMO release since Warhammer. A lot of these people eventually return to WoW.

Indeed, though this time around they can freely return to GW2 as well without the guild of paying off another 15 dollars. So I'll be enjoying those two games for a long time to come.

Look, Cataclysm's on its tail end, there's been a content drought, there haven't even been very many in-game holidays. We're all just waiting for Mists right now.

If your bottom line is reliant on WoW, you're probably doing economics wrong. WoW is good, numbers will go back up come October, no matter how many ditchers run for Guild Wars 2 or whatever new MMO comes around.

Time to cut the chase pay out the investors leave the stock market and live happily ever after.

Financial wizards call clothing Nike's "Achilles' Heel."
Financial wizards call drinks Pepsi's "Achilles' Heel."
Financial wizards call fighting crime Batman's "Achilles' Heel."
Financial wizards call being evil Darth Vader's "Achilles' Heel."

If the analysts' argument is that Activision could lose revenue because of their reliance on a single game, I could understand that.

If their argument is "well, Activision is going to fail because WoW is losing subsctibers", that's not really true. Blizzard has gotten...what, 7 years out of that IP? It's continually been on top of the MMO genre, even in the face of all the so-called "WoW killers"? Blizzard should be proud and happy that their product has been a continual success for so long. Obviously, they're still working on other projects (Diablo III had a huge release). If it got to a point where subscriber drops were really that bad, I have no doubt they would re-prioritize and leverage a WoW sequel or other franchise to boost themselves.

I don't even play the game, and even I know that any WoW expansion is always a huge event that brings in the numbers. I'm sure there's fatigue associated with he IP, but it's still getting numbers other MMO's could only dream of.

Seems more like sour grapes than anything else.

DugMachine:
New expansion in less than 2 months. WoW isn't going anywhere.

Honestly I wish they'd work harder to milk my wallet :/.

I'm a whore for new content, just keep shoveling out those expansions at a rate that would mortify Everquest and you'll narry hear a peep out of me.

The time between their expansions usually just isn't enough for me because I can barely give a shit about Raids at all. I like them once then its just meh.

The social aspect and new content is my delight. Probably why I've been pumping out so many of these silly little avatars to 85 :/...

I'd call it an addiction but that's reserved for MTG cards, that shit is like cocaine and I apparently really like cocaine.

Fappy:
Snip

A) Plan to play both GW2 and Wow :). My wife bought me the "super duper edition" of GW2 with that figure in it, quite happy for my Bday on the 28th (the same day it comes out, coincidentally).

But the real reason I'm quoting you is that you have a fantastic username.

But I wanted to make sure there was something of substance to add onto that comment.

Also like your avatar.

While the idea of the article makes sense, the number crunchers really didn't do too well explaining the consequences. Personally, I think Activision should have horrible things done to them by a gorilla on Viagra, so I hope that Guild Wars II will be the one that makes MMO's an even fight again, but I doubt it. Activision has nothing to worry about in the immediate future.

Never been big on MMO's. The only one I ever got into was RuneScape (Don't look at me), but my god I want to play Guild Wars 2!

Captcha: Which one does not belong...
George Bush
Ronald Reagan
Head of cabbage
Bill Clinton
Barrack Obama

Well it's clearly George Bush, amiright?

Whoa, whoa. I thought they were profiting massively from yearly Call of Duty installments?

Yeah, WoW is their weakness. Here are some more fun facts: New York is built on land and a massive earthquake would be bad, Not having any open wounds is an important factor to my good health, a bullet to the chest would be unfortunate, Call of Duty brings the money parade around Blactivision's way once a year, if we were to ignore it's existence, we could make a point about how the company isn't diverse enough.

This is silly, Activision milks their audience for all their games dry and they STILL don't have enough money? They need to sort out their company right now if that's the case. How much inefficiency must they have for this to be the case?

CardinalPiggles:
Never been big on MMO's. The only one I ever got into was RuneScape (Don't look at me), but my god I want to play Guild Wars 2!

Captcha: Which one does not belong...
George Bush
Ronald Reagan
Head of cabbage
Bill Clinton
Barrack Obama

Well it's clearly George Bush, amiright?

must. not. make. political statment.......

OT: wow shot itself in the head back in WotLK and has been slowly dieing since. Guild wars 2 wont kill wow but this will hurt it and badly (about a 15-25% loss of subs) this is mostly because if you have 2 very simular games you play the game thats cheapest.

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