Activision Q1: World of Warcraft subs down 1.3 million

Activision-Blizzard has posted its Q1 results for fiscal year 2013 and reported net revenues of $ 1.32 billion compared with $1.17 billion for the first quarter of 2012.

Revenues from digital channels represented 28% of the company’s total revenues, and according to the firm, World of Warcraft subscriptions are down by 1.3 million "mainly" in the Asian market, but the firm's CEO Bobby Kotick noted a decline in the west as well. However, the firm noted it was still the number one sub-based MMO with 8.3 million subscribers.

"Additionally, during the quarter, Blizzard’s World of Warcraft remained the number one subscription based MMORPG in the world with more than eight million subscribers, although the game saw declines of approximately 1.3 million subscribers, around 14%, mainly from the East, but in the West as well," said CEO Bobby Kotick in a prepared statement.

"Blizzard Entertainment’s StarCraft 2: Heart of the Swarm was the number one PC game for the quarter, and as of the end of its first two days of sales, Heart of the Swarm had sold through approximately 1.1 million copies worldwide, including both retail and digital sales."

Blizzard CEO and president Mike Morhaime reiterated Kotick's comments on WoW, stating that the firm expects more declines in WoW subs, but promises more resources dedicated to the MMO for faster updates and more content.

"Looking forward, our objective is to deliver new game content at a quicker pace to improve engagement," he said. "Our next content update will release later this month and we will continue to invest in additional updates and improvements to continue to evolve the game.

"More specifically, we're examining ways we can ease the transition back into the game for returning players. We've always seen players come and go from World of Warcraft. Smoothing out that transitional period is something we're studying, as we adjust our approach to player behavior and preferences."

Hearthstone: Heroes of Warcraft, the firm's new cross-platform free-to-play, will go into beta this summer on Mac and PC. The iPad version will be available for download shortly after.

Blizzard reported $330 million in revenue for the quarter, up 31% year-over-year and $135 million in operating income, up 52% from the same quarter last year. This increase was driven in large part by the launch of Heart of the Swarm, as it didn't have a comparable launch in Q1 2012.

During the quarter, digital revenues from the Call of Duty franchise increased more than 100% year over year on a non-GAAP basis, and in North America and Europe combined, Activision Publishing was the number one publisher overall for the quarter, including accessory packs and figures, with Skylanders and Call of Duty.

"While I can't comment on next-gen consoles, and while we approach new business models skeptically, I can say I don't think there will be any dramatic shift in the way things are monetized on new consoles." - Kotick

Eric Hirshberg, the firm's publishing CEO, said that 60% of Black Ops 2: Uprising sales on Xbox 360 came from the in-game store.

For the quarter, in North America and Europe combined, Call of Duty: Black Ops 2 was the number two best-selling title in dollars, with Skylanders Giants the number one best-selling game overall in dollars.

“While we have had a solid start to the year, we now believe that the risks and uncertainties in the back half of 2013 are more challenging than our earlier view, especially in the holiday quarter," said Kotick. "The shift in release dates of competing products, the disappointing launch of the Wii U, uncertainties regarding next-generation hardware, and subscriber declines in our World of Warcraft business all raise concerns, as do continued challenges in the global economy.

"For these reasons, we remain cautious. However, our focused and disciplined approach to our business has served us well in the past, and through continued investment and careful management of our costs."

The year ahead

Activision acknowledged that while it had a solid start to the year, the back half of 2013 could "prove more challenging" for a few reasons, such as the: strong upcoming release slate from competitors, the console transition, Disney Infinity, and the continued slower than expected sales of Wii U.

"This year, we expect a number of well-established video game franchises and well-capitalized new entrants to compete directly for our consumers' time and attention, particularly as certain of our competitors have moved their launches into the back half of the year," said CEO Bobby Kotick.

"Our Skylanders franchise will face much more direct and substantial competition than it has in the past, and our next Call of Duty game will face a more competitive environment than last year.

"The competitive landscape will likely require us to further increase our sales and marketing investments for our three largest franchises, especially in the important holiday season."

Activision stated that Call of Duty: Ghosts will have the largest sales and marketing plan in the franchise's history leading up to it November release and into the holiday season.

"[Skylanders has] done well despite weaknesses for both the Wii and the Wii U and seeing the Wii U take off would be great, but remains to be seen.”- Hirshberg

Kotick also said the firm is facing uncertainties regarding the console transition due to unknown factors at the moment. Pricing, launch dates and quantities have yet to be announced, along with the level of first-party support. Another concern is "consumer purchase intent" in a world where consoles are no longer just competing with each other, but also with
smartphones and tablets.

"In addition, the newest console, the Wii U, has had a very slow start," Kotick continued. "All of these factors further heighten our concerns heading into the back half of the year, particularly during the very competitive fourth quarter."

Despite the firm's concerns with Wii U and the weakening sales of Wii, the firm reiterated comments it made during its full-year report in December: Skylanders sold well before the Wii U was released, and continues to sell despite the platform's slow sales.

"Skylanders has done great both before the Wii U and has done great after the Wii U," said publishing CEO Eric Hirshberg. "Obviously, a growing installed base of family friendly consoles would be a benefit. And console prices and sales are one of the risks and one of the issues that we articulated for the fourth quarter.

"That said, we've done well despite weaknesses for both the Wii and the Wii U and seeing the Wii U take off would be great, but remains to be seen."

During the remainder of the year, Activision said it will continue to invest in its established franchises, "invest selectively in new opportunities," and continue managing its costs in an careful manner.