Activision Blizzard loses $286 million on weakening rhythm genre

Modern Warfare 2's record sales can't prevent Oct.-Dec. shortfall caused by asset write-down; earnings still beat analysts' expectations, stock up in after-hours trading; full-year profit of $113 million.

The past two weeks have seen Capcom, Nintendo, Microsoft, Namco Bandai, Tecmo Koei, Sony, Square Enix, Konami, and Electronic Arts all report holiday-quarter earnings. Today, it was Activision Blizzard's turn to report its financial results from the October-December period, during which it released the fastest-selling game to date, the billion-dollar-grossing Call of Duty: Modern Warfare 2.

According to Activision's latest report, the rhythm-game genre is no longer minting cash.

With such a humongous blockbuster on Activision Blizzard's books, the layman would expect it to post a massive profit. It didn't. Thanks to the intricacies of Wall Street accounting, the company managed to both beat analysts' expectations and lose a sizable amount of money during the same quarter.

According to generally accepted accounting practices (GAAP), Activision reported quarterly revenues of $1.56 billion and a loss of $286 million ($0.23 per share), nearly four times the shortfall of $72 million ($0.05 per share) it reported during the year prior. The reason? The company took a "$0.19 per share reduction in the valuation of intangible assets reflecting the impact of a weaker market on the casual and music genres."

In layman's terms, that means the rapidly slowing rhythm-game market has made Activision's heavy investment in the Guitar Hero franchise and its various offshoots (Band Hero, DJ Hero) less valuable, allowing the company to write down the assets related to it. In a related move, Activision announced it would release only two rhythm games--one Guitar Hero game and DJ Hero 2--in the latter half of 2010.

However, excluding the rhythm-game charge, the company had revenues of $2.5 billion for the October-December quarter, for adjusted per-share earnings of $0.49. More importantly for Activision Blizzard shareholders, the company announced that it would pay out an annual dividend of $0.15 per share on April 20 and that it's spending $1 billion to buy back stock, making existing shares more valuable.

It's these latter numbers that Wall Street has seized upon, as a survey of Thomson Reuters analysts had only expected $0.43 earnings per share. As a result, the company's stock was up in after-hours trading and had risen over 7 percent ($0.72) to $10.82 as of press time.

For the 2009 calendar year--which is also the company's 2009 fiscal year--Activision Blizzard's GAAP net revenues were $4.28 billion, for $0.09 earnings per share and $113 million in profit. Excluding charges such as the music-genre write-down, the company's non-GAAP net revenues were $4.78 billion, for $0.69 earnings per share--more than enough to pay for the $0.15 per share dividend.

With the financial nitty-gritty out of the way, Activision Blizzard talked up its 2009 accomplishments, citing research firms the NPD Group (US) and Gfk Charttrack (EU). It said despite the music-genre write-down, Guitar Hero was one of the top four franchises in the US and Europe for the calendar year. Despite weak-to-middling US sales, the company reiterated that DJ Hero was the "highest grossing new intellectual property" in the two territories, thanks to its premium price tag ($120 in the US).

For the current quarter ending March 31, Activision Blizzard is expecting GAAP net revenue of $1.1 billion, with $0.20 earnings per share. Using non-GAAP accounting, it will actually make less--$525 million, with $0.02 earnings per share. For all of 2010, the company expects GAAP net revenues of $4.2 billion with $0.47 earnings per share, and non-GAAP net revenues of $4.4 billion with $0.70 earnings per share.

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Discussion

168 comments
EgoAttacker
EgoAttacker

Wait, so if activision falls does this means they will bring down blizzard as well?

McNeelyJ39
McNeelyJ39

I don't get how it took them this long to see how they oversaturated the music market. Too many games at one time and a number of them were just crappy bands thrown on an existing game. Jeez I wonder who saw this coming...oh yeah everyone but them.

Cloud737
Cloud737

Time for Activision to die? (Un)Fortunately, no, but at least their music genre rip-off frenzy will be put to a gruesome halt. :)

Jorlen
Jorlen

You see, this is the problem. Activision "looses" X amount of billion blah blah. You can't loose something you never had to begin with. You've milked this genre as much as you can, this is a clear message to get back to the drawing board instead of counting your #&*($ dollars.

wiidsduelpack
wiidsduelpack

Modern Warfare 2 saved activision bigtime. Probably the game that made Activision get a profit. $113 million when it generated about a billion dollars. Blizzard will come up with a new game soon which means more money.

skyjack
skyjack

Ironic that this article comes on the same day as this one below: Activision Blizzard rose 5 percent to $10.60 in New York. The world’s largest video-game maker posted fourth-quarter earnings that topped analysts’ estimates and announced a $1 billion stock buyback and its first dividend.

Cillerboy
Cillerboy

this is good news maybe they'll start focussing on making more decent games

Zartan3000
Zartan3000

Totally didn't see this coming, I would have sworn this company in particular would have had a great quarter with the release of what title again? Only Modern Warfare freaking 2!!! But yeah, rythm games aren't the hot new thingy in 2009. Just like white nunchucks that break plasma tvs. You buy one you have fun for a bit and then it stops brring fun...Why would you buy a third version?

luffy11234
luffy11234

"the music genre is no longer minting cash" NO CRAP (censor wont let me use real word)! when you milk it bone dry of course it wont give you something.

nevryn
nevryn

Meh, 4th quarter losses, but overall, they were profitable for the year (which they were not last year). Considering the flop from their main competitors EA (PLEASE fire their moron of a CEO) and Take Two (if you can call T2 a competitor), it was a huge positive. Also given the poor state of the economy in general and the fact that the gaming industry in general has been hit pretty hard, they really did pretty dang well, and that was without a big blizzard game coming out. This year you have 2 major Blizzard games coming out so expect to see better profits this year. The fact that they are doing the $1Billion buy back shows the confidence they have in their company for the next year.

L30KinG
L30KinG

with like 5= new games that no one will baught then off course you are gonna lose money, i can'tbelive activition did'nt saw that coming

Flame_Blade88
Flame_Blade88

I'm glad to see that milking the genre is finally biting them in the butt.

zeckle_1
zeckle_1

Well dah! Of course you're going to loose money on this genre, you're just bringing out to many games like this. Go design a new game to milk the crap out of!

GatsuBlackSword
GatsuBlackSword

They need to stop pumping out a new version every 6 months; just keep going with the DLC and people will buy that. I'm so sick of this genre now; I go to my buddies house who has Rockband and we used to play it all the time now it sits in the corner until some good songs we like come out. I know this sounds like a broken Record but we need to see some new IP's and creative game play.

meluvulongtime8
meluvulongtime8

It's nice to finally see Activision's constant milking finally backfiring. I don't need a rhythm game every couple months or even every year. One every other year and a commitment to release DLC regularly is what I want not 100 rhythm games in one year.

zey2k
zey2k

It always bad when a company loses money, but to know that these type of games arent sucessfull anymore makes me happy.

cornerback3
cornerback3

wow, they're finally realizing they are overdoing it with guitar hero. Nice observation!

spoonthemoose
spoonthemoose

@gonzaloontaneda reported! let the man have an opinion sure you don't agree with it but who died and made you king?

gonzaloontaneda
gonzaloontaneda

[This message was deleted at the request of a moderator or administrator]

coldsauce09
coldsauce09

ha!!! the milk went sour madapakas!!! 1 rhythm game in my home is enough to bring on the party with ROCKBAND with DLCs! im starting to love this activision failing.... HAHAHAHA!! then let infinity ward go to square enix then it will be more groundbreaking... get the hell out of there infinity ward!!

Waldkrieger
Waldkrieger

These aren't even real games. It's just fake air guitar with button presses. Come on, people actually spend all this money on trying to act like they can play something rather than learning how to play something. Its rather pathetic and good to hear this genre is falling. I hope it dies forever.

cryofax
cryofax

Anyone who thinks these games are somehow insulting to "real" musicians needs to chill out. That's like saying wargames are an insult to real soldiers. I play 4 different instruments and compose music as part of my living, and I can tell you I enjoy these games. They are games. They don't replace real instruments or even try to.

spoonthemoose
spoonthemoose

this is what happens when a market is inundated with the same product but with minor differences, many companies are guilty of this...Apple comes to mind.

xSithiSx
xSithiSx

Haha, I cant help but laugh at Blizzard losing money.

jadefury27
jadefury27

i guess i wont get my accordian hero starring weird al...

yman173
yman173

lol...of course GH is a top-four franchise for the year. When you release three seperate titles (4 if you include Band Hero) across all those platforms, youre flooding the market with product. Therefore, by simple math, youre going to have a major market presence. 1 release of GH a year I can handle. Since Im a year behind, that ensures that GH5 will be $15 around the time GH6 comes out. DJ Hero...not interested and still am surprised anyone is.

faceman4523
faceman4523

I wish these rhythm games would go away. I hate the fact that when I check Xbox Live to see if any new DLC came out recently all you see is 20 single songs for rhythm or singing games. It's like that every single week, it'd be nice to see some REAL dlc listed there, instead of songs for these repetitive games.

m4rkoca
m4rkoca

Guitar Hero and similar wannabe-musician games are a major insult to people who actually play the real instruments. Those games should have been never created.

doontime
doontime

Heehee this makes me giggle!

XanderZane
XanderZane

That's what happens when you flood the market with rhythm games. Activision had 5 games and EA's Rock Band has 3 games. How many of these games do we need in one year? Rock Band: Lego, GH: Van Halen and Metallica weren't even needed. Not sure why these publishing exec thought that fans would buy all these games during a recession. That was just dumb and now these companies are paying the price. At least we won't see many of these game from now on. All they really need to do is release music packs for these games. That's all I want. Release 10-15 song packs for $5. That's all we want.

Proman84
Proman84

It's not just the rhythm genre that's too blame. It still sells a lot of games. The companies shouldn't put all of their gaming eggs in one basket.

wis3boi
wis3boi

Activision should put their music games where they would feel at home...on the magazine rack at your local grocery store. You pass by it every week and pick up your favorite magazine, and there's a new (Random Item) Hero and Call of Duty X released every week, why not pick your your favorite Craptivision games in the same spot and save time :D

fueled-system
fueled-system

What do they expect when they keep coming out with new ones every 3 months you cant expect people to keep buying the same game with different songs on it so many times.

Heirren
Heirren

Bout time it's on the way out. I never got into the guitar hero/rock band games, but even the people I know that were well into the genre have stopped about a year ago.

SecularSage
SecularSage

@jinzo9988 Precisely my point! 99% of the comments here are based on an incorrect understanding of what's being reported because Gamestop's news reporters don't know what they're talking about and aren't communicating the story correctly. Whether you understand it or not is not the problem; it's their job to help you to understand it by explaining it properly in the first place. Let me repeat: there is nothing in this story to suggest that the music genre is dead or dying, but rather, an awful lot to suggest that Activision went sort of nuts with it over the last year. But there are far too many considerations (competition, changing tastes, people buying software rather than peripherals this year) to draw any definite conclusions.

Wallenstein_155
Wallenstein_155

I'm not sure why Gamespot is stressing that the financial numbers are GAAP; it's the only legal way of reporting any financial data in this country. Unless Activision is one of the companies that is moving to the international financial reporting mechanisms now.

oneligas
oneligas

i think what they need to do is release a Rap/Rapcore Hero so posers can use the full set of guitars, drums, mics, and turntables. the band list could use limp bizquik, stinking park, and all the other emo metal groups out now. that would guarantee big money for Activision.

hall0559
hall0559

I'm still rocking Guitar Hero [1] for the PS2. Yay Im part of the problem! Also I really like DJ Hero... but Im not going to buy it for $100.00

rogue81
rogue81

Hey Bobby Kotex, er Kotick... however you spell it... maybe if you "charged more for hardware bundles" you could have made more money. But wait, in order to get people to spend money you have to sell them something they want. Hmmm... sounds like someone needs to brush up on their business practices.

enoslives7
enoslives7

Activision put all their development into games that were a fad, and now they are paying for it. They are dragging Blizzard down. DJ Hero was a complete flop.

chefstubbies
chefstubbies

Weakening rhythm genre? lol, I haven't played one that's not weak in quality...

keyboard-hero
keyboard-hero

What were they expecting? After all, they launched 5 music games: Guitar Hero: Metallica, GH: Van Alen, GH 5, Band Hero (the worst of them all) and DJ Hero. This is probably the most expensive genre for the costumers, because the game more a guitar is almost 100$ and the whole kit around the prize of a console. This was a deserved slap in the face for Activision.

monson21502
monson21502

these type of games need about a 2 year rest imo. even with new songs these type of games cant shake the feeling of been there did that way to many times to be fun anymore.

ScionofEntropy
ScionofEntropy

"...no longer mining cash." I'm ashamed to admit I laughed at that particular pun. On a lighter note, maybe this means music games will go the way of the rail shooter and die for a decade or so. I hope Activision isn't surprised by any of this, considering it's the bed it made for itself.

VexnadDanger
VexnadDanger

The thing that really sucks is that Activision completely flooded the market with mediocre music games and that left Beatles Rock Band a little worse off on the sales, I think. Which is a shame really because anyone who has played it know that it is the best of its kind and there will never be as special a music game again.

jazilla
jazilla

does the term, "market saturation" mean anything to them? either that or it's the fact that the RB franchise is just a tad better than the Blank/Hero franchise.