Activision Q2 earnings, Guitar Hero III launch break records

When MTV bought Harmonix for $175 million in September 2006, many feared for the future of the Guitar Hero franchise. They shouldn't have. Today, Activision reported that Guitar Hero III: Legends of Rock minted over $100 million in North American retail sales in the seven days after it went on sale on October 28. [UPDATE] On Tuesday, Activision revised that figure upwards to $115 million, and touted the fact it doesn't include numbers from Europe, where the game will go on sale November 23.

"It is, by far, the most successful launch in Activision history," said Activision CEO Bobby Kotick of the well-reviewed game, which was internally developed by Neversoft and released for the PlayStation 2, PlayStation 3, Xbox 360, and Wii. (PC and Macintosh version are due out later this month.)

Indeed, Guitar Hero III's seven-day sales were nearly one-third of Activision's revenue for its entire second fiscal quarter. Today the Santa Monica, California-based publisher reported that it took in $317.7 million in net revenue from July 1-September 30, an increase of 69 percent over the same period in 2006. Despite the record-setting figure, net Q2 income was just $700,000. That gave investors no per-share return, but was a marked improvement over the $24.3 million the company lost during the same quarter in the prior year.

Though striking, the discrepancy between Activision's high earnings and low profit has a reasonable explanation. Sales were stoked by the launch of the tepidly reviewed movie tie-in Transformers and strong sales of the Guitar Hero franchise, including the debut of Guitar Hero: Rocks the 80s. However, income from sales was apparently gobbled up by Activision's late September purchase of Bizarre Creations, developer of the acclaimed Project Gotham Racing series.

The Guitar Hero III launch--which Kotick touted as "one of the biggest in entertainment history" to analysts in a postreport conference call--caused Activision to revise earnings projections for the October-December period. The company now expects $1.05 billion during its fiscal third quarter, thanks to the aforementioned rhythm game and this week's launch of Call of Duty 4: Modern Warfare (PC, PS3, 360, DS). For the full fiscal year ending March 31, 2008, the company now predicts it will take in roughly $2.07 billion in net revenue.

Speaking with analysts after the call, Activision executives revealed that the company would be continuing its relationship with Shrek maker DreamWorks Animation by making a game based on the 2008 animated film Monsters versus Aliens. The game will arrive on unspecified platforms during the publisher's 2009 fiscal year alongside two new superhero games which have yet to be announced. Activision executives also told analysts that the company is "looking at a number of new vectors to take the Guitar Hero franchise for next fiscal year," and said it will increase the number of original recordings used in the series.