Starcraft II by end of 2009, Call of Duty expanding to new genres

LOS ANGELES--Activision Blizzard hasn't been overly keen on cooperating with the Entertainment Software Association in recent years. With just a few months to go before the 2008 Electronic Entertainment Expo, Activision and its soon-to-be sibling Vivendi Games created a public stir by abruptly announcing they had departed the ESA and would be skipping its annual event--likely thanks to the industry trade body's 1,600 percent hike in membership dues between 2006 and 2008.

Of course, that didn't stop the publisher from cashing in on the massive amount of publicity associated with E3 2008. Just a short distance away from the site of E3 proper at the Los Angeles Convention Center, Activision held its own press junket, making high-profile game announcements for a new Wolfenstein and Singularity, both from Raven Software, and Marvel Ultimate Alliance 2: Fusion from Vicarious Visions.

In February, the ESA managed to partially bring Activision Blizzard back into the fold, with the megapublisher announcing that it would be exhibiting its wares in an official capacity at E3 2009, if not rejoining the trade association in full.

Still, Activision Blizzard continues to skirt around the ESA's timetable, opting to hold its de facto press conference via webcast on Sunday. The move eschews an E3 tradition that typically sees Microsoft kicking off the week's proceedings with its Monday morning press conference.

So what does Activision have in store? Modern Warfare 2 details? An official reveal for the next Call of Duty? Yet one more Guitar Hero to add to the stack? Time will soon tell, as Activision Blizzard executives take the line.

[5:02] It's 5 p.m. and investors are being treated to some old-school rap music instead of the normal on-hold muzak as a make-good for a rare Sunday evening conference call.

[5:04] Just as we start to wonder if the tracks are pulled from the upcoming DJ Hero, the music cuts out...

[5:05] ...and then comes back in again. Activision Blizzard apparently wants to be fashionably late, even though it's kicking off E3 a day early.

[5:08] Before the Santa Monica E3 in 2007, Activision made a habit of going all out for the show, going so far as to plaster a massive Tony Hawk ad over the side of the Staples Center.

[5:09] However, after the merger with Vivendi-Blizzard, Activision dropped out of the E3-organizing Entertainment Software Association entirely and did not participate in the 2008 show.

[5:09] This year Activision Blizzard is once again back at E3, but this conference call is the closest thing the publisher has to a press conference or media briefing.

[5:12] When Activision first announced this conference call a little over a week ago, the company gave little indication as to the specifics it would cover. So far we know only that Activision Blizzard CEO Robert Kotick will be on hand and that the "forward-looking statements" may be made, both standard for any Activision conference call.

[5:14] Activision did warn that the time of the call was subject to change, but the official Web site of the publisher still lists a 5 p.m. Pacific start time.

[5:15] Once the call starts, there should be no shortage of topics to discuss. Activision has a massive lineup of Guitar Hero titles already announced, most notably the Van Halen-centric spin-off and Guitar Hero 5, which recently received a September 1 release date.

[5:17] The music fades again, and the first voice is greeted with a round of applause.

[5:18] As is normal for an investor conference call, the proceedings start with a safe harbor statement warning about forward-looking statements and the like. The first thing that happens is...a throw to a sizzle reel trailer.

[5:19] Apparently the reel is supposed to show what the company has coming up, but this is an audio-only Webcast, and the audio for the reel isn't playing.

[5:20] This is either a tease that Simon and Garfunkel's "Sounds of Silence" is coming to Guitar Hero, or they just expect people listening in to wait a minute for Kotick's remarks to begin.

[5:22] This is apparently a rather long trailer. Still no audio.

[5:23] There we go. There's a smattering of applause and Kotick asks "Do we really need a presentation?" On behalf of everyone listening in, "Yes."

[5:24] Kotick thanks everyone for tuning in on a Sunday and introduces the executives on hand, including Activision Publishing's Mike Griffith and Blizzard's Mike Morhaime.

[5:25] Kotick starts with a recap of the current market, says Activision should be around a billion business by 2012.

[5:26] He attributes the earnings growth to more people playing games around the world.

[5:26] And that trend is being driven by three things: new interfaces, social interactions from connectivity, and providing an excellent value proposition for consumers in a down economy.

[5:27] Kotick stresses that new physical interfaces are important and points to DJ Hero and Tony Hawk: Ride as ways the company is working on that.

[5:28] The audience is changing, Kotick says, saying that an Activision study found that 12 million people played games online with friends 18 months. Today it's 23 million people.

[5:28] As for guild play, that's up from 10 million to 17 million in the past 18 months according to Activision.

[5:29] "Clearly you can see that [gaming] has gone from the solitary to the social."

[5:30] More statistics from Kotick, as he says the population of console gamers has surged 22 percent in US and Europe since 2005, with a 36 percent increase in the number of female gamers.

[5:31] It also helps that the way people spend their leisure time is changing to be more interactive, Kotick says. Parents who grew up playing games are now raising children who play games.

[5:32] Studies have found that the people who are playing games are playing more on average than before, Kotick adds.

[5:32] The next thing Activision has noticed is that attach rates are getting higher because people are playing games more often.

[5:33] The average number of games purchased per console sold is up 17 percent over the last cycle of consoles, Kotick says, adding that people are more willing to spend money on games now than ever before.

[5:34] Kotick turns to the rising average selling price of games. Activision had better believe in these trends if 120.00 dollar GameStop product listings for Tony Hawk: Ride are accurate.

[5:35] Activision says the franchises it controls and the ways it monetizes them have made the company much more profitable than many of its gaming industry competitors.

[5:36] He says the same people who spent 50.00 dollars on Activision products in the last cycle are buying 500.00 dollars' worth now.

[5:36] That starts with a game like Guitar Hero, but the cost of extra instruments, downloadable content, and spin-offs builds up quickly.

[5:37] Even with the increased cost to the consumer, Kotick says these games still offer the best value for the dollar of any form of entertainment.

[5:38] Broadband penetration and speeds are increasing significantly even over two or three years ago, Kotick says, which makes downloadable content and games a better business model than ever before.

[5:39] Downloadable content has a 60 percent or higher operating margin. World of Warcraft subscriptions are 55 percent. While consoles have traditionally given publishers profit margins closer to 20 percent, Kotick says the new markets Activision has expanded into are helping significantly.

[5:41] As for why Activision is uniquely positioned to capitalize on these trends, Kotick touts its original, wholly owned intellectual properties like Call of Duty, World of Warcraft, and Guitar Hero.

[5:41] He also talks about the company's "independent" system of development studios that encourages creativity.

[5:42] Kotick said Activision's steady growth has lasted 17 years through two recessions and a wealth of industry reshaping technological advances.

[5:44] Kotick wants investors to take away two things from the presentation: Average selling prices are up, and Activision wants to monetize a lot more of its franchises on the scale of 500.00 dollars per consumer in the years to come.

[5:44] Kotick turns the stage over to Mike Griffith.

[5:46] Griffith talks about the publisher's strong track record of growth, even apart form the Blizzard-Vivendi merger.

[5:46] He says Activision is focused on year-over-year growth. The publisher is also very selective about what projects it chooses to run with to maximize success and is expanding its margins to focuse on "emerging revenue opportunities" like online play.

[5:48] Activision will field more aggressive content expansion plans as the company goes forward and is looking to increase the number of SKUs and online content it produces in 2010.

[5:48] Griffith says there will be all-new James Bond, Tony Hawk, Spider-Man, and Transformers in 2010.

[5:49] There will also be Shrek 4, new "approaches" to other proven properties, and a new intellectual property in the action genre.

[5:49] As for the next few months, Griffith starts by talking about Call of Duty.

[5:49] "Simply put, on Call of Duty, each year has been better than the year before."

[5:50] The franchise has consistently increased revenue and operating income each year, but Griffith is most encouraged by the growing consumer base.

[5:50] Modern Warfare and World at War both increased the user base for the series, with 20 percent of World at War customers being first-time Call of Duty purchasers.

[5:51] Griffith says there's tremendous potential to take Call of Duty to new theaters, new settings, "and even related genres."

[5:52] Call of Duty products have total sales of over 35 million.

[5:53] World at War has sold 11 million units in just six months, and Griffith notes that Modern Warfare has sold at full price for six straight quarters.

[5:54] Modern Warfare 2 pre-sales are already breaking records, Griffith says, and the November 10 launch should rank as one of the biggest entertainment releases of any kind.

[5:54] Looking ahead, Griffith said there's a full pipeline of future Call of Duty titles with significant innovation, and it will definitely expand into other genres.

[5:54] The publisher also wants to "monetize online gameplay even further," starting with more downloadable content.

[5:55] Activision also wants to increase the series' success in Asia.

[5:55] "When it comes to Modern Warfare 2, you gotta see it to believe it," he says, throwing to a trailer for the assembled analysts and investors in the audience.

[5:56] By the sound of it, it's the same trailer shown off earlier this month.

[5:57] "Pretty neat, huh?"

[5:57] The next topic is Tony Hawk: Ride.

[5:58] Tony Hawk generated more than 1 billion dollars in sales, but Griffith said the series had gotten stale and was in need of innovation, so they went back to its roots.

[5:59] Griffith talks about physical interfaces again as a way to make the game more fun and more real. He says the new controller will satisfy both hardcore Tony Hawk skateboarding fans and mass-market consumers.

[5:59] "The new wireless skateboard controller allows anyone to feel what Tony Hawk feels when you complete those outrageous tricks," Griffith says.

[6:00] He introduces Tony Hawk, who said he brought the idea to Activision for this board a couple of years ago. "Our button-smashing combo game has gone as far as it could have," he recalls saying to the publisher.

[6:00] The whole game is developed around the controller, Hawk says, and touts the tech inside, including infrared sensors and two accelerometers.

[6:01] The steering takes getting used to, he warns, but there are easier difficulty levels that guide gamers where they should be headed.

[6:02] Hawk said it's incredibly exciting for him and it's the future of "our video games."

[6:02] He's also excited because he saw his name on the publisher's list of 2010 titles, he jokes. Time for another trailer.

[6:03] The trailer pitches it to (among others) people who want the thrill of skating but are afraid of getting hurt.

[6:04] The trailer is laced with testimonials about how easy and immersive the game is.

[6:04] Before getting to Guitar Hero, Griffith wants to talk a bit about the publisher's new racing game, Blur.

[6:05] Blur represents a long-term opportunity for the company, he says. Last year around E3 the publisher announced its entry into the genre, but it needed two things before it could try to crack the market.

[6:05] The first thing was a great concept, the other a AAA developer.

[6:06] Griffith says the concept of Blur falls in between the hardcore tuner sims and just-for-fun arcade racers. Mario Kart in particular shows the potential for a well-crafted mainstream racing game.

[6:07] But where Mario Kart was limited to one system, Blur will be multiplatform, Griffith notes. He throws to a trailer with the tagline that the company wants it to do to racing games what Call of Duty did to shooters.

[6:08] Apparently there will be motors revving, brakes squeeling, and cars crashing.

[6:09] On to the music genre, Griffith says Guitar Hero is the clear leader in the music genre and its future continues to be bright.

[6:09] To date, Guitar Hero has raked in more than 1 billion dollars.

[6:10] Activision is focusing on building the franchise in three ways. There's a 15 million installed user base for Guitar Hero already, and Griffith said the company is going to improve on that.

[6:11] Guitar Hero: Metallica has done well, Griffith said, and the company is excited about its European launch.

[6:11] Griffith just brought up Guitar Hero 5, noting that it will have over 20 top-10 hits, suggesting there will be less setlist padding this time.

[6:12] Activision is also going to expand the social networking component of the series, which started in earnest with last year's song creation mode.

[6:13] Griffith introduces recently appointed Guitar Hero brand head and former Yahoo executive Dan Rosensweig.

[6:14] Rosensweig starts by explaining his excitement at joining the company. Activision is at the center of entertainment and technology, Rosensweig said. "If you're going to be at a company, it's best to work for a winner."

[6:15] Music is a global language, Rosensweig notes to emphasize that there's still room for expansion in the series.

[6:16] He points to the iPod as a way that a massively successful product can still expand, from its original release as a tech item that lets users bring the music on their PC with them on the road, all the way to the iPhone.

[6:17] There will be a PSP Guitar Hero game that will feature a drum component.

[6:18] Rosensweig details the planned extensions to the Guitar Hero brand and how spin-offs like Metallica don't really change the core game and hardware.

[6:19] Rosensweig mentioned that the number of consoles connected to the Internet is rapidly expanding, even with the Wii still "yet to take off" on that front.

[6:19] The song creation tool has seen "close to 3,000 songs" made by users, and they've been downloaded close to 17 million times, Rosensweig notes.

[6:21] Music isn't limited to the console, so Guitar Hero won't be either.

[6:22] Rosensweig mentions the abundance of mobile phones (the iPhone specifically) and says Guitar Hero will extend itself to the portable category.

[6:22] He adds that the Holy Grail is the ability to deliver directly to the consumer through the television set.

[6:23] Rosensweig is putting a focus on international growth for the franchise. It's already successful in Europe, he notes, but not as successful as it should be.

[6:24] Activision will expand the number of genres represented in the game. Additionally, the hardware is going to be made "more relevant." The next category is "an exciting IP which will be shown shortly" and is targeted at music popular in Europe.

[6:25] It's not entirely clear if he's referring to DJ Hero.

[6:26] Band Hero is the next target for Rosensweig, who emphasized that the game will have more top-40 music than ever before, with more recent and pop-centric music than ever before.

[6:26] DJ Hero will be targeted toward existing Guitar Hero fans as well as audiences for techno, hip-hop, and dance music that haven't really gravitated to what Guitar Hero offered.

[6:27] Rosensweig talked about signing "the two biggest artists in the world" for DJ Hero: Jay-Z and Eminem.

[6:27] He introduces Jaime Jackson from developer Freestyle to show off DJ Hero.

[6:28] Jackson wants to explain the thought process behind making DJ Hero, emphasizing that it encompasses all manner of genres.

[6:29] Freestyle is also planning to tap into the existing Guitar Hero audience, saying they made the game compatible with guitars and microphones to allow users to plug and play or freestyle over the songs.

[6:30] There will be more than 100 individual songs with unique mixes, Jackson notes.

[6:31] Jackson demonstrates the game with a Black-Eyed Peas song. He's playing on the hard difficulty to show off how challenging the game gets.

[6:33] Whereas in Guitar Hero the sound of an off-note makes it easy to tell if someone is playing well or failing miserably, it's more difficult to tell which quirks of this mix are intentional and which are a result of Jackson missing his cues.

[6:34] Jackson said Rosensweig had promised to dance during the demo. It's unclear if Rosensweig is keeping that promise.

[6:36] The song ends with a roar from the in-game audience, and a golf clap from the live one.

[6:36] The game will have 100 songs, 80 artists, and 80 unique mixes no one has heard before.

[6:37] The special edition of the game will be distributed with CDs from Jay-Z and Eminem.

[6:38] Rosensweig turns the stage over to Mike Morhaime.

[6:39] Morhaime starts by emphasizing Blizzard's past success. Since being established in 1994, Blizzard has had a string of 11 best-selling games, Morhaime says.

[6:40] For five of the past seven years in the US, the best-selling PC game of the year has been a Blizzard title. In Europe, it's three of the last four years.

[6:40] Starcraft has sold more than 11 million copies, while Diablo as a franchise has topped 20 million.

[6:41] Morhaime noted that Blizzard's 2008 revenue was three times that of 2005, despite the slowing economy.

[6:42] But the numbers tell only part of the story, he says. The fanbase is another part of the story, which he explains by way of a video for BlizzCon and the midnight sales for Wrath of the Lich King.

[6:44] It's odd to think of the trailer's dramatic score matched with clips of cosplaying World of Warcraft fans in line outside of a GameStop.

[6:45] Morhaime comes back and talks about broadband Internet penetration worldwide, notably in China.

[6:46] He says Blizzard has a head start on most of its competitors in China because World of Warcraft is already up and running.

[6:47] Morhaime says, "We will soon be launching Starcraft II."

[6:48] The game doesn't get a date though. Neither do Diablo III or the company's new massively multiplayer online game, though both get name-checked.

[6:49] Morhaime says World of Warcraft had 11.5 million subscribers at the end of the last quarter, or by Blizzard's estimates, 10 to 11 million more than its closest competitors. The deadpan dig gets a chuckle from the audience.

[6:49] Morhaime says they plan to continue growing WOW in several ways. That includes reaching new players and bringing back old ones.

[6:50] Morhaime points to the record-breaking sales of its two expansions as calls that users want the gameworld to continue growing.

[6:51] Now it's back to China, which Morhaime says will be the fastest-growing market through 2012.

[6:52] Morhaime talks about the company's agreement with NetEase to provide all its online services in China, from Battle.net to World of Warcraft.

[6:53] And now a bit about Starcraft II...

[6:54] The new Battle.net service will launch alongside Starcraft II, which represents a return to the company's roots.

[6:54] Morhaime talks about the series' well documented popularity in South Korea, where he says it is akin to a national sport.

[6:55] There will be a Starcraft II beta test later this summer, and Morhaime offers to get anyone in attendance into the program. Morhaime expects to launch Starcraft II by the end of the year, though he also notes that it will only ship once the game is done.

[6:56] Morhaime says that more about the games will be revealed at BlizzCon and encourages everyone to attend the August show, which sold out yesterday.

[6:56] Morhaime closes with a cinematic cutscene video from Starcraft II's single-player campaign.

[6:57] "The Zerg swarm came as was foretold, and the Protoss, first born of the gods, rose to fight them."

[6:58] Now comes a third group, "But do they come to save? Or destroy?"

[6:59] When the trailer ends, Activision Blizzard chief financial officer Thomas Tippl takes the stage.

[7:00] Tippl says the company's markets are large and growing, and the rapidly expanding areas are the most profitable.

[7:01] "If there is one thing true of this hardware cycle, it's that the rising tide no longer lifts all boats," Tippl said, pointing to the struggles of Activision's largest competitors of late.

[7:02] As the hardware cycle matures, Tippl said Activision should be able to expand its lead on the pack. He stresses operational discipline as one of Activision's strongest advantages.

[7:03] Tippl said the company wants to move toward higher-margin businesses and away from relatively nickel-and-dime businesses like distribution and games based on licensed properties.

[7:04] Tippl talks about how Activision ties employee businesses to operating profits so everyone is incentivized to keep costs down, focusing on "thrift and action."

[7:05] Tippl said the publisher succeeded in one of its biggest goals in recent years, "to not screw up the base business" during its integration of Blizzard.

[7:06] The company's international business is "underdeveloped," Tippl says, but that's going to change.

[7:07] There's a recurring theme of thrift in Tippl's speech, as the CFO emphasized time and again building shareholder value.

[7:08] Tippl takes a swipe at Electronic Arts, saying the publisher's disciplined approach to acquiring studios can be seen in the studios it did not buy, and the prices it did not pay for them.

[7:09] Electronic Arts finalized its 860 million dollar purchase of BioWare-Pandemic in early 2008.

[7:10] Tippl summarizes his comments before moving into the call's question-and-answer session.

[7:13] The first question is a multipart question about the console cycle. Technical difficulties force people away from the microphone, but Kotick notes that people won't be motivated to jump on board a new console in mass numbers until it gets down to a price point around 9.

[7:14] Kotick stresses the company's strong position in the market regardless of the next cycle and suggests that the company hasn't spent any money on developing for the next generation of consoles just yet.

[7:16] The next question is about average selling prices going up, and what testing Activision has done on DJ Hero and Tony Hawk. Specifically, can they support prices over 100.00 dollars?

[7:18] The respondent doesn't have a mic but notes that if the value is there for the consumer, it will sell. Another Activision executive says the publisher has found that peripheral-based games can sell at a broad range of price points in this console cycle.

[7:18] He suggests that there will be multiple price points and configurations for games more and more as the company goes forward.

[7:19] The next question notes the abundance of Guitar Hero SKUs on shelves this year and asks about consumer confusion. He also asks if retailers are pushing back at all on having to stock all these different games.

[7:20] The answer comes back that Activision will have "shoppable shelf sets" this season with lots of retailer support through the holidays.

[7:22] The next question is on how to monetize the Battle.net platform. Morhaime simply responds, "I'm not ready to talk about that today."

[7:23] Another attendee wants to know about the transition between online operators of World of Warcraft in China. Morhaime acknowledges that the game will have to go dark for a period of time during the switchover but says player response has still been positive.

[7:25] The next inquiry is about how much of its revenue Activision gets from each of its three main focus points: retail sales, subscriptions, and downloadable content.

[7:25] Tippl replies that Activision isn't going to give out a percentage breakdown of what it wants but reiterates that the more profitable parts of the portfolio are likely to grow more.

[7:28] Another question about World of Warcraft in China and where the big opportunity for revenue growth is. Will it come more from expansion of the user base or just a more favorable deal with NetEase than Blizzard had with previous Chinese operator The9?

[7:29] Morhaime says the strategy surrounding Battle.net will help win players over from pirate servers and help grow the subscriber base.

[7:32] The "World of Warcraft in China" question touched off a lot of answers from the Activision heads, but the webcast cuts off promptly at 7:30 p.m. Pacific time, two and a half hours after its scheduled beginning.

[7:34] The conclusion of that question will have to wait for another day. The first event of E3 2009 is in the books; check back with GameSpot throughout the week for all the news directly from the show.