Activision Blizzard Earnings Call Suggests GH Tunes Could Be Subscription-Based

Wed, Nov 5, 2008

In a conference call conducted earlier today, the top brass from Activision Blizzard spoke to investors and listeners about the company's recent performance and future plans. The recently merged publishing superpower had an extremely bold outlook to declare, citing strong sales of Guitar Hero: World Tour, the continually excellent performance of Call of Duty 4, and plenty of subscription revenues from World of WarCraft. The $189 World Tour "band" bundle won't be able to keep up with holiday demands, the benefits of the recent mergers are showing up sooner than expected, and overall, "the company's financial position has never been stronger."

That last optimistic statement was made by Activision Blizzard's CEO, Bobby "Awesome Idea" Kotick, who had a few more interesting tidbits to share with the class, along with his fellow executives: Traditional retail sales are still of much more importance than downloads, there'll definitely be new Ice Age, Marvel Ultimate Alliance, and Tony Hawk games, Ghostbusters wasn't worth keeping because it wouldn't have made for a good ten-year franchise, and it might be interesting to charge subscription fees to download the user-generated songs in World Tour's "GH Tunes" section.

Kotick's GH Tunes hint came early in the call, as the CEO delineated Activision Blizzard's recent successes and future revenue streams. In praising the recent launch of Guitar Hero: World Tour, Kotick remarked that in the ten days since the game has become available, players have submitted over 25,000 songs to the GH Tunes library -- a number Activision expects to exceed 100,000 by the end of the year. As a segue into the massive successes of World of Warcraft, Kotick mentioned that the user-created songs could be monetized, saying that "the ability to offer these songs on a subscription basis may very well result in the newest subscription opportunity in our portfolio." From there, Kotick listed some enthusiastic predictions for Call of Duty: World at War and Wrath of the Lich King, but the GH Tunes "subscription" comment was not expanded upon, nor mentioned a second time, for the rest of the call.

Bobby, you're making it really, really hard to see things from your point of view. From a business perspective, yes, it would be fantastic if users could be made to pay more money for any reason. From a perspective based around logic, it's kind of difficult to fathom. It's one thing to suggest that music companies should pay you to allow their music to appear in Guitar Hero. Hell, I can even see some reason in urging players to pay for their songs to be listed in the GH Tunes area, even if doing so would lower that 25,000 submissions to, say, 4 submissions. But suggesting that users pay you in order to download the songs that they gave you, for free? You lost me, Bobby. Unless you have some kind of awesome Kongregate or Whirled-style revenue-sharing system planned -- which would be an incredible precedent for social console gaming, and would be hugely to your credit -- the idea is so backwards that it baffles me. Please explain the logic wherein I work hard on a musical creation and upload it to your game, thus adding value to your software and services at a minimal upkeep cost to you and no immediate benefit to myself, and then if I were to want to download my own song, I would owe you some additional measure of money. For that matter, I cannot think of a single service which charges for user-generated content without some measure of compensation to the creators. And you'd be doing this for a recurring subscription? Will there be quality controls in place? Will content be portioned out to sustain subscribers through lean creative periods? One has to assume Activision has given this some actual thought and is simply not disclosing their full plan at this time. One hopes, anyway.

Much of the other news delivered during the call was what you ought to expect from an earnings call: discussions about the company's earnings. Financial jargon tends to go over my head, and I have a rough time parsing phrases like "reverse-merger accounting" and "core non-GAAP net revenues," but the money-minded among you can see the figures summarized here. Some fairly impressive figures were also included in layman's terms, however -- Blizzard Entertainment president Mike Morhaime had some pretty strong statistics regarding WoW's recent competitors, for example. According to Morhaime, of the subscribers who cancelled their WoW subscriptions and listed "Age of Conan" and "Warhammer Online" as their reasons for departure, respectively 68% and 46% of those subscribers ultimately came back. What's more, Activision has big plans for the recently revitalized Spyro and Crash Bandicoot franchises, and intends to launch fully 70 SKUs into the marketplace in 2009.

During the call's Q&A session, Activision Blizzard execs also had a few words to say about the Ghostbusters game, which was among the projects lost in the Vivendi merger -- recently reported to be published instead by Atari. When questioned about why Activision had opted to drop some of its less-prominent franchises and projects, Kotick cited the games' lack of "potential to be exploited." According to Kotick, if the game doesn't look like it can knock out a series of sequels and turn into a $100 million-plus franchise, Activision isn't interested right now. The company's focus is instead on games, in Kotick's own words, that "if we released today, we'll be working on them ten years from now."

Kotick went on to call unproven game IPs the "great challenge of the business," noting the difficulty in attracting high-end development talent to such projects, and pointing out that an extremely low percentage of original IPs have a successful launch in any given year. He then noted that this great challenge would not be risen to by Activision Blizzard, saying the company would instead continue to expand on its successful franchises.

For all our complaints about "sequelitis" and a lack of innovation in the industry, I guess it's refreshing to hear someone declare, candidly, that they have no intention of changing that.

(Pro tip: It's not actually that refreshing.)