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A Huge Untapped Market: Activision Blizzard, Inc. (ATVI), Electronic Arts Inc. (EA), Zynga Inc (ZNGA)

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Periodically I read through the headlines on companies I follow on One headline by Dan Carroll in particular caught my eye, Activision Blizzard, Inc. (NASDAQ:ATVI) Announces Diablo 3 For Sony Game Consoles.”The fact that Activision is developing Diablo 3 for the PlayStation 3 and 4 isn’t the headline, it’s the precedent this sets that’s a much bigger deal. The short version is, Activision is beginning to realize that games shouldn’t be limited to one format. If the company capitalizes on this opportunity, everyone else in the industry needs to duck and cover.

Activision Blizzard, Inc. (NASDAQ:ATVI)Old School Gaming
Old school gamers are the customers that patiently wait for new releases of their favorite games to come out. They may own multiple game systems, but generally speaking they prefer one system over the others. These are customers that the mainstream media refers to as “hardcore gamers.”

This set up works perfectly for a company like Activision Blizzard, Inc. (NASDAQ:ATVI), or at least it did. The company could target certain segments of the industry with different releases. Activision could release updates to World of Warcraft and Diablo to the PC gaming crowd, and they would sell in huge numbers. The company could release an updated Call of Duty title to the PS3, Xbox 360, and Wii (or now Wii U) crowd. These titles would sell well also. The great thing about this set up is, the company doesn’t have to do a lot of coding for the same games on every format possible. In theory, this keeps expenses down, and as long as the titles sell who cares?

And Then Gaming Changed
The problem is, there has been a tidal wave of what the industry calls “casual gamers.” These gamers aren’t tied to a console or a PC at all. Instead they find games wherever they already are. Some of these games like ) Farmville came to prominence through. Other games like ) Grand Theft Auto, have morphed from console games to versions that can be played on the iPhone, iPad, or an Android device.

In fact, the only gaming company that really seemed to get this cross-platform development was Electronic Arts Inc. (NASDAQ:EA), primarily with their Madden franchise. EA offers the traditional Madden game on PC and game consoles, but also offers Madden on iPhone, iPad, Android, and Facebook. In addition, EA and others have acquired mobile gaming companies to try and take more of the casual gaming industry.

Gaming On Any Device Is The Future

What Activision seems to be pointing to with the development of Diablo 3 for PS3 and PS4 is, they are willing to take their most popular games and make them available on other systems. This is a step in the right direction, but the company can go further. When a hit game is released, it shouldn’t be limited by device.

While it’s true that not every game can be effectively played on mobile devices, there are parts of most games that are portable. In EA’s case, the Madden rosters, depth charts, and statistics should be portable. Many players spend time with their franchise trading players, re-ordering their depth chart, and setting the game up. What better way to increase engagement than to make this available online through the PC, or in app. form for iOS, Android and others? Activision has this in a small way with Call of Duty Elite for Android and iOS.

Gamers Are Gamers No Matter What You Call Them

The opportunity for Activision Blizzard, Inc. (NASDAQ:ATVI) is huge because of their well established franchises. Arguably no other company in the industry has as many hit games. If Diablo 3 can be developed for PS3 and PS4, what about Xbox? If Activision has an app. for Call of Duty Elite, what about an app. for World of Warcraft? Thinking outside of the PC box or console is what can drive results going forward.

Looking at the industry, there are multiple companies that look like good values. Zynga Inc (NASDAQ:ZNGA) is probably the most problematic to figure out because their numbers look good, but their business appears so tentative. The company said in December 2012, players spent 10.7 billion minutes inside Zynga Inc (NASDAQ:ZNGA) games.

This speaks to the magnitude of opportunity for any company to steal these minutes from Zynga Inc (NASDAQ:ZNGA). That being said, Zynga is generating positive free cash flow, and they have $2.7 billion in cash and investments. In fact, Zynga Inc (NASDAQ:ZNGA)’s cash and investments represent over 58% of their market cap. I could see one of the larger players stepping in to take this company over.

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