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Why Activision Blizzard, Inc. (ATVI) Needs China

Activision Blizzard, Inc. (NASDAQ:ATVI) isn’t running short on challenges right now. Attacks against its biggest franchises are coming from the likes of Disney starting this summer and then Electronic Arts Inc. (NASDAQ:EA) in the fall.

But besides defending its Call of Duty and Skylanders hits, Activision Blizzard, Inc. (NASDAQ:ATVI) has to deal with another problem: Casual gamers, especially in China, are fleeing its World of Warcraft title.

Activision Blizzard, Inc. (NASDAQ:ATVI)

Trouble in the East
The game’s subscriber base plunged by 1.3 million users last quarter. After reaching as high as 12 million at the end of 2010, Warcraft is down to just 8 million players paying to access the game. The company says that most of that decline has come from China.

Luckily for Activision Blizzard, Inc. (NASDAQ:ATVI), since Chinese players bring in less average revenue per user, the drop in subscriptions hasn’t crimped profits — yet. In fact, the company reported better-than-expected earnings last quarter despite the drop in World of Warcraft subscribers.

That, plus the success it had with other titles, such as Diablo III, has boosted Activision Blizzard, Inc. (NASDAQ:ATVI)’s revenue from its Asia-Pacific region. The geography has quickly grown in importance and is now responsible for almost 10% of the company’s revenue.

Year Asia Pacific Region as % of Sales
2010 6.6%
2011 7.6%
2012 9.3%

Source: Activision Blizzard financial filings.

So Activision needs that market if it’s going to beat 2012’s record business year. Not only is Asia expected to be a big source of the game industry’s growth going forward, but it’s already a key part of the company’s business.

Following the customers
That’s what makes Activision Blizzard, Inc. (NASDAQ:ATVI)’s new title, Hearthstone, so important. With it, the company is making its first jump into free-to-play games, aiming to extend the Warcraft brand into casual and smaller scale titles. And it’s also targeting the Chinese market. Activision will be licensing the game to NetEase, Inc (ADR) (NASDAQ:NTES), the company that runs its Warcraft operation there and helped it bring popular games such as Starcraft to China.

No, a Hearthstone hit overseas wouldn’t make up for losses in Activision’s tentpole franchises. But the company needs to win back casual gamers this year, too. And Hearthstone is Activision Blizzard, Inc. (NASDAQ:ATVI)’s best shot at doing that.

The article Why Activision Blizzard Needs China originally appeared on and is written by Demitrios Kalogeropoulos.

Fool contributor Demitrios Kalogeropoulos owns shares of Walt Disney and Activision Blizzard. The Motley Fool recommends Activision Blizzard,, and Walt Disney and owns shares of Activision Blizzard and Walt Disney.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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