Activision Blizzard competitor Electronic Arts Inc. (NASDAQ:EA) was the No. 1 iOS publisher by revenue for 2012. Electronic Arts Inc. (NASDAQ:EA) reported a 51% increase in “extra content” and free to play revenues from 2011 to 2012, along with a 30% increase in mobile sales. Activision Blizzard’s latest 10-K barely mentions mobile gaming, and the company has been taking modest strides to enter this space.
This leads into my next point why Hearthstone is China is a big win – there will be an iPad version. Compared to other Blizzard games, Hearthstone is graphically simple and doesn’t require a mouse and keyboard to play. The game is perfect for mobile, and it’s a positive development to see the company entering this space finally.
In 2012, mobile games accounted for 33% of all iOS app downloads and 66% of all money spent. It is estimated in 2012 there were over 500 million mobile gamers spending over $9 Billion. The mobile market in China is booming. China’s mobile gaming market was valued at over $350 million in the first quarter of 2013, a 30% increase from the previous quarter. Blizzard is making a great move bringing a free to play game into this market.
Finally, enough emphasis cannot be placed on the scale of the opportunity for Blizzard in China. In 2012, there were over 450 million internet users in China and 87 million online gamers. The online gaming market in China is estimated to nearly reach $12 billion in 2013 and increase by $2 Billion each year for the next five years. For comparison, the worldwide online game market delivered $11 billion in revenues in 2011. Entering this space with the free to play business model so familiar to Chinese gamers is a no-brainer for Blizzard.
Small announcement, major upside
The Hearthstone announcement was met with a collective shrug from the market. Blizzard is traditionally known for its blockbuster titles and flashy announcements typically made during their annual convention. It may have failed to turn a lot of heads, but it’s a genius move from a business perspective.
The development cost is likely minimal, especially compared with the costs of developing titles like Diablo and World of Warcraft. The game only has 15 developers, compared to the 100 developers the mysterious project Titan had at its peak before the development was “reset.”
It will be an incredibly high margin business. Players buy card packs that cost Blizzard basically nothing to deliver beyond data transfer and storage. The financial success of the game will certainly depend on the willingness of players to purchase the cards instead of earning them through gameplay, but this model has already proven itself to be wildly successful for many developers. I’d expect no less in Blizzard’s case.
Stephen Benz owns shares of Activision Blizzard. The Motley Fool recommends Activision Blizzard and NetEase.com. The Motley Fool owns shares of Activision Blizzard. Stephen is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Blizzard Pushes Deeper Into China originally appeared on Fool.com is written by Stephen Benz.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
