Will you heed the call?: Activision Blizzard, Inc. (ATVI) and More

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The new COD game made over $1 billion in 15 days, $500 million in the first 24 hours of sale at retail stores. Overall there have been over 22 million copies sold of Black Ops 2, according to VGChartz. That is more than the $400 million Modern Warfare 3 made the prior year in its first 24 hours of sale. It also took MW3 16 days to reach $1 billion in sales, and it took Avatar 17 days to make $1 billion in sales. NPD also reported that COD was the number 1 selling game in December this year (as it has been for the past several years). Activision Blizzard, Inc. (NASDAQ:ATVI) has benefited nicely since the release, up over 25% since November. Activision also brings in a lot of money through DLC (downloadable content) sales, which has very high margins. On the Xbox you can buy a season pass for all the content for $50 (which I did, being the big COD fan I am) or buy them (4 in all) for $15 each. I play a lot of Call of Duty, so let me provide you some insight into how the DLC packages will be very successful.

Activision Blizzard, Inc. (NASDAQ:ATVI)DLC Packages and New Guns

The DLC packages bring in new game types in the Zombies (the other side of the multiplayer space), new maps for the multiplayer gameplay, and new guns. With each new addition a new gun will be brought in, with the first DLC bringing in a combination of an SMG and an assault rifle that was pretty popular. This is very big for Activision Blizzard, Inc. (NASDAQ:ATVI), because everyone wants “the best weapon.” In all multiplayer games there are guns that are considered cheap or better than other weapons than give you an advantage. With each new DLC Activision adds a new gun to the multiplayer area, which is a big driver in gamers wanting to go out and buy the DLC. Electronic Arts Inc. (NASDAQ:EA) did the same thing with Battlefield 3, by adding in new guns with each DLC (for most of them, for some they added new vehicles) and it worked great. I expect that COD DLC packages will outperform Wall Street expectations because gamers will want to have that extra advantage for their gaming. Call of Duty has a very competitive atmosphere and everyone wants to have a leg up on the competition. Activision knows this and is capitalizing on it.

DLC packages increase Activision’s margins, as it is much cheaper to add on content to a game than to create one from scratch. At $50 a season pass, that means they practically are selling 2 copies of Black Ops 2. This means that even if they miss estimates on the number of Call of Duty games sold, they can still make it up from the DLC packages. This will increase both Activision’s top and bottom line, primarily the bottom line due to the higher margins. It also gives gamers a reason to keep playing the game for longer as they wait for the new content to roll out. When Call of Duty Black Ops 2 came out with its first DLC, there was a spike in the number of users playing as everyone was excited about the new maps and the new gun. In first person shooters, one way to boost sales is to have gamers still playing your game when the next one comes out. That means that when the new game comes out, most of those players will go and buy the “upgrade”. If you come out with a new first person shooter but nobody is playing your game anymore, it is hard to get those gamers to switch over if they are used to a different game. Call of Duty’s plan to roll out 4 DLC packages over the course of the year will enable it to have a lot of gamers still playing by the time Fall comes around, boosting its sales.

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