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Much speculation surrounds the profitability of SC2, particularly in the context of Blizzard's licensing of broadcast rights.
For example: Blizzard vs. KesPA: an analysis
Since Blizzard is part of a publicly company in the United States, it is required to publish quarterly and annual financial statement. Specifically, ACTIVISION BLIZZARD, INC. is traded on the NASDAQ under the symbol ATVI, and has a market cap of $14.6 billion. The financial statement for the 3rd quarter (July 1 - September 30) are available that incorporates SC2 sales since the release date of July 27th, 2010.
Blizzard's 2010 Q3 Report: http://www.sec.gov/Archives/edgar/data/718877/000110465910056564/a10-20489_110q.htm
The most interesting information occurs on pages 16-17, where results are broken out by division (Blizzard vs. Activision) and by region (NA vs. EU vs. Asia). While the data does not have SC2 sales specifically, using the year-to-date vs. quarterly differences the impact of SC is clear. Below are a few observations.
1) SC2 is a very big deal for the Blizzard division as the game's release almost doubled the division's revenue stream.
2) Blizzard sold about $200 million worth of SC2 in the first two months for a $130 million increase in net income. We know that Blizzard sold 3 million units in the first month alone, so the revenue increase seems plausible. The net income increase also makes sense the marginal cost of selling an additional SC2 game is very low, just hit the copy button! (The overall profitability of the SC2 is harder to determine as the development costs need to be subtracted, but that data is not available.)
3) Asia sales are a very small fraction of sales and profits. (While region data is not specific to Blizzard, the numbers are small for either the Blizzard division or the entire company.) This concurs with a recent Blizzard employee statement that, 'Blizzard Korea is only 5% of worldwide sales.'
(Note: I will repost with updated financial data when it becomes available in a few month.)
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Nice Work, Korea may make up a small percentage atm of sales but they were extremely slow to adopt sc2 over Brood War. I think the sales will become steadier in Korea until it becomes around even with EU/NA if not higher.
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When did/is the new WoW expansion coming out / does it factor into this data?
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Is there any discussion of profits from licensing fees, either in this quarter specifically or looking forward?
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The new WoW expansion was released today so it wouldn't appear on Blizzard's 3rd quarter statement, but you could do the same thing with Blizzard's Q4 report to see how it affected Blizzard's financial data.
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The WoW cataclysm comes out this week so the impact won't show until the 4th quarter financial statements..should be huge though!
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WoW expansion came out today qxc. Was released at midnight. They had to take down all of their websites to devote them to account management. No forums or websites were available to make room for the massive flow of traffic, so I would assume that WoW sales will boost their profits quite a great deal.
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In addition, Blizzard's main source of revenue comes from the monthly fees that players pay for WoW services, so not only will their Q4 boost up because of actual game sells, but they would also get a nice additional stream of revenues until 2011, with a lot of returning and new players starting to pay monthly again after stopping play of WoW.
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On December 08 2010 11:04 Mecha_cl wrote:
Nice Work, Korea may make up a small percentage atm of sales but they were extremely slow to adopt sc2 over Brood War. I think the sales will become steadier in Korea until it becomes around even with EU/NA if not higher.
Sales may go up in Korea but their population is still less than a sixth of US and i don't even know what small percentage of Europe. Steadier Korean sales will be great, but wont drastically up their share of the total market.
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On December 08 2010 11:05 qxc wrote:
When did/is the new WoW expansion coming out / does it factor into this data?
It came out today.
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[B] For example: Blizzard vs. KesPA: an analysis2) Blizzard sold about $200 million worth of SC2 in the first two months for a $130 million increase in net income. We know that Blizzard sold 3 million units in the first month alone, so the revenue increase seems plausible. The net income increase also makes sense the marginal cost of selling an additional SC2 game is very low, just hit the copy button! (The overall profitability of the SC2 is harder to determine as the development costs need to be subtracted, but that data is not available.) (Note: I will repost with updated financial data when it becomes available in a few month.)
Your facts are incorrect about SC2. Take a look at page 18. Under "revenue by platform," the increase in revenue for "PC and Other" was only $46 million for Q3 of 2010. I can imagine that the majority of that revenue was from SC2, but this means that SC2 is still a very small % of the revenue stream for Activision / Blizzard compared to the WoW money tree.
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Did you guys all take accounting as one your high school or University subjects to understand the financial statements or was it more or less "Common sense"? or did you happen to have a financial statements for dummies book with you when you click this thread?
I'm curious here, that is all :D, sorry if this is derailing the thread.
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7.144 M in good will, holy sh*t!! Blizzard must greatly appreciate us fans ^_^
Does anyone with a good finance / accounting background know if it is common for a company to have so much of its assets in the form of good will? Also, how does a company properly evaluate this number?
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More than half the sales of SC and BW were in S Korea. This is well known info and requires no source. And it is amazing considering how small S Korea is.
That during the 3 years before the release of SC2 Blizzard didn't sell much in S Korea isn't a surprise, nur relevant.
That SC2 isn't doing that well in S Korea isn't a surprise either. It wasn't ever going to sell as much as SC BW and the way Blizzard marketed SC2, made it difficult for PC bangs, prevented mainsteam SC2 esports on TV because of the war with the established esports scene, this is maybe what one would expect.
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korea is blizzard's biggest market for bw/sc2 by far
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They distribute a bit differently in S.Korea... Seeing how it's completely free if you have a WoW subscription. As well as places like Brazil(?) where it's pay to play or something like that.
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On December 08 2010 11:05 qxc wrote:
When did/is the new WoW expansion coming out / does it factor into this data?
New expansion came out today so that shouldn't factor in but the previous expansion just released in china during that period.
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On December 08 2010 11:51 Sultan.P wrote:
7.144 M in good will, holy sh*t!! Blizzard must greatly appreciate us fans ^_^
Does anyone with a good finance / accounting background know if it is common for a company to have so much of its assets in the form of good will? Also, how does a company properly evaluate this number?
Goodwill on their balance sheet is generally the excess of the purchase price over fair values of net assets after the net assets are marked to fair value, of the subsidiaries they purchase.
It just means how much more they paid to acquire other companies.
Has nothing to do with fans or anything else.
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On December 08 2010 11:42 KezseN wrote:
Did you guys all take accounting as one your high school or University subjects to understand the financial statements or was it more or less "Common sense"? or did you happen to have a financial statements for dummies book with you when you click this thread?
I'm curious here, that is all :D, sorry if this is derailing the thread.
I am pretty sure everything discussed on this thread could be known by just taking a high-school accounting class if that was your point/question?? Or else contribute something meaningful next time...
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On December 08 2010 11:42 KezseN wrote:
Did you guys all take accounting as one your high school or University subjects to understand the financial statements or was it more or less "Common sense"? or did you happen to have a financial statements for dummies book with you when you click this thread?
I'm curious here, that is all :D, sorry if this is derailing the thread.
In Western Australia (and probably Australia but it varies), its common for high schools to give year 10 students basic financial training which covers interpreting the important parts of financial statements as well as essential calculations such as being able to calculate the EAA or APR.
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On December 08 2010 11:26 goofy wrote:Show nested quote +[B] For example: Blizzard vs. KesPA: an analysis2) Blizzard sold about $200 million worth of SC2 in the first two months for a $130 million increase in net income. We know that Blizzard sold 3 million units in the first month alone, so the revenue increase seems plausible. The net income increase also makes sense the marginal cost of selling an additional SC2 game is very low, just hit the copy button! (The overall profitability of the SC2 is harder to determine as the development costs need to be subtracted, but that data is not available.) (Note: I will repost with updated financial data when it becomes available in a few month.) Your facts are incorrect about SC2. Take a look at page 18. Under "revenue by platform," the increase in revenue for "PC and Other" was only $46 million for Q3 of 2010. I can imagine that the majority of that revenue was from SC2, but this means that SC2 is still a very small % of the revenue stream for Activision / Blizzard compared to the WoW money tree.
I too saw the section about "revenue by platform", but did not discuss it in my original post. However, I think that my numbers are more plausible than yours for three reasons.
1) If it were true that Blizzard made $46 million in revenue from over 3 million SC2 units sold, then it would mean that the average worldwide SC2 sales price was about $15. In the United States, the sales price is $60 per unit. This means that if Blizzard sold 750k units in the United States alone, then it would have achieved the $46 million. However, Blizzard stated that SC2 sold over 1.5 million copies worldwide in the first 2 day alone (http://us.battle.net/sc2/en/blog/363375). I know that prices are different in different countries, but Europe accounts for a large share of the market and I believe they also have a relatively high price. (For example, Amazon.co.uk quotes the original SC2 sales price at 45 pounds, which is more than $60.)
2) In the financial statement it says, "Blizzard distributes its products and generates revenues worldwide through various means, including: subscription revenues (which consist of fees from individuals playing World of Warcraft, prepaid cards and other value added service revenues such as realm transfers, faction changes, and other character customizations within the World of Warcraft game play); retail sales of physical “boxed” products; electronic download sales of PC products; and licensing of software to third-party or related party companies that distribute World of Warcraft and StarCraft II." The differentiation in the last two phrases between PC products and licensing SC2 leads me to doubt that all SC2 revenues are in the "PC and other" line item on page 17.
3) Given the size of Blizzard, the size of the gaming market, and the substantial investment made in developing the game, if SC2 only generated $46 million in revenue in its first two months, then I think most would consider that a huge disappointment. However, we have not heard "disappointment" from any of the Blizzard execs, but rather enthusiasm in most public statements.
Regardless, it might be true that SC2 only had revenues of $46 million in its first two months of sales, and I could be wrong. I agree with you that WoW is big business for Blizzard and I am not disputing that fact. Please let us know if you have additional information.
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On December 08 2010 12:07 Antimage wrote:Show nested quote +On December 08 2010 11:51 Sultan.P wrote:
7.144 M in good will, holy sh*t!! Blizzard must greatly appreciate us fans ^_^
Does anyone with a good finance / accounting background know if it is common for a company to have so much of its assets in the form of good will? Also, how does a company properly evaluate this number? Goodwill on their balance sheet is generally the excess of the purchase price over fair values of net assets after the net assets are marked to fair value, of the subsidiaries they purchase. It just means how much more they paid to acquire other companies. Has nothing to do with fans or anything else.
Yeah in this case goodwill is basically what the brand of Blizzard is when Activision purchased it. The reason why the goodwill is so high for a gaming/technology company is due to the fact that most of the value of these companies is its IP. The value of Blizzard comes from the creation of SC2 and WoW, not the computers and whatnot they have, so the goodwill is that value.
Hence, protection of Blizzard's IP is the paramount issue for them, because it's what makes the company valuable.
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Blizzard has the prepaid card model in the SEA servers as far as I know. (Alternative option)
A dollar = 3 days worth of game time
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I rather have Blizzard releasing SC2 sales figures.
Wonder if it has surpassed 5 million yet.
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On December 08 2010 13:08 SolonTLG wrote:Show nested quote +On December 08 2010 11:26 goofy wrote:[B] For example: Blizzard vs. KesPA: an analysis2) Blizzard sold about $200 million worth of SC2 in the first two months for a $130 million increase in net income. We know that Blizzard sold 3 million units in the first month alone, so the revenue increase seems plausible. The net income increase also makes sense the marginal cost of selling an additional SC2 game is very low, just hit the copy button! (The overall profitability of the SC2 is harder to determine as the development costs need to be subtracted, but that data is not available.) (Note: I will repost with updated financial data when it becomes available in a few month.) Your facts are incorrect about SC2. Take a look at page 18. Under "revenue by platform," the increase in revenue for "PC and Other" was only $46 million for Q3 of 2010. I can imagine that the majority of that revenue was from SC2, but this means that SC2 is still a very small % of the revenue stream for Activision / Blizzard compared to the WoW money tree. I too saw the section about "revenue by platform", but did not discuss it in my original post. However, I think that my numbers are more plausible than yours for three reasons. 1) If it were true that Blizzard made $46 million in revenue from over 3 million SC2 units sold, then it would mean that the average worldwide SC2 sales price was about $15. In the United States, the sales price is $60 per unit. This means that if Blizzard sold 750k units in the United States alone, then it would have achieved the $46 million. However, Blizzard stated that SC2 sold over 1.5 million copies worldwide in the first 2 day alone ( http://us.battle.net/sc2/en/blog/363375). I know that prices are different in different countries, but Europe accounts for a large share of the market and I believe they also have a relatively high price. (For example, Amazon.co.uk quotes the original SC2 sales price at 45 pounds, which is more than $60.) 2) In the financial statement it says, "Blizzard distributes its products and generates revenues worldwide through various means, including: subscription revenues (which consist of fees from individuals playing World of Warcraft, prepaid cards and other value added service revenues such as realm transfers, faction changes, and other character customizations within the World of Warcraft game play); retail sales of physical “boxed” products; electronic download sales of PC products; and licensing of software to third-party or related party companies that distribute World of Warcraft and StarCraft II." The differentiation in the last two phrases between PC products and licensing SC2 leads me to doubt that all SC2 revenues are in the "PC and other" line item on page 17. 3) Given the size of Blizzard, the size of the gaming market, and the substantial investment made in developing the game, if SC2 only generated $46 million in revenue in its first two months, then I think most would consider that a huge disappointment. However, we have not heard "disappointment" from any of the Blizzard execs, but rather enthusiasm in most public statements. Regardless, it might be true that SC2 only had revenues of $46 million in its first two months of sales, and I could be wrong. I agree with you that WoW is big business for Blizzard and I am not disputing that fact. Please let us know if you have additional information.
Nice rebuttal and solid reasoning. While Blizzard does not get face value of their sale from 3rd parties (Amazon, Gamestop, EB, Best Buy, etc.) I imagine they lose 30% and that still equals $40 per game in the first few days and at 1.5 million sold that's already well over $46 million. Also, you have to factor in electronic sales from Blizzard.com and collector editions bringing in the dough.
I imagine Blizzard will monetize some part of battle.net (name change anyone?) and there are the expansions to consider. In addition, they probably spent more on marketing the game than they did on developers but that's a discussion for another topic.
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