StarCraft 2 Delayed to 2010 - Page 16

As many of you know, we have been working day and night to get
Starcraft into your hands by this Christmas.
This has included 30 hour shifts, sleeping on our office floors, and
living on stale pizza. The progress on Starcraft
has been phenomenal, and it is looking like all of our efforts are
going to be well worth it. Unfortunately, it has become
clear to us that in order to bring you the best game possible, we are
not going to be able to release the game before
the end of January.

In case you don't remember, the original 1996 debut of Starcraft
looked something like this:
http://www.blizzard.com/star/bigpix/oldsc.htm
We just had a world premiere at the Wizards of the Coast Game Center
and you can see how far it has come:
http://www.blizzard.com/star/bigpix/scnow.htm
The reaction of everyone there was very positive, but we don't want
to release Starcraft until it becomes the classic
that we know it can be. With this extra time we will be, among other
things, refining the play balance of the game, and
honing the computer AI.

We read our e-mail, we watch the forums and newsgroups, and we know
that you want this game to come out NOW.
We also want to get the game into your hands as soon as possible, but
we want to make sure that Starcraft is everything
you expect from Blizzard. Starcraft is a project that has been two
years in the making. It would be an injustice to you and
the development team to ship the game before it is truly ready.

Thank you for your continued support and interest in Starcraft. We
are dedicated to creating the best games in the world
for the world's best gamers.

The Starcraft Team

"Thank you, Kristen and thank you for joining us this afternoon. July 9th marked our one-year anniversary as Activision Blizzard. As a combined company, we’ve delivered better-than-expected financial performance for the fourth consecutive quarter. We are in a very unique position in our industry. We have the breadth of product portfolio and resources to deliver our short-term commitments of earnings growth and margin expansion and the ability to shift products to future release dates to increase our long-term financial returns and to ensure our product quality objectives are met.

Today we are reaffirming our full-year non-GAAP EPS outlook and we expect to achieve record non-GAAP operating margins of 26%. We also expect to deliver these results despite a weaker-than-expected retail environment and a number of strategic decisions that will have an impact on our short-term revenue outlook but which will strengthen our competitive advantage for the long-term.

Our margins are the highest of any third-party publisher and we expect our growth initiatives will continue to provide long-term opportunities. Our 17-year track record of growth is evidence that our long-term focus is working and has created significant shareholder value.

Over the past few months, we’ve made a number of strategic decisions that reflect our commitment to product quality and the investments required to capture large new market opportunities. With this in mind, we are repositioning the release of Blizzard Entertainment’s Starcraft 2 into the first half of 2010 to coincide with the launch of our new Battlenet game service which will be ready early next year.

A true online destination platform, Battlenet will become the foundation for connecting the tens of millions of members of the Blizzard community in a social gaming network across all Blizzard’s future games. This will begin with World of Warcraft and Starcraft 2.

To put Battlenet into context, it will be a service similar to Xbox Live and it will leverage the technologies, infrastructure, and expertise that Blizzard has developed over the last decade in multi-player play and social networking. And as Mike Morhaime will discuss later in the call, there is no better opportunity to launch this strategic initiative than through the launch of Starcraft 2.

The title is likely to be the most anticipated groundbreaking realtime strategy game of all time and the Battlenet platform is an investment in the future of gaming and an opportunity that we are uniquely positioned to capitalize on.

Today we have more people in more countries playing online games than any other company and we intend to continue our leadership position through franchises like Blizzard Entertainment’s World of Warcraft and Starcraft 2, as well as Activision Publishing’s Call of Duty franchise.

Another great area of opportunity for us is China. We continue to strengthen our position there with Blizzard Entertainment’s partnership with Netease, the premier China based videogame company. This is a long-term investment with a very capable and committed partner. Netease has already made significant investments in upgrading the technical infrastructure of the World of Warcraft service. In fact, from a quality of hardware and network perspective, China is our most advanced geography in technical capability. Mike will also give you more details about our progress in China later in the call.

This flexibility to make long-term investments without compromising near-term results puts us in an enviable position. We’re not preoccupied with dramatic restructurings, burdensome investments to develop online game making capabilities, or the significant risks and expenses associated with entering new geographies like China or Korea. This gives us an exceptionally deep advantage and is the basis for our industry-leading operating margins today and provides us the ability to expand operating margins in the future.

Our cultural focus on thrift is driving further cost reductions throughout our business and our incredibly strong balance sheet has enabled us to repurchase more than $650 million worth of shares since we began our repurchase program. Today we announced that our board of directors has authorized an additional $250 million to our buy-back program to $1.25 billion, further illustrating our long-term focus and commitment to providing superior returns to our shareholders.

I thought it would be useful to remind you of the five key advantages that will enable us to provide superior returns to our shareholders in the future.

First, our focus on a select number of proven franchises and genres, our strong marketing and sales programs, and our ability to find ways to broaden our franchises through innovative business models, new genres, and new markets. Our leading online capability and first mover advantage and access to fast-growing Asian markets, our industry-leading operational capability and the most talented group of employees by far in our sector. And finally, our exceptional balance sheet, which is the result of our continued focus on margin expansion, operational excellence, and rigorous cost control.

It has taken 18 years to create these competitive advantages but today we are better positioned than any of our competitors to capitalize on the long-term opportunities afforded by our industry and we will continue exploring new market opportunities and business models that should enable us to continue growing our operating margins and delivering long-term value to our shareholders as we have over the last 18 years."