What you don’t know about Activision Blizzard.
MAU Watch.
For any online service, from FB to ATVI, user’s visit and usage are closely related to profitability and revenues and therefore are worth keeping an eye on.
But there is more to know about this, which involves a error in mental model regarding the correct way to interpret this stat.
It has to do with how gaming / software used to operate.
In the old days, sales and users used to peak post launch and then drop to zero, until the next game sale or software version sale. Such a Peak Sale model meant Most revenues were generated at close proximity to launch, and any MAU decline was a sign most value of a product was exhausted, thereby requiring imminent lower revenues, lower eps, higher R&D expenses and more uncertainty (will next game be a hit). And it was a good mental model for the old days, where games or software were sold only once.
This mental model is very much alive with many professional analysts, although some start to understand the change in gaming industry.
And the change is this: for few very successful gaming titans, it is no longer about selling a game, but rather a continuous entertainment service (an amazing innovation). How so? Well the whole trick is in extending the entertainment value. Let’s say a game has X hours of entertainment value. These unique games offer the user online access to new content, New fresh challenges and evolving story line. When you think about that, these gaming titans copied how TV studios innovated back when entertainment transitioned from movies to TV series. Back then no one believed it would work too. But it did and very soon the studios realized something amazing: it’s is much easier, less risky and more profitable to develop a new season of a hit TV show than invent a new one.
They say history doesn’t repeat but often rhymes.
And this is what they did. So now, what happens when to Netflix’s House of Cards viewership BETWEEN seasons? It drops. And what happens when a new season is released? It rises again, and since Everyone knows about it, and everyones tells their friend to watch it too. In other words, it’s no longer a single peak, but rather a continuous flow and ebbing of MAUs, translating to revenues as far as the eyes can see. A transaction turned into a cash flow stream, which is far more valuable, less risky and easier to develop.
But there is more and this is where the old Hollywood moguls are out innovated: since the whole business involves an online direct continuous connection to the user, these gaming titans started selling tiny digital files to the users, designed to enhance the game somehow.
A new skin for your avatar. Some new power, weapon ability or speed. It’s very cheap. Easy to get. And microtransactions were born. Now, one dollar might not sound much, but multiplied across ~ 400 million users spending hours, and nibbling a microtransaction here and there and presto, you are looking at billions of dollars that were never there.
And something else happens too. Your deeply committed and invested. It’s psychology. It’s more fun to play with the image you already invested in than starting afresh. Add to it the fact that your friends are there too playing with you and you are looking at one sticky addictive dynamic on par with the social media businesses or some utility like business.
The result is noticeable on the top revenues games: they are usually the same titles, and it’s getting harder and harder to break in, and stay on top.
The last piece of the puzzle is the question is game X one of those games which have this potential.
The way to answer it is to look at its track record. A good game is one that can show it does not disappear over time. You are not expecting to see always rising MAU but certainly rising an ebbing MAU, lasting over time. These things LAST. In the case if Activision Blizzard, some such franchises are 20 years old!
Another point to recognize is the following: it takes very high skill and experience to build it just right. It’s not a “chance”. It’s deliberate planning and execution and there is more know how than people realize, which brings us to the next telltale: experience. Experience Compounds in this business. The longer one is at it, the higher probability he will succeed.
Case in point what is Overwatch was a game that was scrapped before launch. It was built, and experience led ATVI to redo it. And redo it they did, to a massively successful franchise.
Where this gets us? Well, to the next logical conclusion: In this business, the big ones will get bigger. They have the experience, the skill and the war chest to build or buy the best IP.
With Activision Blizzard, those that followed carefully realized Bobby saw something special when he bought out King. At the time, King was meant to die slowly, just a fad. Perhaps you remember. Well, not for someone who has the keen gaze and operating experience of a veteran operator in the field, with a big check book. On the other side of development you have the money and patience to build mega blockbusters such as Overwatch from Scratch, tear it down, rebuild until you get billion dollar franchise. It takes years of building, and a small business fighting for its life just can’t afford it.
We started from MAU watch, right?
2017Q4 MAU, Millions:
Activision: 55, Blizzard 40, King 290 MAU’s.
2018Q1:
Activision 51 million, Blizzard 38 million, and King had 285 MAUs.
On a Quarter where nothing major was released.
But net booking grow 16%, to 1.38 billion, and free cash flow grow 29% to almost half a billion dollar, and the company net debt position (King purchase) of 1.17 billion to net cash position of 860 mill.
And all of this while investing in the business and building Esport (totally new revenue line), as well as other goodies.
Declining MAUs? Yes. But context, please.
AI
