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  Analyst: StarCraft II May Be One Of Activision's 'Most Profitable Titles'
by Kris Graft [PC, Console/PC]
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July 28, 2010
 
Analyst:  StarCraft II  May Be One Of Activision's 'Most Profitable Titles'

With "palpable" worldwide excitement over yesterday's release of Activision Blizzard's StarCraft II, one analyst noted the exceedingly strong profits that the game can potentially generate.

Signal Hill analyst Todd Greenwald said in a Wednesday research note, "[StarCraft II] already stands to be one of Activision’s most profitable titles, given that it is on the PC (no $8-$9 [console] hardware royalty), it is retailing for $60, not $50, and it should sell a large portion digitally through Battle.net, foregoing the 20 percent royalty paid to retailers."

Greenwald added, "We believe StarCraft II can approach 50 percent operating margins and contribute at least [7 cents] of earnings to Q3 results." That's compared to a 39 percent overall operating margin from all of Activision Blizzard -- which also publishes Call of Duty and Guitar Hero -- during the March 2010 quarter.

The analyst also said that he believes that Blizzard's accounting practices also help accentuate profits. Unlike parent Activision, which doesn't expense development costs of a years-long project until the period a game is released, Blizzard expenses all of its costs as they are incurred, Greenwald said.

"This means that despite being in development for four to five years, there are not four to five years of development costs about to hit [Activision]’s gross margin (as was the case for Take-Two’s Red Dead Redemption) -- the vast majority of StarCraft II's development costs have already been expensed, which makes the margin impact of StarCraft II even more positive."

Greenwald said that he expects the game to drive a strong Q3 outlook for Activision Blizzard, with a "rough estimate" of 5-6 million units of StarCraft II sold this year "highly achievable." He added that Activision management will likely try to stay conservative with Q3 guidance, projecting that the company will give quarterly guidance greater than Signal Hill estimates of $930 million, "and ultimately deliver upside to that number."
 
   
 
Comments

Chris Tarczon
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Greetings Captain Obvious.

Andre Gagne
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Do you think it was hyped enough?

Maurício Gomes
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Hyped, yes... really good? Maybe...

Specially because of that: http://www.blizzardbeta.com/259/the-problem-with-starcraft-2/

Lo Pan
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There is a growing wave of discontent from the SC2 buyers from what I am reading/seeing. If there really are that many problems it is fairly shocking considering the 10 yr+ development, massive beta test, and cost. We shall see.

ronne Villegas
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The problem with games like this is the vocal minority. The 90% of the people who bought this game, and are enjoying themselves, are too busy playing it to post that "Hey! It's awesome!"

Don't be fooled, the whiners/trolls/elitists are in the MINORITY, they are just the ones more vocal about it than the people who enjoy the game. I am REALLY impressed with this game, and I have barely touched multiplayer.

Soren Nowak
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I also enjoyed the beta and now the released game.

Maurício Gomes: that list is a lie. Replays have been there since the beta and chat works fine.

Lincoln Li
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As one of the 90% of people who are too busy or don't care about posting online...

"HEY! IT'S AWESOME!!"

Now go get it and try it out, and I might see you online for some uber MP pew pew! :)

Ian Uniacke
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It's a sad fact of being the king people are always going to bitch and moan regardless of what you do. If i was to believe everything I read on forums than I'd have to conclude that World Of Warcraft is also a massive failure and actually not fun at all...what was I thinking? Why didn't someone tell me that I'm not enjoying killing the Lich King? And I totally didn't notice that I was crying as I marched my marines to destroy that base.

Christophe Couderq
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Starcraft 2 is both developed and published by Blizzard, isn't it? Since Activision and Blizzard are separate entities I think it's rather inaccurate to call it an "Activision title". The Activision logo doesn't even appear anywhere on the box.

Matt Riley
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@Mauricio: It's obnoxious that you insist on posting in every single thread even slightly mentioning Blizzard that, yes, Starcraft II doesn't support LAN. Guess what? People vote with their wallets, and this article says their wallets don't care. You said your piece, stop hijacking every Blizzard thread.

@Lo: The game didn't take 10 years. Warcraft III happened, and then resources got diverted for WoW. According to wikipedia at least, earnest development began in 2006, with the press release in 2007. What I choose to take away from this article is pretty amazing to me: a game that isn't particularly original, that took over 5 years to develop, and that ultimately had a budget over $100 million is now poised to actually exceed the gigantic financial expectations it had already...

I don't know -- if you were playing Blizzard games (or computer games for that matter) back with Warcraft I, I don't see how you can't be impressed they've come this far.

Maurício Gomes
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@Matt

Sorry, this was not my intention this tmie... I posted this because some minutes earlier someone pointed me that link, not because of LAN, but because of the lack of cross-region play....

That turned out to be a HUGE issue to my friends, since they are mostly scatered, the five ones in a forum that pre-ordered SCII found out only AFTER preordering that they would not be able to play wth each other (one is from US, another from Germany, another from Australia, another from China, and another from somewhere in africa, we don't know where exactly...)

Erik Hieb
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Of course they're going to make a lot of money on it. The Blizzard Fanatics are willing to pay $60 for 1/3rd of a game and another $60 a pop for the rest of the 2/3rds.

@Matt - Unfortunately I don't think "people vote with their wallets" is true for certain companies. Firstly, the fanatics. They will always buy the products the company makes, not matter what or how bad it is. Look at Apple. People bought tons of iPads and iPhone 4Gs despite the fact that the iPad is little more than a giant iPod and the iPhone 4G has serious flaws which force the user to buy a case, even if they don't want one, in order to use the product. Blizzard has the same kind of fanatic followers as Apple. If Blizzard made a game that lasted 10 minutes and charged $40, the fanatics would leap on it. They'll keep the company a float despite the rest of us voting no with our wallets.

I for one, don't feel like paying $120 to $180 for all three campaigns. And since I am primarily a single player gamer, that's a serious problem. And I don't see them as "expansions" as some people are trying to pass off. Expansions are supposed to add new content to a game, not add content that should have been included at the release. Unless they plan on releasing the other two campaigns for free, it's just looks like a blatant attempt to take advantage of people that are desperate for a new Blizzard game.

David Tarris
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"Unfortunately I don't think "people vote with their wallets" is true for certain companies. [...] They'll keep the company a float despite the rest of us voting no with our wallets. "

Eric,

Your point doesn't make any sense to me. That's like saying, "Obama won the election despite the people who voted against him not voting for him, so voting must not exist." The people who don't buy the game vote that they don't think the game is worth their money, and the people who buy it obviously do think it's worth their money. Assuming these so-called "fanatics" are actually cognizant of their purchases, the game must be fulfilling some desire of theirs, especially considering that these fanatics were likely the ones who played (and presumably, enjoyed) the beta.

So why don't you "vote with your wallet", accept the fact that this experience is worth $120 to enough people out there to recoup $100 million in development costs, and not buy the game? And if it doesn't make at least that much back, well then Blizzard lost the election and they'll need to rethink their campaign for next time.

If you don't want an iPhone (like me) there are plenty of alternatives available. And if you don't want StarCraft II, I'm sure there are at least a few games on the market with enough value to satisfy you.

Matt Riley
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@Erik -- You make it sound like Blizzard is only profitable because of fanatics, and that these fanatics somehow sprung up out of nowhere. If nothing else, think of how ridiculous it is that Starcraft is a national "sport" in Korea. Is Korea just blindly fanatical, playing a game that they really shouldn't enjoy? Back to the US, the bulk of my friends that were excited about this game either never played Warcraft III or didn't enjoy it. Most have never touched WoW. Calling Blizzard's success blind fanatacism... I obviously think that's a stretch.

Anyhow, I understand objecting to the price, but none of us know what to expect. Imagine if Blizzard knew before starting WoW that it wanted to do Vanilla, Burning Crusade, Wrath of the Lich King, and Cataclysm, and that they'd be released as they have been -- i.e. over the span of 6 years. Would you consider that taking advatange of people desperate for a new Blizzard game too? Maybe you're not a Blizzard fan, but their metacritic rating should speak for itself. At what point do you give a company the benefit of the doubt?

I don't mean to sound like a Blizzard fanboy, but I wish people would stop bashing and actually look and realize "Whoa, we live in a world where games can actually be this ridiculously huge and popular now"

Andre Gagne
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I think we all underestimate the power of advertising to affect real change in consumer behavior... The times of quality products winning out over non-quality hyped products has been dead for some decades.

With that in mind, let us reflect on this phenomenon... Perhaps iterating less but only changing even less is a good game development platform? I feel it makes sense in the RTS world where overcomplexity just pushes the game into a further niche. It seems that with the multiplayer this game is no longer a game but a new storefront. Perhaps after its success, the US culture will finally get around to console/PC based micro-transaction based games/systems?

Being successful also helps when you're a household platform that's backed/influenced by a company run by packaged goods companies. I'll just leave this here:
http://www.teamliquid.net/forum/viewmessage.php?topic_id=128252

Erik Hieb
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@David I never said that companies only stay a float because of fanatics, if it came out that way then I clearly didn't word it well. I just meant that some companies have fanatical followings that will buy what ever they sell with out regard to quality or what it is. Those companies will survive no matter what that rest of the population does. And I never said it wasn't worth $120 or $180 to some people. I'm sure people would have dropped that much on standard edition copies of Wing of Liberty alone.

And your argument is exactly why I don't think "voting with your wallet" is a legitimate theory, though I clearly didn't word it well enough to get that across because it sounds like you think I agree with that sort of idea. I don't think it makes any difference at all.

And I do want SC2, I just don't agree with their business practices and am choosing to exercise my right to complain while I wait for the next 3 or 4 years until the Battle Chest is out at the price I think it should have been sold for in the first place.

@Matt - I never said their success was based on fanatics. What I said is that the fanatics will keep the company a float ever if everyone else turns against them. At no point did I say or mean that those are the only people that buy their products.

But if you think about it, let's say there are 2 million fanatical Blizzard fans world wide. That's really not a stretch at all considering that SC1 is, as you said, the national game of Korea. 120 million right there, the game is covered. 240 for the next two if the they charge $60 again. The rest of the gamers that didn't like what Blizzard was doing and boycotted the game don't make any difference because they've made a profit. Even if Blizzard made a horrible game, it's very likely that enough people would buy it that Blizzard would make a profit.

And I do realize that we live in that kind of world. Which is exactly why we have the right to complain.

Joshua McDonald
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"The Blizzard Fanatics are willing to pay $60 for 1/3rd of a game and another $60 a pop for the rest of the 2/3rds."

$100 million to develop. Even if 20 million of that was Battle.net and the amount covered the cost of all 3 games (which it's probably way short of), that's still probably more than triple the average game development price. I will gladly pay more money for a higher quality, more polished game. And this is coming from somebody who is only a moderate Starcraft fan.
If you're not really into Starcraft, then go ahead and wait for the price drop, but if the game can provide $60 of fun for you and you have the money, you might as well enjoy it instead of sending the message to the industry that you think that a $10 million game should always have the same price as a $100 million dollar game.

Michael Smith
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I'm pretty sure the $100 million budget was debunked already. It applied to WoW, not SC2.

LAN play was VERY important to my enjoyment of SC over the years. I can't go out and vote with my wallet by buying the version of SC2 that has LAN play. Intellectual property is a monopoly. Voting with your money doesn't apply.

Activision is the reason I'm not buying this game. That label is a liability for Blizzard.

Douglas Rae
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No LAN - so? I would rather play over the internet and have all my stats recorded by blizzard than keep a little book of "Doug's Achievements" to get my friends to authenticate by signing every match we play.

Bloody good reason for no LAN too... I can't think of a LAN game i played where i didn't have 5 - 6 friends with cracked copies just so we could play. Now we all buy copies and play over the internet; they have won. admit it and stop living in the 90's with your little achievement books.

Go make a T-Shirt with your "stats" on it or some shit.

Jérémie Noguer
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Actually, LAN games allow you to play with your friends face to face. I don't enjoy much playing with my friends if we can't yell at each other and share a beer.
If you'd rather talk through a chat and have your stats recorded than gathering with your friend and have a good time, then you must have played too much WoW.

Justin Jackson
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1 - RTS does not greatly interest me, neither does SC label.
2 - If Eidos have a budget of $100M for Thief 4 i seriously doubt they would 'break even'
3 - LAN No LAN, Bliz made a descion, deal with it.

Jonathan Osment
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This confuses me. People are saying that due to lack of LAN they cannot play "face to face" with their friends. That's a lie obviously. Just create a game on one of battle.nets servers. Where you are located doesnt matter, it can be the same as a "LAN" experience. The only difference is, everyone needs to own the game and have a valid account to play it. I know the RTS pirate LAN play is..or was..popular, but this move by Blizzard is done to prevent that, and its their right. I would do the same if I had the power to make that choice.

I also do not seem to understand any complaints being made regarding the 3 campaigns. If one game keeps you occupied and you enjoy the storyline, if it has enough value and content, then what does it matter if they are having 2 sequels? I think it's great what Blizzard is doing with the size and scope of their RTS IP, the replay value and longterm vision should be commended if the titles give long term enjoyment.

Lo Pan
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This article captures the main complaints I am hearing.

http://www.softsailor.com/news/34789-starcraft-2-a-disappointment-7-reasons-not-
to-buy-it.html

Raphael Santos
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If Starcraft2 isn't worth 60 bucks i don't know what game would be... MW2?? Cmon, its multiplayer is so lame, any Source multiplayer FPS is so much better (DoD, TF2, CS)

Evan Baygan
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@Jonathan- Not everyone has access to the internet 24/7. Even if all my friends and I were to have valid copies of the game, we like to be able to play without the use of the internet. I'm just thinking about a LAN party where you don't want connection drops because your $40 router is over-exerted having 8 people play SC2. Blizzard is making the global community stronger, i get that, but at the cost of making it annoying to just play the games with your friends in a closed atmosphere. This may just be my habits, but when I have a couple of older computers with no active internet connection, I take my router and some cables and set up LAN to play WC3 and other older games with people. This totally takes away that option, that is the complaint.

The three games issue doesn't bother me. I bought the game and I feel like it was worth my $60. If the next two games are just added campaigns with a few extra units here and there, I will evaluate if its worth another $60. If it's not I won't buy it. I love blizzard and their games and even with my frustrations about the removed LAN, the day it came out I played for 4 hours straight without realizing it at all. People need to stop looking at the game from their expectations and really decide if they want to drop the dough or not for what the game actually is.

You will find that most will. There is no problems for Blizzard Activision until the game gets to the point where people are not buying it because it has none of the features they want. If people are unsatisfied with SC2, then they have the choice of not buying the next two games.

ray G
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10 years for this??? this is sad. I cant believe fans would settle for just playable and fun after the long wait. pathetic

Reason # 2378 on why games are not evolving as fast as they could be.


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