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Activision Talks  GH II  Downloads,  Rock Band , Nintendo Third-Party Woes

Activision Talks GH II Downloads, Rock Band, Nintendo Third-Party Woes

May 31, 2007 | By Brandon Boyer

Following its preliminary results, publisher Activision has officially released the results of its past fiscal year, showing yearly profits more than doubling from $40.3 million to $85.8 million driven by Guitar Hero II and Call of Duty 3.

As previously shown, sales for the year rose to $1.51 billion, as compared to $1.47 billion for its prior year. Sales for its fourth quarter alone were $313 million, up from $188 million a year prior. The quarter saw a net loss of $14.4 million, up from the prior quarter's $9.1 million loss.

The publisher said its fiscal year results were driven by strong worldwide sales of Call of Duty 3, Marvel: Ultimate Alliance, Tony Hawk’s Project 8 and Guitar Hero II, as well as its distribution business.

The company also notes that it was the #2 U.S. third party publisher and had two top-10 best sellers with Guitar Hero II and Call of Duty 3 according to NPD data.

Looking forward, the company notes that it has gotten off to a strong support with the release of the Xbox 360 port of Guitar Hero II, Spiderman 3, and Shrek the Third. Transformers: The Game will be released in June, to accompany the release of the movie. The release of Enemy Territory: Quake Wars has been moved into the second fiscal quarter, between July and September.

Activision said it expects its sales to reach $1.8 billion for fiscal 2008, $425 million in its first quarter alone.

Said chairman and CEO Robert Kotick, “We expect fiscal 2008 to be our largest and most profitable year ever. The combination of our first quarter slate and superb release schedule for the balance of the year, Guitar Hero’s rapid rise as a popular cultural phenomenon and our solid leadership position on all of the major gaming platforms, should provide us with a competitive advantage as we enter the growth phase of the new hardware cycle."

[UPDATE: In a conference call to investors, Activision officials were resoundingly happy with the acquisition and performance of its Guitar Hero franchise, saying the publisher was "just getting started" with its long-term development, and noting consumers' "insatiable appetite for songs," both by full games -- as with its forthcoming 80s edition, or through downloadables.

Asked how the company felt about impending competition by the end of the year, referring to Harmonix and MTV Games' Rock Band, company officials took a curious stance in saying that it "wasn't surprising that [the franchise] has attracted imitators" -- seeming to imply that Harmonix was somehow now simply imitating the game it had itself helped build.

Activision said it had a number of "significant competitive advantages" over its competitors though, pointing to the game's strong brand recognition and momentum, and its strong retailer commitment. It also pledged geographic-specific new song content for Europe and other regions.

Asked about its success with microtransactions, in particular with the Xbox 360 release of Guitar Hero II, officials noted "strong consumer appeal and acceptance" with the additional songs packs Activision has created. While it "continues to be a small part of the revenue model," Activision said that it is growing.

Last year saw less than $10 million in downloadable sales, but it said this year that number should double, adding that in the first quarter alone, it has seen over 200,000 downloads for the Guitar Hero II Xbox 360 song packs. The Guitar Hero franchise, and to a smaller extent Call of Duty, is expected to be a major contributor to its downloadable revenue.

Elsewhere, Activision officials said that as of April 30th, the company projected an install base, including handhelds, and current and next-gen consoles of 128 million units, a figure they said was significantly higher than at this point in the previous cycle.

The company said that by the end of the year, it expected the PS2 and PS3 to grow by another 4 million units each, the Xbox 360 and Wii to each grow by 5 million units, and the GBA, DS, and PSP to grow a combined 11-12 million units.

In total, Activision said it expected the combined software market to grow in excess of 12 percent, driven by the larger install base this cycle has seen.

Finally, asked about the Wii and third party versus first party success, officials explained that because, in the last cycle, Nintendo's GameCube console "wasn't well differentiated" from its competition, and didn't have level of success it thought Nintendo expected, the console "really became a non-strategic platform," with Activision primarily porting its licensed franchises to the system.

The result was that Nintendo itself had an "unusual advantage" for most of its past few hardware releases and Nintendo software was regularly seen as better.

However, they pointed out, when you look at the current generation, Activision is in the best position, even moreso than Nintendo itself, to "leverage its development dollars to provide high quality software."

Now that the Wii is achieving the success it has, Activision says it is "re-investing against the Nintendo platform," specifically pointing to its forthcoming release of Guitar Hero 3 for the Wii as the first product for the platform that truly "leverages the physical interface."]

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