Activision's Billion Dollar Man
Eric Hirshberg steered Activision to more than a billion dollars in profits last year. How is he going to follow that in 2012?
Headquartered in Santa Monica, California, Activision Blizzard, Inc. is a worldwide pure-play online...
It's been pointed out before, but Eric Hirshberg was one of the biggest creative gambles that Activision ever took. Putting an ad veteran in the CEO position of the biggest console games publisher was greeted with scepticism 18 months ago - this is a publicly listed company that needs predictable processes, not a creative artist with floppy hair and brown shoes.
But that doubt now has to be laid to rest following the last financial year's $1 billion profits. This time last year, Activision said it was cutting back to three dedicated pillars, and many thought that just meant more incremental Call of Duty updates, a whimsical kids game accompanied by plastic tat and more fantasy iterations from Blizzard. What the year actually saw was Call of Duty expanded to a social network through Elite, a social event in the vein of BlizzCon with Call of Duty XP, and a consistently-selling credible kids IP in Skylanders, due for a sequel and expansion shortly. And that was without a major Blizzard release...
In this exclusive interview with GamesIndustry.biz, Hirshberg reflects on last year's brand expansions and how to feed the customer's needs, why monitoring games sales should change for the new market, why Modern Warfare 3 sales took a tumble at the start of the year, and how the free-to-play Call of Duty game with be a breakthrough in China.
Q: Last week you revealed impressive full-year profits of $1.1 billion...
Eric Hirshberg: And it wasn't just the numbers, I was really pleased with the way things came about. I was proud that it wasn't just another good year for Call of Duty but also that we showed a pretty good ability to launch a new IP with Skylanders and also do something outside the box with Elite.
Q: It was this time last year that Activision said it was stripping back its portfolio, putting some franchises on hold, but in reality you seem to be launching just as many new products and services, if you take into account Elite and the Call of Duty XP event.
Eric Hirshberg: Everyone's focus was what were weren't doing at that time, as opposed to what we were doing. The hardest thing to get right in this business is choosing what you're going to focus on. These are big undertakings, big financial risks, they're big creative undertakings and a lot of things we put out last year had a lot of difficult things to pull off. Focusing on the places where we think we can really do something different and something unique to gamers has been a good strategy a long time before I got here.
Call of Duty is already viewed as the premier first-person shooter in China before we've already entered the market. That's a rare moment where piracy plays in our favour.
Q: There was a big contrast last week with your sales and then NPDs assessment of the US market in January, with a very big drop in sales compared to last year. Is that a big worry to you guys, where sales on the High Street in the US and Europe are falling significantly.
Eric Hirshberg: Well, I think we spend a lot of time analysing industries through these macro-patterns and the sales of our franchises were really good. Obviously those macro-trends aren't applying to the project that we're working on. Of course it's concerning but I believe our focus is in the right place because we're fixed on having the best franchises and the best games whatever the delivery system becomes and those franchises will migrate to them. And NPD doesn't measure digital revenues.
Q: Obviously you know your own digital numbers...
Eric Hirshberg: And they're a huge part of our business.
Q: But do you need to see those numbers on a wider scale to get a bigger perspective of the industry's global digital business?
Eric Hirshberg: I think you're on to something there. Industries go through times of disruptive change and the measurement tools also need to modernise. What's more relevant? Neilsen ratings or YouTube hits? I bet Neilsens wished it started measuring things like viral videos a long time ago because there was a sea change in the way video was delivered. I give NPD a lot of credit because they noted that they didn't quite know how to measure Skylanders sales with or without the toys because it doesn't fit the traditional accessories market like controllers, they're part of the game. If you include the sales of the toys, Skylanders was the tenth biggest game of the year. There are a lot of new things to measure in our business right now and just looking at the old measurements doesn't necessarily give you an accurate depiction of the health of the industry.
Q: If you look at sales of Call of Duty Modern Warfare 3 in January they were very low compared to last year - 750,000 Black Ops games were sold in January 2011, versus 386,000 Modern Warfare 3 copies last month. Where did those sales go?
Eric Hirshberg: I think they moved forward. We broke the record for the biggest day and the biggest first five days and the biggest first 16 days. That came as a result of us putting together a very effective pre-sale programme and a very effective launch. Part of that was we drew more buyers forward in the process which is a good thing because we're convincing more people to buy it, some of them sight-unseen based on the past performance of the strength and fun of the franchise, and some of them very early as it comes out closest to launch. When you have such a successful pre-order programme and such a successful launch week I don't think it's surprising that the shape of the curve after that looks a little different than the year before.
When you have such a successful pre-order programme and launch week I don't think it's surprising that the shape of the curve after that looks a little different than the year before.
I would also say there was a lot of great competition in the fourth quarter, there was a lot of must have games that launched right around the same time, and there was also a lot of aggressive pricing activity, and those were two contributions as well.
Q: The sooner you get the customer to buy the game the more chance you've got them paying full price as opposed to discounted or second hand copies. And the Call of Duty games are one of a small few that can hold maintain value for months after release....
Eric Hirshberg: That takes a stomach of steel because we haven't really changed our pricing patterns to match or respond to a lot of the more aggressive stuff that's going on elsewhere in the industry. But I believe in the value of games, there's no other form of entertainment that delivers hundreds of hours of entertainment. They're very costly to make, they're very risky propositions and holding strong on the value they deliver is really important.
Q: I think the success of Skylanders may have surprised some, because although it was never in the charts at a high position compared to other releases, it hung around and sold consistently from day one. That's an unusual pattern for game sales where we're used to a game hitting number one on its first week and then crashing out of the top 20 two weeks later. Is that something you would put down to the inclusion of the toys with the game?
Eric Hirshberg: The toys certainly have a tail to them but it's early times to analyse. The attach rate of the number of toys people buy per starter pack has exceeded our aggressive expectations. I think what that shows is there's a real stickiness to the game and a real desire amongst players to go deeper into it. The toys aren't just characters, they unlock new worlds and content in the game. And if you look at the pattern of Call of Duty Elite where players are spending more and more time with the games that they love, and more and more engagement with those games, nowhere is that more true than with kids. Kids get obsessed with the characters they connect with. The best thing we did with Skylanders was taking that extra time to get the investment in story and characters right because that's what kids connect with, they connect through the characters' plight. Toys For Bob and the writers of the original Toy Story came up with the idea that the kid would be an integral part of the story, the characters can't go and fight battles without you. I don't know if we can calculate how big a part of the franchise that is.
When you have access to the sizeable brains at one of the best developers in the world we pick them liberally, we'd be foolish not to.
Q: Would you look to expand that franchise out into other mediums, in the same way that something like Angry Birds of Moshi Monsters has gone to magazines, merchandising, animation etcetera?
Eric Hirshberg: There are a couple of different growth vectors within Skylanders and one is expanding the universe of the games with Skylanders Giants. But also licensing. I think people always think of video games as the licensee of IP that comes from other media but that really underestimates the power of games to launch new worlds. Before Skylanders launched we got asked a lot that if we've got this idea of toys coming to life, why not just apply that to a well-established line of toys, isn't that the lowest hanging fruit? But I think that underestimates the power of games as a storytelling medium in their own right. Look elsewhere at the gaming category outside of kids, the characters that are indigenous to games are the ones that are performing the best. Those are the characters that people want to play with themselves, not the characters from movies. A couple of years ago it was the opposite. Games have shown an ability to introduce worlds, characters, mythologies that are really meaningful.
Q: You're working on a Call of Duty free-to-play game for China. What kind of lessons have you leaned from Blizzard's Warcraft business in China that you can apply to the new Call of Duty game?
Eric Hirshberg: When you have access to the sizeable brains at one of the best developers in the world we pick them liberally, we'd be foolish not to. As we did when we were developing Call of Duty Elite and Blizzard's BattleNet experience. That said, they're different games and they demand different executions, you can't just apply the lessons and the best practices from one type of game to another. There are things we're able to learn and get a head start on based on Blizzard's experience and there are others we've had to invent from the ground up that make the game right for Call of Duty. The best thing about it is the mechanic that makes Call of Duty multiplayer so sticky really lends itself to micro transactions.
Q: China's a big and complex market, there must be multiple business obstacles to face there?
Eric Hirshberg: Some of the biggest lessons we got from Blizzard's experience were on the business side, how to execute, what to look for in a partner, and you also have to strike a balance between staying true to the brand and making something that's relevant to a different audience in China. The good news is the game I'm seeing in development will be breakthrough and revelatory for the audience.
Q: Can you give us any idea of user numbers that you're targeting in China?
Eric Hirshberg: I can't, we haven't released any formal projections, and I hate that answer as much as you do. China is obviously a massive market and a huge game market, there's a very engaged user base there. The good news is Call of Duty is already viewed as the premier first-person shooter over there before we've already entered the market. That's a rare moment where piracy plays in our favour.
Q: Is there a longer term opportunity to bring that free-to-play Call of Duty concept back to the West?
Eric Hirshberg: Anything's possible. We try to cross-pollinate across all the various prongs of the Call of Duty brand, with the zombie games on iOS and we have different developers taking different approaches with the annual releases. Wherever there's a piece of learning that becomes well-received its worth looking at and see if there are other applications for it.
When I say it's certainly possible, I don't want that to be misconstrued that it's certainly possible that we're going to change Call of Duty in the West to micro transactions. Just that there might be things that we learn, something that might apply to Elite, or a social game or something that we haven't developed yet. I don't want to give the misconception that that was something we're considering.
There's this impression that somehow this is being imposed upon gamers by publishers when in fact gamers are voluntarily spending more and more time going into the games that they love.
Q: You've shrunk the portfolio by shelving Guitar Hero and Tony Hawk to concentrate on Blizzard properties and Call of Duty. But now you've successfully launched one new franchise with Skylanders, will there ever be the opportunity to build out the Activision portfolio?
Eric Hirshberg: I certainly hope so but the answer will come from how many truly breakthrough ideas we can create or come across. We've got Skylanders, we've got Call of Duty Elite, with got the Bungie game in development, we're launching Prototype this year, we've got the annual Call of Duty release, we've got mobile games, the micro transactions game in China and the Transformers and Spider-Man titles. So I don't think our slate is quite as narrow as lore would have you believe.
But I understand your question, as we've narrowed our focus to the worlds that we think we can make the deepest and biggest. Our strategy is clearly not to compete in every category just because a category exists, and try to deliver only incremental differentiators or improvements within that category. Our strategy is to go compete big in the places where we feel like we have a real competitive advantage or difference. With Skylanders we showed that can be a very good strategy because we had something so unique to create a successful new IP launch. And we showed that strategy works with Call of Duty because instead of taking those same resources and making three games in three different categories, we've made big innovations in one category and delivered a big digital service and delivered more content than anyone on DLC.
I always have to point out that we're following gamer behaviour. There's this impression that somehow this is being imposed upon gamers by publishers when in fact gamers are voluntarily spending more and more time going into the games that they love. We would never have created Call of Duty Elite if we didn't see players playing all year round and buying up every single piece of DLC. There's clearly a desire and demand so what can we do to satisfy that? I wish for ten of those truly differentiated ideas, as many as we can find or create, but we're going to continue with the strategy of focusing our energies where we have something special, and not just spreading our chips around the table.