Happy Pi Day and other numbers

Woohoo! It’s Pi Day, which of course is celebrated with pie. What could be better for a dreary Monday in March? And this year the day is somewhat special. Well, it was special last year, too, but we do like to drag out our specialness when possible, don’t we? As ABC News explains:

Last year’s Pi Day was one to celebrate since it was 3/14/15, perfectly matching the first numbers past the decimal point of pi. Last year, hardcore math fans even started celebrating the day at exactly 9:26 a.m. and 53 seconds. There’s a big reason to celebrate this year too — math enthusiasts are calling today “Rounded Pi Day.”

When rounding pi to the ten-thousandth (that’s four places beyond the decimal point), it comes out to 3.1416, matching today’s date — March 14, 2016.

In our house, Pi Day takes on slightly more significance since it is also the day before the Ides of March, which happens to be my spousal unit’s birthday. Poor fellow, he has never had an actual birthday cake from me, he always gets birthday pie. It is, of course, always a rounded pie, but this year the shape clearly assumes greater importance!

Anyway, Pi Day being about numbers, I decided to go back and look at the Q4 2016 report from Activision Blizzard, which was issued early last month. I had scanned it when it came out, decided it made my head hurt, and quickly moved on. But something made me look at it again. My usual disclaimer: I am not an economist or stock expert, and my comments are purely a lay person’s observations. Take them for what they are worth, which honestly is not much.

Of course, all the comments by the ATVI execs were rosy and optimistic. In general, they have a right to be — the gaming industry is flighty and fickle, and to maintain a multi-billion dollar gaming company for years is a pretty impressive accomplishment. So this is not a “WoW is doomed” post, just a couple of observations — an attempt to read between the lines — about the Blizzard and WoW corners of the massive ATVI entity.

The first thing that really stood out for me is something one of my regular readers alluded to in a comment on my last post — that Legion artifact weapons are a huge gating mechanism. I agreed with him and it made me think, oh silly me of course this is done on purpose, especially the part about having to level an artifact weapon for every spec, not just for every class. And the reason is that the success metric now applied by ATVI is “monthly active user engagement”, which just means amount of time played each month by players who log on. (I think — I really do not know exactly how ATVI defines “active users”.)

ATVI  COO Thomas Tippl (emphasis mine):

First, we broadened our audience reach with successful new content launches and expanded onto new platforms and geographies. In the fourth quarter, our monthly active users grew to our highest level ever at over 80 million users. For the full year, MAUs grew 25% over 2014.

Second, we drove deeper engagement by providing outstanding game play and frequent content updates. Players spent 3.5 billion hours playing our games in the fourth quarter alone. For the full year, engagement was up 16% to a record 14 billion hours, and this doesn’t include rapidly growing hours spent spectating which we estimate for Activision Blizzard alone is now 1.5 billion hours. Third, we progressed in something that is very hard to do, but is critical for our business. We shifted to a year-round player investment model, while growing engagement at the same time. And as a result, we grew our revenues from in-game content and services to over $1.6 billion. That’s up 57% year-over-year at constant FX.

When executed well, increased player investment and deeper engagement are not a tradeoff but instead can reinforce each other, and we are pleased that our results are proving out this important element of our business strategy.

That is the big ATVI picture. Here are related comments from Blizzard CEO Mike Morhaime (again, emphasis mine):

Moving onto World of Warcraft, we saw quarter-over-quarter growth in Q4 as we kicked off presales at BlizzCon for our new expansion, Legion, which is coming out in the summer, and we released a new content patch. With Legion we’re taking care to build off the best aspects of Warlords of Draenor to create an experience that appeals to an even wider audience and which offers more opportunities for sustained engagement.

(I’m not sure I remember the release of a new content patch in 4th quarter of 2015, but never mind.)

It seems clear that one of the main goals for Legion, as part of the larger ATVI corporate goal, is to extend the time each player must spend in order to attain desired goals. Thus, we will have spec-specific artifact weapons, each of which entails a relatively long process to open up the entire range of what amounts to a new talent tree based on a unique weapon. Further, I think we can expect to see other goals — especially the most sought after — to be fairly long and involved (think flying as an example).

I am not necessarily passing judgement here — forcing “engagement” is not inherently good or evil. I am just saying that the prime motivator for many of WoW’s mechanisms probably has very little to do with player fun or some bogus “spec fantasy”, and a great deal to do with the bottom line in the next quarterly report. Remember that when you are collecting your 30th widget of 300 for quest number 6 in a string of 21 required for Legion flying.

My last point is that, despite rosy pronouncements from ATVI execs, all is not unicorns and puppies and rainbows as far as the company’s future goes. They certainly are not in imminent danger of going under, but they face some very significant challenges, some of which are described by this analyst. Essentially, acquisition of King remains a large gamble for the company, and the realization of huge eSports revenue, while still promising, is in its very early and formative stages. A lot could still stop it in its tracks.

What this means for WoW is anyone’s guess (although it appears less and less  likely that it will be revived as an eSport, it just is not a good genre for that), but — not to be a harbinger of doom — it seems pretty safe to say that this MMO is playing out its own end game. Sure, it may remain viable for a couple of more years, but I think we are seeing Legion as a possible last-ditch attempt to revive it, or maybe just to allow it to exit gracefully. The analyst I cited above had this comment to make:

World of Warcraft – increasingly becoming an afterthought, which shows just broad and deep ATVI’s portfolio is – appears to have declined sharply from the billion-dollar levels estimated as recently as last year. Durkin said that for the first time since Activision and Blizzard merged in 2008, WoW drove less than half of that company’s revenue. Given that Blizzard generated $1.565 billion in revenue for the year, that caps WoW’s contribution at ~$780 million.

And last, this thought from yet another analyst (my emphasis):

Whatever the reasons for the decline in Activision’s main products are, there is no question that there is a decline.

First, World of Warcraft. The game hit its peak of just shy of 12.5 million subscribers in the fourth quarter of 2010. Since then, it has steadily declined, with a short recovery in Q4 2014. By end of the third quarter 2015, the game had slightly over 5 million subscribers and is expected to have ended up slightly below 5 million by the end of 2015. Worse, it looks probable that this decline is very likely to continue and will not be reversed by the forthcoming release of World of Warcraft: Legion on September 21, 2016.

No, it may not be time yet to head for the WoW exits, but it wouldn’t hurt to know where they are. Enjoy the game as much as you can as long as you can, but know that it will not last forever. The world of gaming is changing, and some genres will not be part of the next game generation.

Meanwhile, I recommend pie.

About Fiannor
I have a day job but escape by playing WoW. I love playing a hunter, and my Lake Wobegonian goal is to become "above average" at it.

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