Is Legion the final make-or-break for WoW?

While I was on my short hiatus I played quite a bit of WoW and also read a lot of blogs and online articles I usually don’t have time for. There included some scholarly research on various aspects of gaming (yes, indeed there is such research) as well as some economic outlook stuff for the gaming industry in general and Activision Blizzard (ATVI) in particular. I enjoy reading that stuff, but it is sometimes very hard to plow through — not exactly good bedtime reading unless you are using it in place of sleep medication.

At any rate, when I read it these articles, I  try to absorb the ideas, then apply some deductive analysis to see if I can trace them down to things I see happening with the game. Sometimes this gives me a lot of insight, and other times honestly it just leads me down a road of poo. I leave it to you to decide which is happening with today’s post!

With that intro, on to today’s subject: The economic outlook for ATVI and most especially for World of Warcraft. 

First, let me say that this is in no way intended to be a woe-is-us-the-end-of-WoW-is-nigh piece. Those kinds of dire predictions have been around for a few years now — they have become a standing joke in the community. More, this is intended to describe a few business realities that may have a hand in determining WoW’s future and then extrapolating from those to come to some notion of really where the game is in its lifespan.

Most economic analysts I have read recently still are optimistic about ATVI. But in contrast to the universally-exuberant recommendations on it from a year or two ago, now a few analysts are advising caution buying ATVI stock. Again, they are only a few and there is a good chance they are outliers, so they do not represent the group thinking in any way. But the interesting thing is that these analysts, in looking at ATVI prospects as a whole, point to some problems with stock market “tricks of the trade” as well as with “aging franchises” such as Call of Duty and WoW.

One analyst says it is time to short the stock. (Check out the Wikipedia link if you are not familiar with the term “short”.) His reasoning is summarized as:

Activision Blizzard (NASDAQ:ATVI) has produced some of the most successful gaming franchises of all time, including the World of Warcraft and the Call of Duty series. While many of its video game creations have been unique and innovative, the stock has far outran [sic] the fundamentals of the company. While the company has seen no real sales growth in the last five years, the stock has nearly quadrupled …

With price far outpacing fundamentals, along with flat sales due to aging game series, the opportunity has come to short Activision.

The analyst goes on to say that much of the rise in the company’s stock over the past few years has been artificial, due in no small part to ATVI buying back large portions of its stock, in effect reducing the supply in order to increase the demand and this the price. This practice is noted as a huge drawback by another analyst, who actually is of the doom-and-gloom mindset on ATVI.

The meteoric growth of this stock from 2013 to the present is solely due to share buybacks. Hilariously, this was the same time the company’s revenue and net income started to decline. Retail investors who thought they were investing in a growing and dynamic gaming company have been completely hoodwinked!

The story gets worse. As ATVI expands its share buyback programs, it expands its liabilities to finance the purchases. While this is fine so long as interest rates are near zero, as soon as rates rise this is a recipe for disaster for the company.

A third analyst advises holding ATVI stock pending the success or failure of new releases this year. The new releases must all be at least average, indicating if one is a disaster, it will be a very significant setback for the company. (My take: In other words, ATVI and Blizzard in particular cannot afford another Warlords of Draenor.)

This is a company that heavily relies on establishing immersive franchises which tend to grow and retain its consumer base. This is evidenced by the cyclical releases of new content for old franchises – a new Call of Duty game released each and every year, for instance. These established franchises are extremely material to the financial well being of the company – the Call of Duty, World of Warcraft, Skylanders and Destiny franchises accounted for 71% of consolidated net revenues in FY15. As these franchises become more and more dated, I would speculate that they will start seeing stagnant sales growth. Although Call of Duty sales have remained strong, we have seen an ongoing decline in World of Warcraft subscribers ever since the peak near 12.5 million in 2010 (to below 8 million subscribers in this past year).

This type of business atmosphere puts pressure on Activision Blizzard to replace dying – or at least declining – franchises with new ones in order to replace lost sales and develop future growth prospects.

Last in my list of economic “pessimists” is the analyst who is very high on Blizz’s new money-making strategy for Hearthstone. If you read the article, you will see the analyst is actually very positive on Hearthstone as a growing market for ATVI, but I call it a pessimistic outlook because clearly the company is moving away from the single-platform MMO model and putting a lot of resources into developing mobile and multi-platform games which are NOT WoW. This is not exactly news, but it is confirmation of what they have been saying now for a couple of years.

So now on to my deductive insight/road of poo/wacko theories.

I think there is no doubt whatsoever that WoW is approaching the end of its useful life. It remains to be seen how long it can exist on life support — it may be a matter of months™ or it may be years yet. And it may yet rally before its final gasp.

We have some indications that Blizz understands how important it is that Legion be well received by their remaining — and hopefully new and returning as a result of the movie — players. They have shown a willingness not only to listen to player feedback on Legion changes, even after implementation in the alpha test, but also to reverse themselves in the face of strong negative feedback. This is something they seemed never to consider during the testing of WoD.

Examples that immediately come to mind are:

  • The water strider flap.
  • For BM hunters, there now will be an alternative focus generation option to balance the much-maligned constant use of Dire Beast. And Stampede pets will be from a hunter’s stable, not some random collection of beasts.
  • After a huge outcry, Marks hunters will not be an enforced petless spec.
  • Blizz devs have gone to some length to try and allay player fears that the mission table in Legion does not/not signify a return to the hated mission/garrison aspects of WoD.

There are almost certainly more examples of reversing themselves on changes to other classes and specs, I just don’t follow them as closely as I do hunters. Although I still think it was a major mistake to completely remake every class and spec in Legion (it remains to be seen if it will turn out to have been a fatal mistake), there is no denying that Blizz has seemed more willing to back off of some very controversial design decisions this time, in stark contrast to their attitude during WoD testing.

We also saw another interesting development last week: Official recognition that there is a significant desire among some players to have a “vanilla” experience. Blizz explaining themselves like this was certainly unusual, but even more interesting is that within the explanation was an admission that Blizz is not in principle opposed to providing such an experience, but that the technical challenges are just too overwhelming, and possibly insurmountable.

Thus my latest wacko prediction:

If the movie combined with Legion fails to significantly increase WoW subscriptions, it will be the last expansion in the game. And if WoW folds after Legion, look for it to be licensed to private servers, for example Nostalrius.

Such an action would serve to blunt what would certainly be anguished cries of company betrayal from whatever game fans remain, and it might also stave off an echo drop-off of players for ATVI’s other games (on the grounds that “You can’t trust this company.”) Last but not least, it could be a way to continue deriving revenue from WoW, with little or no continuing maintenance and development costs. If a deal were properly structured, not only would Blizz keep getting the licensing payments from Nostalrius and similar franchisees, but they could conceivably keep selling WoW items in the Blizz store, possibly derive some fees from any WoW eSports endeavors, etc. For Blizz, WoW could become the zombie franchise that just keeps on giving.

You heard it here.


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.

2 Responses to Is Legion the final make-or-break for WoW?

  1. Gloomy business. Large companies buy up good ideas and squeeze them dry … and then toss them aside. I imagined playing WoW for a long time in the “last expansion” but it’s possible that the big owners could just shut it down. Discouraging thought, no?

    • Fiannor says:

      Indeed it is discouraging for those of us who love the game. To me, it is a letdown that a company like Blizz, with the vast amount of creative talent they have, has fallen prey to formula development and has been unable to keep the MMO genre relevant in the face of changing technology and culture. Possibly they were never really as innovative as we would all like to believe….

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