Yesterday we saw one WoW victim of the announced Activision Blizzard layoffs. Ythisen, possibly the most visible and active Community Manager for the game, was given his walking papers. I was not an especially big fan, but I give him a lot of credit for putting himself out there far more than almost any other Blizz CM or dev. Sometimes I would even see him tweet while on his way to work, saying he would check into something as soon as he got in. Why Blizz axed him says a lot about the current state of the company and the game, as do a couple of public comments from ATVI CEO Bobby Kotick and other execs in the most recent investors’ call quarterly report.
Let’s get started.
Yesterday’s Q4 2018 Earnings Call Transcript seemed to be a very concentrated effort to soothe and calm investors in the wake of the previously-announced restructuring and somewhat disappointing 4th quarter earnings. No, Activision Blizzard is not on the ropes, and WoW is not dead (yet), but the company is undertaking some major course changes to bring everyone more in line with the goals they have been espousing now for a couple of years — namely, to invest themselves heavily in esports, to move every Intellectual Property (IP) onto more diverse platforms with emphasis on mobile, and to constantly increase the “monetization” of every IP.
Kotick set the tone of the call at the start:
For 2018, we generated record GAAP revenues across all three platforms, and both Activision and King achieved record segment financial results. While we had record performance in 2018, it didn’t quite live up to our expectations. We didn’t execute as well as we hoped to in 2018 and our current outlook for 2019 falls below what is possible in an industry filled with growth opportunities. We measure our success by growth in reach, engagement, and player investment. And while we had record financial results in 2018, we didn’t achieve the reach engagement and player investment goals we set for ourselves.
Couple of things here.
One, “both Activision and King achieved record segment financial results.” Not Blizzard. In fact, pretty much throughout the call, Blizzard was treated like that family outcast you are still stuck with every Thanksgiving — always mention him in the most polite terms in hopes the kids won’t realize what a turd the family considers him to be, but everyone really knows he is ruining the gathering.
Two, Kotick is a tad worried because their strategy in 2018 fell short of increasing “reach, engagement, and player investment goals”. In plain language, that means they think they did not sufficiently increase their customer base and their MAU and other metrics were disappointing. How much of this is due to Blizzard’s problems and more specifically to the current WoW expansion is anyone’s guess, but those factors certainly did not help the quarterly bottom line. King’s sales were mostly flat, Activision suffered from the offloading of Destiny, and so Blizzard’s poor showing may have been the final big hit for the quarter. (Blizzard might have become the BM hunter of ATVI…..
heehee I mean awwwww!)
In all, 775 (8% of workforce) layoffs will be mainly among “support staff”, and development will become more centralized and include approximately a 20% staff increase. (WoW was mentioned specifically as one of the franchises that will get more dev resources, though it seems like Diablo is going to get the lion’s share of the Blizz dev bump.)
Not sure how the math works out there, but it sounds to me like the “support” staff cutbacks have to be pretty deep to accommodate both the overall reduction goal and at the same time increase the development staff. I am not sure exactly how “support” staff is defined at ATVI, but apparently customer relations is part of it given Ythisens’s departure. Whether it also includes functions like infrastructure support, GMs, public testing managers, bug report staff, forum maintenance, and so forth remains to be seen. Blizz has never really cottoned to the whole notion of interacting with players, so maybe this is a golden opportunity to become even more isolated from their customer base, not that I’m salty or anything. But hey, if the game becomes awesome once more with the influx of dev resources, who cares about customer feedback, right? 🙄
What does any of this mean for WoW? Blizzard is its own company, of course, but executive and policy changes over the past couple of years seem focused on bringing Blizzard closer to Big Corporate in its business models. There has been more and more blurring of the Activision/Blizzard lines. Witness:
- When Destiny 2 was released, it was released exclusively on Battle.net, the first time an Activision franchise crossed over into Blizzard territory. Later, Call of Duty: Black Ops 4 was also released on Battle.net
- About a year ago, ATVI transferred one of its long-time VP’s, Amrita Ahuja, to Blizzard to become Blizz’s CFO.
- Last fall Mike Morhaime, CEO and co-founder of Blizzard, announced he was stepping down. Within a month Blizz caused a player firestorm by announcing the mobile-only Diablo game. (Remember, “mobile” is a key platform for ATVI.) Thus far, J. Allen Brack, Morhaime’s successor, has not distinguished himself by his independence or defense of WoW in my opinion — he seems well on the way to becoming a corporate lapdog, though perhaps that is too harsh at this early stage.
- Activision’s list of its own internal franchises is dwindling rapidly, with the offloading of Destiny, Call of Duty is pretty much its only remaining star. Blizzard’s lineup might look downright vibrant when viewed through the Activision light, and much closer operating partnership could be very attractive.
Yet, tying itself more tightly to Blizzard’s fortunes is not without risk to Activision. ATVI’s new CFO had this rather gloomy assessment:
Turning to Blizzard, we expect materially lower financial performance this year. 2018 benefited from the release of World of Warcraft: Battle for Azeroth whereas we are not planning a major frontline release for blizzard in 2019. And Blizzard exited 2018 with softness for its in-game revenues that will take time to stabilize in return to growth. While these factors will weigh on Blizzard’s financial this year, looking further ahead, Blizzard’s pipeline of PC, console, and mobile content is richer than ever, and we expect a significant addition of development resources to accelerate the pace of delivery over time.
Addressing the apparent dismal WoW performance for the quarter, this is the best the ATVI CFO could muster:
World of Warcraft saw expected declines post the expansion released this summer. On the other hand, the relatively consistent monthly active user trends for Blizzard’s communities were not matched by in-game net bookings, which continue to soften.
Um, not to throw too much cold water on the statement, but Battle for Azeroth was released in mid-August of 2018. Q4 2018 covers the period Sep-Dec. Which means the “expected declines” occurred within the first few weeks of the new expansion. So nope, not buying the “expected declines” fantasy.
I don’t really have any great insights into the economic tea leaves for Blizzard and specifically for WoW, but here are my main takeaways from the restructuring and the investors’ report:
First, Activision has decided to throw in with Blizzard in an attempt to revitalize its own game lineup. For ATVI, the days of independent companies under one corporate umbrella are over. There are probably solid financial reasons for this move, but I think in the long run we will see a muddying of what we have come to know as Blizzard genius and creativity, in the name of centralized resource sharing and adherence to corporate strategic goals. We may already be seeing it, in fact, and maybe that is a factor in what we have all noticed about the recent lack of fun in WoW.
Second, there seems to be little question but what BFA has turned out to be a stinker for Blizzard. The fact that the execs try to lay dwindling customer interest off to “normal release cycle” doesn’t fool anyone. What this means for the bigger strategic picture is anyone’s guess. It cannot bode well for Mr. Game Director Hazzikostas, I would think. Too bad he is not superfluous support staff… The question becomes, to what will Blizz and ATVI attribute the failure?
Third, we will see some very major changes in WoW, I think, if not in BFA then certainly in the next expansion. Whether these will be positive or not is a good question. What it comes down to is this: will ATVI realize they have to let Blizz return to the creative genius that led them to become a world leader in gaming (and give them the resources and time to do so), or will they force the company’s franchises into the strategic mold of esports, monetization/advertising, and mobile platforms? Sadly, I am hoping for the former but betting on the latter. I believe ATVI is falling into the age-old trap of wanting genius but being unwilling to put up with the messiness and chaos it almost always brings with it. They want creativity produced as part of a well-ordered assembly line.
Fourth, in spite of some troubling trends, there is every reason to believe this is a relatively healthy restructuring. Hopefully, it is a reflection of ATVI’s corporate agility in response to a rapidly changing gaming market and not an act of desperation. I have been wrong before — many times — but right now I don’t see anything beyond the normal discomfort and upheaval change always brings. Here’s hoping I am right.