Blizzard Entertainment: Winner
Blizzard Entertainment: Winner
Question 1:
Blizzard Entertainment is a video game company and a part of Activision Blizzard.[i] This is a company that has a strong alignment between its business and operating models. Specifically, it leverages its strong talent base to develop and sustain compelling game “franchises” that generate significant value on an ongoing basis.[ii]
As shown in Exhibit 1, a slide from a recent presentation to investors, management is well aware of how the key elements of its business model and operating model support each other (I’ve included annotations clearly delineating which elements of their framework I would argue are ‘business model’ vs. ‘operating model’).[iii] While this framework applies to Activision Blizzard overall, I would argue it applies to the specific Blizzard business as well (as is evidenced by the inclusion of Blizzard games in the graphic).[iv] The effectiveness of their model is evidenced by revenue growth at a 8% CAGR from 2009 to 2014 and net income growth at a 6% CAGR over the same period; while there have been ups and downs, the business still has performed well.[v]
Question 2:
Business Model:
Instead of developing a very wide range of games, Blizzard instead focuses on developing “franchises” that each foster their own “large and engaged community.”[vi] Franchises may include multiple games developed over several years: for example, Blizzard has continued to publish Warcraft related titles since 1994.[vii] As seen in Exhibit 1 (annotated slide from investor presentation), the level of player “engagement” is key to this franchise model; and according to Activision Blizzard’s annual report for 2014, their games were played for ~12B hours (figures for Activision Blizzard overall).[viii]
Operating Model:
A key element of the operating model to highlight is that its employees all have a strong interest in video games, which is meant to ensure a high degree of customer empathy across the entire organization.[ix] This does not just apply to specific developer roles: even when applying for relatively senior management positions (for example, “Senior Vice President, Cross Media”) applicants are required to submit a cover letter that describes “What games you are currently playing.”[x] And indeed, Activision Blizzard boasts that it has “the best talent in our industry.”[xi]
Question 3:
Hiring strong employees has obvious links to strong performance – as shown in Exhibit 1, management notes that good employees make good games.[xii] But I would argue choosing the right employees has the more subtle benefit of having an employee base that is well-positioned to engage with the communities of players upon which these franchises depend. For example, Blizzard hosts an event roughly once a year called BlizzCon.[xiii] Among the activities at BlizzCon, fans can watch “pro gamers” play Blizzard games and, importantly, attend “discussion panels” featuring Blizzard staff.[xiv] Blizzard employees reach gamers in other ways as well – for instance, key members of the Blizzard team that develop their Hearthstone game can be found engaging users on the Reddit forum dedicated to that game.[xv] Ultimately, I would argue that Blizzard is successful, at least in part, because of its ability to hire employees that not only can create great game franchises but also are able to foster the communities that sustain long-term interest in those franchises – indeed, Activision Blizzard management says it will make “continuous investment in the franchises we create and investment in the communities comprised of our players.”[xvi]
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Exhibit 1: Excerpt from “Activision Blizzard Investor Day 2015” presentation, my annotations in orange[xvii]
Exhibit 2: Blizzard Financial Performance[xviii]
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References:
[i] Blizzard “Company Profile”. http://us.blizzard.com/en-us/company/about/profile.html. Accessed 12/8/15.
“ICD Research – Business Analysis.” Activision Blizzard. http://www.lexisnexis.com.ezp-prod1.hul.harvard.edu/lnacui2api/api/version1/getDocCui?oc=00240&hnsd=f&hgn=t&lni=58FW-PV31-JB5W-D1F5&hns=t&perma=true&hv=t&hl=t&csi=270944%2C270077%2C11059%2C8411&secondRedirectIndicator=true. Accessed 12/9/15.
“Hoover’s Company Records – In-depth Records.” “Blizzard Entertainment, Inc.” http://www.lexisnexis.com.ezp-prod1.hul.harvard.edu/lnacui2api/results/docview/docview.do?docLinkInd=true&risb=21_T23159268378&format=GNBFI&sort=RELEVANCE&startDocNo=1&resultsUrlKey=29_T23159268382&cisb=22_T23159268381&treeMax=true&treeWidth=0&csi=220620&docNo=4. Accessed 12/9/15.
[ii] Activision Blizzard “2014 Annual Report.” http://files.shareholder.com/downloads/ACTI/1133543096x0x822202/B3182DA4-35AA-41BA-BA4D-CE8014B533BB/ATVI_2015_Annual_Report_Spread.pdf. Accessed 12/7/15.
“Investor Day Presentation.” http://files.shareholder.com/downloads/ACTI/1133543096x0x860155/9F8D523C-7E61-4443-91E1-EB3A7DDFC7F1/FINAL_ID_Presentation_-_Small.pdf. Accessed 12/8/15.
[iii] “Investor Day Presentation.” http://files.shareholder.com/downloads/ACTI/1133543096x0x860155/9F8D523C-7E61-4443-91E1-EB3A7DDFC7F1/FINAL_ID_Presentation_-_Small.pdf. Accessed 12/8/15.
[iv] A list of Blizzard games is available here: http://us.blizzard.com/en-us/games/
[v] Analysis of “financial model” distributed on Activision Blizzard’s investor site. Financials accessible at: http://investor.activision.com/common/download/download.cfm?companyid=ACTI&fileid=858388&filekey=49C9D57E-3C59-42AF-ADB2-D028D5846A35&filename=ATVI_Financial_Model_Q3_CY15_IR_Version_.xlsx. Accessed 12/8/15.
[vi] Activision Blizzard “2014 Annual Report.” http://files.shareholder.com/downloads/ACTI/1133543096x0x822202/B3182DA4-35AA-41BA-BA4D-CE8014B533BB/ATVI_2015_Annual_Report_Spread.pdf. Accessed 12/7/15.
[vii] “Blizzard Timeline.” http://us.blizzard.com/en-us/company/about/b20/timeline.html. Accessed 12/9/15.
Blizzard Games. http://us.blizzard.com/en-us/games/. Access 12/9/15.
[viii] Activision Blizzard “2014 Annual Report.” http://files.shareholder.com/downloads/ACTI/1133543096x0x822202/B3182DA4-35AA-41BA-BA4D-CE8014B533BB/ATVI_2015_Annual_Report_Spread.pdf. Accessed 12/7/15.
“Investor Day Presentation.” http://files.shareholder.com/downloads/ACTI/1133543096x0x860155/9F8D523C-7E61-4443-91E1-EB3A7DDFC7F1/FINAL_ID_Presentation_-_Small.pdf. Accessed 12/8/15.
[ix] Blizzard “Company Profile”. http://us.blizzard.com/en-us/company/about/profile.html. Accessed 12/8/15.
[x] Job description page for Senior VP Cross Media at Blizzard. http://us.blizzard.com/en-us/company/careers/posting.html?id=14000FY. Accessed 12/8/15.
[xi] Activision Blizzard “2014 Annual Report.” http://files.shareholder.com/downloads/ACTI/1133543096x0x822202/B3182DA4-35AA-41BA-BA4D-CE8014B533BB/ATVI_2015_Annual_Report_Spread.pdf. Accessed 12/7/15.
[xii] “Investor Day Presentation.” http://files.shareholder.com/downloads/ACTI/1133543096x0x860155/9F8D523C-7E61-4443-91E1-EB3A7DDFC7F1/FINAL_ID_Presentation_-_Small.pdf. Accessed 12/8/15.
Activision Blizzard “2014 Annual Report.” http://files.shareholder.com/downloads/ACTI/1133543096x0x822202/B3182DA4-35AA-41BA-BA4D-CE8014B533BB/ATVI_2015_Annual_Report_Spread.pdf. Accessed 12/7/15.
[xiii] “Blizzard Timeline.” http://us.blizzard.com/en-us/company/about/b20/timeline.html. Accessed 12/9/15.
Blizzard “Events.” http://us.blizzard.com/en-us/company/events/. Accessed 12/9/15.
[xiv] “BlizzCon Overview.” http://us.battle.net/blizzcon/en/event-info/about-blizzcon/blizzcon-overview. Access 12/9/15.
[xv] “Blizzard Hearthstone Developer AMA – Ben Brode, Yong Woo and Christina Sims!” https://www.reddit.com/r/hearthstone/comments/2ped94/blizzard_hearthstone_developer_ama_ben_brode_yong/. Accessed 12/9/15.
[xvi] Activision Blizzard “2014 Annual Report.” http://files.shareholder.com/downloads/ACTI/1133543096x0x822202/B3182DA4-35AA-41BA-BA4D-CE8014B533BB/ATVI_2015_Annual_Report_Spread.pdf. Accessed 12/7/15.
[xvii] “Investor Day Presentation.” http://files.shareholder.com/downloads/ACTI/1133543096x0x860155/9F8D523C-7E61-4443-91E1-EB3A7DDFC7F1/FINAL_ID_Presentation_-_Small.pdf. Accessed 12/8/15.
[xviii] Analysis of “financial model” distributed on Activision Blizzard’s investor site. Financials accessible at: http://investor.activision.com/common/download/download.cfm?companyid=ACTI&fileid=858388&filekey=49C9D57E-3C59-42AF-ADB2-D028D5846A35&filename=ATVI_Financial_Model_Q3_CY15_IR_Version_.xlsx. Accessed 12/8/15.
How does Blizzard actually go about making games, and how does their process differ from others in the industry?
It seems that over the past couple of years, Blizzard has only released content for the PC that connect to Warcraft, Starcraft, or Diablo in some way or another. Do you think that they have ran out of unique “franchises” from which they came to be known for?
The community concept is fascinating and really compelling, especially because it seems to engage employees with users during and after the development process. I was wondering how much these communities overlap – i.e. do Blizzard fans become active members of multiple franchise communities, or does the company have to do a lot of brand-building for each franchise to attract new community members? Thanks for writing, future seatmate!
As the first company to really nail the MMO concept, Blizzard was able to apply one of their established franchises (Warcraft) to their (at the time) unique and fresh take on the MMO genre. However, a big criticism of Blizzard has been its over-reliance on WoW revenues after so many profitable years, given that gamers have begun to grow weary of MMOs in general.
Do you worry that their real competitive advantage in the last decade was being first to market with a modern MMO? Do you think that they’re too late to the game with HotS, given the number of other popular games in the MOBA space? Do you think Hearthstone can be the profit engine that WoW once was (since admittedly, there are very few, if any major competitors in the online card game space right now?
I agree that their dedication to hiring current gamers helps them in their business. It certainly allows them to bring ideas that have worked well in other properties to the Blizzard universe.
Very interesting to see the contrast between Activision Blizzard and EA – it seems like AB is focused on a much more “organic” method of developing and growing franchises, vs. via acquisitions. I’m curious to know what the thinking was in launching the Overwatch franchise, a big departure from prior Blizzard games (though not as much from Activision’s, I suppose).
Also, any idea how the merger went with Activision and Vivendi? Curious how two seemingly-very different gaming companies were able to combine so well in the middle of a downturn.
What is the next frontier for Blizzard (and EA — @KQ)? It seems like the gaming industry is approaching a tipping point as the quantity of players explodes (I believe League of Legends tipped over 1 million players simultaneously online recently). What does the future hold? Is it proliferation of games? Or the launch of more adjacent opportunities — such as virtual reality / leagues?
If virtual reality, I think their operating model will continue to flourish.
With the hiring of Steve Bornstein, it looks like Blizzard is headed for the latter — in that case, I expect a radically new (or altogether separate) set of business/operating models.