While Activision Blizzard spends heavily to market and develop mass-market games like Call of Duty, World of Warcraft and Skylanders, the company also has to reserve some of its funds for the development of new game experiences unproven by consumers. In a recent discussion with investors, Activision Blizzard’s Chief Financial Officer Dennis Durkin offered his strategy in dividing up the company’s budget.
Investing in New Video Game IP
“About 1/4 of our spend is on new IP on franchises like Bungie, Heroes, Hearthstone, Call of Duty Online, et cetera,” said Durnkin.
Large video game publishers are often criticized for not taking significant risks, but it can be hard to invest in unproven content when you have sure-thing money-making sequels that will ensure a company can pay its bills and salaries on time. By allocating a quarter of his company’s budgets to unproven releases, Durkin significant funding for discovering the next hit for Activision Blizzard.
Money is finite, and management at Activision Blizzard has to decide how much to invest in proven games, such as the next Call of Duty, in order to thwart of competitors like Battlefield, and how much to invest in new unproven IP that may or may not succeed in the marketplace.
Investing in This Year’s Games
Durkin also must make decisions around how much budget goes to games coming out in the current year, compared to a game coming out in several years. It’s easier to invest money in a game that’s almost ready, when you’re certain will perform well, but games still in their nurturing phase also need significant funding.
“It’ll vary in any year, but generally speaking and directional for 2014, probably about 1/3 of our total cash spend is for future games that we’ll release beyond 2014,” said Durkin.
Allocating more dollars to the current year’s games allows Activision Blizzard to spend heavily on marketing the current year’s games, but by saving a third of the budget for future games, Activision Blizzard can continue to fund long-term development.
“We plan our businesses and our franchises with multiple-year planning horizons, constantly evaluating what we’re going to build, who’s building it, what the innovation is, when it will come to market, and we’re really trying to build a consistent flow of content for our communities and growing franchise value over time,” said Durkin.
It’s worth noting that Activision Blizzard is investing more long-term than before, with Call of Duty games now being given three years for development, compared to two years for all previous iterations.
Source: Company Financials and Seeking Alpha Transcripts, May 2014