Activision Blizzard's chief financial officer says the company's heavy focus on a few key franchises is still a safe approach, despite the theoretical damage that could be done if just one of those franchises were to falter.
The concern was raised by analyst Michael Pachter during the ongoing Wedbush Morgan Securities Management Access Conference in New York, listened in on by Gamasutra.
Pachter asked Activision CFO Thomas Tippl how the company is protecting itself against the potential decline of World of Warcraft
, Guitar Hero
, or Call of Duty
, which together make up more than half of all Activision revenue.
"What you should expect from us is consistent with what we've done in the past," Tippl answered, kicking off a question-and-answer session that demonstrated considerable confidence in the publisher's tried-and-true methods. "Growing the existing franchises we have [has been] the number one priority in the company's growth plan."
Keeping The Big Ones Big
"This was the right choice from the strategic perspective, and has been definitely validated this cycle," he continued. "The top franchises are grabbing a disproportionate market share and have been a big reason why Activision has been able to put up an unmatched track record of 17 years of growth. The strategy is working, and therefore you should not expect to see a change."
Responding to the suggestion that already-huge franchises might be more difficult to expand than smaller ones, since they have already theoretically tapped more of the potential market, Tippl disagreed.
"It's easier to grow big franchises," he explained, "because you have the resources that are unmatched in product development, you can outspend competition in marketing, you can cooperate more deeply with retailers on in-store execution. All of these things matter, and that's why we've been able to grow our bigger franchises faster than all of our other franchises."
According to Pachter, from a proportional standpoint, Activision's product development spending as a percentage of revenue is lower than all other major competitors. Tippl said the reason the publisher is able to maintain that is less to do with traditional cost-saving measures and more with making better decisions early on.
"Everybody talks about outsourcing and going for lower-cost locations, and I think that's an important part, but from what we have seen, I think the most important way you manage your product development costs as a percentage of revenue is by making sure you make the right choices of what games to make in the first place," he said.
"That has been a big part of our success and probably what has differentiated us the most. We don't do years where we do ten, fifteen new intellectual properties, because we know that's a recipe for losing money in this business. You will continue to see us take selective risks on well-vetted concepts, and as a result hopefully continue to avoid writeoffs on product development efforts."
Tippl also expressed his skepticism about delaying titles past their launch dates -- he said Activision "has been the only publisher who didn't move titles out of the holiday season, off their committed launch dates."
"I get my cash later, plus development is lasting longer, so I spent more dollar to get the game done, and it's just not a sensible way to run a business," he elaborated frankly.
Avoiding Excess Risk
The company plans to launch three new properties in 2009 -- and Tippl called those "the riskiest part of our business plan." He characterized them as coming with "disproportionate risk," and said the company has "planned conservatively."
"We'll do what you expect us to do as a hallmark of Activision," the CFO added. "We pinch every penny, we run our overhead structure extremely lean, and if you look at our headcount plan, I know the specific positions we're going to add, because there are less than 20 in 2009, outside of Blizzard."
Speaking of Blizzard, how is the still-young merger? "We are very pleased with the progress on synergy so far," Tippl said.