With everything Blizzard has been bragging about over the past several months (e.g. successful WOTLK China launch, largest ever "12 million subscribers", huge number of people returning to WoW in anticipation of Cataclysm, etc.) you would expect this quarter's World of Warcraft earnings to be highly successful.

I think you'll be shocked by the results:

World of Warcraft revenues were $289 million for the 3rd quarter.

That's the exact same amount of revenue as their previous quarter.

In 2009 during the same quarter, they made $306 million (even though they have much larger subscription base in 2010).

During the 2nd Quarter (Ending June 30 2010), they released the Celestial Steed, the RAF Flying Mount, and introduced the Remote/Mobile Auction House service at the end of the quarter (so revenues for that new service actually carried over to the 3rd quarter.)

To help put things into perspective: even with ALL OF THAT FANFARE, the China launch, the "huge climb" of subscriptions, and Cataclysm coming soon, they still only made the same amount of revenue that they did during a quarter when absolutely NOTHING happened.

This is bad news indeed.

It gets much worse though. According to ActiBlizzion, they raked in $745 million in revenue with only $51 million in actual profit. That's a huge amount of expenses that cut deep into their revenue. (Although, they put a very positive spin on their Q3 results.)

World of Warcraft generated $289 million in revenue but their own expenses (staff costs, server operating costs, etc. according to Blizzard) were only about $13 million for that quarter.

So, WoW generated over $270 million in profit - but the Activision side of the family laid a gigantic smackdown on their overall profit, They must have some pretty insane expenses and I wonder what the investors feel about this? Look at it this way: if there was no "Activision", that $51 million profit would have been over $270 million instead.

World of Warcraft, by the way, is ActiBlizzion's flagship product and amounts to almost 40% of the entire company's revenue stream. You can see that Vivendi is incredibly dependent on Blizzard, but without WoW there would be a massive deficit. (See "What Vivendi Fears Most".)

* Addendum: Back in March 2010, Kotaku had an interesting article.. Activision's reports pointed out that World of Warcraft amounted to 98% of Blizzard's revenue which was up from the previous two years (97%). WoW also accounted for ~70% of Activision's net revenue. 'nuff said.

During the Q3 earnings presentation, Activision also kept bringing up Starcraft 2 and how successful the launch was. They mentioned everything else I said they would, but I was surprised they kept talking about Starcraft 2. Details had already been announced during the previous quarter and was talked about at great length at the time. But, I didn't think they were desperate enough to bring it up again ("SC2 launch! SC2 launch everybody!".. you know, even though the information was released already last quarter.)

Starcraft 2 sales figures were also very disappointing. They only sold 3 million units to date. By comparison, Red Dead Redemption (a more recent release) sold 5 million units in less than a month and it was considered a moderate success. Using that same time frame as a basis of comparison, the original Starcraft sold almost 2.5 million units (SC1 launched in 1998 plus BW units which launched 8 months later during that same year). Tiberian Sun (1999) sold 3 million units by year end, and Red Alert (1996) sold 1.5 million in under 4 weeks - and another million more over the next few months.

Keep in mind that those sales were from over a decade ago, and they're comparable to Starcraft 2 sales as they are now!

Worldwide, the video game industry revenues in 2007 were about $41.9 billion, in 2004 they were $25.4 billion, and in 1994 they were $7 billion. So, since 2001 video game revenues have almost tripled in size (2.7x actually), and even with that explosive growth, SC2 still only sold the same amount as Tiberian Sun from over 10 years ago (within the same timeframe, the only difference is that SC2 sold more on opening day).

"Professional Analysts" had initially predicated that SC2 sales would be significantly higher: 7 million sales within the first 5 months, 4 million within 3 months, 6.5 million within 5 months, 5 million in 5 months, and finally 6 million in 5 months. Apparently, Cataclysm is also supposed to sell 6 million copies on the first day, according to one of the analysts.

Keep in mind that these "professional analysts" are the best and brightest in this field. Man, were they off.

So anyhow.. overall the Q3 conference turned out just as depressing as Blizzcon 2010 - no news, no major announcements, just very boring and disappointing. If I was a major investor in the company, I would be very angry and asking a lot of questions.

* Quick Update:

One of the readers didn't understand the comparison of Blizzard's "3 million in the first month", compared to analyst predictions of "7 million sales within 5 months", etc. If you read back over past posts, this makes more sense as I've talked trends and sales figures.

What happens is that the largest amount of sales occur on the first day. And then the numbers steadily drop each follow day. SC2 for example sold 1.5M on the first day, on the next day they sold half that amount, and then 50% of that figure, and so on.

Almost all game releases follow the same trend, here's an example:

5 million during the first week (largest amount on the opening day)
800,000 during the second week
600,000 during the third week
400,000 during the fourth week
200,000 during the fifth week
150,000 during the sixth week
100,000.. 70,000.. 50,000 etc.

As of right now (4 months after release), Starcraft 2 is at about 3 million units sold. With only 1 month to go, there's a very unlikely chance that SC2 will suddenly sell 4 million units within the next few weeks. I hope that clarifies.

The whole Halloween event has been crippled so badly for the past couple weeks, Blizzard should seriously consider extending the event for their faithful customers.

The Hallow's End event takes place between Oct 18 and Oct 31.

However, between Oct 18th and Oct 26th there was a nasty bug taking place. Players on all realms would freeze, disconnect, and crash when trying to summon the Headless Horseman. The same issue impacted battlegrounds and other "dreaded cogwheel" items that could normally be interacted with.

On Oct 26th, a new fix was implemented to correct the issues. However, it did even more harm. Immediately after the fix, BG/dungeon/event queues crashed and the HH event couldn't even be accessed anymore. Also, the Shade could not be summoned by the Matron in most locations for the "Putting Out the Fires" daily quests.

I don't even think the Halloween event was truly fixed until around Thursday the 28th. That really only leaved 3 actual days for the players to participate in the Hallow's End event. There have been no extension announcements so far and no free game time for the millions of players that were impacted or unable to participate in the event over the past couple weeks.

I'm not sure why it took so long to "fix" the issue, but I suspect it's because everyone at Blizzard was so busy with Blizzcon and their support staff were directed by Sr. Management to prioritize Blizzcon gaming events over everything else.

So, here were the big highlights of past Blizzcons.

I'm including the Worldwide Invitational as well, since it was the EU version of Blizzcon. (Note: There was no Blizzcon 2006, and WWI was cancelled in 2009 in favor of Blizzcon moving forwards.)

* Oct 2005 Blizzcon - World of Warcraft: The Burning Crusade Announced

* May 2007 Worldwide Inv - Starcraft 2 Announced

* Aug 2007 Blizzcon - World of Warcraft: Wrath of the Lich King Announced

* Jun 2008 Worldwide Inv - Diablo 3 Announced

* Oct 2008 Blizzcon - Starcraft 2 Trilogy Announced

* Aug 2009 Blizzcon - World of Warcraft: Catacylsm Announced

* Oct 2010 Blizzcon - Some guy in a red shirt asks a question

I hope this isn't going to be a trend.

Activision-Blizzard's Third Quarter Investor conference call will be taking place next week (Nov 4.) I'm excited.

Sure, it sounds boring to you - but these are the calls where they review the company's current situation (I look forwards to the raw data to get a better insight into the company) and discuss future strategic plans or growth for the following quarter that will generate even more profit for their investors. Sometimes the results of these calls won't be made public for a few weeks following, but some information will typically leak out.

BlizzCon is reserved for all of the big Blizzard announcements, but this upcoming investor meeting might describe a plan for some future Activision/Blizzard interaction. There's a strong possibility, for example, that Activision may announce full integration of their own software line (complete with digital downloads, social interaction, match-making, etc.) on Blizzard's Battle.net service.

Activision will give the typical speech to bolster customer and investor confidence (ie, Blizzcon was a big success, WOTLK launch in China was a big success, upcoming Cataclysm release will be a big success, blah blah blah) especially since they performed so poorly last quarter.

But I'm hoping that there will be a hint at more "console development", but not actually point their finger's in Blizzard's direction. Or maybe they will. =]

Back in August, I made a post about how Diablo 3 looked like it was designed (with purpose) for console platforms. It had the perfect GUI, interface, and gameplay. WOW & SC2 are no where near close, but D3 is ready for the transition. It would be fitting for Diablo to be back on consoles too.. third time's a charm, right?

The reason I'm mentioning this now, is because just recently Blizzard has been hinting at D3 development for consoles and the information is being picked up by various gaming news sites.

In other news, I was anticipating a Red Dead Redemption PC port announcement this November as their quarterly announcements were supposed to happen next month. There aren't any gaming conventions occurring during the next quarter, so most of their big announcements would have been taking place next month. I'm was really hoping for a RDR PC announcement too, but it will probably be about GTA 5 (a new GTA release wouldn't be the only reason for moving their Fiscal Year by the way - that would just be silly).

HOWEVER, they just MOVED their Fiscal Quarter! (Yes, this is legal with special approval.)

That's actually big news in itself. =]

There are only a few reasons why a company would be moving it's Fiscal Year-End. Sometimes it's done by companies who want to match their own Fiscal Year with that of their parent company, sometimes it's for minimizing taxes (meaning that they're hurting financially), sometimes it's due to the termination of a partnership (hmmm...), sometimes they do it because there are indications of (seasonally) low revenue, or sometimes it's if they will be giving up control of their corporation (EA has been interested in Take-Two for a while now).

Most likely though is that they have some MAJOR re-structuring planned for the next few months and their revenue isn't as high as they were expecting. There are two things that can happen: they need to reduce costs or they need to increase profits by pumping out more releases and at a faster pace. =]

On a related note (ie, "re-structuring" in the future), Rockstar Toronto has been hiring a lot more people recently. Game Programmers, Designers, and Support Staff.. and they all seem to be replacements due to attrition. Maybe the Rockstar remote sites know something we don't?

With this recent announcement though, it's safe to say that there's something big coming down the pipe. I'm predicting lay-offs, as it's always the easier way out and the path taken by most companies these days (ie, when they need to cut expenses to increase profit, rather than using money to make more money.)

Update (10/29/10):

Take-Two just made a new announcement, so yeah - there's definitely some major re-organization taking place. Their CEO is stepping down. =]

This is a good indication that they might be giving up control of the corporation (ie, being acquired by Electronic Arts), hence one of the reasons for moving their Fiscal Year. There are some other companies that were interested as well (including Activision), but EA is the front runner.

I still think there's more lay-offs on the way. Many people will say that Take-Two has been doing really well. Sure, they have been doing well but not "well enough" and investors want them to do better. Besides this upcoming reorganization, it will also give Take-Two more time to develop their various (ongoing) technologies and work on their big name games. Should be interesting.. I'm looking forwards to their next game announcements. It'll most likely be sequels though, and no new IPs. =[

Another Update:

Apparently this post caught the attention of many employees from Take Two and Rockstar. =]

The visitor log has been showing a lot of visits from the internal offices of Take Two. Apparently, they must not have a very strict policy for internet usage. =] There are multiple hits from a few external facing IP addresses: Take-Two Interactive Software (69.10.95.2), Rockstar Games (69.10.69.2), Rockstar Toronto (63.145.31.10), Rockstargames Ltd (212.46.144.57), etc.

(On a related note, I still get visited by Blizzard employees a lot too. They haven't been posting any new comments though since that last guy.)

So anyways, it appears that because of Take-Two's latest announcement there's a stock trader "feeding frenzy" going on and they're looking for as much information as possible. It's pretty funny watching all of the guess work going on.

Unfortunately, all of their visits were very specific as many were only looking at the one page and ignoring previous posts from months ago when I was mentioning Rockstar Toronto activities. I followed Rockstar Toronto specifically since I was primarily interested in the Red Dead Redemption PC port and they're the team most likely to produce it. Guess we'll find out soon enough.

Update (01/27/11):

I was right. =]

Now, management at Rockstar London and Lincoln have also been given their pink slips. These are just the big names though that were made public, but there have been many other exits as well within Take Two over the past few months.

There are also rumors of more impending layoffs at the Rockstar London facility.

It seems like just yesterday when Take Two was denying studio layoffs, and claimed that there were no impending layoffs, or an intention to lay off 20% of it's workforce in an attempt to "restructure and improve it's financial standing." Some of the rumors confirmed apparently.