Activision 2012 Annual Report Download - page 27

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9
Blizzard
Blizzard’s net revenues increased for 2012 as compared to 2011, primarily due to the release of Diablo III in May 2012 and World of
Warcraft: Mists of Pandaria in September 2012. The increase in net revenues was partially offset by lower subscription revenues from World of
Warcraft due to a lower subscriber base.
At December 31, 2012, the worldwide subscriber* base for World of Warcraft was approximately 9.6 million, down from a base of
more than 10 million subscribers at September 30, 2012, and approximately 10.2 million subscribers at December 31, 2011, with the majority of
the decline from the East (where the “East” includes China, Taiwan, and Korea, and the “West” includes North America, Europe and Latin
America). With the launch of World of Warcraft: Cataclysm®, in the fourth quarter of 2010, the subscriber base reached a new peak at more than
12 million subscribers at December 31, 2010. Since that time, the subscriber base has trended downward. Looking forward, Blizzard
Entertainment expects to continue to deliver new game content in all regions that is intended to further appeal to the gaming community.
* World of Warcraft subscribers include individuals who have paid a subscription fee or have an active prepaid card to play World of
Warcraft, as well as those who have purchased the game and are within their free month of access. Internet Game Room players who
have accessed the game over the last thirty days are also counted as subscribers. The above definition excludes all players under free
promotional subscriptions, expired or cancelled subscriptions, and expired prepaid cards. Subscribers in licensees’ territories are
defined along the same rules.
Blizzard’s net revenues decreased for 2011 as compared to 2010 primarily as a result of no new titles released in 2011 as compared to
2010, when StarCraft II: Wings of Liberty was released in the third quarter and World of Warcraft: Cataclysm was released in the fourth quarter;
and as a result of a decline in World of Warcraft’s subscriber base during 2011. These decreases were partially offset by benefits from foreign
exchange as compared to the prior year.
Distribution
Distribution’s net revenues decreased in 2012 as compared to 2011, primarily due to a weaker U.K. market.
Distribution’s net revenues increased in 2011 as compared to 2010, primarily due to additional customer sales opportunities in the
U.K. and benefits from foreign exchange as compared to prior year.
Segment Income from Operations
Activision
Activision’s operating income increased in 2012 as compared to 2011, primarily due to higher net revenues as described above, and
lower sales and marketing costs. The increase was partially offset by higher cost of sales as a result of higher net revenues, higher product
development costs, and higher general and administrative costs, primarily resulting from legal-related expenses (including legal-related accruals,
settlements and fees) and additional accrued bonuses reflecting our strong 2012 financial performance.
Activision’s operating income increased in 2011 as compared to 2010, primarily due to a more focused release of products that
delivered higher operating margins; increased digital sales of Call of Duty’s digital content, resulting in high operating margins; and reduction of
operating expenses resulting from the 2011 Restructuring. These positive impacts on operating income were partially offset by an increase in
sales and marketing expenses to support the launch of Skylanders Spyro’s Adventure, Call of Duty: Modern Warfare 3 and Call of Duty Elite and
additional litigation activities and settlement of lawsuits.
Blizzard
Blizzard’s operating income increased in 2012 as compared to 2011, primarily due to higher revenues as described above. The
increase was partially offset by higher cost of sales as a result of higher net revenues, higher sales and marketing costs to support the launch of
Diablo III and World of Warcraft: Mists of Pandaria, and higher general and administrative costs from additional accrued bonuses reflecting our
strong 2012 financial performance.