Activision 2012 Annual Report Download - page 33

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15
recognition of deferred revenues from the release of World of Warcraft: Cataclysm in December 2010 and from the sales of World of Warcraft’s
value-added services, partially offset by the unfavorable impact of World of Warcraft’s declining subscriber base.
The decrease in deferred revenues recognized for PC and other in 2012 as compared to 2011 was primarily related to revenues
deferred from the successful launch of Diablo III on May 15, 2012 and a decrease in revenues recognized from catalog sales of StarCraft II:
Wings of Liberty, which was released in July 2010. The deferred revenues recognized for PC and other increased in 2011 as compared to 2010,
primarily related to the recognition of revenues of StarCraft II: Wings of Liberty, which was released in July 2010.
The increase in deferred revenue recognized for Xbox 360 in 2012 as compared to 2011 was primarily due to less revenue deferred
from Call of Duty: Black Ops II. The decrease in deferred revenue recognized for Xbox 360 in 2011 as compared to 2010, was primarily due to
the revenues deferral from Call of Duty: Modern Warfare 3. The decreases in deferred revenues recognized for Nintendo Wii in 2012 as
compared to 2011, primarily relate to overall weaker catalog sales and fewer comparable releases, and were partially offset by additional Wii U
deferred revenues recognized. The increases in deferred revenues recognized for Nintendo Wii in 2011 as compared to 2010, primarily relate to
recognition of revenues of our catalog sales of games in the music and casual games genres.
Costs and Expenses
Cost of Sales (amounts in millions)
The following table details the components of cost of sales in dollars and as a percentage of total consolidated net revenues for the
years ended December 31, 2012, 2011, and 2010 (amounts in millions):
Year
Ended
December 31,
2012
% of
consolidated
net revs.
Year
Ended
December 31,
2011
% of
consolidated
net revs.
Year
Ended
December 31,
2010
% of
consolidated
net revs.
Increase
(Decrease)
2012 v
2011
Increase
(Decrease)
2011 v
2010
Product costs .................................
$1,116
23%
$1,134
24%
$1,350
31%
$(18)
$(216)
Online subscriptions .....................
263
5
255
5
250
5
8
5
Software royalties and
amortization .............................
194
4
218
5
338
8
(24)
(120)
Intellectual property licenses ........
89
2
165
3
197
4
(76)
(32)
Total cost of sales decreased in 2012 as compared to 2011, primarily due to a decrease in amortization of capitalized software
development and intellectual property license costs as we had fewer titles released during 2012; a decrease in amortization of intangible assets
due to decreasing intangible assets balances year-over-year; and lower product costs from our Distribution segment due to lower revenues. These
decreases in cost of sales were partially offset by higher product costs from our Publishing and Blizzard segments due to higher revenues.
Total cost of sales decreased in 2011 as compared to 2010, primarily due to the continued change in mix for products with fewer
hardware peripherals, and accordingly lower product costs; an increasing number of products distributed through digital online channels; a
decrease in inventory obsolescence charges, as the prior year included higher inventory obsolescence charges relating to peripherals; a decrease in
amortization of capitalized software development and intellectual property license costs as we had fewer titles released during 2011; and a
decrease in amortization of intangible assets. These decreases in cost of sales were partially offset by more deferred costs recognized, consistent
with more deferred revenues recognized, during 2011 as compared to 2010; and higher product costs from our Distribution segment revenues
associated with higher revenues.
Product Development (amounts in millions)
Year Ended
December 31,
2012
% of
consolidated
net revs.
Year Ended
December 31,
2011
% of
consolidated
net revs.
Year Ended
December 31,
2010
% of
consolidated
net revs.
Increase
(Decrease)
2012 v
2011
Increase
(Decrease)
2011 v
2010
Product development ...................
$604
12%
$629
14%
$626
14%
$(25)
$3
For 2012, product development costs decreased as compared to 2011, principally due to higher capitalization in 2012 of our overall
product development costs related to future titles and the timing at which these titles reached technical feasibility and lower stock option
expenses. Additionally, product development costs in 2011 included larger amounts written off, due to the cancellation of games under
development, than in 2012. The decrease was partially offset by higher studio-related bonuses reflecting our strong 2012 financial performance.