Blizzard 2011 Annual Report Download - page 32

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Costs and Expenses
Cost of Sales
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, 2011, 2010, and 2009 (amounts in millions):
Year
Ended
December 31,
2011
% of
consolidated
net revs.
Year
Ended
December 31,
2010
% of
consolidated
net revs.
Year
Ended
December 31,
2009
% of
consolidated
net revs.
Increase
(Decrease)
2011 v
2010
Increase
(Decrease)
2010 v
2009
Product costs ........................
.
$1,134 24% $1,350 31% $1,432 33% $(216) $(82)
Online subscriptions .............
.
238 5 241 5 212 5 (3) 29
Software royalties and
amortization .....................
.
218 5 338 8 348 8 (120) (10)
Intellectual property
licenses ............................
.
165 3 197 4 315 7 (32) (118)
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 higher Distribution segment revenues.
Total cost of sales decreased in 2010 as compared to 2009, primarily due to:
• The change in business mix for products with fewer hardware peripherals, and accordingly lower product costs;
• A greater share of revenues generated by the Blizzard segment, which has a lower overall cost of sales; and
• Lower intellectual property license expenses due to weaker sales of games in the music and casual games
genres, selling more of our owned titles rather than affiliated titles and the decrease in amortization of intangible
assets.
These decreases in cost of sales were partially offset by:
• The stronger performance of the Call of Duty franchise and the release of StarCraft II: Wings of Liberty and
World of Warcraft: Cataclysm and the resulting increase in product costs;
• More deferred costs recognized consistent with more deferred revenues recognized, during 2010 as compared to
2009;
16