Activision 2009 Annual Report Download - page 29

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17
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, 2010, 2009, and 2008 (amounts in millions):
Year
Ended
December 31,
2010
% of
consolidated
net revs.
Year
Ended
December 31,
2009
% of
consolidated
net revs.
Year
Ended
December 31,
2008
% of
consolidated
net revs.
Increase
(Decrease)
2010 v
2009
Increase
(Decrease)
2009 v
2008
Product costs ............................... $1,350 31% $1,432 33% $1,160 38% $(82) $272
MMORPG .................................. 241 5 212 5 193 7 29 19
Software royalties and
amortization ............................ 338 8 348 8 267 9 (10) 81
Intellectual property licenses ...... 197 4 315 7 219 7 (118) 96
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;
� Higher inventory obsolescence charges relating to peripherals; and
� Costs related to our continued focus on customer service for our World of Warcraft subscribers.
Total cost of sales increased in 2009 as compared to 2008, primarily due to:
� Post-Business Combination product costs of $530 million, software royalties and amortization of $151 million,
and intellectual property licenses of $112 million from businesses previously operated by Activision, Inc., for
the six month period ended June 30, 2009 that were included in 2009, but not in 2008; and
� Incremental investments made by Blizzard for improved levels of customer service.
These factors were partially offset by a change in business mix with lower cost of sales resulting from our shift to
selling more software versus hardware, and selling more of our owned titles than affiliated titles.
Product Development (amounts in millions)
Year
Ended
December 31,
2010
% of
consolidated
net revs.
Year
Ended
December 31,
2009
% of
consolidated
net revs.
Year
Ended
December 31,
2008
% of
consolidated
net revs.
Increase
(Decrease)
2010 v
2009
Increase
(Decrease)
2009 v
2008
Product development ............. $642 14% $627 15% $592 20% $15 $35