Activision 2012 Annual Report Download - page 23

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5
Despite the 21% decrease in retail sales for the overall industry, according to The NPD Group, GfK Chart-Track and the Company’s
internal estimates, the sales of the industry’s top five titles (including accessory packs and figures) grew 1% in 2012, as compared to 2011. This
has resulted in the further concentration of revenues in the top titles, particularly for high-definition platforms, which experienced year-over-year
growth, while non-premier titles experienced declines. The Company’s results have been less impacted by the general declining trends in retail
compared to our competitors because of our greater focus on premier top titles and a more focused overall slate of titles.
Concentration of Top Titles
The concentration of retail revenues among key core titles has continued as a trend in the overall interactive software industry.
According to The NPD Group, the top 10 titles accounted for 30% of the sales in the U.S. video game industry in 2012 as compared to 26% in
2011. Similarly, a significant portion of our revenues has historically been derived from video games based on a few popular franchises and these
video games are responsible for a disproportionately high percentage of our profits. For example, our four largest franchises in 2012—Call of
Duty, Diablo, Skylanders and World of Warcraft—accounted for approximately 83% of our net revenues, and a significantly higher percentage of
our operating income, for the year.
We expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of the industry
and our revenues and profits.
Seasonality
The interactive entertainment industry is highly seasonal. We have historically experienced our highest sales volume in the year-end
holiday buying season, which occurs in the fourth quarter. We defer the recognition of a significant amount of net revenue related to our software
titles containing online functionality that constitutes a more-than-inconsequential separate service deliverable over an extended period of time
(i.e., typically five months to less than a year). As a result, the quarter in which we generate the highest sales volume may be different than the
quarter in which we recognize the highest amount of net revenue. Our results can also vary based on a number of factors including, but not
limited to, title release date, consumer demand, market conditions and shipment schedule.
Outlook
Looking forward, the above discussed factors, such as the ongoing console transition, increasing concentration of top titles in the
interactive entertainment industry, and a continuingly challenged global economy, might negatively impact our short-term results. In addition,
2013 compared to 2012 will be a difficult year-over-year comparison due to the highly successful launch of Diablo III in May 2012. We will
continue to invest in our established franchises, as well as new titles we think have the potential to drive our growth over the long-term.