Activision 2013 Annual Report Download - page 29

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10
Blizzard
Blizzard’s net revenues decreased for 2013, as compared to 2012, primarily due to the release of Diablo III in May
2012, without a comparable release in the current year, lower revenues from the World of Warcraft franchise, and the release
World of Warcraft: Mists of Pandaria in September 2012, without a comparable release in the current year. The decreases were
partially offset by the release of StarCraft II: Heart of the Swarm in March 2013, the release of Diablo III for the PS3 and Xbox
360 in September 2013, and revenues from Hearthstone: Heroes of Warcraft during its closed beta.
At December 31, 2013, the worldwide subscriber* base for World of Warcraft was approximately 7.8 million,
compared to approximately 7.6 million at September 30, 2013, and down from approximately 9.6 million subscribers at
December 31, 2012, with the majority of the decline from the East (where the “East” includes China, Taiwan, and South Korea,
and the “West” includes North America, Europe, Australia, and Latin America). In general, the average revenue per subscriber is
lower in the East than in the West. The subscriber base at December 31, 2013 benefitted from gamer enthusiasm generated at
BlizzCon, Blizzard’s convention to celebrate its global player communities, and the promotion of retail products and referral
programs during the fourth quarter of 2013. Since December 31, 2010, when the subscriber base reached a new peak of more
than 12 million, subscriber levels have 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.
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.
Distribution
Distribution’s net revenues increased in 2013, as compared to 2012, primarily due to revenues from the distribution
of newly introduced next-generation hardware in 2013.
Distribution’s net revenues decreased in 2012, as compared to 2011, primarily due to a weaker U.K. market in which
the majority of the distribution business is transacted.
Segment Income from Operations
Activision
Despite lower revenues, Activision’s operating income in 2013 was comparable to 2012, primarily due to the strength
of the higher margin digital business associated with Call of Duty: Black Ops II digital downloadable content, a smaller but more
profitable slate of releases from our value business, and lower general and administrative costs, primarily resulting from lower
legal-related expenses (including legal-related accruals, settlements and fees), partially offset by higher sales and marketing
activities to support the Call of Duty and Skylanders franchises.
Activision’s operating income increased in 2012, as compared to 2011, primarily due to higher net revenues, and
lower sales and marketing costs. The increase was partially offset by higher costs 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 based on our 2012 financial performance.
Blizzard
Blizzard’s operating income decreased in 2013, as compared to 2012, primarily due to lower revenues and less
capitalization of product development costs, partially offset by lower sales and marketing costs based on fewer titles released in
2013 and lower general and administrative costs from lower accrued bonuses based on our 2013 financial performance.
Blizzard’s operating income increased in 2012, as compared to 2011, primarily due to higher revenues. 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
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* 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.