Activision 2014 Annual Report Download - page 18

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Net revenues from online decreased in 2013, as compared to 2012, primarily as a result of lower revenues from
Call of Duty
Elite memberships, lower World of Warcraft subscription revenues, lower Blizzard catalog sales from World of Warcraft:
Cataclysm® and lower value-added services revenue. The decrease was partially offset by the recognition of previously
deferred revenues from World of Warcraft: Mists of Pandaria.
Net revenues from PC increased in 2014, as compared to 2013, due to revenues from Hearthstone: Heroes of Warcraft,
which had no comparable title in 2013 and higher revenues from Diablo III: Reaper of Souls, which was released in March
2014, as compared to revenues from the release of StarCraft II: Heart of the Swarm, which was released in March 2013.
Net revenues from PC decreased in 2013, as compared to 2012, primarily as a result of lower revenues from Diablo III for
the PC, which was released in May 2012, partially offset by revenues from StarCraft II: Heart of the Swarm, which was
released in March 2013, and the recognition of previously deferred revenues from Call of Duty: Black Ops II.
Net revenues from next-generation consoles increased in 2014, as compared to 2013. The increase was primarily
attributable to an increase in the number of titles released for the next-generation console platforms, as well as increasing
consumer adoption of the PS4 and Xbox One. Since the introduction of the PS4 and Xbox One in the fourth quarter of
2013, we have released the following titles, among others, on next-generation consoles: Call of Duty: Ghosts and
Skylanders SWAP Force™ in the fourth quarter of 2013; The Amazing Spider-Man 2 and Transformers: Rise of the Dark
Spark in the second quarter of 2014; Diablo III: Reaper of Souls—Ultimate Evil Edition and Destiny in the third quarter of
2014, Call of Duty: Advanced Warfare and Skylanders Trap Team in the fourth quarter of 2014.
Net revenues from prior-generation consoles decreased in 2014, as compared to 2013, primarily due to lower revenues from
the Call of Duty and Skylanders franchises. The decreases were partially offset by revenues from Destiny, the recognition
of previously deferred revenues from Diablo III for the PS3 and the Xbox 360, which was released in September 2013, and
revenues from the release of Diablo III: Reaper of Souls—Ultimate Evil Edition.
Net revenues from next- and prior- generation consoles increased in 2013, as compared to 2012, primarily due to strong
revenues from Call of Duty: Black Ops II digital downloadable content, as compared to downloadable content packs for
Call of Duty: Modern Warfare 3, and stronger catalog sales of Call of Duty: Black Ops II, as compared to catalog sales of
Call of Duty: Modern Warfare 3. The increase was partially offset by lower revenues from our value business, due to its
more focused slate of titles, and lower revenues from sales of Call of Duty: Ghosts in 2013, as compared to revenues from
sales of Call of Duty: Black Ops II in 2012.
Net revenues from mobile and other decreased in 2014, as compared to 2013, primarily due to lower revenues from sales of
standalone toys and accessories from the Skylanders franchise, and handheld titles. The decrease was partially offset by an
increase in mobile and tablet platform revenues from the release of Hearthstone: Heroes of Warcraft on the iPad and
Android tablets in 2014.
Net revenues from mobile and other decreased in 2013, as compared to 2012, primarily due to lower revenues from
handheld titles and from sales of standalone toys and accessories from the Skylanders franchise.
Deferred revenues recognized for online decreased in 2014, as compared to 2013, primarily due to the deferral of revenues
from World of Warcraft: Warlords of Draenor, the deferral of value-added services revenues primarily from the launch of
the World of Warcraft paid character boost, and lower revenues recognized from World of Warcraft: Mists of Pandaria,
which was released in September 2012.
Deferred revenues recognized for online increased in 2013, as compared to 2012, primarily due to recognition of previously
deferred revenues from World of Warcraft: Mists of Pandaria, which was released in September 2012, and lower revenues
deferred from the World of Warcraft franchise.
The decrease in deferred revenues recognized for PC in 2014, as compared to 2013, was due to the deferral of revenues
from Hearthstone: Heroes of Warcraft and the higher deferral of revenues from Diablo III: Reaper of Souls, which was
released in March 2014, as compared to revenues deferred from StarCraft II: Heart of the Swarm, which was released in
March 2013.
The increase in deferred revenues recognized for PC in 2013, as compared to 2012, was primarily related to the recognition
of previously deferred revenues from Diablo III for the PC, partially offset by revenues deferred from Call of Duty: Ghosts,
which was released in 2013, and Hearthstone: Heroes of Warcraft, which was released as a closed beta version in 2013.
The decrease in deferred revenues recognized for next-generation consoles in 2014, as compared to 2013, was due to the
higher deferral of revenues from Call of Duty: Advanced Warfare, which was released in November 2014, as compared to
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revenues deferred from
Call of Duty: Ghosts
, which was released in November 2013, and the deferral of revenues from
Destiny, which was released in September 2014. As discussed above, the PS4 and Xbox One were introduced in the fourth
quarter of 2013 and we have since released several titles, which were available on next-generation consoles for the full year
in 2014, as compared to a partial year in 2013.
The decrease in deferred revenues recognized for prior-generation consoles in 2014, as compared to 2013, was due to the
deferral of revenues from the launch of Destiny, partially offset by lower deferral of revenues from the Call of Duty
franchise and lower deferral of revenues from Diablo III: Reaper of Souls—Ultimate Evil Edition, as compared to the
deferral of revenues from Diablo III on PS3 and Xbox 360, which was released in 2013.
The increase in deferred revenues recognized for prior-generation consoles in 2013, as compared to 2012, was primarily
due to higher recognition of previously deferred revenues from Call of Duty: Black Ops II, as compared to revenues
deferred for Call of Duty: Ghosts, and from higher revenues recognized from Call of Duty: Black Ops II digital
downloadable content, as compared to Call of Duty: Modern Warfare 3 downloadable content packs.
Costs and Expenses
Cost of Sales
The following table detail the components of cost of sales in dollars and as a percentage of total consolidated net revenues
for the years ended December 31, 2014, 2013, and 2012 (amounts in millions):
Year
Ended
December 31,
2014
% of
consolidated
net revs.
Year
Ended
December 31,
2013
% of
consolidated
net revs.
Year
Ended
December 31,
2012
% of
consolidated
net revs.
Increase/
(Decrease)
2014 v
2013
Increase/
(Decrease)
2013 v
2012
Product costs ...................
Online .............................. $ 999 23% $ 1,053 23% $ 1,116 23% $ (54) $ (63)
Software royalties and
amortization ................ 232 5 204 4 263 5 28 (59)
Intellectual property
licenses ........................ 260 6 187 4 194 4 73 (7)
Total cost of sales ............ 34 187 289 2(53) (2)
Product costs ................... $ 1,525 35% $ 1,531 33% $ 1,662 34% $ (6) $ (131)
Total cost of sales of $1,525 million decreased in 2014, as compared to total cost of sales of $1,531 million in 2013,
primarily due to lower revenues in 2014 and the relative increase in digital revenues, which generally have relatively lower
product costs, as compared to retail revenues. Cost of sales—product costs decreased primarily due to lower retail product
sales, partially offset by increased product costs, as a result of increased revenues described above, from our relatively
lower-margin Distribution segment. Cost of sales—online increased primarily due to higher online revenues and related
support costs. Cost of sales—software royalties and amortization increased primarily due to higher software amortization
for introduction of new franchises and new product releases during the year. Cost of sales—intellectual property licenses
decreased primarily due to the write-down of intellectual property licenses in 2013, with no comparable write-downs in
2014, lower amortization of our intangible assets, and a reduction in the number of titles released by our value business in
2014, which are normally based on licensed properties.
Total cost of sales of $1,531 million decreased in 2013, as compared to total cost of sales of $1,662 million in 2012,
primarily due to lower revenues in 2013. Cost of sales—product costs decreased primarily due to lower retail product sales,
partially offset by increased product costs from our Distribution segment. Cost of sales—online decreased primarily due to
lower online revenues and cost reduction efforts in 2012 that benefited 2013.
Product Development (amounts in millions)
Year
Ended
December 31,
2014
% of
consolidated
net revs.
Year
Ended
December 31,
2013
% of
consolidated
net revs.
Year
Ended
December 31,
2012
% of
consolidated
net revs.
Increase/
(Decrease)
2014 v
2013
Increase/
(Decrease)
2013 v
2012
Product development ....... $ 571 13% $ 584 13% $ 604 12% $ (13) $ (20)
For 2014, product development costs decreased, as compared to 2013, primarily due to lower stock-based compensation
expenses associated with employees involved in product development as a result of fewer shares granted and fewer shares
and options vested during the year.