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16
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 PC in 2012, as compared to 2011, was primarily related to revenues deferred
from the successful launch of Diablo III in May 2012 and a decrease in revenues recognized from catalog sales of StarCraft II:
Wings of Liberty, which was released in July 2010.
The increase in deferred revenues recognized for PlayStation and Xbox 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. The increase in deferred revenues recognized for
Xbox in 2012 as compared to 2011 was primarily due to less revenues deferred from Call of Duty: Black Ops II.
The decreases in deferred revenues recognized for Wii and Wii U in 2012, as compared to 2011, primarily relate to
overall weaker catalog sales and fewer comparable releases, and were partially offset by additional deferred revenues recognized
for Wii U titles.
Costs and Expenses
Cost of Sales (amounts in millions)
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, 2013, 2012, and 2011:
Year Ended
December 31,
2013
% of
consolidated
net revs.
Year Ended
December 31,
2012
% of
consolidated
net revs.
Year Ended
December 31,
2011
% of
consolidated
net revs.
Increase
(Decrease)
2013 v
2012
Increase
(Decrease)
2012 v 2011
Product costs ............................................
.
$ 1,053 23% $ 1,116 23% $ 1,134 24% $ (63) $ (18)
Online subscriptions .................................
.
204 4 263 5 255 5 (59) 8
Software royalties and amortization ........
.
187 4 194 4 218 5 (7) (24)
Intellectual property licenses ...................
.
87 2 89 2 165 3 (2) (76)
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 and physical
product sales, partially offset by increased product costs from our Distribution segment. Cost of sales—online subscriptions
decreased primarily due to lower online subscription revenues and cost reduction efforts in 2012 that benefited the current
period.
Total cost of sales of $1,662 million decreased in 2012, as compared to total cost of sales of $1,772 million in 2011,
primarily due to a decrease in intellectual property license costs and a decrease in amortization of capitalized software
development as we had fewer titles released during 2012, a decrease in amortization of intangible assets due to decreasing
intangible assets balances year-over-year, and lower product costs from our Distribution segment due to lower revenues. These
decreases in cost of sales were partially offset by higher product costs from our Activision and Blizzard segments due to higher
revenues.
Product Development (amounts in millions)
Year Ended
December 31,
2013
% of
consolidated
net revs.
Year Ended
December 31,
2012
% of
consolidated
net revs.
Year Ended
December 31,
2011
% of
consolidated
net revs.
Increase
(Decrease)
2013 v 2012
Increase
(Decrease)
2012 v 2011
Product development ........................... $ 584 13% $ 604 12% $ 629 13% $ (20) $ (25)
For 2013, product development costs decreased, as compared to 2012, principally due to lower studio-related bonuses
based on our 2013 financial performance, and lower external development costs, as our value business released fewer titles due
to its more focused slate, partially offset by lower capitalization in 2013 of our overall product development costs related to
future titles and the timing at which these titles reached technical feasibility.
For 2012, product development costs decreased, as compared to 2011, principally due to higher capitalization in 2012
of our overall product development costs related to future titles and the timing at which these titles reached technical feasibility
and lower stock option expenses. Additionally, product development costs in 2011 included larger amounts written off due to the