性视界

Question 1:

Blizzard Entertainment is a video game company and a part of Activision Blizzard.[i]听 This is a company that has a strong alignment between its business and operating models.听 Specifically, it leverages its strong talent base to develop and sustain compelling game 鈥渇ranchises鈥� that generate significant value on an ongoing basis.[ii]

As shown in Exhibit 1, a slide from a recent presentation to investors, management is well aware of how the key elements of its business model and operating model support each other (I鈥檝e included annotations clearly delineating which elements of their framework I would argue are 鈥榖usiness model鈥� vs. 鈥榦perating model鈥�).[iii]听 While this framework applies to Activision Blizzard overall, I would argue it applies to the specific Blizzard business as well (as is evidenced by the inclusion of Blizzard games in the graphic).[iv]听 The effectiveness of their model is evidenced by revenue growth at a 8% CAGR from 2009 to 2014 and net income growth at a 6% CAGR over the same period; while there have been ups and downs, the business still has performed well.[v]

 

Question 2:

Business Model:

Instead of developing a very wide range of games, Blizzard instead focuses on developing 鈥渇ranchises鈥� that each foster their own 鈥渓arge and engaged community.鈥�[vi] Franchises may include multiple games developed over several years: for example, Blizzard has continued to publish Warcraft related titles since 1994.[vii]听 As seen in Exhibit 1 (annotated slide from investor presentation), the level of player 鈥渆ngagement鈥� is key to this franchise model; and according to Activision Blizzard鈥檚 annual report for 2014, their games were played for ~12B hours (figures for Activision Blizzard overall).[viii]

Operating Model:

A key element of the operating model to highlight is that its employees all have a strong interest in video games, which is meant to ensure听a high degree of customer empathy across the entire organization.[ix]听 This does not just apply to specific developer roles: even when applying for relatively senior management positions (for example, 鈥淪enior Vice President, Cross Media鈥�) applicants are required to submit a cover letter that describes 鈥淲hat games you are currently playing.鈥�[x]听 And indeed, Activision Blizzard boasts that it has 鈥渢he best talent in our industry.鈥�[xi]

 

Question 3:

Hiring strong employees has obvious links to strong performance 鈥� as shown in Exhibit 1, management notes that good employees make good games.[xii]听 But I would argue choosing the right employees has the more subtle benefit of having an employee base that is well-positioned to engage with the communities of players upon which these franchises depend.听 For example, Blizzard hosts an event roughly once a year called BlizzCon.[xiii]听 Among the activities at BlizzCon, fans can watch 鈥減ro gamers鈥� play Blizzard games and, importantly, attend 鈥渄iscussion panels鈥� featuring Blizzard staff.[xiv]听 Blizzard employees reach gamers in other ways as well 鈥� for instance, key members of the Blizzard team that develop their Hearthstone game can be found engaging users on the Reddit forum dedicated to that game.[xv]听 Ultimately, I would argue that Blizzard is successful, at least in part, because of its ability to hire employees that not only can create great game franchises but also are able to foster the communities that sustain long-term interest in those franchises听鈥� indeed, Activision Blizzard management says it will make “continuous investment in the franchises we create and investment in the communities comprised of our players.”[xvi]

_________________________

Exhibit 1: Excerpt from 鈥淎ctivision Blizzard Investor Day 2015鈥� presentation, my annotations in orange[xvii]

 

Exhibit 2: Blizzard Financial Performance[xviii]

_________________________

References:

[i] Blizzard 鈥淐ompany Profile鈥�.听 .听 Accessed 12/8/15.

鈥淚CD Research 鈥� Business Analysis.鈥澨� Activision Blizzard.听 .听 Accessed 12/9/15.

鈥淗oover鈥檚 Company Records 鈥� In-depth Records.鈥澨� 鈥淏lizzard Entertainment, Inc.鈥澨� .听 Accessed 12/9/15.

 

[ii] Activision Blizzard 鈥�2014 Annual Report.鈥澨� .听 Accessed 12/7/15.

鈥淚nvestor Day Presentation.鈥澨� .听 Accessed 12/8/15.

 

[iii] 鈥淚nvestor Day Presentation.鈥澨� .听 Accessed 12/8/15.

 

[iv] A list of Blizzard games is available here:

 

[v] Analysis of 鈥渇inancial model鈥� distributed on Activision Blizzard鈥檚 investor site.听 Financials accessible at: .听 Accessed 12/8/15.

 

[vi] Activision Blizzard 鈥�2014 Annual Report.鈥澨� .听 Accessed 12/7/15.

 

[vii] 鈥淏lizzard Timeline.鈥澨� .听 Accessed 12/9/15.
Blizzard Games.听 .听 Access 12/9/15.

 

[viii] Activision Blizzard 鈥�2014 Annual Report.鈥澨� .听 Accessed 12/7/15.

鈥淚nvestor Day Presentation.鈥澨� .听 Accessed 12/8/15.

 

[ix] Blizzard 鈥淐ompany Profile鈥�.听 .听 Accessed 12/8/15.

 

[x] Job description page for Senior VP Cross Media at Blizzard.听 .听听 Accessed 12/8/15.

 

[xi] Activision Blizzard 鈥�2014 Annual Report.鈥澨� .听 Accessed 12/7/15.

 

[xii]听鈥淚nvestor Day Presentation.鈥澨� .听 Accessed 12/8/15.

Activision Blizzard 鈥�2014 Annual Report.鈥澨� .听 Accessed 12/7/15.

 

[xiii] 鈥淏lizzard Timeline.鈥澨� .听 Accessed 12/9/15.

Blizzard “Events.” 听. 听Accessed 12/9/15.

 

[xiv] 鈥淏lizzCon Overview.鈥澨� .听 Access 12/9/15.

 

[xv] 鈥淏lizzard Hearthstone Developer AMA 鈥� Ben Brode, Yong Woo and Christina Sims!鈥澨� .听 Accessed 12/9/15.

 

[xvi] Activision Blizzard 鈥�2014 Annual Report.鈥澨� .听 Accessed 12/7/15.

 

[xvii] 鈥淚nvestor Day Presentation.鈥澨� .听 Accessed 12/8/15.

 

[xviii] Analysis of 鈥渇inancial model鈥� distributed on Activision Blizzard鈥檚 investor site.听 Financials accessible at: .听 Accessed 12/8/15.