Blizzard Entertainment Inc. took 18 years to develop a new franchise—the first-person, futuristic shooter “Overwatch.”
The game took less than a year to become a $1 billion business, shattering company records along the way. And it appears there’s plenty of room for growth with a dedicated esports league in the making and increasing demand for in-game digital purchases.
“Overwatch” was released in May on PlayStation, Windows and Xbox One—Blizzard’s first launch on the Microsoft Corp. console—and ended last year with more than 25 million registered players across the globe, generating some $1.2 billion in revenue for the Irvine-based publisher.
The game, which costs about $40 for a digital version and $60 for a hard copy, reached the 25-million-player milestone faster than any previous Blizzard title, including 2012’s “Diablo III,” which holds the record for the fastest selling PC game, with 3.5 million copies sold in its first 24 hours.
“Overwatch” produced the “strongest launch year financial performance of any game in Blizzard’s 26-year history,” according to Thomas Tippl, chief operating officer at Blizzard’s Santa Monica parent, Activision Blizzard Inc.
The title, coupled with the Aug. 30 release of “World of Warcraft: Legion,” the sixth expansion set of the flagship role-playing game, helped Blizzard post record sales last year of $2.4 billion, up 55% over 2015, with operating income of roughly $1 billion, up 81%.
Strong
The strong user base for “Overwatch” bodes well for this year’s launch of the Overwatch League, which could rival the largest esports competitions in the world.
The league, similar to professional sports, will pit cities against cities in a standardized schedule. Owners will have guaranteed slots and rights to ensure stability and transparency for investment, according to Activision.
Players will receive contracts with benefits after competing in a combine modeled after the NFL’s annual skill and athletic assessment program geared for potential players that concluded last week in Indianapolis.
The company will soon begin the process of selling teams and commercializing media rights, Activision Chief Executive Robert Kotick recently told analysts in a conference call.
BAMTech’s $50 million broadcasting deal announced late last year to stream and monetize Riot Games’ League of Legends tournament may provide a benchmark for negotiations.
“It was a very important milestone for e-sports. It’s a large-scale broadcast commitment, and I think it really demonstrates how valuable our content can be as spectator content,” Kotick said. “Our ambition is to create nothing less than the esports equivalent of the world’s established major professional leagues.”
BAMTech is a subsidiary of MLB Advanced Media, a business formed by the 30 owners in Major League Baseball to provide online services for the league, MLB website and various team sites.
Blizzard ended the year with a record 36 million active users through its various online gaming portals and forums, up 37% over 2015 and 87% in 2014.
WoW players pay about $15 per month to play the game online and typically drop subscriptions after consuming the various updates and content in an expansion pack.
The Legion release, for example, drove a 10% increase in total monthly active users last year compared to 2015, when Blizzard didn’t release a “World of Warcraft” expansion.
The company stopped releasing quarterly subscription figures in late 2015 after several sizeable losses in previous quarters.
“World of Warcraft” subscriptions have rebounded a bit since then and, coupled with recurring digital revenue streams from Activision’s popular “Call of Duty” franchise, the business has become less dependent on hard-copy sales, according to Baird analyst Colin Sebastian.
“Overwatch is well on the path towards adding to this favorable dynamic, with a large user base, strong engagement metrics, and upside potential from the pending launch of the e-sports league,” he said in an email to the Business Journal. “Specifically, e-sports should help maintain user loyalty and also begin to contribute incremental revenue streams for Activision Blizzard, from ticket sales, advertising/sponsorships, and over time, from the media network they are building out.”
Activision bolstered its developing esports business last year with the integration of Major League Gaming and the formation of the Call of Duty World League, as well as through a new partnership with Menlo Park-based Facebook Inc., which broadcasted the Heroes of the Dorm 2017 finals last month.
The esports tournament, which featured colleges across the U.S. and Canada competing in Blizzard’s free-to-play online brawler “Heroes of the Storm” for more than $500,000 in scholarships and prizes, had been broadcasted by ESPN 2 the previous two years, highlighting the growing audience and influence of competitive video gaming.
Consumer Products
Activision’s new consumer products division, headed by former Mattel and Disney executive Tim Kilpin, will seek to wring out new revenue from the company’s long list of characters, games and related intellectual property.
Companywide in-game purchases hit nearly $1 billion in the fourth quarter and a record $3.8 billion last year, more than doubling 2015’s total. Excluding King Digital Entertainment PLC’s game portfolio, in-game purchases still would have increased 33% last year.
Activision in 2015 acquired the London-based publisher of “Candy Crush” and “Candy Crush Soda Saga”—two of the top-grossing mobile games in the U.S.—in a blockbuster $5.9 billion deal.
New heroes, map content, game modes and seasonal events, such as Halloween Terror and Winter Wonderland, led to strong digital sales last year for “Overwatch,” according to Blizzard Chief Executive and co-founder Michael Morhaime.
“Looking into the future, we also see opportunities in areas like linear media and consumer product,” he told analysts in the conference call. “We think that this will help deepen connections with the franchise and also expose ‘Overwatch’ to new audiences.”
