Before Tencent Games conquered China and became the world’s largest gaming company a few years ago, Activision Blizzard dominated the industry.
In many ways, Blizzard (specifically) was one of the early leaders in exploring a lot of the themes that make the gaming industry interesting today.
Blizzard was a leader in pioneering and mainstreaming new formats (e.g. MMO/MMORPG through World of Warcraft*), competitive gaming (e.g. Starcraft spawned massive competitions in Korea), and fan base engagement (e.g. Blizzcon, a conference focused on engaging their users). Whereas most western gaming companies are highly concentrated in specific platforms, Activision Blizzard has also stood out in their willingness to be more diverse with efforts across PC, Mac, consoles, and even mobile platforms.
A decade ago, there was already a very robust esports ecosystem around Starcraft, a game that was released in 1998. The following video comes from the 2010 Korea competition.
And while Tencent is the largest gaming company today, Activision played an important role in creating that history since World of Warcraft was one of the inspirations that got Tencent into gaming. Prior to the launch of World of Warcraft, Tencent was exclusively a social networking company with QQ as its primary asset (AOL-like messenger service). However, with the rapid mainstream success of MMOs, Tencent became concerned that MMOs (and virtual worlds in general) could be an existential threat to text-based messaging.
Here is David Wallerstein, one of Tencent’s earliest employees, discussing this piece of history:
Anu Hariharan [38:53] – Why did you decide to do gaming?
David Wallerstein [38:55] – Yeah so around 2003, what we call massive, multiplayer online games started becoming very popular in China, have you ever played World of Warcraft before?
Anu Hariharan [39:04] – I have heard about them.
David Wallerstein [39:05] – You get kind of really deep into this experience, it’s got a big software client, usually a couple gigabytes that you download and then it’s kind of this whole world. These kind of games were becoming very popular in China and we started thinking, it is possible that users like to interact with each other so much in these worlds, that they’re not going to want to interact via QQ anymore, this could be potentially like an existential threat to us. QQ was really text driven at the time, most of the interaction was in text. There was some voice, some video you could do, video instant messaging and things like that, but it was predominantly text and therefore, it’s pretty black and white. You would go into these worlds and you could feel like you’re really deeply interacting with someone. We felt like this is an existential threat to the company, we have to find ways to integrate QQ more with games or else we could just be like out of the picture, right? I think that was before we had the idea that this could possibly make money. It was more like, if we don’t do it, our users might just go into all these games and they’re like why do I even want to talk to someone in QQ when I can be dressed up as an avatar and I can have a deep, rich environmental experience, it’s a software environment.
Is it any more ironic that one of Tencent’s largest and most profitable games is League of Legends, originally a fan-driven spinoff from the Warcraft franchise?
Given the early positioning, it is a shame that Activision didn’t continue on to lead the way in a lot of these efforts.
Despite the lack of progress and loss of leadership over the past decade, I believe Activision still has immense potential to capture a lot of the opportunities that it essentially pioneered. It seems to be taking the right steps and should show progress in the next year or two.
Over the past year, the company has been derided by both investors and consumers alike. Investors complain about financial stagnation and the potential threats emerging from battleground-type games (e.g. Fortnite and PUBG). Consumers are frustrated by Activision prioritizing mobile (e.g. Diablo Immortal, a mobile adaptation of a beloved PC franchise) rather than cater to their core PC and console base. All of these things have contributed to material weakness in share price, but these all seem to be the strategically the right steps to position the company for the future.
But the most important thing is that despite all the missteps in strategy and positioning (most of which are fixable even if they are late to the party) is that Activision Blizzard has something that is incredibly rare – recognizable IP.
Activision reminds me in many ways of Nintendo a few years ago when it struggled to successfully formulate a mobile strategy and was drifting between console upgrade cycles. What Nintendo did have was recognizable IP – Mario, Luigi, Zelda, Pokémon, etc. And that IP came through at the end of the day.
Activision Blizzard IP is less iconic compared to Nintendo but many of their titles were, nonetheless, important in terms of creating culture. There were comedy series based around World of Warcraft. Even a decade after the release of World of Warcraft and far beyond the peak of engagement, the Warcraft movie released in 2016 went on to gross almost half a billion dollars worldwide and became the highest grossing movie based on video game IP.
Perhaps the company is past its prime, but good IP tends to come back again and again. I think that’s worth betting on.
As an aside, Nintendo IP is making its way to Universal Orlando. Here’s a model of what will eventually become a part of Universal’s theme park:
For those that were once players of World of Warcraft, wouldn’t it be great if it were a theme park one day as well?
Disclosures: I own shares in ATVI at time of publication but have no intention in transacting in the shares within the next 48 hours.
*While MMOs existed before World of Warcraft, World of Warcraft coincided with the mainstreaming of MMOs around 15 years ago.