Activision CEO taunts EA, talks up "Skylanders"

NEW YORK Mon Nov 28, 2011 7:07pm EST

Director and Chief Executive Officer of Activision Blizzard Robert Kotick speaks at the Reuters Global Media Summit in New York November 28, 2011.  REUTERS/Brendan McDermid

Director and Chief Executive Officer of Activision Blizzard Robert Kotick speaks at the Reuters Global Media Summit in New York November 28, 2011.

Credit: Reuters/Brendan McDermid

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NEW YORK (Reuters) - Activision Blizzard (ATVI.O) Chief Executive Bobby Kotick told Reuters that stores may face a shortage of its new children's game this holiday season and tried to cast doubt on a rival's upcoming game that analysts say could eat into Activision's user base.

Activision, the biggest U.S. video game publisher by market capitalization, has been riding the success of its top franchises, "Call of Duty" and "World of Warcraft," but now analysts and investors are concerned about its lack of diversification.

Investors are closely watching the company's new franchise investments for the next hit it can cash in on over coming years.

Shares of Activision are down 5.5 percent year-to-date while shares of its main rival, Electronic Arts ERTS.O, are up 27.2 percent. On Monday, Activision Blizzard shares closed trading 41 cents higher at $12.16 per share on the Nasdaq.

Speaking at the Reuters Media Summit on Monday, Kotick took subtle digs at rival EA, continuing the trash talking between the two companies that began after EA said its "Battlefield 3," game would challenge the latest "Call of Duty" installment in the fall.

Not unlike with "Battlefield 3," EA is trying to steal market share from one of Activision's big games by releasing its own multiplayer game based on the "Star Wars" movies on December 20. "World of Warcraft," Activision's most profitable franchise, generated $1 billion in revenue for the company last year.

Kotick not only downplayed the notion that EA could steal users from "World of Warcraft" but also questioned whether his rival would make money off the "Star Wars" game since it has to pay Lucas Arts for the licensing rights.

"Lucas is going to be the principal beneficiary of the success of Star Wars," Kotick said. "We've been in business with Lucas for a long time and the economics will always accrue to the benefit of Lucas, so I don't really understand how the economics work for Electronic Arts."

EA declined to comment but has said previously that the game would become profitable if it reaches 500,000 subscribers.

Kotick also emphasized how hard it is for a company to pull off a successful multiplayer game, which involves sophisticated technology that allows thousands of people play together at one time.

"If you look at the history of the people investing in an MMO and achieving success, it's a small number," Kotick said.

But analysts do not necessarily share Kotick's viewpoint.

According to a research note by Lazard analyst Atul Bagga,

"Star Wars: The Old Republic," which EA has reportedly spent $100 million on, could attract 1.5 million to 2 million subscribers, which would qualify as a major success for EA.

Moreover, Bagga added in the recent note that between 3 million to 4 million "World of Warcraft" players may buy EA's new game.

Declines in "World of Warcraft" subscribers have worried investors. In November, the company raised its earnings forecast but its shares fell after the company said it had lost 800,000 "Warcraft" subscribers.

SKYLANDERS RETAIL SHORTAGE

Kotick said that Activision's new holiday video game, "Skylanders," has outperformed expectations and may sell out in the United States this holiday season.

"(Skylanders) are in high demand. Retailers across the board are concerned that they will be out of inventory well before Christmas," Kotick said.

Activision might not be able to replenish supplies of the game in time to take advantage of the holiday rush.

"There's nothing we can do because they are made offshore and we can't get product made that quickly," he said.

At least one of the Toys R Us, Target and Best Buy stores in New Jersey were sold out of the Xbox version of the game last weekend, according to Brean Murray analyst Todd Mitchell.

"Skylanders," which hit store shelves in mid-October, is a video game that comes with physical toys that spring to life on screen when they are hooked up to consoles such as Microsoft's (MSFT.O) Xbox or Sony's (6758.T) PlayStation. A chip inside the figurines stores a player's achievements and progress in the game.

Activision has heavily marketed the new products, which are aimed at 6- to 10-year-olds, a demographic dominated by Nintendo.

Also on Monday, Nintendo 7974.OS said its new "Super Mario 3D Land game" sold 500,000 units since November 11 while its new Zelda game sold 535,000 copies since November 20.

(Reporting by Liana Baker; Editing by Peter Lauria and Steve Orlofsky)

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