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Activision says sharper focus will pay off
February 11, 2011 / 11:17 PM / 7 years ago

Activision says sharper focus will pay off

NEW YORK (Reuters) - A top executive at Activision Blizzard, the largest video game publisher in the United States, defended the company’s strategy of investing only in a few big hits.

Earlier this week, the company said it was disbanding the unit that makes ”Guitar Hero“ games and canceling the title ”True Crime: Hong Kong.

The abrupt shutdown of “Guitar Hero,” the well-known music game franchise that once dominated attention in the $60 billion global game industry, rankled investors, who now wonder if Activision’s best days are behind it.

As consumers turn to games on social networks like Facebook and free online fare, a broad sales slump has hit the video games industry which has forced publishers including THQ Inc and Electronic Arts to trim game lineups.

Hollywood studios have also slimmed film slates in recent years as a weak box office and DVD sales have hurt entertainment companies.

“We want to look forward to the games we think have most potential and not look backwards through our rearview mirror,” Eric Hirshberg, chief executive of Activision publishing, told Reuters.

Hirshberg joined Actiovision publishing, the division of the company that oversees the “Call of Duty” line of action shooter games last fall.

Activision’s narrow focus has raised concerns that rivals like Electronic Arts <ERTS.O, which publishes the rival military-themed game “Medal of Honor,” could chip away at the lead position held by “Call of Duty”.

“Investors believe that too much reliance on one or two franchises creates more risk and it doesn’t have a broad enough revenue base for most investors,” Wedbush Securities analyst Michael Pachter said.

Excluding its cash, Activision is currently trading at slightly more than 11 times its earnings, which is cheaper than its competitor, EA. EA trades at 16 times its earnings excluding its cash, according to Sterne Agee analyst Arvind Bhatia.

Shares have been trading lower since the company shocked fans around the world with its cancellation of “Guitar Hero,” once a major revenue driver and a billion-dollar business.

Hirshberg said he was sad to see it go but that consumers were no longer spending money on it.

GROWTH IN DIGITAL, KIDS

“What’s unique about Call of Duty is that it has grown its audience every single year,” Hirshberg said. “Entertainment franchises that last and stand the test of time are rare and they do exist.”

To keep fans glued to the screen, Activision said it planned to create a new studio, Beachhead, devoted to creating more digital content for “Call of Duty.”

“Beachhead is all about creating new value that has tremendous appeal to people and if you can do that, you can open up new possibilities,” he said, declining to say more about its business model.

Analysts say the company could use Beachhead to extract more revenue from players who are spending more time playing online with games they already own on services such as Microsoft’s Xbox Live.

Online games have underpinned growth at Activision Blizzard. On the Blizzard side of the business, “World of Warcraft,” the online subscription game, has thrived through the recession and has continued to grow.

Hirshberg said that Activision was still committed to launching new franchises and entering new markets. He pointed to the new children’s game “Skylanders,” Activision’s portfolio of licensed titles and its partnership with the Bungie studio.

Shares closed on Friday up 3 cents at $10.78 on the Nasdaq.

Reporting by Liana B. Baker, editing by Matthew Lewis

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