Activision Blizzard posts Q4 loss despite record revs

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[UPDATE] Call of Duty: WAW, Guitar Hero World Tour, and Wrath of the Lich King help mint $2.3 billion in three months; megapublisher still loses $72 million but rules out "mass layoffs"; Wii DJ Hero confirmed for this year, Starcraft II beta coming in "next few months."

The past several weeks have seen a steady stream of dreary financial results, with THQ, Sega, Sony, and Electronic Arts all announcing losses and layoffs. However, several companies have issued positive earnings reports, including Ubisoft, Take-Two, and Nintendo.

Today, the biggest third-party publisher of them all, Activsion Blizzard, weighed in with an earnings announcement that's both good and bad. On the one hand, the company's record $2.3 billion in October-December net revenue beat the $2.15 billion a Thomson Reuters survey of analysts had predicted. On the other, the company posted a $72 million loss during a quarter when it launched new entries in its three biggest franchises: Guitar Hero World Tour (October 26), Call of Duty: World at War (November 10), and World of Warcraft: Wrath of the Lich King (November 13).

Activision Blizzard CEO Bobby Kotick played down the loss with a backhanded dig at staff-cut-beset competitors. "We won't be distracted by layoffs and restructuring and things that other companies are going to be distracted with," Kotick told Reuters. "We don't respond to managing our operating expenses because there's a financial crisis, we do it all the time."

Despite Kotick's upbeat tone, the markets reacted swiftly and negatively. In after-hours trading, Activision Blizzard's stock was down over 5 percent, trading at $9 as of press time.

Speaking with analysts in a conference call, Activision Blizzard CFO Thomas Tippl said that the company may take advantage of the dismal economic climate to add talent to its internal roster. "A long, challenging economic environment may provide acquisition opportunities due to strong cash position," he said. According to Kotick, Activision Blizzard currently has over $3 billion in cash reserves with zero debt load.

[UPDATE] Looking ahead, Activision predicts revenues of $4.2 billion for the full 2009 calendar year (not the current fiscal year, as was initially reported). The company said that figure included $600 million in downward revisions--$400 million due to a stronger-than-expected US dollar and $200 million "from the company's lower margin distribution and the co-publishing businesses."

In a conference call with analysts, executives noted the $200 million revision was in part due to the delay of the next James Bond game. The title, rumored to be a driving-centric game from Bizarre Creations, is being pushed back into calendar year 2010 "to avoid head to head competition with Call of Duty: [Modern Warfare 2.]"

[UPDATE] Highlights from the conference call are listed below:

--DJ Hero reconfirmed as coming out in 2009 on a variety of platforms, with the Wii specifically mentioned; no price point yet.

--2009 will see a new Tony Hawk game on the Wii. It is unclear if the game will be the widely rumored skateboard-peripheral-based Tony Hawk's Adrenaline.

--Upcoming Tony Hawk again described as being radically different. "We said we would reinvent this franchise from the ground up and we've developed an interactive approach for Tony that should allow us to broaden the appeal of skateboarding beyond the core to mass market audiences," Activision Publishing president Michael Griffith told analysts. "More details later for competitive reasons."

--Yet another Guitar Hero game coming to DS. No word on whether it will use the Game Boy Advance slot, which the forthcoming DSi does not have.

--New Greatest Hits Guitar Hero games for 360, PS3, and Wii, which will feature full-band renditions of top songs from earlier, guitar-only GH titles.

--Call of Duty: Modern Warfare 2 is now officially official.

--New racing game from Activision-owned Bizarre Creations confirmed by year's end. Again, no details for now "due to competitive reasons."

--Starcraft II beta test will begin "in the next few months." No launch date yet.

--Guitar Hero "installed base" now tops 32 million worldwide. Executives later clarify that this figure is the total number of Guitar Hero units sold worldwide and doesn't take into account multiple guitars and games owned by the same person or in the same household.

--Guitar Hero outsells Rock Band 4 to 1 in terms of overall series sales, say executives.

--The PS2 edition of Guitar Hero: Metallica will trail the other versions, due in March, by several months.

--Activision says its continued support of the PS2 will depend on whether Sony cuts the console's price down the line.

--Tippl admits Activision "could've done better on the cost front in terms of the launch of Guitar Hero World Tour." Says production issues raised the per-unit cost, and Activision is making adjustments to prevent the same problems occurring in the coming year.

--The sinking cost of petroleum--which is used to make the plastic in the guitars and drum kits--will also improve Activision's profit margins on Guitar Hero hardware in the coming year.


Midway bankrupt

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Faced with $240 million debt deadline, the once-mighty Mortal Kombat-maker files for Chapter 11 protection; Mortal Kombat vs. DC shipments near 2 million.

After months of slowly twisting in the financial wind, Midway Games has finally filed for bankruptcy. The Chicago-based publisher today submitted a petition in a federal bankruptcy court in Delaware to seek protection under Chapter 11 of the US Bankruptcy Code. The company blamed the move on last November's "change in ownership," when then-majority stockholder Sumner Redstone sold off his 87 percent stake in the company--valued at $30 million--for $100,000.


"This was a difficult but necessary decision," Midway Chairman, President, and CEO Matt Booty said in a statement. "We have been focused on realigning our operations and improving our execution, and this filing will relieve the immediate pressure from our creditors and provide us time for an orderly exploration of our strategic alternatives. This Chapter 11 filing is the next logical step in an ongoing process to address our capital structure."

Today's move will allow Midway to reorganize to pay off its creditors, to which the company owes $240 million--or $72.5 million more than the company's $167.5 million in total assets as of September 2008. Currently, the company's worth is substantially more, as it has now shipped (not sold) nearly 2 million copies of Mortal Kombat vs. DC Universe. The publisher also played up the fact that its TNA Impact! title also shipped over 1 million units, with its Game Party franchise selling over 3 million units as of the end of 2008. Its overhead has been drastically decreased as well, with the company announcing plans to lay off 25 percent of its workforce last December.

Though today's filing might sound final to the layman, Midway's bankruptcy is actually a beginning, not an ending. "These filings tend to be fairly drawn out and slow-moving, and business can take place normally while the bankruptcy proceeds play out, so I would expect any games coming out over the next 2-3 months to be safe, so that would include the Wheelman launch," Signal Hill analyst Todd Greenwald told GameSpot. "As for whether the company can recover long-term, I certainly hope so, but can’t say with any certainty. The fact that Eidos is getting a bid from Square Enix is potentially a good sign, though. "

Wedbush Morgan's Michael Pachter was similarly upbeat about Midway's ultimate fate. "The creditors will decide, but my guess is that Midway recapitalizes (the creditors turn debt into stock), and gets some new financing so that it can either recover or be sold," he explained. "A going concern is worth a lot more than a liquidation, given that the key talent will leave if the company is liquidated. Look at Acclaim, 3DO and Interplay, where there was nothing left after liquidation, and contrast with Eidos, which has a bid for £84 million on the table. The creditors have to realize that they can collect $100 million plus if they can get this thing turned around."


Square Enix bids for Eidos

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Tomb Raider publisher's board accepts £84.3 million offer, unanimously recommends deal to shareholders.

The identity of the company with which Eidos Interactive--formerly known as SCi Entertainment--entered takeover talks in January has been revealed. Today, the board of the beleaguered publisher revealed that it has come to an agreement with none other than Japanese role-playing game giant Square Enix.

Talking about the deal, Square Enix president Yoichi Wada said: "Eidos' products are highly complementary to our business and will accelerate our aggressive expansion into Western markets." In the announcement of the offer, the Tomb Raider, Deus Ex, Hitman, Thief, Championship Manager, and Just Cause franchises were called out as being among "the world's leading video game properties."

The Japanese publisher's offer of £84.3 million ($120 million) is being unanimously recommended to Eidos shareholders by the firm's board. That total represents an offer of 32 pence ($0.46) per share, which is more than triple the company's value when the approach was made, and double its share price when the London Stock Exchange closed yesterday. Since the announcement this morning, Eidos shares have climbed further, peaking at 31.25p ($0.45)--a 123 percent rise from the opening bell.

The announcement follows the news in January, shortly before Eidos announced that it had received and was considering a takeover approach, that sales of Tomb Raider Underworld had failed to meet expectations. Last year, the company shed 20 percent of its workforce, and its CEO admitted that the company needed "immediate change" to deliver appropriate returns to its investors.

Square Enix has been looking for acquisition targets to expand its global reach for some time, with Wada saying that his firm was "talking with quite a few companies in and outside of Japan," with a view to acquisitions. The move follows the Japanese publishing house's unsuccessful $200m move for Tecmo, and comes as its own share price is in the doldrums, nearing a six-year low. The company also released its delayed revised financial projections for the current financial year, downgrading its expected net income by 62.5 percent, blaming conditions in the arcade and offline gaming segments of its business.