Blizzard Entertainment 1

Blizzard Entertainment- Leading the Gaming Industry

Anthony Ward MKTG 5201- Marketing Management Lamar Campus Professor Warren 21 October 2010

Blizzard Entertainment 2

Being from the Old School era of gaming, I wanted to take on a subject for this paper that I felt I needed to expand my horizons on. The gaming of my own day has morphed into its own counterculture, and is a billion dollar business in itself. This is primarily why I selected Blizzard Entertainment, although I have also read recently that they have moved an operations center to the Austin/Cedar Park area. In my paper, I will address the following topics relative to Blizzard Entertainments profile: a. The companys business profile and a brief history. b. Blizzards marketing efforts c. A SWOT Analysis on the company. d. A determination of Blizzards marketing strategy and recommendations for improvement.

Company Profile and History

Blizzard Entertainment is a premier developer and publisher of entertainment software, which was founded by three UCLA graduate students in 1991 in Irvine California. Michael Morhaime, Allen Adham, and Frank Pearce named their original company Silicon & Synapse, but established the Blizzard Entertainment label in 1994 when the company rapidly became one of the most popular and well respected makers of computer games. As noted on their company website, Blizzards main focus is on creating well-designed, highly enjoyable entertainment experiences, and by doing so, has maintained an unparalled reputation for quality within the gaming industry since its inception.

Blizzard Entertainment 3 The companys original concentration was as a niche marketer and third-party developer, working on software and creating game platforms and ports for other studios and companies such as Sega Genesis, Super Nintendo, and DOS- and Mac-compatible games for personal computers. In 1993, Blizzard began developing their own software while they were producing games like Rock N Roll Racing, Blackthorne, and The Lost Vikings. Released in 1994, Warcraft: Orcs and Humans became their first in a series of role-play strategy games to win accolades as one of the best games of that year. During this time frame, multiplayer computer games were still relatively new, and Blizzard began to take advantage of the opportunities that it had to offer. They are now the leader in the field of massively multiplayer online games (MMORPG), with more than 11.5 million monthly subscriptions, also holding the Guinness World Record for the most popular MMORPG by subscribers. Blizzard has additionally developed a trio of popular PC games, including the Warcraft, Starcraft, and Diablo series, creating a culture that champions both productive and experimental creativity which inspires devoted players. Jeff Green, editor-in-chief of the online gaming magazine 1Up.com notes, *Blizzard people] are essentially design geniuses, making games easy enough for casual players and deep enough to attract and hook hard-core players. Simple to learn, difficult to master is the holy grail of game design, and Blizzard does this every single time. When Blizzard began to take off in 1994, they were acquired by Davidson & Associates, which was a company that developed and marketed an extremely successful educational computer game for children called Math Blaster. During this time, Blizzard introduced a new version of Warcraft, called Warcraft II: Tides of Darkness in 1995. In 1996, Blizzard acquired Condor Games, which was located in San Mateo, California, and re-named them Blizzard North. Blizzard North began working on the first Diablo series game, and in 1996 launched a free online service called Battle.net, so that more gamers could play the game simultaneously. Diablo, itself, was not launched until almost two months later, behind

Blizzard Entertainment 4 schedule. Although it was marketed just after the Christmas buying season (on 30 December), Diablo went on to be the best selling game of 1997. During this same time frame, Davidson & Associates were bought in a stock swap valued at approximately $1 billion by a company called CUC International Inc. CUC Internationals principal business consisted of running shopping clubs, which offered members discounts on a variety of products through catalog sales and telemarketing. CUCs founder, Walter Forbes, had been interested in developing an Internet based shopping network long before the Internet actually became a public mainstay. In 1997, CUC International had revenue of some $2 billion, generated through 73 million memberships in its 20 different clubs. Davidson & Associates actually seemed something of an odd fit for CUC, but the company soon acquired two other West Coast computer game companies, Sierra Online, Inc. and Knowledge Adventure Inc. These companies were organized together as an operating unit to create CUC Software, though they retained their own separate names and management. In late 1997, CUC announced that it was merging with a large hotel franchise company called HFS, which owned well-known franchises such as Howard Johnson, Days Inn, and Ramada Inn. HFS also owned the Avis Car Rental firm and three leading real estate agencies, Coldwell Banker, Century 21, and ERA. The combination of HFS and CUC International led to a new company called Cendant Corporation with revenues in the neighborhood of $5 billion. Blizzard Entertainment became part of a unit within a much larger corporation whose principal businesses were in unrelated industries: that of hotels, realty, and shopping clubs. In working under this given management umbrella, friction developed among Blizzards software developers, and in 1998, eleven developers left the firm to start their own company citing a lack of creative freedom. The seceding designers also hinted at problems with Blizzards parent unit, and these same sentiments were echoed a few years later when the founders of Blizzard North left the company. Despite Blizzards apparent small role in a mega corporation and its on-going disdain for such, they continued to turn out best-selling products and becoming increasingly profitable.

Blizzard Entertainment 5 In late 1998, Cendant announced the sale of its software division, which comprised of Knowledge Adventure, Blizzard, Davidson & Associates and Sierra Online to a French company called Havas SA. Cendant explained the sale by stating it wanted to shed its noncore businesses. Havas was a division of the French conglomerate Vivendi S.A., and Blizzard soon became a subsidiary of Vivendi grouped into its Vivendi Universal Games division. Blizzard was once again a small unit in a large conglomerate with several other principal businesses owned by Vivendi, including a leading share of the telecommunications market in France and a global music company comprised of several well-known labels, which was called the Universal Music Group. During this time, Blizzard continued its success as a game developer and in 2000 launched its sequel to its hit game Diablo, calling it Diablo II. Diablo II was so popular that Blizzard did very little to promote the game, which sold more than a million copies in its first month of sales. This was unprecedented, as the entire computer game market was estimated to be some 170 million units sold annually. An article in the New York Times in August 2000 compared the games success to the tremendous selling power of J.K. Rowlings Harry Potter childrens book series. While the Harry Potter books were an obvious juggernaut, Diablo II had a comparable, though much lower profile following, and revenue was also similar. Diablo II retailed for over $50 in the United States, while the fourth volume of the Potter series, released at almost the same time, sold for less than $30, and was often deeply discounted. Diablo II garnered some $50 million in the first month of its release. Following in 2001, Blizzard came out with an expansion set for Diablo II, calling it Diablo II: Lord of Destruction and this too sold more than a million copies in its first month of release. 2004 was a banner year for Blizzard Entertainment. Not only did they launch their most successful game to date, World of Warcraft, but they opened their European offices (Blizzard Europe) in Yvelines, France and an office in Korea (Blizzard Korea) to expand their MMORPG platform relative to WOW. Since players paid a monthly subscription fee and spent hours

Blizzard Entertainment 6 online, gamers were unlikely to pay for more than perhaps two games at one time. World of Warcraft effectively dominated the online gaming world, where at peak times; roughly 250,000 people might be simultaneously playing it. Because people played against other people online instead of against computer-generated characters, World of Warcraft took on a social dimension of its own. The games virtual world also began to leak in odd ways into the real world. Players could earn virtual gold in the game, but Blizzard experienced terrible problems when some players turned to stealing the World of Warcraft money and sold it for real money on eBay. Blizzard wound up closing the accounts of over 1,000 players in 2005, suspecting them of being gold farmers. Players also sometimes paid other players to operate their characters for them, because they did not want to wade through the early levels of the game. In late 2005, some World of Warcraft characters became infected with a fantasy disease called Corrupted Blood, which then spread throughout several areas of the game like a real world medical epidemic. This virtual plague even piqued the interest of real epidemiologists, who were interested in the social aspects of the diseases spread. With millions of players, World of Warcraft found a mainstream status other games had not reached. By the end of 2005, with the company acting independently and acquiring Swingin Ape Studios for their creation of StarCraft, they became a well-respected unit within Vivendi. To date, Blizzard is still headquartered in Irvine, California along with Blizzard North. Year after year it continues to produce new games, still maintaining the quality of its product and keeping its customers satisfied. In 2008, Blizzard was honored at the 59 th Annual Technology & Engineering Emmy Awards for their creation of World of Warcraft. They additionally hold several events annually for their gaming customers to interact with and launch new products. BlizzCon (in the United States) and the Blizzard Worldwide Invitational (held in other countries) are the major events that Blizzard offers to accomplish this with. In 2008, Vivendi Games merged with Activision, using the Blizzard brand in naming the resulting company, Activision Blizzard. Blizzard still remains a separate entity with independent management.

Blizzard Entertainment 7 Blizzards Marketing Efforts Blizzard has always been a company of producing high-quality games. The programming languages that the company developers use are mainly C++ and C#. All games are launched in two versions, one for Windows and one for MAC. The Xcode which is Apples premiere development environment is utilized by Blizzards Macintosh developers in order to create each game compatible for MAC PCs. Additionally, it is popular knowledge that Blizzard has always created its own graphic engines, which give it the opportunity to create remarkable and unique implementations in each game developed. The modeling, animation, rendering, and visual effects for each of its products are implemented with the help of Mudbox, ZBrush, Photoshop, and Maya applications. In 2006, Blizzard licensed Havok 4.0, which is a platform providing the developers with the necessary tools to optimize game-play physics and animations. It is evident through these developments that the core capabilities of the company are in the technological expertise of its software and game developers. Every developer hired by Blizzard has an excellent background in the gaming industry with an understanding of how the game is developed and how each tool works within that given realm. Allen Adham once stated that Blizzard is a game company; staffed only by gamers and managed at all levels by gamers, and as a result of that, all their strategic decisions are made through the eyes of gamers. The best way to understand their consumer base was to actually be a viable part of the consumer base, rather than trying to anticipate the needs and desires of their consumers. Blizzard also provides Battle.net Forums for its customers to chat, exchange ideas and strategies, and submit feedback. This way the company engages indirectly with the interests and needs of its customers. Each day hundreds of gamers post new ideas and petitions in Battle.net forums while there are always assigned personnel on Blizzards behalf to read and respond to them. The combination of having gamers as employees, coupled with the feedback it gets from its Battle.net forums are the key factors in their development of new games.

Blizzard Entertainment 8 Activision Blizzard, through its subsidiaries, develops and publishes online games via Battle.net, personal computer (PC), console, and hand-held games worldwide. It also publishes interactive software products and peripherals internationally, and covers various game genres, including action/adventure, action sports, racing, role-playing, simulation, first-person action, music, and strategy. Through partnerships with such entities as DC Unlimited (a toy and collectible brand of DC Comics), Cryptozoic (WOW trading card game), 3 Point Entertainment (WOW collectible steins), Epic Weapons (replica swords and weapons), J!NX (apparel and gadgets), Fantasy Flight (board games), and several book publishers (Pocket Books, Sellers Publishing, and Sideshow Collectibles), Blizzard Entertainment has entered their product into virtually every market available under the sun (it seems). Activision Blizzard has maintained the number one slot for hand-held and console software publishing (in dollars) since 2008, according to the NPD Group. This title, coupled with its aggressive marketing campaigns and partnerships keep Blizzard Entertainment at the top of the list when speaking of the gaming industry. SWOT Analysis Strengths Blizzards balance sheet is probably its most valuable strength to date. With more than $3.3 billion in cash and short term investments, with no debt, it has the flexibility to obtain more intellectual property and talent. No other competitor has that much capital resource available to even be in a competitive market with them at this time. The revenue stream is only getting smoother with the merger of Blizzard and Activision. The combined company is not as dependent on the console upgrade cycle for generating the majority of its revenue and earnings. World of Warcraft, as a subscription service, helps to smooth out those lumps and keep the revenue stream smoother than normal.

Blizzard Entertainment 9 With a large and popular range of titles, Activision and Blizzard can ask for, and receive more shelf space than competitors at retail outlets that sell their products. The two largest, GameStop and Wal-Mart are more than happy to oblige them. Getting the product in front of consumers with favorable shelf placement is just as important in the gaming industry as it is in the grocery industry. Blizzard also has strong franchising capabilities. Even in the middle of a recession, gamers are willing to shell out for the newest releases and bling related to the game. A winged horse pet for World of Warcraft, priced at $25, was estimated by some reports to be bringing in as much as $2.5 Million per hour for a while earlier this spring. Blizzard has the capabilities to take advantage of this phenomenon through franchising markets. Weaknesses Blizzard has been plagued with sometimes-difficult relations with developers. The recent firings and defections from Infinity Ward, developer of last falls hit release Call of Duty: Modern Warfare 2 is a case in point. Also, legal issues have been a tremendous weakness for the company. Who owns what, and what is agreed upon at times are contentious issues. The ex-Infinity Ward executives claim control of the Modern Warfare brand. The musical group No Doubt sued Blizzard last fall, claiming that their images were being used for any song in Band Hero, contrary to what they said had been agreed to. Recessions could cause a major weakness for Blizzard. Regardless of the industry, gaming (while a cost-effective means of entertainment) is just as susceptible to spending pullbacks as any other commodity.

Blizzard Entertainment 10 Opportunities There is tremendous opportunity in the pre-owned game market to be mined and taken advantage of. At the past E3 conference for the gaming industry, current Activision-Blizzard CEO Bobby Kotick noted that There is a $3 billion used game market that we do not participate in. The only true competition within this realm is GameStop, who would potentially suffer a large portion of their current market status. The mobile gaming medium is wide open; Blizzard just recently released a mobile version of Guitar Hero for Apples iPhone. It would appear that scaled-down versions of their most popular games are on the horizon to be produced for smartphones and iPads. Blizzard would benefit greatly if they launched research into motion control systems to coincide with their online gaming. Nintendos Wii really changed the gaming industry with their motion-sensing control system. Add to that Microsofts new Kinect, which tracks users movements without a controller and one will note a new era of gaming being introduced. These go way beyond mere guitar and drums when looking at Blizzards arsenal in this field. Blizzard has already set the mark relative to online gaming, and they still need to embrace that. Their concentration should be more in that arena than in the console arena, as the door is wide open when looking at opportunities with smartphones. Threats Mobile gaming is probably their biggest threat, as small studios can reach tens of thousands or hundreds of thousands of people through inexpensive downloads to smartphones. This will certainly create a more competitive atmosphere in the near future. Console makers are generally also game publishers, which makes the competition fiercer nowadays. Blizzard needs to continue to excel in what they are doing to maintain a viable market share in this category.

Blizzard Entertainment 11 Games with long franchise lives can be a burden on the company. A good case in point would be their Guitar Hero game, which is getting old, with sales beginning to drop and stall. The next big flop could be just around the corner. A Determination of Blizzards Marketing Strategy And Recommendations for Improvement Blizzards marketing strategy is more a model for the gaming industry, which makes it somewhat difficult to make recommendations for improvement, as other companies would do well to use them as a benchmark. Through partnerships with various brands and markets, they have continually expanded their exposure and profitability year after year. Even their company website offers a link with which to make inquiries relative to partnering with them in a given market environment, which shows that they are open to almost any venture that they deem worthwhile and profitable. They continue in their development of games and software when speaking of R & D initiatives also. Even though some would say that console games are on their way out, it would do them good to stay within that given market to take advantage of the existing consumer base that is out there. Hand-held games are also becoming more popular, so they should also continue their development of games and software relative to this niche. The up and coming trend now is development of applications and games for smartphones, which they are already in the process of moving into. It certainly appears as if Blizzard Entertainment has done their homework relative to market strategy and future endeavors, and with their new merger with Activision, their expansion capabilities have taken them up another notch within the gaming industry environment. As previously mentioned, they are one of the top game developers around, and their long-term strategies are inclined to take them even further than where they currently are.

Blizzard Entertainment 12 References Blizzard Entertainment Inc (2010) http://blizzard.com/us/inblizz/profile.html Cavelli, Earnest (December 23, 2008). World of Warcraft Hits 11.5 Million Users http://www.wired.com/gamelife/2008/12/world-of-warc-1 Coleman, Freddie (2010). Why Blizzard is a Renowned Game Developer. http://ezinarticles.com/?Why-Blizzard-is-a-Renowned-Game-Developer&id=3584114 Morris, Chris (2008). Blizzards Perfect Storm http://www.forbes.com/2008/06/30/videogames-blizzard-morris-tech-personal-cx The Motley Fool- Activision Blizzard: Strengths, Weaknesses, Opportunities, Threats http://www.fool.com/investing/general/2010/06/15/activision-blizzard-strengths-weaknessesopportuni.aspx