Candy Crush Ice Cream and Overwatch Skins, Merchandising ATVI’s Next Revenue Frontier

Activision Blizzard (ATVI) has launched a consumer products division, as the company looks to turn more than 40 billion hours (across franchise games in ’16) of gaming in to merchandising revenue. The company has begun licensing characters and game brands; introducing Candy Crush ice cream, Overwatch computer accessories and plans for a movie based on their Call of Duty franchise. ATVI, which will also debut its Overwatch esports league on January 10th, will also sell team “skins” worn in competition and event-exclusive goods. There would seem to be a market for physical merchandise; more than half of the company’s ’16 revenue (+25% YOY to $1.4 billion) came from in-game purchases (see: loot boxes).

Howie Long-Short: ATVI competitor Rovio (HEL: ROVIO) turned their Angry Birds game in to a successful consumer franchise (’16 movie grossed $350 million); generating 21% of all corporate revenue from brand licensing over the last 12 months. ROVIO reported (on Nov. 23) spending 4x more (to $26.3 million) on gamer acquisition ($26.3 million) during Q3 ‘17, while Ebitda fell 29% YOY (to $7.3 million); sending shares tumbling 20%, to their lowest price (+/-$11.50) since the September ‘17 IPO. Shares have declined an additional 2.5% since.

Fan Marino: Never heard the term loot box? It’s a virtual item (purchased with real currency) that once redeemed gives the player random virtual items, often cosmetic (i.e. avatar or character options, costumes etc.); gaming companies use the feature to monetize games post purchase. Those opposed to loot boxes argue it forces gamers to gamble to maximize the gaming experience; though Overwatch loot box rewards do not effect gameplay. Think it’s all fun and video games? China, Japan and Australia are now regulating loot boxes under gambling law.

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