Activision Making A Play Into China?

Aug. 4.13 | About: Activision Blizzard, (ATVI)

Recently, Activision (NASDAQ:ATVI) announced its intentions to penetrate Chinese gaming markets in a big way. In a recent press release at E3, Activision disclosed its intention to finally release a version of Call of Duty for Chinese markets. Call of Duty is currently one of the highest grossing video game franchises worldwide and its most recent installment, "Call of Duty: Black ops 2" raked in over a billion dollars within the first 15 days of its release, 500 million of which was generated within the first 24 hours. The Call of Duty franchise is among the top five highest grossing video game franchises in history and each installment is released on a yearly basis. In total, the Call of Duty franchise has generated billions of dollars for Activision and has had consistent record-breaking earnings, which have been steadily beating expectations. Now, the question that remains is whether or not Activision's new play into the Asian market will pay off and how or if it will impact the future of Activision.

Activision intends to release an online installment of the COD franchise, known as Call of Duty: Online, which is solely intended for the Chinese market. It is important to note that American game companies have rarely had significant market penetration in the Asian gaming community and the few exceptions where companies have succeeded have been on a relatively small level. This was especially the case with game developers such as Electronic Arts (NASDAQ:EA) and Rovio with their success with app and web based games such as "Angry Birds" and "Plants vs. Zombies." For the Chinese installment of Call of Duty Activision has partnered up with Chinese internet company Tencent (OTCPK:TCEHY) to develop the final product, which is said to be made available to gamers by next year.

China currently has the largest and fastest growing number of online gamers in the world; with a population of 1.35billion and a gaming population of more than a hundred million (a number which greatly overshadows that of American video game users), the country has the potential to extensively grow its gaming community. That being said, the Call of Duty Franchise has embedded itself well into our societal norm, and in turn, has made itself a household name next to franchises such as FIFA and Madden. Now if "Call of Duty: Online" were to have the same, a half, and or even a quarter of the sales that the first next-gen Call of Duty games had in American markets, the results would be a significant increase in Activision's revenues in coming years. To be specific, due to the nature of the game's development and the lack of revenue sharing, which is typically required in developing games from the COD Franchise (in the United States and Europe), more of the resulting sales from the Chinese installment will end up in Activision's pockets. Furthering the company's ability to extrapolate revenue from the Chinese edition and market is the fact that "Call of Duty: Online" will be purchased and downloaded directly from the Internet, thereby eliminating the retails where the games are typically purchased from.

However there are a few issues to consider that Activision may face in its attempt to release Call of Duty: Online. The first is the thorough vetting process of content published within the People's Republic of China. Due to the typically violent as well as pro-Western renderings that are displayed within the game, the People's Republic of China may not want their youths playing such violent and potentially, "pro-Western militarized" games. However an even greater and more likely issue the Chinese installment of Call of Duty may face is the gaming market itself.

In China, the vast majority of gamers typically enjoy a similar demographic of video games. This demographic usually consists of what are known as MMORPGs as well as MOCGs. These gaming categories are focused on mostly massive online fantasy games, in which players can interact with one another, as well as online competitive games such as Mahjongg and card games. These two gaming categories are significantly different, however, from those most prevalently played in more western countries such as the United States, where sports games and online shooters such as Call of Duty are most commonly played. This contrast in gaming habits could easily represent a décalage relationship between Asian and American cultures that can't be overcome. Simultaneously, if "Call of Duty: Online" is successful, then in turn, the franchise will expand into Chinese markets and the result would likely be a massive revenue increase in Activision's quarterly earnings, which could easily fluctuate anywhere from the hundreds of millions in the short term to billions of dollars in revenue in the long term.

This article was written in unison with Justin Galloway

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.