Diablo 3 Delays Damage Activision Blizzard In More Than 1 Way

| About: Activision Blizzard, (ATVI)

Signs and omens eerily abound. For a game that revolves around the theme of premonition and impending doom, the long anticipated Diablo III had apparently more than one scary surprise up its sleeve. Unfortunately for shareholders, these aforementioned omens had nothing to do with the game's virtual world. Instead, they exist in the concept of countless gamers who were unable to even log into the game on its first day of operation.

Tuesday's launch party of Activision Blizzard's (NASDAQ:ATVI) darling project came up surprisingly short as server errors persisted throughout the day. According to PC Magazine, Activision took down the game's servers at "10:22 AM PT for an hour, then from 11:30 AM to 1:30 PM, then from 2:15 PM PT until 3:30 PM." As of 8:45 PM PT, the games servers were still facing difficulties. Even at this hour, players-to-be continue to be frustrated by cryptic messages of "error 3005," "error 3006," "error 3007," and "error 37" that did little to inform its audience with an explanation as to whether the product itself was faulty or that the server was shut down.

But what makes this situation particularly sensitive in the eyes of gamers is the fact that Activision had spent over a decade in developing the well-received game. Development on Diablo III began in 2001 when Blizzard North was still running the show. Even up to the last year, release date delays and the scrapping of core parts of the game (including a player-vs-player combat mode) did little to help Activision Blizzard nurture its reputation for quality gaming experiences.

In the end, what remains at stake now is a battle for the hearts and minds of computer gamers who's patience with Activision has been growing ever thin. Apart from the lack of timely development, Activision has been struggling to sustain membership in other areas. The company's vastly popular "World of Warcraft" (WoW) franchise has been staying a head above competitor Electronic Art's (NASDAQ:EA) "Star Wars: The Old Republic," but losing members all the same.

Activision Blizzard lost another 100,000 members for WoW from September 2011 to December 2011 as the number of players fell to 10.2 million. The company had peaked at 12 million in late 2010. Yet competitor Electronics Arts has also been losing players at an alarming rate. Not much more than a week ago, Electronics Arts had reported that it lost 400,000 subscribers for its flagship game, dropping its audience size down to 1.3 million subscribers. Both losses appear to indicate that the problem extended beyond the concept of stealing players from one another.

Given this context of losing battles on the PC front, it serves to no good that Activision's latest blow on a key product line would launch on such a sour note. The game is expected to be a significant contributor to the company's revenues, and the question remains as to the harm done to the solid reputation Blizzard had brought into the merger with Activision. On an even broader outlook, one might even go as far as to speculate if this latest snafu will serve as another reason to move towards another gaming platform altogether.

In this recent Forbes article, the writer quotes Brian Sozzi, the Chief Equities Analyst for Nothing But Gold Productions, in saying: "Every phone that gets sold, every upgrade that happens to an iPhone, is essentially a vote against staying on the computer..." And in many ways the analyst hits home to the core issue at stake. PC gaming itself is becoming ever less important in this modern age of mobile devices.

While it's true that the level of gaming experience depth is currently unrivaled when it comes to PC games, the growing threat of an always-in-your-hand gaming experience found on mobile devices is an undeniable reality. Sozzi's argument that Apple's (NASDAQ:AAPL) iPhone proliferation has only expedited a waning market can easily be seen by walking into your nearest Best Buy (NYSE:BBY) retail store. A shrinking section of PC game aisles making room for larger rows of console game systems and mobile phone sections casts a harsh shadow of reality upon the sector as a whole.

At the end of the day, the bleeding effect upon the PC gaming industry can only help bolster the rise of social gaming, who's apps are growing with increasing gaming experience depth. Gaming companies like Zynga (NASDAQ:ZNGA), which has found an easily accessible social platform in the social network of Facebook (NASDAQ:FB), have much to gain from every mistake that a PC company like Activision Blizzard made this past Tuesday.

With multiple delays recurrent throughout the day and no clear guidance as to when they'll be resolved, Activision's failure to launch Diablo III without a hitch does more harm to the company than a localized punch to a single product line. The delays attack the very reputation of the company itself who's sense of gaming quality has had the brand walking on water for well over a decade. For an industry that continues to lose market share in the gaming world, watching the leader take a hit on the nose should give little solace to investors. Quite unfortunately, its moments like these when gamers are reminded that they have a smartphone to comfort them as they impatiently wait for the error messages to end.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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