Business Analytical Report

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Activision Blizzard Impact of Cutting Costs

Prepared for

Prepared by

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Memorandum

To:

From:

Subject: Recent Layoffs

Here is my report to you about the recent layoffs and past actions this company has done to cut

costs down to a minimum.

The way the company has been dealing with how we should cut costs might help us in the short

term, but we will get a lot of criticisms and our sales numbers might get affected as a result. I

would prefer it if we went with another method instead of having to lay off a large fraction of our

employees. Our company has been getting a lot of criticisms with how we have been handling

the marketing of our games, the scale down of Heroes of the Storm, and the recent changing of

our CFO and other top executives.

I would recommend that we try restructuring our advertising budget so we can use it more

effectively, while also cutting down on expenses.

Thank you for spending the time to read this message, I hope you take into account my ideas and

if you have any more questions please contact me.

Thank you for your time,

……….

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Table of Contents

Executive Summary ………………………………………………………………………….. 4

Introduction …………………………………………………………………………………… 5

Background……………………………………………………………………….…...………. 6

Blizzcon 2018…………………………………………………………………………………. 7-8

Heroes of the Storm Scale Down………………………………………………………………8-9

Bungie Split with Activision…………………………………………………………………. 9-10

Activision Blizzard Executives Leaving the Company………………………………………... 10

Cut of Hundreds of Jobs………………………………………….…………………………. 10-11

Conclusions……………………………………………………………………………………. 11

Recommendations……………………………………………………………………………... 12

References……………………………………………………………………………………... 13

Appendix: Table 1 and 2.

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Executive Summary

This report will analyze how Activision Blizzard cut costs in the last two years and how it has

impacted the company.

How they Cut Costs

Activision Blizzard’s stock has dropped by 10% as a result of the announcements made

during Blizzcon. This event might have forced the company to make drastic changes to save the

company some money. One of the changes made was with one of their games called Heroes of

the Storm. In order to cut costs, they reorganized the development team and moved developers to

other game projects. Then at the start of 2019, they made the decision to split from the company,

Bungie. They had a 10-year publishing agreement with them, but they decided to part ways after

Bungie’s game, Destiny has not met the sales number they estimated. Then their most recent

cutting-cost decision was the layoffs in February that shrank their employee numbers by 8

percent.

Conclusions and Recommendations

The direction Activision Blizzard has been taking to cut costs does not show a positive

future for them. They are taking the initiative to cut costs like employees that are not part of the

development team. With the high wages the executives are being paid, I would recommend that

they take a pay cut instead so they can use that money to keep the employees that have been

working for the company for many years.

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Introduction

In early February, Activision Blizzard released a statement stating that they would lay off

8% or about 800 of their employees (Frank, par. 1). The jobs being laid off are considered to be

“non-development roles” and they plan to restructure their company to focus more on developing

games and improving their e-sports (par. 2). This news came as a surprise for many people

because of what CEO Bobby Kotick said about their company posting record revenues for the

2018 fiscal year (par. 9). They made $7.26 billion dollars from physical and digital sales

compared to $7.16 billion dollars in 2017 (par. 9). Even with the increase in revenues, they are

trying to restructure their company in unexpected ways. The layoffs are just the most recent

example of Activision Blizzard trying to find ways to cut costs and there have been many tactics

they used throughout 2018 to the present.

The purpose of this report is to analyze and formulate how extensive their cutting cost

initiative is and how much of an effect it had over the company. I would like to research how

exactly they plan to change the way their business structure is organized, compare their earnings

throughout the years, see how they are improving their current games and what their future game

projects are. I will be looking into their earnings reports, graphs on how their stocks have

changed, and see how past business decisions affected them as a company. This report will not

cover events and decisions that the company has made before 2017. I would like to analyze their

decisions that are more recent because their organizational structure is far different now than

they were a few years ago.

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Background

Activision Blizzard, Inc., is an American game company that was formed in 2008 with

the merger of Activision and Blizzard (“Activision Blizzard”). Activision started their company

by making games on the Atari game console and eventually developed big franchises like the

Call of Duty series. Blizzard publishes popular PC games like Diablo, World of Warcraft, and

Starcraft. With the merger, they have five units that makeup Activision Blizzard, which are

Activision Publishing, Blizzard Entertainment, King, Major League Gaming, and Activision

Blizzard Studios (“Activision Blizzard”). Vivendi was the parent company for Activision and

then they bought more than 50 percent of their shares after the merger (“Activision Blizzard”).

On July 25, 2013, Activision Blizzard bought 429 million shares from their parent company,

Vivendi for the price of $5.83 billion (“Activision Blizzard”). Vivendi’s amount of shares

dropped from 63% to 11.8% and they had far less influence in the company now after they lost

their stake in the company (“Activision Blizzard”). With the loss of their shares, Vivendi was no

longer considered to be Activision Blizzard’s parent company (“Activision Blizzard”). In 2015,

Activision Blizzard joined the S&P 500 and became one of the two gaming companies on the list

(“Activision Blizzard”). Activision Blizzard acquired the gaming company, King the same year

for $5.9 billion (“Activision Blizzard”). The gaming company King is known for developing

Candy Crush Saga. In November 2015, Activision Blizzard announced they would start a film

and television production project for their franchises (“Activision Blizzard”). Then in June 2017

the company joined the Fortune 500 and became the third gaming company on that list

(“Activision Blizzard”).

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Body

Blizzcon 2018

One example of Activision Blizzard’s disconnect with their audience was during their

convention in November of 2018. Activision Blizzard has been hosting a convention every year

to showcase demos of their new games and to show updates of the games they are working on.

During their 2018 convention, fans expected some news on the Diablo game franchise. Fans

were hoping for an announcement for the sequel to Diablo 3, but the company announced

Diablo: Immortals on the mobile phone for their opening ceremony (McWhertor, par. 1). Many

fans were displeased with this announcement because they usually start their conventions with a

big announcement but for this year they went with a mobile game that has worried people with

microtransactions flooding the game. There are already many games that take advantage of using

microtransactions to entice people to get ahead in the game, so the longtime fans are surprised

and frustrated that Diablo might be taking the same path. Some users online have posted

evidence that suggests that this game is a reskin of another game made by a Chinese company

called NetEase (McWhertor, par. 2). Many felt that the company is now out of touch with the

gaming community and a representative of the company doing the Q and A session made a

statement that went viral and further put Blizzard in a negative light. As a cause of the backlash

from the announcements made in Blizzcon, the stock price dropped dramatically as the image

below shows. The stock price dropped by 10% over the span of 3-4 days shown in Figure 1. In

Figure 2, you can see how

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Figure 1.

Retrieved from: https://www.invenglobal.com/articles/6696/activision-blizzards-stock-drops-10-percent-overnight

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Heroes of the Storm Scale Down

Heroes of the Storm, a MOBA (Multiplayer Online Battle Arena) developed by Blizzard

went through some major changes in December of 2018. The company decided to scale down the

number of developers working on the game and move them to other game projects (Makuch, par.

1). With this change, updates for the game will slow down and not be as full of content as they

used to be. Blizzard seems to see that the game is not making as much revenue as their other

games, so they decided to cut costs from this game and move the developers where they would

be more useful. With this announcement, they also mentioned that they would be shutting down

the e-sports league, Heroes of the Storm Global Championship (HGC) (par. 7) This came as a

surprise to many because there was no news or evidence that this change was going to happen. If

there was, then the players who compete in the championship, the managers and the broadcasters

would have enough time to prepare and find work elsewhere. This angered those involved with

the e-league because they are now without an income. It also was unprofessional of them to

notify them by just writing a blog post on their website as their announcement of the e-league

ending.

Bungie Split with Activision

At the start of the 2019 year, Activision decides to split with the Bungie studio after

working with the studio for 8 years (Schreier, par. 3) The Bungie studio was known for

developing the Halo franchise and after their last Halo game in 2010, they separated from their

parent company, Microsoft and became independent. The studio made a publishing agreement

with Activision Blizzard and started to develop a new series of games called Destiny. Destiny 1

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had a lot of trouble during its development stages because of Activision Blizzard's interference in

how they thought they wanted the game to go. The game had to be reworked when it was already

close to being done and with the limited time left before their release, they had a half-finished

game. The game was criticized for lacking in content and not meeting the promises the

developers previously made. Even with the mistakes made from their first release of Destiny,

their sequel was just as mismanaged and uncoordinated. The addition of Activision Blizzard’s

demand for Bungie to follow a strict release schedule of DLC (downloadable content) helped

them to make a decision to terminate their publishing agreement. Activision also wanted to

separate from Bungie because their sales numbers were not meeting expectations and they would

be able to cut costs with them. With the two companies separated, Bungie can now become

independent again and have full control of their IP (intellectual property) and how they would

want to release their game without another company’s interference.

Activision Blizzard Executives Leaving the Company

Another major change within the company was also made at the start of the year. Spencer

Neumann was the Chief Corporate Office for Activision Blizzard, but he was let go from the

company for breaching a legal obligation (Brown, par. 2). The reason why he was let go was that

he had talks with the company, Netflix for an executive role there, while still working for

Activision Blizzard (Brown, par. 2). Dennis Durkin is going to replace Neumann as the new

CFO and will get a bonus of $15 million dollars for taking the job (Brown, par. 1). $11.3 million

of the bonus will be given as stock of the company and the rest will be given as a sign-on bonus

(Brown, par. 1). Even though the company is using every method to cut costs, they still decided

to give a large signing bonus to their new CFO. Following the termination of the CFO, another

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top financial executive also announced their leaving of the company the same week (Palmeri,

par. 1). Amrita Ahuja made an announcement of her leaving Blizzard Entertainment as CFO to

be the new CFO of Square Inc. (Palmeri, par. 2). Two top executives of Activision Blizzard left

the company the same week and many are now speculating on how exactly the company is going

to change as the top brass of the company has lost two experienced individuals.

Cut of Hundreds of Jobs

Before the massive layoffs in February of 2019, Blizzard set up a program called Career

Crossroads to get more people to leave the company (Schreier, par. 2). The program would

voluntarily take buyouts for those who would like to leave the company (par. 2). The conditions

were that you had to be working for Blizzard for more than 5 years, but during 2018 they

shortened the number of years necessary and the program allowed the QA and IT departments to

take the severance packages (par. 2). This program was just another example of the varying

methods that Activision Blizzard tried to use to cut costs without receiving negative backlash.

The most recent example of the company cutting costs are the layoffs done in early February

2019. The layoffs affected mostly non-development and administrative-related job positions, but

the company said that they plan to increase game development resources by at least 20 percent

and improve the e-sport leagues for their well-known games (Frank, par. 11). They want to put

more money on developing one of their most famous franchises, Call of Duty and other games

like Overwatch, Warcraft, Hearthstone, and Diablo. Even with the increased development

resources, there haven’t been any announcements on future projects for 2019, except for the

mobile game and the annual Call of Duty release.

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Conclusions

Activision Blizzard throughout these two years has taken many methods to cut costs and

reorganize their company. The methods they used might help them out in the short term, but this

might affect them negatively in the long term. They have received a lot of backlash from the

gaming community, employees of their own company, and the media for their practices. Their

future does not look good if the company proceeds to take similar action to cut costs.

Recommendations

Even when Activision Blizzard is cutting costs throughout the company, they pay high

wages to their top executives and give them bonuses in the millions. I recommend that the

executives should take a pay cut if they want to save the company money. The Nintendo

president Satoru Iwata and other Nintendo executives decided to take a pay cut when Nintendo’s

sales numbers did not meet expectations (Ashcraft, par. 2). The president had his pay cut in half,

while the other executives had a pay cut between 20 to 30 percent (par. 2). These pay cuts were

made when Nintendo’s game system, the Wii U was not selling as many numbers as they

estimated. This was not the only time when the executives in the company took a pay cut, the

president also had a fifty percent pay cut back in 2011 (par. 5) The executives in Activision

Blizzard should take up their example and also take a pay cut if their sales are not meeting

expectations. If they were to take a pay cut and also not receive their bonuses, then they could

have used that money to keep the employees they let go.

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References

Activision Blizzard, Inc (ATVI) Interactive Chart. (n.d.). Retrieved from

https://www.nasdaq.com/symbol/atvi/interactive-chart?timeframe=1y

Ashcraft, B., & Ashcraft, B. (2014, January 29). Nintendo Boss Is Taking a Huge Pay Cut

(Because of the Wii U). Retrieved from https://kotaku.com/nintendo-boss-is-taking-a-

huge-pay-cut-because-of-the-1511382834

Bloomberg.com, Bloomberg, www.bloomberg.com/news/articles/2019-01-03/activision-loses-

second-finance-executive-in-bad-start-to-year.

Brown, Fraser.(2019). “Activision Blizzard's New CFO Is Getting Awards Worth $15 Million

for Taking the Job.” Pcgamer, PC Gamer THE GLOBAL AUTHORITY ON PC

GAMES, www.pcgamer.com/activision-blizzards-new-cfo-is-getting-awards-worth-

dollar15-million-for-taking-the-job/.

Frank, A. (2019, February 12). Activision Blizzard cuts hundreds of jobs despite 'record revenue'

year. Retrieved from https://www.polygon.com/2019/2/12/18222096/blizzard-layoffs-

february-2019

Makuch, E. (2018) “Heroes Of The Storm Scaling Back, Devs Moving To Other Projects; Tournaments

Canceled.” GameSpot, Gamespot, www.gamespot.com/articles/heroes-of-the-storm-scaling-back-

devs-moving-to-ot/1100-6463909/.

McWhertor, M. (2018). “Blizzard Responds to Diablo: Immortal Backlash.” Polygon, Polygon,

www.polygon.com/blizzcon/2018/11/3/18059222/diablo-immortal-blizzard-response-blizzcon.

Schreier, Jason, and Jason Schreier. (2019). “Bungie Splits With Activision, Keeps Destiny.” Kotaku,

Kotaku, 10 Jan. 2019, kotaku.com/bungie-splits-with-activision-1831651740.

Schreier, J., & Schreier, J. (2018, December 21). With Activision's Influence Growing, Blizzard Is

Cutting Costs. Retrieved from https://kotaku.com/with-activisions-influence-growing-blizzard-is-

cutting-1831263741