ACTIVISION BLIZZARD

MBAM 629 CASE ANALYSIS

Submitted by: Anne Lee, Yugo Hirano, Sumeet Malik,

Srini Rao, & Candace Weber

Activision Blizzard: Overview

Activision Blizzard is a growing software publishing and distribution company

headquartered in Santa Monica, CA. It was founded in 1979 and was the first

independent developer and distributor of video games. The company is primarily

involved in the international publishing and licensing of video games that are available

across multiple platforms.  In 2008, Activision merged with Vivendi Universal, one of

the most popular online publishing companies in the world. This merger has made

Activision Blizzard one of the dominant companies in the gaming industry. Though the

merger occurred a year ago, most consumers still recognize the company as just

Activision (as opposed to Activision Blizzard)1.

Growth for Activision Blizzard has been driven by three franchises: Red Octane, Call of

Duty, and Blizzard Creations, which have resulted in profitability and expansion. In

addition to these products, the merger with Vivendi has created an opportunity in online

role-playing games, an area poised for significant growth in the next few years.

Activision Blizzard’s major source of profit is from North American sales with smaller

portions coming from Europe and other countries. Recently, Activision has strengthened

its online gaming presence by collaborating with a Chinese gaming company called

NetEase.

EXTERNAL ANALYSIS: General Environment ( Exhibit 1 )

1 For the purposes of this analysis we will refer to the company as ‘Activision’ except where appropriate to use its formal name (e.g. the Stakeholder Management section).

2

Demographic: The target market for the gaming industry is males ages 14-38. As this

group ages, the segment will seek other recreational activities. This is also the case from

a global perspective. Therefore, the gaming industry will have to either target a new

market or adjust according to the changing demographic. A new demographic, females,

are slowly entering the gaming industry’s scope as a result of Wii fit, which is an

interactive video game that allows users to lose weight and get in shape. The launch of

the Wii Fit resulted in an influx of female consumers. Since then, female consumers have

become such a trend in the industry that Activision is forced to accommodate this

emerging demographic in order to remain competitive.

Socio-Cultural: Activision’s socio-cultural environment encapsulates the idea of Web

2.0. From its inception, this second generation concept contributed to the development

and evolution of web-based communities, hosted services, and applications such as

social-networking sites, video-sharing sites, wikis, and blogs. Consumers can be found

hanging out at over-crowded internet cafes, competing at Madden tournaments, or

hovering over one another during fantasy football drafts. As the economic crisis forces

consumers to more closely consider their spending habits, the gaming industry has

provided consumers with a more cost-effective alternative for entertainment and physical

fitness, as evidenced by the increased sales for interactive games (i.e. Guitar Hero, Dance

Revolution, etc).

Technological: As technological advancements and innovations steer the gaming

industry, opportunities for expansion remain limitless. For example, the first video

3

console was developed in 1976 (Magnavox Odyssey), but by 2006 we’d already seen 7

generations of consoles developed from every top gaming manufacturer, and the

evolution continues. In turn, publishers like Activision will have to keep up with the

latest advances in console development. Adjacent markets within the wireless and

telecommunications industry have implemented gaming technology as well and have

sparked the emergence of wireless communication for mobile gaming. Activision, for

example, will have to stay abreast of advancements in mobile technology since this is the

newest technological advancement for the gaming industry. However, technological

advancements, like wireless communication, have also forced publishers to increase

controls to prevent piracy; thus, Activision will need to consistently develop anti-piracy

technology.

Political: In the gaming industry, political restrictions play a vital role. Currently, video

games are rated so that parents are aware of sexual and violent content in each game.

Current regulatory trends are going a step further in trying to pass federal laws and bills

that would require retailers to card minors when purchasing video games that include

explicit content. This potentially could have negative impact on sales for the industry’s

younger demographic within the target market (ages 14-18). In addition to carding

minors, Government regulations can apply censorship policies to video games. This may

complicate the gaming industry, as it relates to the creativity and the constant ‘real-life’

modifications that consumers have grown to expect.

Economic: During the recession, retail chains have been so heavily effected that several

have been forced out of business (including electronic retail stores). However, the gaming

4

industry has enjoyed an overall increase in sales during this same period. This surge in

sales is heavily due to consumers who seek a cheaper form of entertainment. For

example, consumers see more value in purchasing a video game for $25 that they will

play several times over the course of 2 months versus paying $25 for a one-time

enjoyment experience while viewing a box office movie (including popcorn and drinks).

Ultimately, this is a direct benefit for Activision.

Global: There is huge opportunity for Internet games worldwide. On average, 13 million

people worldwide log on daily to play Internet games. This is a great avenue for the

gaming industry because the World Wide Web provides an easy and cheap distribution

channel. For instance, users only need to click and download the software. However, with

the increase of Internet games, an increase in piracy will be inevitable, especially in

China and India where Intellectual Property laws are loosely defined. Another global

concern is that many places worldwide have implemented strict censorship laws due to

religious and cultural reasons. Therefore, what may be acceptable in the U.S. may be

illegal in other parts of the world. Therefore, Activision would need to adjust the games

in a multi-domestic manner before distributing globally.

The lagging economy poses another global concern regarding currency exchange rates.

For example, the Euro is currently much higher than the dollar, and Activision would

realize a lower profit margin. However, throughout East Asia, where the dollar is

significantly higher, Activision would see a higher profit margin for each game sold.

Ultimately, CPI (Consumer Product Index) rates prove that basing a global strategy

solely on currency rates is ineffective since consumers do not have the same spending

5

power as they do in the U.S., which could also explain the surge in piracy abroad.

EXTERNAL ANALYSIS: Porter Five Forces Analysis ( Exhibit 2 )

Threat of New Entrants – Low

High startup costs significantly reduce the threat of entrants in the gaming market.

Regardless of whether a game becomes a one-hit-wonder, larger gaming firms usually

acquire these franchises. Activision itself strategically acquires new firms every year.  As

a result new entrants find it challenging to enter the gaming market.

Competitive Rivalry – High

Game developers are continuously struggling to get engagement from gamers through

different platforms like X-Box, PS2, Nintendo or PC. Activision is the 2nd largest game

software developer; however, its revenues are much lower than EA Sports within

international markets. Therefore, Activision is trying to capture the international market

share. Rivalry between publishers extends to competing for exclusive rights from studios

and for obtaining in-gaming advertising spots, from advertisers looking to showcase their

brands in games.

Supplier Power – High

6

Game Developers, software, and hardware providers do not exert much power on

Activision since the industry is in its growth phase.

Studios exert high power because they hold intellectual rights to a lot of game properties

and characters. However, Activision has been successful in developing games by its own

along with exclusive rights to various properties.

Threat of Substitute Products – High

Social-networking sites, TV, movies, theme parks, or any entertainment activity serve as

possible substitutes to Activision.

Bargaining Power of Buyers

Consumers have several choices from multiple publishers. Switching costs for games are

low for consumers; therefore there’s not a lot of brand loyalty.

Console manufacturers have high bargaining power since they own the distribution

channel. Also newer consoles by Nintendo Wii engage the player on a physical

interactive level as well. This poses a challenge for Activision to produce more engaging

content. Retailers have low bargaining power due to the fact that they must carry games

from all publishers and are at the mercy of the consumers.

EXTERNAL ANALYSIS: Summary

7

The ongoing growth of the female demographic in the industry represents a major

opportunity to actively develop games catered to this audience. Additionally the socio-

cultural trends of increased internet use and Web 2.0 technologies provide Activision

with an opportunity to develop games specifically for the online population and also to

counter threats posed by the substitute products from the internet market.

Activision has a tremendous opportunity to capture market share in the global

marketplace. In order keep up with competitors Activision needs to continually innovate,

while developing games that are on par with advances in console technology. Finally,

Activision must take into account how the threat posed by the political environment will

regulate its ability to produce and market games to children, a substantial component of

the gaming industry demographic.

INTERNAL ANALYSIS: Organizational Goals

8

After a conference call with three Pepperdine alum that are currently employed with

Activision, we discovered a wealth of internal information about the company2. The

major objective of the Activision management team is to create great games that sell.

Additionally the management is highly focused on increasing shareholder value. This

focus on shareholder value directly impacts the development of games. In order to

maintain profitability, game developers are encouraged to forego features and

functionality. The Activision approach to gaming is not to develop blockbuster games,

but rather develop a massive portfolio across multiple genres. The major issue that

Activision management is currently tasked with is developing break through creative

advertising that drives and optimizes media plans. The value place on collaborative work

environments, and multiple brands, enables a collaborative environment and greater

access to resources.

INTERNAL ANALYSIS: Stakeholder Mgmt. & Corp. Governance

2 Conrad Riviro – Brand Manager; Matt Peltier – Asst. Brand Manager; Yasmine Benyamini – Business Development (Personal Communication – March 26, 2009. 6PM)

9

Following the merger, which was completed in July 2008, the board of directors at

Activision Blizzard consists of members from both Vivendi and Activision. Since

Vivendi owns 52% of the share (majority shareholder) René Penisson, Chairman of

Vivendi Games, serves as Chairman of Activision Blizzard. Bobby Kotick, the CEO of

Activision retains the title for the merged entity as well.

Born on February 2, 1942, Mr. René Pénisson graduated from l’École Supérieure de

Chimie in Lyon with an engineering degree. He holds a doctorate in chemical

engineering from the Université de Lyon and a degree from the French Management

Institute. Prior to Vivendi, Mr. Pénisson has held important board positions with Aventis,

a French Chemical and Pharmaceutical company. For example, he served as Senior

Executive Vice President of Human Resources of Aventis. Prior to that he served as an

Executive Vice President of Basic Chemicals Division of Rhne Poulenc from 1982 to

1997. He ultimately served as Chief Operating Officer of Rhne Poulenc Chimie.

In September 2002 he served as an Advisor to the Chairman and Chief Executive Officer

for Social Relations and Organization of Vivendi Universal. In January 2004, he was

appointed the Chairman of Vivendi Games, and he joined the Management Board of

Directors for Vivendi in April 2005. Under his guidance Vivendi Games increased

revenues from 475 Million Euros in 2004 to 804 Million Euros in 20063.

Activision Blizzard's Board of Directors have vast experiences in the Media and

Entertainment Industry. Many have served on other Boards both at U.S. and European

3 http://www.wikinvest.com/stock/Vivendi_(VIV-FR)#Video_Games

10

companies like Bertelsmann AG, Universal Music Group, Warner Music Group, Canal+

Group, and Yahoo! Inc. Several still act as Advisory Board Members.

Robert Kotick has been the CEO of Activision since February 1991 and is now the CEO

of the merged entity. As a serial young entrepreneur, Robert dropped out as Art History

and Literature student at University of Chicago. He started a software venture when he

was 19 years old. He then acted as a CEO of 4Kids Entertainment. Finally he stumbled

upon an ailing Activision in 1981 and bought it at the age of 26. He then led the

turnaround for the then-bankrupt Activision by taking the company to revenues of $3

billion before the merger. He has been in the eyes of media ever since. His strategy is

considered to be towards Gaming Properties that will generate a lot of sequels. He gets

criticism for only pursuing $100 million franchises4.

Competitors

The key competitors for Activision Blizzard are Electronics Arts, Konami Corporation,

and Take - Two Interactive Software Inc. Electronics Arts owns major brand names

including EA, EA Sports, EA Sports Big and Pogo as well as Hollywood films game

series including The Lord of the Rings, The Godfather, Harry Potter, and Batman. EA

Sports also distributes and engages third parties to develop games. The company

recorded revenues of $3,091 million during the fiscal year ending March 2007, an

increase of 4.7% over 2006.

Konami is a global services provider that also offers entertainment and health products.

4 http://arstechnica.com/gaming/news/2008/11/activision-if-we-cant-run-a-game-into-the-ground-we-dont-want-it.ars

11

The company publishes and distributes video game software for customers with home

and handheld video game systems, principally those manufactured by Sony and

Nintendo. They also produce and distribute Internet based entertainment contents. The

company recorded revenues of ¥280,300 million (approximately $2,377.2 million) during

the fiscal year ending March 2007, an increase of 6.9% over 2006.

Take-Two’s software and video games are manufactured for a number of hardware

platforms such as PlayStation, PlayStation2, Xbox, Nintendo GameCube, and Nintendo

Gameboy Advance. Take-Two also produces games software for the PC market. The

development and sale of accessories is conducted by a wholly owned subsidiary,

JoyTech. The publishing operations are divided between four game labels: Rockstar

Games, 2K Games, 2K Sports, and Global Star. Take-Two recorded revenues of $1,037.8

million during the fiscal year ending October 2006, a decrease of 13.6% compared to

2005.

INTERNAL ANALYSIS: Intellectual Assets

The intellectual assets of Activision are critical to its game development strategy.

12

According to Harvard Business School Press “ A typical game took a team of 10 or more

developers 18–24 months to complete and cost $5 million–$10 million to develop and

launch. A major game (for example, like a new movie release) could cost as much as $15

million–$20 million and require a much larger team.” Human capital is leveraged in the

development process in cross-functional teams consisting of personnel from both studios

and publishers. Game publishers, such as Activision, who serve as a venture capitalist,

leverage intellectual capital, such as talent development and branded franchises provided

by studios. Publishers, like Activision, finance game production, provide distribution and

marketing, and spearhead the project management of game development. In the case of

Activision leveraging human capital is most important in the areas of

marketing/distribution and project management. The “Greenlight Process” clearly defines

the role that human, social, and intellectual capital plays in Activision’s strategy. The

process is described below.

Activision’s Greenlight Process (Exhibit 4)

Concept Review : This phase includes a simple concept statement with a storyboard, a

description, and a possible short demo. Extensive market research gives Activision an

indication of the potential profitability of the game. According to Kathy Vrabeck,

president of Activision Publishing, “ Today most projects never get past the concept

review phase because gamers tell us they are just not interested in the concept”

Assessment: The assessment phase occurs roughly three months after a concept review

and includes a comprehensive game design document, technical demonstration of

features, and a marketing assessment of the positioning. Research is conducted on

13

consumers' interest and is what drives the positioning of the game.

Prototype: The prototype phase occurs three months after the assessment and includes a

small version of the game with some features and functionality. Marketing plans and

creative strategies are developed alongside the prototype. After the prototype review,

brand managers, production, and marketing teams meet weekly to work on the launch

strategy.

First Playable: Anywhere from three to six months after the prototype, the first playable

version of the game is released and shown to the green light committee. Marketing plans

are finalized, and preliminary advertising/packaging concepts are presented.

Alpha: By the alpha phase a fully functional version of the game is presented to the

Greenlight committee. However, bugs may still remain, yet games are moved into the

testing phase where gamers actually play the game. Finalized packaging and marketing

concepts are also presented to the Greenlight committee.

Although the Greenlight process is essential to the strategy, there is a challenge between

personal belief and market data. The industry is massive and highly subject to consumer

preferences.

Activision has a strong record for successfully leveraging human, social, and intellectual

capital in developing games. In its early days Activision successfully launched a series of

multimillion-dollar hit titles such as Pitfall, Kaboom, and Hero. However, one of the

14

most successful indications of Activision’s ability to leverage resources is in the

Activision Extreme Sports line. Tony Hawk Pro Skater became one of the most

successful franchises in the gaming industry. In the development of this and Kelly

Slater’s Pro Surfer Activision leveraged intellectual capital by partnering with surf wear

retailer Quicksilver and developed a soundtrack with licensed artists such as Pearl Jam

and Jack Johnson. The Tony Hawk Franchise led to several sequels and well over 5

million units in combined sales.

INTERNAL ANALYSIS: Financial Analysis

In 2008 Activision increased 192% of its net revenues ($2,898,136,000), 402% of its net

income ($344,883,000), and 138% of its total shareholders equity (1,947,892,000).

Beginning in September 2008, the stock price sharply declined due to the economic

crisis. However, the stock price of Activision remains higher than S&P 500 and Dow

Jones.

Short-term solvency ratios of Activision are very similar to the industry average. Long-

term solvency ratios of Activision are also similar to the industry average but better than

S&P 500. Activision does not have any long-term debt, so its debt/equity ratio is really

low. Its surplus of current assets does not require it to borrow money to fund its business

activities. Asset utilization ratios of Activision are similar to the industry’s ratios, which

illustrate that Activision uses its assets effectively. When looking at Activision’s

profitability, reports show that it fairs better than the industry average. However, in third

quarter, Activision made loss on its net profit. The negative net profit also negatively

15

impacts its ROA and ROE. When the company experiences negative net profit,

Activision does not have a P/E ratio. Activision’s price/book value is less than industry

average; however, the number is still greater than one. Therefore, people think Activision

has more value than its price of the share.

In the third quarter of 2009, Activision had a net loss of $72 million according to GAAP

standards; however, they made net income of $429 million on a non-GAAP basis. Non-

GAAP standards excludes: impact of the change in deferred net revenues and related

costs of sales, equity-based compensation expense, non-core exit operations, one-time

costs related to the business combination with Vivendi Games, the amortization of

intangibles, changes in cost of sales resulting from purchase price accounting

adjustments, and associated tax benefits. Despite Activision’s loss during the third

quarter, Activision is doing really well in its financial activities for its core operation.

INTERNAL ANALYSIS: Competencies and Competitive

Advantage (Exhibit 5)

16

Activision operates in the marketing/distribution component of the industry value chain.

The value chain for the industry and Activision are virtually identical. Likewise, the

value chain analysis shows that the clear competitive advantage for Activision is also in

the marketing and distribution channel. Successful franchises such as Call of Duty and

Tony Hawk Pro Skater are indicative of Activision’s competitive advantage from a

marketing standpoint. The additional component in the value chain that gives Activision

a significant competitive advantage is its strong distribution channels. Multiple

distribution channels across consumer electronics retailers, specialty gaming retailers,

low-cost department stores (i.e. Wal-Mart, Target, etc), and online retail stores give

Activision broad reach, enabling a high volume of sales and units. The competitive

advantages of Activision are highly sustainable given that establishing these relationships

with distribution channels and marketing video game franchises would be extremely

costly and time consuming for any competitor entering the market. Also in its favor is its

financial ability to acquire multiple distribution channels in addition to the relationships it

already has

INTERNAL ANALYSIS: Strengths & Weaknesses

17

Activision’s strengths are capitalized by several factors, namely owning one of the most

popular and best-selling video game franchise, Guitar Hero. It is currently the 2nd largest

publisher in the industry, which has allowed it to form strong relationships with several

distribution channels for all its video games. In addition to its strong relationships with

distributors, it has secured exclusive relationships with movie studios, specifically those

with specific developer talents or Intellectual Property ownership of a game. By using the

studios, as an external resource, Activision is able to supplement its internal capacity,

maintain a more flexible cost structure, and assess a studio’s potential for acquisition.

Video games, in general have a very short shelf life (average is 2 weeks). Therefore,

pressure to develop marketing strategies that will increase product sales is intense. As a

result, shelf space becomes critical for Activision and competitors like EA Sports. In

addition to having to constantly manage the short shelf life of video games, Activision

also has to adjust to the ever-changing developments of consoles.

INTERNAL ANALYSIS: Summary

Activision's history of successfully leveraging intellectual assets, its strong financial

position, and significant competitive advantages position it well for continued success in

the marketplace. However, to ensure continued success it will need to maintain strong

awareness of consumer preferences and continue to build successful video game

Franchises. Activision needs to strive for continuous innovation to remain competitive.

FORMULATION & IMPLEMENTATION: Integration

18

Opportunities & Threats

Several opportunities arise for Activision in the international arena, mainly due to the

expansion of the World Wide Web. A more profound opportunity lies within the

emergence of a new consumer market, women, which gives Activision the opportunity to

capitalize on a new demographic. Competitors like EA Sports have also picked up this

niche market. For example, EA’s ‘The Sims Life Stories’ games were specifically

targeted to women; however, these games are currently designed to run on laptops, which

is an adjacent market for the gaming industry. Activision must react quickly or risk being

left behind on reaching women audiences. Due to the popularity and awareness of the

Tony Hawk’s Pro Skater series, Activision can leverage its capability to produce award-

winning franchises to target a new group.

Though Activision realizes benefits from publishing video games only, it stands to gain

more intellectual capital if it were to manufacture its own consoles. This could allow for

more innovation and new technological developments by shifting reliance on console

manufacturers to having in-house expertise. At the same time, Activision should consider

extending its partnerships to cable/broadband providers. Small companies have already

unveiled that synergy between consoles and broadband is possible and feasible; however,

broadband technology could eventually deem consoles obsolete. In fact, OnLive, which is

a company that currently provides ‘Games on Demand’ via broadband services. To date,

OnLive has already signed up partners including Electronic Arts, Take-Two, THQ, Epic

Games, Ubisoft and Warner Bros. Interactive Entertainment. Additionally,

cable/broadband providers can also serve as another distribution channel for Activision as

19

well as an advertising agent when new video games are released.

Digital piracy is the major, constant threat to all players in digital entertainment, and as

software becomes more increasingly available on the internet, Activision’s video games

remain vulnerable. Thought Governmental regulations are developing anti-piracy laws,

this threat remains relevant and current.

Finally, though Activision stands to gain control and intellectual capital from producing

its own consoles, it must do so with caution since sales growth within the gaming

industry largely stems from producing video games. However, the technological

development of video games heavily depends on console manufacturers. The key players

in the console manufacturing arena are Microsoft, Nintendo, and Sony; all represent very

strong brands within the gaming and electronics industry, which in turn, allow them to

have strong influence regarding advancements in gaming technology.

Increase efforts to gain global footprint; learn how to leverage media mix of short shelf

life games, etc. In terms of structure, Activision will need to re-define organizational

structure for strategic partnerships.

FORMULATION & IMPLEMENTATION: Strategic Issues

20

Strategic Issue #1: Activision needs to leverage the media mix to best optimize the

marketing plan for a game to reach the greatest revenue. 

The major challenge Activision is facing is leveraging the optimal media mix as it relates

to the short shelf life of video games. Currently, TV ad sales is the number one channel to

reach a wide audience globally. The company has found through research and past sales

performance that games cannot reach high volume of sales without TV ads. However,

Activision also uses online advertisements, magazines, billboards and celebrity

endorsements as a form of media mix to launch a new game. However, with the

exception of TV media, Activision has not found an accurate media mix. The company

needs to find an optimal formula to combine all media.

Strategic Issue #2: Activision currently lags in the global market while EA is the number

one in international sales.

While Activision has a respectable presence in the international market, the company still

lags far behind the number one competitor, EA Sports. Activision needs to create a global

strategic plan to enter the international market. This will create global brand awareness

where Activision can share the market with EA and profit from booming market. With

the recent global merge with Vivendi and collaboration with NetEase, Activision needs to

leverage the partnership through distribution channels.

FORMULATION & IMPLEMENTATION: Alternatives

21

The first strategic alternative that should be considered by Activision is the related

diversification approach as it pertains to its media avenues. Given the challenges of

developing an optimal media mix, while still ensuring a profitable game release, the

related diversification approach will allow Activision to capitalize on its existing

strengths and broaden its reach. From a tactical level related diversification would

involve effectively utilizing online marketing, partnering with other developers of

entertainment products in the same genre as a particular video game, and leveraging its

own games as a medium for in-game advertising. This alternative is very much in line

with Activision’s current mission, vision, and values. The positives of this alternative are

the opportunity to tie Activision to other recognized brands and leverage economies of

scope. The challenge however with this approach is that is time, resources, and capital

intensive.

The second alternative that Activision should consider is also related diversification but

focuses more on vertical integration. This alternative takes a tactical approach. For

instance, Activision could enter the market for console development and begin to develop

its own consoles. This approach may expose the risk of cannibalizing its market and may

also invite aggressive competition from giants like Microsoft and Nintendo.

The final strategic alternative is to consider a broad differentiation strategy. Broad

differentiation will enable to Activision to extend its global footprint by offering multiple

22

game offerings on multiple platforms. Additionally, broad differentiation would enable

Activision to leverage best practices from its other successful game franchises. Though

this may allow the company to reach a broader market, the gaming industry historically

has not been an industry that caters to everyone. Thus far, no publisher has been able to

reach a broad market, but Activision has the resources and partnerships to be the first

publisher that reaches a wide audience.

FORMULATION & IMPLEMENTATION:

Recommendation & Plan

RELATED DIVERSIFICATION

In order to implement the related diversification strategy as it pertains to Activision's

media mix, the company will have to employ a roll out strategy and evaluate the results

on a consistent time period to make incremental adjustments along the way. The steps are

identified below:

1. Develop strategic alliances - There are different strategic alliances that Activision

should pursue in the Gaming Industry Value chain, some of which is already being

pursued by the company. Activision needs to develop new alliances with Broadband

Internet Providers, Wireless Providers, Various Anti-Piracy Lobbying bodies and On

demand broadband game suppliers like Onlive.com to increase its international presence.

Activision also needs to strengthen its alliances with Studios to not just have exclusive

rights to develop properties but also to cross promote its games to optimize its marketing

mix. This would mean game trailers as coming attractions in movie theatres, bundling of

23

Blu-Ray Movie Discs with Game DVDs, etc. Alliance with celebrities will help to reach

out to female and international audiences (e.g. Angelina Jolie in Tomb Raider, Halle

Berry as 'Storm' in X-Men, etc).

2. Budget - Each area for strategic alliances needs to have a budget in place. A portion of

current cash on hand of around US 750 Million will help Activision to allocate its budget

for different Strategic Partnerships well.

3. Teams - The next step would be to form cross-functional teams, both domestically and

globally, to implement this strategy. For example, International Alliances with different

Mobile and Broadband Service providers would require people from marketing, legal,

product development, business development to come together.

4. Time-line - A time-line for the rollout will define the necessary stages to test market

this strategy. This would entail mall intercept tests, International quantitative surveys and

focus groups. A sample time-line would rollout as follows: 1st quarter the new strategy

will be implemented in select cities throughout the U.S. (e.g. Los Angeles, New York,

Houston). During the next quarter, more cities would be introduced to the new strategy

(e.g. Chicago, San Francisco, Philadelphia). The rollout will continue in one more test

market upon successful implementation, eventually fully penetrating the entire target

market nationwide.

FORMULATION & IMPLEMENTATION: Evaluation &

24

Controls

Balance Scorecard (BSC) Exhibit 6

Innovation and Learning Perspective

Due to the constant change and growth in the gaming industry, Activision needs to make

adjustments to human, organizational, and informational capital accordingly. The project

team needs to be continually trained and given resources to rollout the strategy globally.

Financial Perspective Measures

Activision will roll out the diversification strategy through test markets in order to assess

sales in that region. This will enable Activision to project potential ROI for domestic and

international markets.

Internal Business Perspective

Activision will designate a project team for the related diversification strategy. The

supervisor should evaluate the team's effectiveness based on the timeline described in the

implementation section and utilize the following productivity measures for team

assessment: quality of media ads, review of employee skills, and resources used to drive

the strategy.

Executives at Activision should work in conjunction with the project teams in order to

create effective incremental adjustments as roll out of the strategy continues.

25

Consumer Perspective

Within the selected cities, we recommend that Activision conduct a consumer survey

within Big Box retailers. (i.e. Best Buys, Wal-Mart, Target). Through this sample survey,

Activision can gain valuable insight into the effectiveness and impact of its ads on point

of purchase. The company can also make incremental adjustments based on consumers'

feedback.

26