Rich Activision complaining about the loss of revenue in nex : Othor Games

» Thu Feb 28, 2013 10:33 am

http://www.vg247.com/2013/02/27/activision-uncertain-next-gen-pricing-dev-costs-a-cause-for-concern/

If you don't wanna use link.. Click Spoiler tag below..

Spoiler

Activision is concerned that shifting retail prices, next-generation development costs, and the need to establish new business models may eat into its profits over the next few years.“If we are unable to sustain premium pricing on current-generation titles, our operating results will suffer,” the publisher stated in a new SEC filing.
“If we are unable to continue to charge the same prices we have historically charged for current-generation titles for Microsoft’s Xbox 360, Sony’s PS3 and Nintendo’s Wii, as well as for next-generation consoles, whether due to competitive pressure, because retailers elect to price these products at a lower price or otherwise, we may experience a negative effect on our margins and operating results.
“Further, we make provisions for price migration and channel protection based upon certain assumed lowest prices and if competitive pressures force us to lower our prices below those levels, we may experience a negative effect on our margins and operating results.”
When it comes to premium pricing the market will bear what the market will bear, and the publisher seems to understand it needs to keep a check on development costs and exploring new business models rather than just keep expecting punters to pony up greater and greater amounts.
“If we fail to successfully manage our new product development, or if we fail to anticipate the issues associated with that development, our business may suffer,” Activision continued.
“Our business model is evolving and we believe that our growth will depend upon our ability to successfully develop and sell new types of products, including free-to-play games which are monetized through in-game microtransactions rather than an up-front fee, and to otherwise expand the methods by which we reach our consumers, including via digital distribution.
“Developing new products and distribution channels will require substantial up-front expenditures. If such products or distribution channels do not achieve expected market acceptance or generate sufficient revenues upon introduction, whether because of competition or otherwise, we may not be able to recover the substantial development and marketing costs associated with those products and distribution channels.
“In addition, expanding our business model will add complexity to our business and require us to effectively adapt our business and management processes to address the unique challenges and different requirements of any new areas in which we operate, which we may not be able to do, for lack of institutional expertise or otherwise. If any of these occur, our revenues, margins and profitability could decline.”
In short, Activision is warning shareholders that it expects to take a profitability hit over the generational transition as it adapts to the shifting market.
Activision generated $3.26 billion in revenue last financial year, the majority of parent company Activision Blizzard’s $4.86 billion. Investors probably won’t suffer too much for slightly reduced returns.

Well Activision says their business may suffer because better hardware allows for a better game and they apparently will suffer a lot because it would also require more money..

Opinions..

» Thu Feb 28, 2013 8:04 pm

This is pretty much true. In order to continue making a profit they will have to charge more.

» Thu Feb 28, 2013 4:24 pm

I love Activision.

» Thu Feb 28, 2013 5:34 pm

just because they might not make as much profit does not mean they'll actually loose any assets, except maybe stocks if their a publicly traded company (but stocks have a really bad effect on the way the economy works any ways if you ask me), it just means that they can't pay themselves more.

I call bull [censored] because its been a trend lately for game publishers to push consumers to buy the same game multiple times, whether or not its in the form of blocking reverse compatability so that they can sell a "platnium hits" version on the new console. or if its a HD update on an old title.

also ive been seeing a rise in instinces where players are locked out of their games because they did not puchase the latest dlc which has important updates to the game (ive seen people complaining about this a lot with fps games)

the issue is not their profit, but the fact that some of the executive level employees at the publishing firms are overpaid.

» Thu Feb 28, 2013 6:11 pm

Not much to see here, it seems. Mostly I think they're just pointing out that there's some uncertainty concerning (i) prices of next-gen consoles, (ii) prices of games for next-gen consoles, (iii) how (i) and (ii) will affect prices of games for current-gen consoles, and (iv) how they will need to adjust their business model to cope with changes to what sorts of products they want to sell (more "microtransactions" for small bits of content rather than larger payments for full games), and how consumers want to purchase those products. I don't think this is so much about "new games require higher development costs"---that's an easy thing to plan and adjust for; it's rather that the shape of the consumer gaming landscape is changing, and Activision are just saying that they're not entirely sure how that's going to go, and that if they don't get things right with how they adjust, they'll lose money.

» Thu Feb 28, 2013 1:12 pm

I tend to refer to this line of argument as the 6% retort. A company gets used to a certain level of profit and is unable to stomach the realities of market forces encroaching on what is essentially a complacent attitude and a hint of entitlement. Said company then spews out a long, and largely irrelevant, rationalisation of why they will raise prices. Basically, that rhetoric up there is greed encapsulated.

» Thu Feb 28, 2013 4:02 pm

Not much to see here, it seems. Mostly I think they're just pointing out that there's some uncertainty concerning (i) prices of next-gen consoles, (ii) prices of games for next-gen consoles, (iii) how (i) and (ii) will affect prices of games for current-gen consoles, and (iv) how they will need to adjust their business model to cope with changes to what sorts of products they want to sell (more "microtransactions" for small bits of content rather than larger payments for full games), and how consumers want to purchase those products. I don't think this is so much about "new games require higher development costs"---that's an easy thing to plan and adjust for; it's rather that the shape of the consumer gaming landscape is changing, and Activision are just saying that they're not entirely sure how that's going to go, and that if they don't get things right with how they adjust, they'll lose money.

Pretty much. Corporations have to maintain a flow of revenue, expenses, profits, etc. Their finances are oftentimes delicate financial continuums that can be disrupted by environmental changes just like any other economy. Regardless of how much their executives make (admittedly...probably too much) they have to maintain that internal economy or be forced to cut costs to uphold their responsibilities to their stock holders. I'm not apologizing for anything else they do or don't do...just saying that financial maintenance is a legit concern when a market changes. If their profts are cut then they'll have to make cuts internally to adjust. Unfortunately, the cuts many companies choose to make often involve human resources. The executives like to keep their huge salaries and bonuses. :tongue:

» Thu Feb 28, 2013 7:40 am

Incoming gamer butthurt.

How dare a business operate like a business?

» Thu Feb 28, 2013 6:02 am

Incoming gamer butthurt.

How dare a business operate like a business?

The can operate like business all they want. I'll keep operating like an informed consumer and still not buy their games no matter how much they raise their prices :tongue:

» Thu Feb 28, 2013 4:58 am

Except that the new gen of consoles will both be adopting PC architecture which means that games will become cheaper for them to produce across the platforms and not more expensive. The piece starts out with a plea to keep console game prices where they are and not to lower them to the PC base-line. It has nothing to do with operating costs or a changing market as those things are par for the course in any business and the changes to the market are fully in their favour and not the consumers. My olfactory organs are burning.

» Thu Feb 28, 2013 8:19 am

If they made good games, I might would feel guilty when I don't buy their stuff.

» Thu Feb 28, 2013 6:50 pm

Greed ruins EVERYTHING.

The problem of being too profit-focused (yes I KNOW they are corporations) in an industry that is predominantly about ART, is that it is often destructively exclusive to the culture and environment that creates and sustains art.

To quote Idiocracy: "Do you think that makes the ecomony svck?"

» Thu Feb 28, 2013 6:29 am

Except that the new gen of consoles will both be adopting PC architecture which means that games will become cheaper for them to produce across the platforms and not more expensive. The piece starts out with a plea to keep console game prices where they are and not to lower them to the PC base-line. It has nothing to do with operating costs or a changing market as those things are par for the course in any business and the changes to the market are fully in their favour and not the consumers. My olfactory organs are burning.

Playstation ports will either become cheaper or better or both. I doubt 360 ports will get any cheaper. It's well-documented that video games have become much, MUCH more expensive to produce as things like graphical fidelity, use of motion capture animation and voiced dialog, etc. have increased. It's not unreasonable to believe that their production costs will increase with the next generation of hardware (and the corresponding increase in gamer expectations), is it? Again, I'm not defending Activision...just playing devil's advocate.

Greed ruins EVERYTHING.

The thing is that the "greed" has already happened. The Activision employees that make obscene amounts of money already have the pay structures that they have, so as far as the company itself is concerned it's their expenses that are increasing and they have to adjust financially. The expense of employing their "richer" employees most likely won't be taken into consideration.

» Thu Feb 28, 2013 8:06 am

Cry me a river Activision. Maybe if they developed decent games their profits would go up. Now there's a thought.

» Thu Feb 28, 2013 12:44 pm

http://shadowofthevoid.wordpress.com/2012/07/03/do-games-cost-too-much/
http://arstechnica.com/gaming/2010/10/an-inconvenient-truth-game-prices-have-come-down-with-time/

Jack those prices up boyos.

» Thu Feb 28, 2013 9:51 am

Playstation ports will either become cheaper or better or both. I doubt 360 ports will get any cheaper. It's well-documented that video games have become much, MUCH more expensive to produce as things like graphical fidelity, use of motion capture animation and voiced dialog, etc. have increased. It's not unreasonable to believe that their production costs will increase with the next generation of hardware (and the corresponding increase in gamer expectations), is it? Again, I'm not defending Activision...just playing devil's advocate. snip*

Those technologies are well established now and have undergone reductions in their respective costs; I think it's spurious to point to them as novel expenditure. The Devil's argument also seems to beg the question as it implies a corresponding increase in quality that isn't guaranteed. I can't immediately see why new hardware translates to higher costs. The cost of producing a game isn't suddenly altered by my purchasing a new GPU/CPU/SSD etc etc in the current regime so why would that situation change simply because a new console is coming to the market?

We're not talking about a small newcomer here; we're discussing some of the largest publishers on the planet who make sizable profits -- more than some current banks/energy suppliers/Telecoms companies etc etc. Arguments toward share-holders are also on dodgy ground as far from being hundreds of thousands of small stake-holders the vast majority of shares will be controlled by the company itself, banks and investment groups. It's likely that anywhere up to 80% of large publishing houses shares are owned by a very small group of very rich people. Those very rich people seem to be fretting about being ever so slightly less rich!

» Thu Feb 28, 2013 12:38 pm

Sounds more like the RIAA

» Thu Feb 28, 2013 7:20 am

I can't immediately see why new hardware translates to higher costs. The cost of producing a game isn't suddenly altered by my purchasing a new GPU/CPU/SSD etc etc in the current regime so why would that situation change simply because a new console is coming to the market?

Again, it's well documented that higher graphical fidelity equates to higher development costs as a rule of thumb. If gamers' expectations increase due to hardware improvements then it follows that development costs will increase. Also again, I'm not defending the idea so much as saying that it isn't unreasonable to think that development costs will go up. Of course nobody has provided any proof that costs will increase, but if the trend continues it's reasonable to think that they could.

We're not talking about a small newcomer here; we're discussing some of the largest publishers on the planet who make sizable profits -- more than some current banks/energy suppliers/Telecoms companies etc etc. Arguments toward share-holders are also on dodgy ground as far from being hundreds of thousands of small stake-holders the vast majority of shares will be controlled by the company itself, banks and investment groups.

I'm not sure how that's relevant, to be honest. Countries with huge GDP's still have to maintain their economies the same as small countries do. :shrug:

It's a continuum, not a pool.

It's likely that anywhere up to 80% of large publishing houses shares are owned by a very small group of very rich people. Those very rich people seem to be fretting about being ever so slightly less rich!

Well, that's nothing new. Maybe if you ask them real nice they'll all take a pay cut and/or allow their stock shares to go down in value. :tongue:

» Thu Feb 28, 2013 2:17 pm

I can't remember the last Activision game I bought. Was it Tenchu 2? I'm not sure, and I don't care for them. I would HAPPILY pay $100 for a game like Skyrim, or Arkham City (though I would also expect less bugs in Skyrim for that price). But I wouldn't pay $20 for X-Men Legends or, what else have they made that had any kind of interest in? :shrug:

» Thu Feb 28, 2013 8:15 am

Again, it's well documented that higher graphical fidelity equates to higher development costs as a rule of thumb. If gamers' expectations increase due to hardware improvements then it follows that development costs will increase. Also again, I'm not defending the idea so much as saying that it isn't unreasonable to think that development costs will go up. Of course nobody has provided any proof that costs will increase, but if the trend continues it's reasonable to think that they could.

I'm not sure how that's relevant, to be honest. Countries with huge GDP's still have to maintain their economies the same as small countries do. :shrug:

It's a continuum, not a pool.

Well, that's nothing new. Maybe if you ask them real nice they'll all take a pay cut and/or allow their stock shares to go down in value. :tongue:

I'm guessing they'd rather just raise their prices so long as people will still pay them.

I understand that we're just talking it through; don't worry, I'm not marking you out as an apologist or anything like that.

It's also true that companies actively and continuously aim to reduce production costs. A good example here would be a game engine as the engine itself can be re-used to produce many games. On expectations and costs I would argue [censored] hoc non propter hoc: expectations don't necessarily come with an associated price; Minecraft isn't exactly a blockbuster in terms of production costs yet not only met but raised expectations.

The argument that Activision proffered made several references to share-holders, and while it is true that a business operates in a continuum it's not the case that Activision acts as a not for profit organisation. Profits from sales are not wholly reinvested back into the company, but were that the case it still wouldn't justify a price hike or the maintenance of a set price. If Activision can't handle competition and market forces that's their problem not mine.

edit-- lol censor no likey latin

» Thu Feb 28, 2013 3:31 pm

I understand that we're just talking it through; don't worry, I'm not marking you out as an apologist or anything like that.

Oh, I know that. I just wanted to make it clear that I'm not trying to support Activision's argument. Just saying that without knowing exactly what they have planned as far as game features for the next generation hardware it's difficult to say whether it's reasonable to claim that costs will increase or not. I have a couple of friends that work in games development shops...I'll be interested to hear their take on it.

It's also true that companies actively and continuously aim to reduce production costs. A good example here would be a game engine as the engine itself can be re-used to produce many games.

That's true, but the goal of cultivating reusable assets is usually to increase profitability rather than lower prices for consumers.

On expectations and costs I would argue [censored] hoc non propter hoc: expectations don't necessarily come with an associated price; Minecraft isn't exactly a blockbuster in terms of production costs yet not only met but raised expectations.

For some people it did, while others wrote it off as "teh bad grafx." :shrug:

The argument that Activision proffered made several references to share-holders, and while it is true that a business operates in a continuum it's not the case that Activision acts as a not for profit organisation. Profits from sales are not wholly reinvested back into the company, but were that the case it still wouldn't justify a price hike or the maintenance of a set price.

Wouldn't it be bad business to accept per-unit profit losses simply because they have a comfortable amount of cash on hand, though?

If Activision can't handle competition and market forces that's their problem not mine.

edit-- lol censor no likey latin

Agree on that, of course. It will be interesting to see if other publishers follow-suit. If not, Activision may end up being forced to live on bread and CoD profits.