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Why I'm Still Long Activision Blizzard

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Recently, my fellow Fool Travis Hoium highlighted video games as yet another industry that Apple (Nasdaq: AAPL  ) has disrupted, and he singled out Activision Blizzard (Nasdaq: ATVI  ) as a company he believes will be hit particularly hard. Although I agree that the rise of iOS devices like the iPhone have certainly altered the video-game landscape, I don't believe that's necessarily bad for Activision

Good enough gaming
I won't deny that Apple has disrupted the portable-gaming market. Portable gaming has always meant trading some quality for convenience. Smartphones and tablets now offer a good enough gaming experience for most on-the-go gamers and have effectively reduced the market for dedicated systems and destroyed hardware makers' pricing power. Nintendo (OTC: NTDOY.PK) had to slash the price of the 3DS to get sales going, and analysts are already suggesting that Sony (NYSE: SNE  ) do the same with the PlayStation Vita.

However, the "good enough" rule doesn't seem to apply to the living room. Look at the Nintendo Wii. It was a good enough system that sold like mad initially, but the novelty quickly wore off and software sales plummeted. I think you'd see a similar phenomenon with an Apple TV. Initially the cheap games might ding more traditional game sales, but eventually gamers will want games with more depth and better graphics.

Assuming it will be possible to somehow connect a real game controller to the Apple TV -- iOS devices don't count -- then gamers can play on their TVs. If not, then consoles are safe. Either way, it doesn't matter for Activision, because it's a software company. It will release its games wherever the gamers happen to be.

The WoW factor
There's still the issue of World of Warcraft's declining subscriber numbers. It's clear the Kingdom of Azeroth has begun to shrink, but I think the market has overreacted just a tad. The game is seven years old. Players are bound to get tired of the game eventually. Activision knows this, so it's begun to create new sources of steady revenue. Call of Duty: Elite brought a subscription component to the company's other monster franchise. With the Skylanders toys, the company figured out how to sell game add-ons to children without infuriating parents. Looking ahead, the company is working on adding a real-money auction house to Diablo III that will let players sell their in-game plunder to one another while Activision collects a small listing fee. It's also begun developing a new MMO, codenamed Titan, as well as a project with Bungie, the studio that brought us Halo.

Foolish takeaway
The evolution of the gaming industry will present Activision Blizzard with plenty of challenges, but overall I think the company is more than equipped to overcome them and thrive, so I'm maintaining my outperform CapsCall for now.

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The Motley Fool owns shares of Activision Blizzard and Apple. The Fool owns shares of and has written calls on Activision Blizzard. Motley Fool newsletter services have recommended buying shares of Activision Blizzard, Nintendo, and Apple, creating a bull call spread position in Apple and creating a synthetic long position in Activision Blizzard. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Patrick Martin owns shares of Activision Blizzard. You can follow him on Twitter, where he goes by @TMFpcmart03. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (3) | Recommend This Article (5)

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  • Report this Comment On February 25, 2012, at 4:00 PM, TideGoesOut wrote:

    The reason I am NOT positive on ATVI is that they actively court lawsuits against their developers and partners, and have repeatedly been taken to task for it. Ultimately they will make the wrong move here and it will cost them dearly. They don't have a business model problem, they have a management problem, and that needs to be taken into consideration for their future.

  • Report this Comment On February 27, 2012, at 12:05 PM, garifolle wrote:

    I wonder why you have to explain why you are "still" long on ATVI.

    Does it mean that you are one of the soldiers whose mothers say "Look at my son, he is one of the few who walk on the right foot in the parade?"

  • Report this Comment On February 27, 2012, at 6:38 PM, CRNA1109 wrote:

    l agree that ATI has a strong future. It may take a short term hit but in the long term, it will be fine. I think alot of the people that are down on the company secondary to apple and on the go type games are not gamers themselves. It'd be a cold day before I'd give up my CoD or any of my other faves. The only time I play angry birds is when Im stuck shopping with my wife. It passes time. Tide has a point but so far it hasnt come into play. Eventually it very well could. As for the other post.........what?

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