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On Nov. 24, gamers and shareholders alike will celebrate World of Warcraft's 10th anniversary. World of Warcraft has generated billions in revenue for Activision Blizzard (NASDAQ: ATVI ) as gamers (including me a few years ago) devoted enormous amounts of time playing the game. Some analysts worry that World of Warcraft's days may be numbered, but shareholders' fears can be put to rest for a while as a new WoW expansion is about to be released.
A surprising increase
Activision Blizzard reported that it had 7.8 million WoW subscribers at the end of 2013, down from 9.6 million at the close of 2012. On a positive note, that number grew from the 7.6 million subscribers WoW had at the end of November. World of Warcraft is miles away from its peak of 12 million subs back in 2010, but a stabilization in this figure gives Activision Blizzard a more secure source of cash flow over the coming quarters.
To stop the erosion from getting worse, Activision Blizzard is launching a new expansion, Warlords of Draenor. With the refresh planned for sometime around Christmas this year, investors will want to pay close attention to the subscriber count. Past expansions have resurrected interest in the game, but it's hard to play the same card over and over again while expecting similar results. Activision Blizzard plans on shaking things up a bit this time, with one major addition.
90 in an instant!
In the past, gamers have had to grind new characters all the way up to the level cap in order to try out different races (such as orcs and dwarfs) and classes (for example, paladins and warriors), which can become quite boring after a while. It takes months of gaming to reach the current level cap of 90, which can turn gamers away from the $15 a month fee. Those who play World of Warcraft want to fight player-vs.-player in battlegrounds and try out 25-man raids (which is primarily for those at the level cap); they don't want to invest several months of time and fees just to grind to that point. To keep those subscribers interested and paying, Activision Blizzard will allow gamers to instantly level up their characters to level 90 while also raising the level cap to 100.
One way to instantly level up a character to level 90 is to pre-order Warlords of Draenor for $49.99, which is $10 more than expansions in the past. Another way is to pay an additional fee per character that gamers wish to instantly level up to 90. Regardless of which option gamers choose, Activision Blizzard ends up on top, assuming the expansion sells well and the subscriber count increases. Allowing gamers to pay to instantly level a character up to 90 could be very appealing for WoW's dedicated subscriber base and is a brand new source of high-margin revenue for Activision Blizzard.
This is Activision Blizzard's best plan yet to entice old gamers back into paying. Those who left while the level cap was 60, 70, or 80, don't want to grind to get back where they left off, they want to jump right back into the action (which happens after you reach the level cap). In World of Warcraft: Wrath of the Lich King, Activision Blizzard allowed gamers to obtain a new character and class (Death Knight), which was already at level 55 (when the level cap was 80). Now Activision Blizzard seeks to expand that concept to hopefully once again revive WoW's base.
To capitalize on the trend of rising subs after an expansion is released, rumor has it that Activision Blizzard plans on releasing a new WoW expansion every year. While this would be a sharp step up from the current pace of releasing an expansion every few years, if done effectively this strategy could breathe some long-lasting life back into this entertainment behemoth. The problem with expansions in the past is that gamer enthusiasm and sub counts dropped off shortly after the launch. /
Just look at what happened with Mists of Pandaria, WoW's latest expansion. It was launched Sept. 25, 2013, and by the end of December WoW once again had 9.6 million subscribers. But now the game is back down under 8 million subs. This causes major gyrations in cash flow and certainty isn't good for Activision Blizzard's stock price. It's impossible to say for sure whether this strategy will work, but at the very least management is trying its best to keep WoW pumping millions a month into its coffers.
Activision Blizzard has plenty of games coming out this year geared toward Microsoft's Xbox One and Sony's PlayStation 4, but that doesn't mean it has forgotten all about its prized MMORPG gem. Shareholders have plenty of catalysts to look forward to this year, especially the scheduled release of Bungie's Destiny this fall, but WoW's subscriber trend shouldn't be clouded over -- the game is still one of Activision Blizzard's largest source of cash flow. As long-term investors patiently wait for the new WoW expansion and Destiny, they also get a small 1% dividend to reward them for their loyalty.
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