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Activision-Blizzard’s Next Billion Dollar Title Won't Cost Gamers a Dime

Activision-Blizzard's (NASDAQ: ATVI  ) next megahit may come as a shock to some investors. Destiny, and the next entry in the Call of Duty franchise, should do well, and sell millions, but the hidden gem in Activision's pipeline is likely to be a game few are familiar with.

Heroes of the Storm, an upcoming MOBA (multiplayer online battle arena), could emerge as Activision's next great cash cow, generating a steady stream of revenue despite being offered to its players on a free-to-play basis. Unlike other free-to-play games, the sort that have been championed by firms like Zynga (NASDAQ: ZNGA  ) , Heroes of the Storm could have long-term staying power.

The MOBA phenomenon
As video game technology has progressed, new genres have periodically arisen: Fighters, popular in arcades, gave way to platformers, well-suited to early consoles; 3D graphics and Internet-connected boxes led to the rise of first-person shooters; broadband Internet connections allowed massively multiplayer online games like Activision's World of Warcraft to flourish; smart devices and social networks facilitated social games like Zynga's Farmville and Words with Friends.

Will the MOBA emerge as the next great video game genre? There's plenty of reasons to believe so.

In fact, to some extent, it already has. League of Legends and Dota 2, two of the most popular video games in the entire world, are MOBAs. With 7.86 million players, Dota 2 is more popular than Activision's World of Warcraft. That may sound impressive, but League of Legends is larger than Dota 2 by a factor of 9 -- its player base is truly staggering, with almost 67 million players (greater than the population of France, the U.K. and South Korea).

These numbers may not be well-known to investors, as both games are largely outside the purview of the U.S. market. Chinese giant Tencent owns League of Legends, while Dota 2 is owned by Valve, a private company. That makes exact financial performance difficult to gauge, but according to SuperData Research (via VentureBeat), Dota 2 brought in $80 million last year -- League of Legends made $624 million.

A different sort of free-to-play
That money was made without any mandatory fees or monthly subscriptions -- unlike most traditional video games, Dota 2 and League of Legends are completely free to play. Rather than make money with an upfront fee, developers allow players to purchase special in-game items for a few dollars. With such a massive player base, those purchases add up.

Investors, then, may be inclined to lump these games in with other free-to-play titles -- another Farmville or Draw Something. However, to do so would be a mistake.

Zynga's struggles have largely been a byproduct of the cyclical nature of its titles. In 2012, Zynga acquired developer OMGPOP for $200 million. At the time, OMGPOP's biggest game, Draw Something, was extremely popular, and Zynga appeared to be wisely acquiring a potential competitor. Unfortunately, the deal turned out to be a tremendous blunder -- Draw Something's popularity rapidly faded, and Zynga was forced to write off much of the purchase price.

But MOBAs are different. Although they're free to play, they are far from simple, and do not appeal to the sort of casual audience that Zynga's titles have thrived on. In fact, they may be the most core of core video game titles; the closest a video game has yet come to being considered a sport.

There have been League of Legends tournaments with $5 million cash prizes, and it is, by far, the most commonly streamed title on Twitch (Dota 2 comes in second place). The games are global phenomenon -- the two are the most popular games in China.

Activision's opportunity
Activision's Heroes of the Storm is a game in the same mold as League of Legends and Dota 2 -- a free-to-play PC title with comparable gameplay. With no set release date, and no critic reviews, there's no guarantee that the game will be a success.

But the opportunity is monstrous, and I believe deeply underappreciated. Although games like Destiny, World of Warcraft and Call of Duty will continue to be of the utmost importance to Activision in the near-term, long-term shareholders should keep a close eye on Heroes' development -- if the popularity of other MOBAs is any indication, Heroes could become the most popular game Activision has ever released.

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Read/Post Comments (13) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 26, 2014, at 11:58 AM, TelsaRowe wrote:

    Heroes of the Storm. Does this author have any f******g command of what he is talking about or an iota of knowledge on the gaming market? Moba is slowly becoming a crowded space while pc sales continue to nosedive. Who gives a crap if a moba has 100M players in India and China? You cant monetize those people. The user base is only relevant in markets amongst groups that can be monetized. Desperate title for a pathetic article.

  • Report this Comment On May 26, 2014, at 12:36 PM, bendriver wrote:

    PC sales may be going down but I think more people are building their own PCs rather than buying completed ones from like HP, Dell, Sony, Compaq, etc...I would like to see what the sales charts of computer components have been in the past couple of years.

  • Report this Comment On May 26, 2014, at 12:47 PM, nShade wrote:

    Author has no idea what he's talking about if he thinks HotS comes any where near competing with LoL and DOTA2. Cash cow? Billion dollar title?...The only way Blizzard is making a billion dollars off a MOBA is if they somehow find a way to get DOTA back from Valve, which isn't happening.

    How much did Blizzard pay you to write this article, or did they just send you a copy and let you edit it? Let's take a quick look at viewer numbers. LoL: 131k, DOTA2 107k, Smite 5k...HotS - 1k. Even for a game in "alpha"...that's pretty awful.

  • Report this Comment On May 26, 2014, at 1:15 PM, Jubileo wrote:

    Obviosly multiple people in this thread have no clue as to the history of Blizzard. Have you guys seen how much money Blizzard makes from each game? You need a history lesson. Regardless of what Blizzard puts out there millions of people will play it or buy it.

    The new F2P model is rediculous and only ends up hurting consumers however blizzard has done a wonderful job via hearthstone. They are making hundreds of millions of dollars off a f2p game and did it the right way. So please spare me all the it's a crowded field comments because as soon as Blizzard releases this MOBA it will de-throne LOL and DOTA2 easily.

  • Report this Comment On May 26, 2014, at 1:48 PM, warriorminka wrote:

    We dont mix Activision with Blizzard when talking about a blizzard game or the other way around only on the stock ticker they have nothing to do with each other creatively please stop doing that your making the population go full retard more than the fool already does.

  • Report this Comment On May 26, 2014, at 2:49 PM, Sugoda wrote:

    Except for the fact it's a really generic Moba game with a awful F2P system. $20 for a costume that's a color swap, $20 for a stupid mount in the game. There's no customization for the characters themselves so there's far less strategy.

    It's very dumbed down so it's great and all for new players to try a moba game. After a week or so it's so boring you'll want to upgrade to a better one like Dota 2 or League of Legends.

  • Report this Comment On May 26, 2014, at 3:34 PM, PeterS wrote:

    Blizzard has a lot of things going for it in regards to Heroes of the Storm. One thing the author did not mention is that this new MOBA game utilizes characters from Blizzard´s other franchises. This means players from Diablo, Warcraft and Starcraft already have some history with HOTS.

    Blizzard is Blizzard, if anything history has shown us is that they are very able to improve upon an existing game and beat that game by executing the game better. They are going to drastically increase the fun factor of LoL, fix a lot of it´s issues, and then deliver it to it´s already sizable fanbase from it´s other franchises. Even in it´s alpha, Blizzard is already taking strong measures to fix one of the biggest flaws of LoL, the toxicity of it´s community.

  • Report this Comment On May 26, 2014, at 6:43 PM, mattsmithsd wrote:

    Smite was a newly released MOBA with unique differences and it didn't do so well. RIOT (League of Legends) was a first mover and the timing happened to be in-line with eSports evolving.

    PeterS, the toxicity of the LoL community came after it became such a popularly streamed game. Watching the "pro's" made people think that whatever those pro's were doing is the only way of doing something. This transferred into the game play and created a bunch of wannabee "pro's" who were toxic to the rest of the team for trying something different.

  • Report this Comment On May 26, 2014, at 7:34 PM, alaniousman wrote:

    Sam Mattera never knows what he's talking about.

  • Report this Comment On May 26, 2014, at 7:36 PM, johnibizu wrote:

    You are a fool if you think that activision's Dota like game will be their billion dollar title.

  • Report this Comment On May 26, 2014, at 9:54 PM, z06forum wrote:

    People are still beating up on ZYNGA, I would not rule ZNGA out. With Don at the Helm he is putting the Best of the Best in place to create a Leading company in the Mobile gaming space. Its only been less than a year and he has already stopped the bleeding and actually had Sequential growth in almost every category. They have cleaned up the core games and made them fresh and better. Now we await the new Don Mattrick era games to surface later this year. I truly think they will be the Top force in mobile gaming going forward.

  • Report this Comment On May 27, 2014, at 12:45 AM, Trajik wrote:

    The MOBA community is one of, if not, the worst in gaming. The last thing we need is more MOBAs.

  • Report this Comment On May 27, 2014, at 8:24 PM, LasVegasPoker wrote:

    Las Vegas Poker on-Line Worldwide or

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Sam Mattera

Sam has a love of all things finance. He writes about tech stocks and consumer goods.

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