Recently, my fellow Fool Travis Hoium highlighted video games as yet another industry that Apple
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
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.
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.