Activision Blizzard's (NASDAQ:ATVI) Blizzard Entertainment recently canceled Titan, the mysterious MMORPG pegged to be the successor to World of Warcraft. Blizzard co-founder and CEO Mike Morhaime told Polygon that after seven years of development, the studio simply couldn't "find the fun" in the game.
Blizzard never officially announced Titan, but it was surprising that it waited for such a long time before scrapping the project. It was even more surprising because without Titan, Blizzard doesn't have a follow-up for World of Warcraft, the most popular MMORPG in the world.
The business of replacing World of Warcraft
World of Warcraft hit a peak of 12 million subscribers in the second half of 2010, but that figure declined to 6.8 million subscribers in Activision's most recent quarter. Blizzard has tried to keep World of Warcraft alive with expansion packs and by making the game free to play up to level 20, but those strategies haven't helped subscriber numbers bounce back.
With a subscription rate between $13 to $15 per month (based on number of months purchased), World of Warcraft has always been Activision's reliable cash cow. Activision's latest hit, Destiny, is considered an MMO, but it isn't a subscription-based game like World of Warcraft.
Activision doesn't release revenue figures from World of Warcraft, but research firm SuperData Research estimates that the game generated over $1 billion in revenue in 2013, indicating that World of Warcraft still accounts for nearly a fourth of the company's top line. World of Warcraft also claimed a whopping 36% of the worldwide MMO market despite its year-over-year declines in membership. Its closest competitor, NCsoft's Lineage 2, only claimed 9%.
Waning demand for MMORPGs
Although World of Warcraft is still the world's leading MMORPG, it's a genre that's been overtaken by MOBAs (multiplayer online battle arenas) like Tencent/Riot Games' League of Legends and Valve's DoTA 2.
League of Legends -- currently the most popular online game in the world with roughly 67 million monthly active players -- is a free-to-play game which generates revenue from microtransactions. SuperData reports that League of Legends generated $624 million in revenues in 2013.
Blizzard plans to launch its own MOBA, Heroes of the Storm, to compete against League of Legends. This means that Blizzard probably thinks that Heroes, instead of Titan, could offset the decline of World of Warcraft, although MOBAs tend to generate less revenue per user than subscription based MMOs. Blizzard also recently launched Hearthstone, a mobile card trading game based on the World of Warcraft characters.
What Titan teaches us about Blizzard's business
What's interesting about Titan is how long it remained in development before being axed. This isn't the first time Blizzard scrapped a major project. The publisher canceled seven games in the past, including Warcraft Adventures: Lord of the Clans and StarCraft: Ghost.
Activision and Blizzard are merged as one company, but the two publishers mostly operate independently while launching games at different rates. Activision reliably launches new installments of top franchises like Call of Duty and Skylanders every holiday season. These games are often criticized for a lack of innovation, but generally don't suffer from the quality control issues which have plagued its rival, Electronic Arts (NASDAQ:EA). Blizzard, on the other hand, spends years on games without set deadlines -- a strategy harking back to the earlier days of PC gaming, when publishers bluntly stated that a game's release date would be "when it's done."
Starcraft 2, for example, spent seven years in development before launching in 2010. Diablo 3 spent roughly a decade in development before arriving in late 2012. Those lengthy development cycles are rare among most publishers today. Bioware's critically acclaimed Dragon Age: Origins spent five years in development (starting prior to its acquisition by EA), but after becoming part of EA, Bioware hastily launched the less polished Dragon Age 2 after less than two years. Fans of the first game weren't pleased, and sales of the sequel plunged nearly 50%.
Blizzard's cancellation of Titan after seven years of development indicates that the publisher would rather kill an uninspired or incomplete game than launch it -- something that EA should have considered before launching the disastrous, franchise-killing SimCity in 2013.
A Foolish final word
In conclusion, Activision Blizzard investors shouldn't worry about the Titan cancellation.
Although Blizzard certainly lacks a "proper" subscription-based MMO successor to World of Warcraft, investors should remember that online gaming is shifting toward MOBAs and mobile games -- two areas of stable revenue where Blizzard is expanding into. Meanwhile, investors should admire Blizzard for killing off mediocre games instead of releasing them -- a practice that is becoming much less common in a deadline-obsessed industry.
Leo Sun has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard. The Motley Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.