Activision Blizzard (NASDAQ:ATVI) is close to launching its first multiplayer online battle arena, or MOBA. After months of testing, the company is scheduled to formally release Heroes of the Storm on June 2.
The game might not be as popular as the next Call of Duty or World of Warcraft expansion, but Heroes of the Storm could provide some surprising upside for Activison shareholders in the quarters to come.
The market for MOBAs is enormous and growing
MOBA is a rapidly growing video game genre, that is highly competitive and extremely popular -- both in the U.S. and overseas. The market for MOBAs is currently dominated by two games: Riot Games' (owned by Chinese Internet giant Tencent) League of Legends and Valve's DOTA 2. Both titles are among the largest revenue-generating massively multiplayer online, or MMO, games in the world -- a class that includes Activision's World of Warcraft and Hearthstone.
Valve is private company, so DOTA 2's numbers are difficult to come by, and Tencent does not break out the performance of League of Legends directly. But, according to data released by SuperData Research last year, League of Legends brought in more revenue than World of Warcraft during the first nine months of 2014 and is on pace to regularly generate more than $1 billion per year. DOTA 2 was considerably less popular, but still made the top 10 in global MMO revenue through that point last year. Heroes of the Storm, then, could conceivably give Activision a game to replace World of Warcraft when interest in the decade-old title finally subsides.
Heroes of the Storm could even be bigger if it catches on. While League of Legends and DOTA 2 are undoubtedly popular, both games are notoriously difficult for new players to enjoy. The social aspect of the games is vitally important to their success, yet their communities are widely considered to be among the most toxic in gaming. In a lengthy piece, gaming publication Kotaku outlined the steps Riot has taken to try to control the League of Legends' community, largely to no avail.
That's a problem Activision's Blizzard studio can solve, as it has in the past. When it released World of Warcraft in 2004, the subscription-based massively multiplayer online RPG entered a crowded genre. Games like Final Fantasy XI, Star Wars Galaxies, and most notably EverQuest, boasted of millions of combined players. Yet the games were unforgiving, and their fans among the most dedicated. World of Warcraft brought the genre into the mainstream, becoming a cultural icon and multibillion-dollar business in the process.
Activision's second free-to-play game
Heroes of the Storm also underlines a shift in Activison's business. In contrast to World of Warcraft, which initially costs money and carries a subscription fee, Heroes of the Storm is completely free to play. Instead, Activision will monetize the game through optional microtransactions.
This is Activision's third major title to embrace this business model, after last year's Hearthstone and Call of Duty Online. On its last earnings call, Activision Chief Operating Officer Thomas Tippl noted that the business model plays particularly well in Asia. China is one of League of Legends' largest markets, and Heroes of the Storm could give Activision more exposure to the world's most populous country.
Competition is intense
Admittedly, several other companies have tried -- and failed -- to break into the genre. Activison's largest rival, Electronic Arts, announced in November that it was canceling its then-forthcoming MOBA, Dawngate. Activision's management has also been quite mum on Heroes of the Storm's potential.
But I believe Heroes of the Storm offers great upside to Activision, and given management's reluctance to discuss it, investors might be undervaluing the game. When Activision reports earnings next week, hopefully it will give more color on its expectations for the game. It could prove to be one of its most important titles for years to come.