Activision-Blizzard halts development, citing declining demand

At Activision-Blizzard, Feb. 9 will be known as the day the music died.

The videogame publisher announced plans Wednesday to discontinue development of future “Guitar Hero” games, essentially putting what was once one of its top-earning franchises on ice.

Company cited continuing declines in the music genre as the reason for the decision. (Another title — “True Crime: Hong Kong” — was also canceled, though fairly far along in its development, because, said Activision Publishing CEO Eric Hirshberg, “It just wasn’t going to be good enough.”)

“These decisions are based on the desire to focus on the greatest opportunities that the company currently has to create the world’s best interactive entertainment experiences,” the company said in a statement.

Also canned were the “DJ Hero” and “Band Hero” brands. The company estimates that 500 people — about 7% of Activision Publishing’s global workforce — will lose their jobs due to the shift in focus.

“Guitar Hero” was, at one time, a $1 billion dollar franchise for the company. But in recent years, the music genre has fallen out of favor with gamers, with revenues dropping by double-digit percentage points each year.

“Demand for peripheral-based games declined at a considerable pace,” Hirshberg said. “Given the considerable licensing fees … we simply cannot make these games profitable.”

That was particularly true last year, when the company released “Guitar Hero: Warriors of Rock.” People with access to the most recent NPD Group sales numbers say the game sold fewer than 261,000 copies — with nine different SKUs on the market. That’s an astonishingly bad performance for any title — much less one that was a market leader a short time ago.

It’s certainly a far cry from 2009, when Activision released six “Guitar Hero” games — as well as two other music games.

It was around that time that the bottom began to fall out of the music genre, though. Market saturation, along with competition from Harmonix, makers of the “Rock Band” games, made it impossible to maintain the revenue figures music games had attracted in previous years. (Viacom recently unloaded Harmonix to a New York City-based investment firm for a reported $50.)

In the meantime, Activision found itself under fire from several of its music partners in the game. Courtney Love and former members of Nirvana complained loudly about the ability to use grunge icon Kurt Cobain’s likeness in any song in the game. In 2009, No Doubt filed suit against the publisher for its appearance in “Band Hero,” saying in a statement that Activison violated the terms of its agreement with the band, turning “the group into virtual karaoke players.”

And last year, Axl Rose filed a $20 million suit against the company for featuring Guns N’ Roses’ “Welcome to the Jungle” in “Guitar Hero III: Legends of Rock.”

Activision says it plans to focus more on its “Call of Duty” franchise, titles from Blizzard Entertainment and digital content as it moves forward.

The latest “Call of Duty” was a blockbuster for the company, making $1 billion in under six weeks. And digital content attached to that game is expected to do better than most titles do at retail, which will result in a much higher margin for the company.

For the fourth-quarter, Activision reported a loss of $233 million vs. a $286 million loss a year prior. Company’s shares tumbled after hours, though, as its forecast for the current quarter and fiscal year were sharply lower than Wall Street’s expectations.

Activision said it expects full-year 2011 earnings to come in at 70¢ per share, with revenue of $3.9 billion. Analysts were expecting a forecast of 83¢ per share and revenue of $4.7 billion.

Taking a conservative approach, Activision did not include any Blizzard titles in its 2011 lineup, which was a big part of the reason for the shortfall, though Blizzard president Mike Morhaime did say that the company has not ruled out the release of “Diablo III” this year at this point.

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