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Activision: uncertain next-gen pricing, dev costs a cause for concern

Wednesday, 27th February 2013 22:50 GMT By Brenna Hillier

Activision is concerned that shifting retail prices, next-generation development costs, and the need to establish new business models may eat into its profits over the next few years.

“If we are unable to sustain premium pricing on current-generation titles, our operating results will suffer,” the publisher stated in a new SEC filing.

“If we are unable to continue to charge the same prices we have historically charged for current-generation titles for Microsoft’s Xbox 360, Sony’s PS3 and Nintendo’s Wii, as well as for next-generation consoles, whether due to competitive pressure, because retailers elect to price these products at a lower price or otherwise, we may experience a negative effect on our margins and operating results.

“Further, we make provisions for price migration and channel protection based upon certain assumed lowest prices and if competitive pressures force us to lower our prices below those levels, we may experience a negative effect on our margins and operating results.”

When it comes to premium pricing the market will bear what the market will bear, and the publisher seems to understand it needs to keep a check on development costs and exploring new business models rather than just keep expecting punters to pony up greater and greater amounts.

“If we fail to successfully manage our new product development, or if we fail to anticipate the issues associated with that development, our business may suffer,” Activision continued.

“Our business model is evolving and we believe that our growth will depend upon our ability to successfully develop and sell new types of products, including free-to-play games which are monetized through in-game microtransactions rather than an up-front fee, and to otherwise expand the methods by which we reach our consumers, including via digital distribution.

“Developing new products and distribution channels will require substantial up-front expenditures. If such products or distribution channels do not achieve expected market acceptance or generate sufficient revenues upon introduction, whether because of competition or otherwise, we may not be able to recover the substantial development and marketing costs associated with those products and distribution channels.

“In addition, expanding our business model will add complexity to our business and require us to effectively adapt our business and management processes to address the unique challenges and different requirements of any new areas in which we operate, which we may not be able to do, for lack of institutional expertise or otherwise. If any of these occur, our revenues, margins and profitability could decline.”

In short, Activision is warning shareholders that it expects to take a profitability hit over the generational transition as it adapts to the shifting market.

Activision generated $3.26 billion in revenue last financial year, the majority of parent company Activision Blizzard’s $4.86 billion. Investors probably won’t suffer too much for slightly reduced returns.

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12 Comments

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  1. melonbuster1

    Not at all. They will get behind Microsoft because they will cut out the used game market and they can make more money there.!!! Sony grow balls and ban used games from Ps4. Because you will lose support! !. If a company can make 90% back per game why go to the 30% guy? ?.you wanted to beat Microsoft to reveals? ? So be a boss and stop playing the middle

    #1 1 year ago
  2. xBASSxMONSTAx

    Sony have no balls. MS will once again win the next gen console wars. :D

    #2 1 year ago
  3. Hunam

    Banning used sales is possibly the stupidest thing a console could do. Asking them to ban them is the stupidest thing a gamer can do.
    You gotta remember, the PS1, despite what the gaming industry would actually like you to believe was founded on the ease of piracy. The PS2 however was founded on used games sales as was the Xbox 360. It’s a huge market and it keeps people buying games. They’ll buy new games when they can either afford it or when gaming means enough to them.

    #3 1 year ago
  4. melonbuster1

    If they want used or bootleg games buy a xbox 360 or a ps3. Its the only move to make if your a company.

    #4 1 year ago
  5. Phoenixblight

    http://gamasutra.com/view/news/187037/We_asked_three_PS4_developers_how_expensive_their_games_are.php#.US6XADDczjs

    People have nothing to worry about.

    #5 1 year ago
  6. Sanwiches

    Used games are either below 30$ and that’s because they aren’t big titles, or they are around 45-50$ and that’s just stupid to buy that used stuff when you can buy it for the full price and support your goddamn developers, even if publishers eat all the profit. They are like Banks. They totally suck but you need them.

    I never buy used. And I never sell my used games. Why would you sell them? you get like 10$ back

    #6 1 year ago
  7. DSB

    Shifting retail prices: Taking home 70% on digital instead of the usual 40% from brick and mortar.

    Makes sense. Nooooot.

    @3 I’m not totally buying that. A whole lot of piracy is based on convenience, true, but that’s exactly why digital distribution did such a great job of bringing people into the fold on the PC.

    It’s every bit as easy as torrent, and a hell of a lot easier than burning a disc and chipping a console. It also doesn’t allow for used sales, but that didn’t seem to tip any scales.

    I’m just speaking from personal experience. For me buying games legally didn’t become “fun” until digital came along.

    #7 1 year ago
  8. shogunknight

    Of all the companies to be worried…

    #8 1 year ago
  9. theevilaires

    Oh boy here we go again and #8 you’re right.

    #9 1 year ago
  10. The_Red

    @7
    While I agree that the convenience of digital purchases is great and has also turned me into a more dedicated PC gamer, I will say this about used games sales:

    In my opinion, digital sales weren’t affected by lack of used games sales much BECAUSE they usually cost 5 to 10 bucks. When one pays 60 or more for something, things change. Unless publishers realize the current pricing system (Either $60-70 for AAA or just $5-10 small indies) is wrong, blocking used games sales will seriously hurt both consumers AND publishers of AAA titles.

    #10 1 year ago
  11. karma

    Oh Boofeckinghoo. I’m sure all the monies they fleeced from the knuckheads who keep blindly handing over their their wads at yearly CoD iterations will assuage their pain now, and going into the future. Besides they can always bleed dry Bungie’s new IP with a hefty price tag, hidden surcharges, monthly subscription, and a shiton ton of hefty microtransactions for minor cosmetic weapon texture changes. And if they block used games too as folks with more monies than sense seem to want them too for no apparent reason, well Bobby Kotick will have plenty of monies to spend on all those fat lawyers to shaft developers out of their paychecks and consumers out of their hard earned cash. Next gen is going to be awesome!

    #11 1 year ago
  12. DSB

    @10 That’s definitely also a factor.

    I didn’t go all-in and really consider piracy outlawed until Steam started dropping the prices.

    To begin with, they were a lot more expensive than my usual retailer, so buying Steam games was a luxury.

    But don’t you think both Sony and Microsoft have to go the same route? The PC has the fiercest competition, where some are actually selling games at 0% margins just to attract customers, and that will never happen on consoles, but both Sony and Microsoft will still be making more on every digital copy they sell, all the while curbing used games.

    It just makes sense that they would push digital pretty hard, but of course, it’s hard to bet against greed. Nothing would surprise me these days.

    #12 1 year ago