No longer do companies create video games that are played once or twice and then discarded; video game companies have found the holy grail of revenue potential. The biggest area of revenue growth is coming from so-called MMORPGs or massive multiplayer online role playing games. The profit potential of these games is far more lucrative than games that have no online multiplayer aspect, and companies that specialize in these types of games have much better growth than their competitors.
Blizzard
One company that has been extremely competent in this arena is Activision Blizzard (NASDAQ:ATVI). The company's flagship "World of Warcraft" is the world's #1 subscription-based MMORPG with more than 11.5 million subscribers worldwide. At a subscription price of $15 a month, simple arithmetic estimates the revenue contribution in the billions. In addition, Activision's 2008 annual report showed subscription and licensing made up approximately 40% of revenue.
In the Pipeline
Activision has several top notch games in the pipeline due to come out in 2009 and 2010, and theres three big ones on the horizon that all have the potential to be as profitable as world of warcraft: "Starcraft 2", "Diablo 3" and "Call of Duty: Modern Warfare 2".
The company has targeted late 2009 as the release target for the highly anticipated "Starcraft 2" - with the beta launch coming this summer. The original Starcraft, released about 10 years ago, still has a significant following, and in Asia, there are still people hosting competitive tournaments for this game.
Another big launch targeted for November 10 is "Call of Duty: Modern Warfare 2". The "Call of Duty" franchise is one of the strongest in first-person shooter war games. Over 45 million units of the game have been sold since its existence and "Modern Warfare 2" should be a popular extension.
Rumors have also been making the rounds on Activision's release date for the new "Diablo 3". This title has also had a successful past and although it's way too early for them to specify a release date, the amount of discussion and rumors speculating on the release date is encouraging.
Trends
If you're looking for something for your portfolio that is going to take advantage of growing numbers of video game enthusiasts, Activision is definitely worth a look. Demographically, the amount of gamers has increased 22% since 2005, and the time they spend playing games has increased 10% from last year. Although the current recession has pushed the stock lower, it might have also presented a window of opportunity.
Bottom Line
I've mentioned just a few of the games in Activision's pipeline, the company's arsenal also includes the highly profitable "Guitar Hero" series, which not only generates revenues from the game, but also from add-on instruments and song packs. Activision's major competitors include Konami (NYSE:KNM) and Electronic Arts (NASDAQ:ERTS) among others, but I think ATVI's pipeline is much stronger. (Read Power Up Your Portfolio With Video Game Stocks for more.)
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