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Activision-Blizzard September results reveals box sales paradigm

Activision-Blizzard released September quarter results yesterday. Most of the document is pretty dry and won't mean much to the majority of their devoted fans. They reaffirm the 11 million subscriber base of World of Warcraft and remind us that Guitar Hero's doing pretty well. Yeah, and they have an expansion coming up.

There is an interesting gem, however, to be found in their discussion of Wrath box sales:

"Revenues related to the sale of World of Warcraft boxed software, including the sale of expansion packs and other ancillary revenues will continue to be deferred and recognized ratably over the estimated customer life beginning upon activation of the software and delivery of the services."

That's a pretty packed statement. In summary, it means that the money Blizzard makes from selling the game box isn't immediately counted in their performance metrics at the time of sale. (There's no December "bump" to revenue directly from the 50ish dollars you pay for an expansion.)

Instead, they count the revenue gains throughout your customer lifetime. Doesn't sound like a big deal, does it? Let's talk about why that's such a significant notion.

First, this statement resoundingly debunks the occasional detracting statement that "They just want you to buy the game." While they do want you to do so, Blizzard's aim is to extend your customer lifetime -- they want you to be a long-term subscriber. Yeah, that does include your 15.00 a month, but that's not even the end result. They want you to have fun, and stick around for the whole ride.

Second, the value of box sales are vastly deprecated against your customer lifetime. Again, they want you to have fun and stick around. This is true to such a degree that they don't even count your box-sales money against their revenue, except as a bolster over the life of your subscription.

Of course, there's other reasons Activision-Blizzard measures box sales this way. It reduces fluctuation between quarters, because each quarter is resultingly comparable. (For example, "expansion quarters" would always be vastly more profitable than "non-expansion quarters." By valuating box sales over a customer lifetime, they keep each quarter relatively similar.)

It's important not to read too much into this, but it's still good information. It's a peek into some of the thought of what happens at Blizzard, and how they place value on their customers. Bottom line is they don't just want a lump sum, they want you around for the long haul. Hey, that's a good thing for us -- they're aiming to keep us entertained.

EDIT: And as many posters point out (and I should have made clear myself), this sort of thing is also part of GAAP, the Generally Accepted Accounting Principles. This is why I said it was important not to read too much into this. However, I remain certain that the execution of this principle still supports Blizzard's interest in customer lifetime, not just single-point sales.

Filed under: Analysis / Opinion, Blizzard, News items

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