Activision Blizzard Comes Under Fire Amid Strong Q2

With Activision Blizzard poised to benefit massively from the coronavirus pandemic, its Q2 2020 results didn’t disappoint Tuesday.

Similar to EA, this was a record-setting quarter for the company, with revenue reaching nearly $2 billion, up 38% from the same quarter in 2019, and earnings per diluted share also up 53% year-over-year.

Even more impressive are the monthly active users (MAUs) across the company’s subsidiaries, which increased by over 100 million players from the same quarter last year, thanks to the aptly timed release of “Call of Duty’s” standalone battle royale “Warzone” mode in March.

Stay-at-home orders created a climate conducive to sales and player engagement in the video gaming space. But this latest round of quarterly earnings shows the publishing hierarchy is more or less the same, with Activision ahead of its competitors.

However, this quarter of exceptional growth has already been undercut by discontent among employees at subsidiary Blizzard Entertainment, who circulated a document internally Monday (as first reported by Bloomberg) covering widely inconsistent salaries throughout the publishing label known for online games like “World of Warcraft,” “Hearthstone” and “Overwatch.” The document revealed that some workers were still earning minimum wage, and other employees were not receiving raises higher than 10%. 

Activision Blizzard has since denied sections of the Bloomberg report, saying, “It is unequivocally not true that employees are paid minimum wage. We pay a minimum of 50% more than minimum wage compared to market minimum wage.”

The company also disputed the accuracy of Bloomberg’s mention that an internal 2019 compensation survey revealed employees were dissatisfied with their salaries, saying “significantly less than half” of them expressed that sentiment.

Even with their corporate owner countering these claims, Blizzard has been slighted before. In early 2019, Blizzard was hit hardest by a sweeping round of layoffs as the company sought to expand development on “key franchises.”

A look at the last eight quarters shows why Activision would want to double down on brands like “Call of Duty,” as these annual releases have made Q4 crucial for the company’s earnings.

While Blizzard segment revenue does receive a slight boost at the end of the year, it’s nothing compared to what Activision pulls in. Blizzard operates as an effective earner during quarters between “Call of Duty” releases, but not as much as it used to, and “Candy Crush” publisher King exceeds Blizzard every non-holiday quarter after 2018 with highly consistent figures (as of Q2 2020, “Candy Crush” is still the top-grossing franchise on U.S. mobile app stores, per the earnings release).

But the last two quarters have now seen remarkable performance for “Call of Duty,” due to Activision’s decision to release the “Warzone” mode as a standalone, free-to-play entry in the series, rather than as part of a main release or add-on content.

Activision’s quarterly earnings also routinely show that while Blizzard has its core base of gamers, it has failed to drive up engagement for quite some time.

Even ignoring 2020, Q4 2019 still saw an enormous jump in engagement for the Activision subsidiary over 2018, and “Warzone,” at least for now, is working overtime to maintain this uptick throughout these last two quarters in a way that DLC add-ons never managed to do.

Furthermore, CEO Bobby Kotick asserted that as part of the company’s goal to continue expanding “audience reach,” “engagement,” and “player investment,” the company would be looking to replicate the “Call of Duty” brand’s success across other areas.

Blizzard’s workforce may already be frustrated at their current compensation, but given the history of restructuring and reprioritization of initiatives for the “Call of Duty” brand throughout the last decade, Blizzard could face further overhaul of its own focus and direction.

Look no further than Sledgehammer Games, whose tumultuous history as an in-house developer for “Call of Duty” is an omen for what could transpire at Blizzard.

Established as an independent company in 2009 and then promptly absorbed by Activision after successfully pitching a third-person, adventure-focused spin-off for “Call of Duty,” the company found itself scrambling to assist developer Infinity Ward in the completion of the third “Modern Warfare” game in 2011. 

Inner turmoil between Infinity Ward and Activision resulted in its co-founders and half of the team departing the studio, leading Activision to request that Sledgehammer cease development on the spin-off and instead help Infinity Ward finish their game.

Sledgehammer did end up developing its own “Call of Duty” titles for release in 2014 (“Advanced Warfare”) and 2017 (“World War Two”), but these were clear, carbon-copy titles modeled after the work of the other two studios, even featuring the popular “Zombies” multiplayer mode that was a staple of Treyarch-developed “Call of Duty” releases since 2008’s “World at War” (Infinity Ward’s 2016 title “Infinite Warfare” also featured a “Zombies” mode).

Significant changes to the flow of “Call of Duty” releases would appear in 2018, when the fourth “Black Ops” release from Treyarch dropped its single-player mode in lieu of “Blackout,” the brand’s first attempt at the battle royale genre prior to “Warzone” launching in 2020.

Then in 2019, rumored disagreements between Sledgehammer and developing partner Raven Software over the studio’s next “Call of Duty” game led to Activision stepping in and promptly demoting both teams from leading the planned 2020 release, putting Treyarch in charge for what many expect will be a fifth “Black Ops” game.

While Sledgehammer has since recovered and expanded its team again, the fact that Activision is routinely willing to step in and shake things up with their signature, top-earning IP at a moment’s notice spells doom for Blizzard maintaining its current structure, especially if “Warzone” succeeds in becoming the life-blood of “Call of Duty” and makes a successful jump from this console generation to the next. 

Activision Blizzard may be at the top of its game, but there’s a reason Blizzard comes second in its name.

UPDATED, Aug. 7, 9:46 a.m. PT: Added statements by Activision Blizzard disputing parts of Bloomberg’s original report.