Activision Blizzard is enjoying its most hectic Q4 in its long history, with the long-awaited Modern Warfare 2 hitting shelves next week.
In the first part of our exclusive interview with Activision's UK management team – UK MD Andrew Brown, marketing director David Tyler and sales director Roy Stackhouse – the firm discusses the evolution of the company, the merger with Blizzard and the controversial issue of pricing...
From left to right, Activision UK MD Andrew Brown, Marketing Director David Tyler and Sales Director Roy Stackhouse
Activision has had an interesting time of it over the past four years, what with the growth of Guitar Hero and the merger with Blizzard. How has this affected the UK office?
Andrew Brown: I arrived in 2006 and apart from the building I can't recognise anything. We've grown in scale massively. In Europe now we do more business than we did globally in 2006. That's the scale of it.
In terms of products, back at the time Guitar Hero was only starting to emerge. Call of Duty was a brand that was solid but wasn't punching the weight that it is these days. And since then I think we've made a lot of progress in being more mature in how we approach the business. It was quite controversial when we started to try and get a balance of people in the organisation who were gaming experts with a gaming background, but also people who come from other industries where they could bring a different perspective.
And what that has driven is a different approach. For example, it's still part of the industry mindset – and still part of ours to some degree – that we've got to sell as much through as we can as quickly as possible. And I think everyone in the industry suffers from that mentality. But what we said in 2006 was how could we manage this in a more consistent way. And things like Guitar Hero has forced us to have that new approach – because we are selling a brand that's as respected as the likes of the iPhone or Harley Davidson.
If you watch TV now, you'll see Guitar Hero in the sitcoms and the advertisements. That's the level of the brand awareness, and you can't do anything with a brand like that unless you manage it properly over a long period of time. So the long-term view is something we've developed. There's still lots to do, and you can't change the industry, but that's our objective.
David Tyler: Nintendo do this very well; growing and nurturing evergreen franchises. A few years ago it was about rates of decay and no one was really talking about on-going rates of sale. But now Wii Fit and Brain Training and several franchises on other platforms are providing constant business for publishers and retailers alike. Hero, World of Warcraft and Call of Duty are three examples of truly evergreen brands from the Activision Blizzards portfolio, which we have been built over time.
Andrew Brown: And then we had the merger with Blizzard, and that brought another group of people in with another group of skills that we didn't have previously. But in the end, we've ended up with a very strong and well-balanced team, with lots of mixed experience but all really relevant. And so I can't really compare what I am seeing now to what we would look at in 2006.
I was really proud of the way the integration with Blizzard happened. I was proud of the team, and we came out of the end with a very strong and positive feeling. Those can be difficult times, and people can suffer because of mergers. And what we ended up with was a larger and very motivated, and actually most people ended up working here at the end of it. And that's still the case now.
We are now, relative to the size of our business, quite lean. We are not the sort of organisation that just throws bodies at a problem. We'd rather hire the right people and the best. And I don't think there is any business in this industry that doesn't feel lean. You've always got more to do than resources to do.
Do you feel the industry is getting smarter about how to manage products, or is that an Activision advantage?
Andrew Brown: I think the entire industry is collectively learning all the time. You see approaches you admire from your rivals all the time. We are all finding ways to enhance, as we've all got the same objective. So I don't think anyone's not moved on since 2006. But I do think we've got some advantages, and we've exploited them really well. But I don't think we lead in every respect.
Roy Stackhouse: I think a key indicator is how retail responds to how we do business now. Universally it's very positive. They are responding very pro-actively to the way we put the consumer and the retailer at the heart of our decision-making. And that's key for us. If we go off in one direction, but retail and everyone else goes in another direction, then you're going to have a problem.
Can you give examples to what things retail responds to for Activision?
Roy Stackhouse: One thing is the range. If you look at our Q4 slate it's unbelievably exciting, it is probably the best line-up since I've been here. It's in music, it's in FPS, racing, RPG, action / adventure and we have a solid line-up across all platforms. The breadth of our portfolio now is excellent.
But going back to what I said before, it's very different conversations we're having with retailers now. We bring products to the market that consumers want, and that's key to retail. We don't bring me-too products to the market, or we certainly try not to. We bring innovation. And from a retailer's perspective they want a point-of-difference to take to the consumer. We don't just give them a product and say: ‘There you go, go away and sell it.' We try and position the whole package – this is the consumer we're going for, this is how we're going to market it, this is going to be the strategy and development behind it.
I am trying to steer clear of buzz phrases like ‘joint business planning' or ‘long-lead planning' you hear in FMCG. But what we try and deliver is a longer-term vision for a franchise. And that's a key difference for us. If you look at Guitar Hero and Call of Duty, they are franchises and evergreens. And it's not a case of here today gone tomorrow.
Both Tony Hawk and DJ Hero have 100+ price tags. Are you concerned those price might act as a deterrent to customers?
Andrew Brown: The question I think is what represents value for money. And at the end of the day, there is a spectrum of what people can afford and what people are prepared to spend. Those things are key. Is what I am buying supplying me sufficient value for money and can I afford it? If so then I will buy it. This is an industry where things cost a lot to develop and it's a risky business. We talk about building franchises; it is very expensive to do this from every respect. And we don't always sell as much as we like and not everything is the biggest hit. What we are finding is that for the right products, if you look at the time someone will spend playing something and compare it to something else, and people are saying it's worth it.
In that respect, we are always trying to get the right balance. Look at Guitar Hero, we have sold a lot of relatively higher-end products.
The industry has been quite afraid to address issues about price, when there is an upper-end to experiment in…
Andrew Brown: Something is only worth what people are prepared to pay for it. We need to be careful as an industry, because it is a narrow perspective that certain things fall within certain brackets. If you look at a hardware platform, how much does that cost? You pay that because it seems like value for money.
David Tyler: In regards the economic climate, what we're observing is that certain entertainment mediums are doing well. For example cinema consumption is up year-on-year - people are going to the cinema more despite the economy. And it is similar in some instances with video games. Some high ticket items, such as Guitar Hero continue to perform well because they offers hours of entertainment and represent an entertainment occasion that several people can enjoy together.
Andrew Brown: There's not anything in life that's not price elastic. If it's free everybody will have it, if it's more expensive less people will buy it. Price at retail moves up and down all the time depending on how successful a product is or isn't. I think there is a lot of controversy over I don't know what?
Perhaps people just aren't used to it…
David Tyler: In many respect the oddity is how product prices in this industry have gravitated towards certain narrow price corridors, when the actual quality of experience can differ dramatically.
When it comes to premium products, Activision is preparing collector's packs such as the Modern Warfare 2 Prestige edition. Why do these special sets?
Andrew Brown: It is for people who are really fans of a franchise and spend a lot of time playing it. It is their pastime, it's their hobby, so there is a demand for something a bit unique and different - be it more content or something they can put besides them while they are playing. If you've got a hobby you enhance that by buying something you enjoy.
David Tyler: With any of our Collector's Edition games, we are always seeking to build something into the product proposition that is audience appropriate. Night vision goggles are well suited for the Modern Warfare 2 audience as night vision was incorporated in a very cool way into Modern Warfare 1 and fans remember this.
Roy Stackhouse: It is one of the learning's we've had from Blizzard. One of the eye-openers for me is when we had the midnight opening for Wrath of the Lich King. You suddenly saw how the gamers live and breath their games. They want something they can own so they can become more a part of the franchise. And collector's editions allow them to do that and often means a great deal to them.
It is like becoming a fan of the football team. That's my game, that's my franchise. So when a game comes out first, I want it first and I want to have all the collector's editions. So the demand is out there, and it's one of the key learning's we've had from the Blizzard side of the business. The biggest fans need to be looked after because they've often been there from day one.
Do these special editions and peripheral sets provide logistical challenges?
Andrew Brown: Yes. It's not a muscle we thought we'd need to develop three years ago. We've had to learn a huge number of lessons on the logistics side, as have our retail partners. We've tried to be flexible and find ways to make it work for everybody. But there's no hiding the fact that moving larger boxes about and more SKUs can be difficult. Now we're in a place where it is a lot more straightforward. Yet even without the big boxes, there are logistical challenges in the industry anyway. If you add together how much product goes through retail in the last quarter of the year, with how the market is growing, and how certain franchises break out, and logistics is probably the biggest challenge in the industry.
I don't think we're perfect in it, but I think we've got better. And we've found ways to smooth it through. We don't have acres of space like we do in the US.