Also the employees of Blizzard now one step closer to unionization. Eat the rich.
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As my last few days of subscription runs out, I must say I am loving watching blizzards house fall in on their heads. I doubt they’ll ever truely recover from this and their reputation will be tarnished for a long time, possibly forever.
I feel soo bad for the female employees who had to suffer through the horrible actions of their male co-workers. Hopefully they get the justice they deserve. 
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ugh, if you continue watching that video after the question is asked Afrasabi actually says “Can you picture Sylvanas in anything else?”
He makes my skin crawl. He was “personally” according to him writing Sylvanas up until 2020.
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Alright. I threatened that I would cover the Q2 Earnings Report. I also listened to their earnings call, and took notes. This is a compilation of those notes.
The Report
http^s://www.sec.gov/ix?doc=/Archives/edgar/data/0000718877/000162828021015351/atvi-20210630.htm
Employee Issues
Regarding the allegations, the report mentions it only at the end of the legal proceedings section in footnote 17, Commitments and Contingencies. Companies are required to disclose pending cases, as well as estimates of potential liability if they believe that it’s not going to go their way. For this reason, you will almost never see a statement actually disclosing the damages they expect a piece of pending litigation to cause. In place of that, you’ll typically get a statement like “Management believes the claims to be meritless and intends to vigorously defend the company against them.” ATVI wrote “We are unable to predict the impact on our business, financial condition, results of operations, or liquidity at this time.” I find that choice of words interesting.
On the employee relations front, Blizzard has been undergoing a restructuring since 2019. $300 million was allotted for that, of which they’ve gone through $263 million. 60% of the remaining costs are expected to be allotted to “severance and employee related costs”. What this works out to is that a little over a third of the restructuring funds are for “severance and employee related costs”, and of that, there’s 22 mm - roughly 10% left of that to go. I don’t predict major layoffs therefore.
Now, the accounting and auditing literature contains guidance about “subsequent events”, or events that took place after the accounting period closed but before the release of the financial statements. That 22 mm therefore likely includes amounts that were or will be used in relation to staff changes brought about by this event.
Reading Revenue Trends
Accountants and financial professionals like to compare things year over year. The reason for this is because we’re trying to account for a thing called “seasonality”. If, for a retailer for example, you were trying to compare the Christmas shopping season to the first quarter of the next year, you might walk away with the mistaken belief that the retailer is struggling. What you should do is compare this Christmas shopping season to last Christmas - then you could tell if the company was doing better or worse.
This gets to be a problem with major game publishers because of the nature of the industry. Video games are “hit” driven. They realize most of their revenues in the first few months after their release, and then their results rapidly decline after that. WoW, despite being a subscription-based game, is no exception. The quarter of release, and the quarter following release are typically elevated “spikes” in comparison to the baseline. The other thing with WoW is that expansions don’t release every year, they release every two years - so what they will do in years where they have releases is claim that their results are stronger than the year previously. In years where there isn’t a release, they will say "we expected this, last year there was a release so of course revenues will be down.
You therefore have to watch the peaks to understand what’s going on, and compare results now with where we were in the last expansion release cycle.
Complicating this is Classic, which effectively makes the game two games in one. Vanilla classic released at the end of August 2019, and you can see the effect that this has on the revenue baseline when you compare the lull period between its release and Shadowlands’ release with BFA. TBC Classic released this quarter in the beginning of June, which makes the quarters sort of comparable. I say “sort of” because in 2019, there were two months where retail was standing alone, versus 2021, when it had Vanilla classic to bolster it prior to the TBC Classic release.
With all of that preamble out of the way, here is my updated file.
http^s://docs.google.com/spreadsheets/d/1nRBiCWTxFfhuxq8HzOW_HfHI4cPmPWVl0Eiu_SWU80o/edit#gid=0
One thing that you’ll notice is that WoW drives the bus on overall revenues when you take a look at the overall trend. Revenues are slightly down compared to this quarter in 2020, which surprises me given that we’re still in a release year. But they are up compared with the third quarter of 2019, and of course the second quarter of 2019. Remember what I said about Classic? That’s showing up here, and it’s wrecking comparability between any period. We will know more about how well TBC Classic is going by the next quarter.
In terms of the commentary in management’s discussion and analysis as to what’s driving this: that would be higher revenues that are attributed specifically TO the release of TBC classic. This document is almost devoid of information on how well retail is doing in the three months ended June 30, 2021. Skipping ahead a bit, the earnings call was like this too. Most conversation on World of Warcraft talks about how well TBC classic is doing, but omits conversation on retail’s performance.
Warcraft’s performance is mitigated by poorer performance on the part of Overwatch and Hearthstone. I had a conversation with a hearthstone player who theorized that this is the effect of 2020’s card releases being generally bad, echoing to the fanbase’s decision to purchase the next expansion. I think this makes a lot of sense and is what we may also attribute to Shadowlands’ poor release results when compared to BFA, which itself I think was an echo of Legion’s success until people started to realize just how bad BFA was.
Regarding Monthly Active Users - those have declined from 27mm to 26mm. No reason was given.
But as far as divining the performance of WoW retail, if I had to summarize this report in one word? Opaque.
The Call
Everything I said about the financial condition of the company was mentioned in the call - they were similarly quiet about the fate of WoW retail, and the Q&A session is where I want to focus. I didn’t get the fireworks that I was expecting, but there were still some interesting highlights.
Management’s plan to address the scandal
The very first thing that was mentioned is that Activision-Blizzard has no tolerance for harassment. They talked about that for ten whole minutes. There was not a whit of defensiveness about the recent allegations, or claims that they were going to fight the state. But I’ve also heard the kind of language they offered before - it’s standard “these are our values” positioning. To translate the corporatespeak? They’re waffling. They do not seem to have a concrete plan to address the allegations, nor is the fallout over.
This is where I want to pause to acknowledge the WilmerHale review, and to be blunt, as an auditor, I find this to be a curious decision. It’s not just that there are independence issues with the review, because there are, but I would note that a law firm is something that you would consult on matters of law, and compliance. How do you keep yourself out of court? Which is certainly a fine thing to be concerned with, but that to me does not address Operational Effectiveness. For that, I would go with a firm with extensive internal controls testing, like a Big 4 accounting firm, but they didn’t. This tells me that they’re mostly concerned with staying out of court for purposes of strict compliance. But if it’s lawful and unethical? I don’t see the same level of concern. Maybe that’s unfair and maybe I just don’t know enough about how a law firm typically performs this sort of review - but that’s my take so far.
Morgan Stanley had the first question, and they essentially asked about the management action plan for the scandal. The answer was that they would be adding staff to their compliance and employee relations teams. They would be redoubling their efforts to focus on their existing policies. They would be considering diversity and inclusion more strenuously, and they have “dramatically increased the number of women and minorities in the C-suite”.
While that last point is important, this is vacuous corporate fluff that indicates that they don’t really have a plan yet for what they are going to do about this. If a client gave me this sort of an answer in a walkthrough, I would press for more specific information.
Blizzard’s development priorities
The next question asked about employee morale, and quite bluntly asked, about the scandal “How does that NOT affect production going forward?”. Their answer pointed to Blizzard’s current development pipeline.
Diablo 4 is slated for a 2022 release, and the Overwatch 2 team was recently reinforced. They also hit what’s being called an important milestone. Once again - there was no conversation on World of Warcraft, Blizzard’s flagship franchise - that concerns me, and should concern any fan of said franchise. Instead, earlier conversation focused on a topic that they’ve talked about before - expanding Warcraft more into the mobile space. This will become relevant later.
On the subject of Overwatch gaining those new resources, I want to point out that those resources have to come from somewhere - and if Warcraft is to wind down, this is how it will happen. More and more resources will be diverted to projects that are seen as being more profitable. Purely being profitable is not the question. The question is whether you are getting the best return on investment. This is the conversation that killed Warcraft 3 reforged - resources were diverted away because it wasn’t the next billion dollar hit. World of Warcraft, at least as far as new retail expansions are concerned, may be vulnerable to this.
One of Blizzard’s new co-heads, Jen Orneal, also offered a curious answer about employee morale. According to her, Blizzard’s developers are mostly former fans who want to do right by other fans.
When I look at this community, and the hatred and infighting that it is subject to, I understand her premise, but I disagree big time with her conclusion. I also look at the Cosby Crew primarily as fans of the evil Horde concept who wanted to express that as much as possible - fans of other concepts be damned. Fans are not necessarily great curators - especially if they grew up in a rivalry against other fans - and if this is really the way it is, it explains a TON of the dysfunction. I’m not saying that fans are inherently bad, but fan-BIAS is, and the assumption that fandom protects teams from treating customers poorly is in my opinion absurd.
But in summary, the company line is that the pipeline is stronger than its ever been. They absolutely HAD to address this question, and I again find their explanations unconvincing. They claim to have several titles that they haven’t released information about further up the pipeline. I’m pressing X to doubt on this one.
Mobile development and China
One of the participants on the call asked if Activision-Blizzard, which includes King, the makers of Candy-Crush, were thinking about creating an in-house advertising agency to integrate with their mobile titles. The answer was not just that they already had one, but that they had developed a whole platform that they can implement into other mobile games across the company, and that they intend to use for various purposes including cross-promotion. Given the strategy to move Warcraft more into mobile gaming, expect this to impact your gameplay experience if you choose to stick with this franchise.
Finally, there’s the issue of China, which recently changed its regulations in a manner that threatens ATVI’s stake there. Management answered that ATVI realizes 5% of its revenues from China and that they have a history of adapting to rules and regulations.
Letting my personal bias slip in here, I’m not sure that they see the same writing on the wall that I do about China, but I think they may see this as cause to gradually decouple from China. As for that writing on the wall - I offer this for your consideration:
Summary
Blizzard is projecting more strength than I gave them credit for, and I think this picture will become more complete by next quarter. I still maintain my skepticism, however, on the viability of World of Warcraft Retail. I also am not convinced that the company is taking substantive actions to address the harassment scandal, and I’m noticing in particular: the items that they leave out, or the items that they cover with what I would describe as meaningless corporate obfuscation.
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/offtop
A current “co-leader” is Jen Oneal, was the Studio Head of Vicarious Visions before the team “joined” the blizzard brand. Interesting. Maybe something decent might come out of the current situation.
edit: and another one lul
gl hf
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I wonder how long until Big Bro… I mean a mod, takes down our posts here. Waffling about how to deal with the lawsuit and the employees’ situation is a bad idea. If the charges are all true, these are some major crimes; there need to be arrests, court cases, even jail sentences and sex offender registries no matter how high-ranking the guilty parties are.
The “golden parachute” for C-level employees - current or former - should not apply in this situation. I say this because Afrasiabi and Kilgore are named among the worst offenders… and how convenient that J. Allen Brack “steps down” just before he’d have to answer some hard questions in this report.
Blizzard needs to stop pandering to the Chinese government. Yes I have a personal bias against that tyrannical government, but given their brutal treatment of the Uyghur Muslims, oppressing their own civilians - including the people of Hong Kong, and their attempt to cover up COVID-19 helping cause this pandemic (to name a few)… I have very good reasons.
I know we’ve butted heads in the past @Renautus but I’d like to call a truce for this. Given what we now know about Afrasiabi, I think it puts Sylvanas’ story in a whole new light and makes me wonder why he liked her so much and if Sylvanas’ story was a sick joke on his part.
Thank you for changing your opinion on this topic. I appreciate that. It’s really been hard being a Sylvanas fan all this time knowing she was in the hands of bad people writing her.
This post has deepened my respect for you. We may disagree a lot but I respect you big time for this.
How to create the appearance of wrongdoing or a major problem in one easy step:
Many executives were also dating lower-ranked employees. Morhaime, who ran the company for 27 years, courted and then married a Blizzard business director in 2010. Another founder, Frank Pearce, left his wife for a Blizzard customer service representative, and they wedded in 2012. J. Allen Brack, the outgoing president, also married a lower-level employee.
Ugh.
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Well that is one way to find gamer girls to date.
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Not crapping where you eat is rocket-science for some people. Sad to see fraternization is a huge problem outside of the military.
I’d warned there’d be more to come, and here we are.
I’d also really not understood people trying to imagine Dreamhaven “saving” WoW. Well…datapoint in the article, sadly as I expected.
In the context of the thread, there’s more than enough trouble at Blizzard, so yes; the game and its story will have been affected.
The question is one of extent, since WoW isn’t the work of one person I would argue against throwing everything out; the underlying story objects are solid, despite where they might be badly, or wrongly, done.
This definitely hastens the idea of a world redo or WoW 2, where people’s investment, achievements, and collections are preserved. Doubt is growing; that is not a minor concern.
Little did the story team know that hope/no hope as a device would become this.
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If anybody could get their hands on the IP, I can imagine it going relatively well either with valve, because that would fit their usual “service” monetization model (marketplace is both scary and fascinating perspective in this case). Also
Another option I could imagine would be microsoft, since they would get PC+xbox title to have parity vs. PC+ps of FF14.
Other than that… not sure anything would work.
Let them feel the heat of the flames of Teldrassil. Justice will have it’s say, at least in some form.
gl hf
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Valve would probably put microtransactions into the game. Not only that but release times for WoW would become completely unpredictable. I don’t think Microsoft has experience in making MMOs. They’d be a gamble. They’d probably give it to Rare which would be hit or miss.
Another story
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Valid points.
Maybe. At the same time, Dota 2 has arguably one of the best f2p models at the moment. Plus, the balance way better than anything blizz did in the last decade. And people can get their art into the game too, alongside some profit.
Replace “subscription” with “season pass” and maybe there is something to consider. But that would require rethinking the game economy, and differnt cash shop approach. GW2 could’ve been a decent basis as a b2p game.
We would never get the 3rd expansion?
IMO both companies are a gamble. These 2 are just somewhat better looking than some doom scenarios like “if that would be Ubisoft”.
gl hf
This story I just posted is insane.
The fact the internal Vault team that maintains both the developmental archives, the narrative archives, and the physical/object archives is lead by such racist people that has resulted in every person of color leaving the team is crazy.
The other racist person named, Gemma Barreda, was called out for racism two years ago as well:
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Two Blizzard employees literally drove a Mexican couple to panic attacks and the husband to suicide ideation.
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I’m thinking about Artifact. The digital card game that Valve had which was terribly pay-to-win. Their game balance is good otherwise. Regarding player made content, Valve has gradually lowered the percentage of profit that players can obtain. They do slow bait-and-switches.
WoW shouldn’t have a season pass. That’s a cause for pay-to-win. It’s not worth restructuring the game for.
It’s infuriating. Workplace bullying should absolutely not be tolerated. It reminds me of situations I’ve been involved in myself. Nothing compares to the feeling of being unable to retaliate against people for such behavior. Dana Bishop needs to be fired.
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Dana Bishop and Gemma Barreda-Mirkovik are still both employed at blizzard
And apparently Dana Bishop was the only person kept from a team that was disbanded that she also previously abused
Too many higher ups at Blizzard are sexist or partial to racist women who enable them only apparently
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