It is official! Blizzard Entertainment CEO Mike Morhaime announced at the Activision Blizzard Q2 2011 Financial Results Conference Call that Diablo III beta will begin at the end of Q3 2011. Likely before BlizzCon 2011 (Held on October 21-22 at the Anaheim Convention Center). The remaining window of Q3 for Diablo III beta testing to start is anywhere between August and September 30. October is not part of the third quarter.
We are very excited after the recent Diablo III Press Event. For those unfortunate, Blizzplanet will offer livestreams of Diablo III Beta, and will chat with players to respond questions and execute petitions live. We at Blizzplanet got plans to announce a Diablo III beta event that will make fans happy to be able to participate in as a community. Stay tuned.
This page will be updated soon with transcript. Check us back later.
Activision Blizzard Q2 2011 Conference Call Recording
Transcript
Since the last call, we launched Cataclysm in China, and made some exciting announcements on both StarCraft II and Diablo III. I’ll go into a greater detail about those in a moment. First, I’d like to talk briefly about the financial side of the business.
For the first half of 2011, Blizzard is up year-over-year in net revenue as we’ve added Cataclysm and StarCraft II to our product mix and have brought value-added services live in China. In addition, we have increased our investments in service and product development in order to better serve our community and strengthen our business for the long term.
Moving on to StarCraft II, back in May, we’ve invited press from around the globe to get a first look at the upcoming expansion pack, Heart of the Swarm. We showcased a couple of levels from the game’s campaign, and we have seen a lot of positive feedback and coverage about the sneak peak. We look forward to sharing more information and news about Hear of the Swarm at the upcoming the GamesCom later this month, as well as at BlizzCon in October.
We also just released the Starter Edition of StarCraft II this week. The starter edition lets players play through a portion of the single player campaign, and they can also play unlimited multiplayer battles as the Terran race on a few different maps for free. Our hope is that the Starter Edition will encourage more gamers to try out StarCraft II, and they’ll eventually upgrade to the full edition.
On the World of Warcraft side, we experienced a slight decrease in subscribership during Q2, closing the quarter at 11.1 million subscribers worldwide. Since that time, we launched Cataclysm in China and have seen an increase in concurrency within the region. We’re very excited to have delivered the latest expansion to Chinese players, and we look forward to working with our local partner NetEase to continue improving the rate at which we are able to release new content to our players there.
In addition, to the China launch, we also just announced that we will be releasing a Portuguese version of World of Warcraft in Brazil later this year. Aside from promoting World of Warcraft in other regions, we’re taking other steps to bring more players into the community. With the new World of Warcraft Starter Edition, players are now able to play the game for free until Level 20 with no time restrictions. Since the launch of this program, we’ve seen a significant increase in new account creations, which we hope will allow us to continue attracting new players.
The World of Warcraft development team is also working on the next content update, which will include major new raid and dungeon content. We believe that this new end-game content will keep the game fresh for current players and provide compelling reasons for laps players to come back.
Before moving on to Diablo III, I want to thank our World of Warcraft community for their warm response to our recent charity pet, the Cenarion Hatchling. We pledged that Blizzard would donate 100% of the proceeds from sales of this pet through July 31 to help Japan relief efforts. Through this initiative and the generosity of our players, Blizzard will donate more than $1.9 million dollars to support ongoing earthquake and tsunami relief in Japan.
Many of you are already aware of the big news that we recently shared about Diablo III. Alongside the gold-based auction house, we will include an auction house within Diablo III that will allow players to trade items using real money. This auction house will be a secure and safe environment for players to trade their items over Battle.net. In the previous game, Diablo II, we did not offer such a feature, which resulted in many players turning to unscrupulous third-party services to purchase items. We felt that because players clearly wanted such a feature, it made sense for us to build it in the Diablo III so they could trade in a more convenient and secure manner than going through unauthorized third-party.
Players who participate in this optional system will be able to list items on the auction house for a flat fee, with another charge for completed transactions. When listing an item for sale, players will have the ability to direct the proceeds either through their e-balance which will remain on Battle.net, or to cash out through a third-party service. We have not disclosed specific fees, but we plan on keeping them nominal so that more players can participate in it, if they so choose. And so that players will opt to use our secure approved method of item trading and not churn to third parties.
We will also allow a limited number of free listings each week, so players can build up a balance without needing to deposit any funds to get started.
As for the upcoming beta, Diablo III is still on track to go into external beta testing later this quarter. And we are still working hard to ship the game before the end of the year. However, we’re not ready to commit to a release date at this time. What I can tell you is that the press who visited us last week played a near final version of the beta content and the response has been overwhelmingly positive. We are very much looking forward to getting the beta into the hands of our players and collecting their feedback for the final phase of development.
Finally, I’d like to take a moment to talk about BlizzCon, where we will hold exciting StarCraft II and World of Warcraft tournaments and share news about all of our franchises. Once again, this year we sold out the show in a matter of seconds. I’m also very pleased to note that this year’s BlizzCon will host the finals event for the Global StarCraft League (GSL), which is growing in viewership around the world. The GSL recently announced that they served more than 50 million videos-on-demand and live stream this year alone.
Another prominent eSports league, Major League Gaming, held a tournament in Anaheim this past weekend and served more than 30 million online streams of their eSports matches over 3 days. The interest in all of these leagues illustrates that eSports is becoming a truly global phenomenon, and it’s great to see StarCraft II at the center of all the activity.
The rest of 2011 and beyond is looking very exciting for Blizzard. We are making great progress on Diablo III, and the StarCraft II team is hard at work on the Heart of the Swarm. As always, we are continuing to make adjustments to our infrastructure to better support our massive community of players and keep pace on all the products in our pipeline.
Public Q&A
Brian Karimzad (Analyst, Goldman Sachs): Hi, there. Mike, and I know you don’t intend to speak in the same superlatives as Eric does, but can you help us frame how you guys are thinking about the lifetime value of the Diablo III player versus maybe some of your other franchises, or maybe some of the stuff on the publishing side?
Mike Morhaime: What I would say is that Diablo III, at least in the West, is primarily going to operate off of a standard box revenue model, with the box and [expansions] to follow. The Auction House is really a big unknown for us. We really don’t have any predictions on how popular it will be, although we do expect it to be a pretty integral part of the game, and we also expect it to drive engagement and longevity in the life of Diablo III.
Edward Williams (Managing Director, BMO Capital Markets): Good afternoon. A couple of quick questions for you. Can you comment a little bit, Mike, on Cataclysm in China? What have you seen relative to what you’re targeting coming out of it? And can you also just talk a little bit about the subscriber levels? What you think is driving that number?
Mike Morhaime: Cataclysm just launched a couple of weeks ago in China. We have seen concurrency levels increase substantially. I think that there’s still big opportunities in China to continue growing there, especially as we focus more on the Tier 2 and 3 cities.
China represents, in terms of broadband penetration, there are more broadband users in China than any other country in the world, and it’s continuing to grow from there. So I think that presents a huge opportunity for us in the future. Especially as the Tier 2 and 3 gamers upgrade their systems to be able to support World of Warcraft.
In terms of subscriber growth around the world, what I would say is what we have seen is that subscribership tends to be seasonal and driven by content updates, and so as we’re heading further away from an expansion launch, it’s normal to see some declines, where the team is currently working on our largest content update since Cataclysm and that will hit later this year.
We are also doing things to continue driving growth like the recent Starter Edition for World of Warcraft, which lowers the barrier to trial by providing the first 20 levels free. We have seen an increase in new account creations from that. It’s still too early to tell on conversions to subscribership, but I really believe that, that is an important direction for us to continue lowering that barrier to trial and reaching new players around the world.
We’re also looking at new markets. We had great success in Russia. We think that Brazil is really an emerging market that has a lot of potential in terms of the number of broadband users. They’re a top 10 country. Their economy has performed very well compared to the rest of the world during the recession, and we already have some Brazilians playing in English, but we think the market can be a lot bigger in Portuguese.
I think that there are other countries we’re looking at beyond that as well, but I don’t have anything that I can talk about.
Edward Williams (Managing Director, BMO Capital Markets): How much of your subscriber base in China changed with regards to Tier 2 and Tier 3 over the course of the last couple of years? How significant has that become?
Mike Morhaime: That’s an area of growth for us, but we don’t break down those numbers, sorry.
Jeetil Patel (Deutsche Bank Securities): A couple of questions actually. First of all, on Diablo III, what’s the determinant on Diablo III coming out in 2011 versus 2012? Second, you’ve got 11.5 million subscribers, you did about $359 million of revenue which was up nicely versus a year ago. While subs are down, can you reconcile the incremental revenue from a product sales versus value added services standpoint? And I have a quick follow-up.
Mike Morhaime: In terms of the timing of the Diablo III release date, really, it’s just going to come down to there are a lot of moving parts in putting out a content release like Diablo III. We talked about new Auction House technology which has not been fully tested. We’re not yet in beta. And really, it’s just going to come down to when the game is ready for prime time. And so we’ll know more when we hit beta, and we’ll know more when we put some of these new systems into test. It’s a brand new infrastructure and with a lot of complex moving parts. In terms of the World of Warcraft business, clearly, coming off of the Cataclysm launch, we have a lot of momentum coming into 2011, and that has certainly helped the revenue numbers. I think that the value-added services, launching in China is certainly a factor. I think that those are probably the major factors driving revenue. We ended the year slightly up compared to last year. So we’re pretty happy with the result.
We’re increasing our investment in new projects that haven’t necessarily been announced. And we have increased the investment in customer service, but I would say, I think we’re at scale at this point. And there was — we did answer beta for StarCraft II last year during the quarter, which allowed us to capitalize development expenses, and I think that helped us out on the OpEx side on the comparison.
Eric Handler (Analyst, MKM Partners LLC): Is there any opportunity to use an Auction House type of services, or similar value-added services for StarCraft II that you have for Diablo and World of Warcraft?
Mike Morhaime: We really tried to design the features of these games to leverage the needs of the games themselves. Diablo III and previous Diablo games — as well — were very item-centric games with a lot of item trading, without a good mechanism really for doing that. And so, I guess the equivalent type of things for StarCraft II would be our map marketplace where players are able to create their own custom maps, and we do have plans to provide a marketplace where they’d be able to offer them up to other players for sale. Of course it’s very complex system that is still being designed. I think that some of the things we’re doing on the back end to support the Diablo III Auction House actually can be leveraged in StarCraft II to support that system which is great. On the World of Warcraft side, we really don’t have plans to do something similar. It’s a very different game, and it really isn’t designed with this type of item trading in mind.
Douglas Creutz (Vice President and Senior Research Analyst, Cowen & Company LLC): You guys had north of a 20% sequential revenue increase in Asia during the quarter. I know you launched StarCraft II in China and you also launched the added value-added services. I was wondering if you could kind of talk about, directionally, what was the biggest drivers of that revenue increase?
Mike Morhaime: The biggest drivers for that were the popularity of World of Warcraft, especially in China, and the launch of the value-added services.
Bob Kotick: I think one of the things we’re realizing though is that the success that we’ve had which is unique for Western publishers in China, we’ve learned so much about the opportunity that over the next 3 to 5 years, we’ll continue to see investment and real opportunity for us in places like China that are not really opportunities for many of our competitors.
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