A Tale of Two Publishers

Ever since Activision merged with Vivendi - leapfrogging Electronic Arts to create the world's largest third-party publisher - the fortunes of the industry's top two have been watched intently. This week's quarterly financial results from the pair are no exception, having been discussed and dissected across both the industry and the markets.

One thing is certain - Activision Blizzard retains its crown, beating its own guidance to pull in over $1 billion in revenue, while EA managed only $644 million, with losses leaping to $234 million. EA protests that its performance is down to deferred revenue adjustments, but even if you adjusted for that, Activision would be the larger publisher by some margin.

Those headline figures, however, are merely scraping the surface of the data which these results actually show us. The facile question of which publisher is bigger is increasingly unimportant as the market diversifies and expands - what's really interesting here is to look at where those revenues come from.

Looking more closely at the figures in that regard reveals that while it may be fun to think of Activision Blizzard and EA as being locked in a titanic struggle for superiority (and there's little doubt that some people at the companies involved see it that way, too), these are actually two very different companies, operating in surprisingly different markets.

Consider the relative breakdown of revenues by platform. The single biggest slice of Activision Blizzard's revenue comes from massively multiplayer games - more specifically, it comes from World of Warcraft, which accounts for a third of the publisher's revenues. Electronic Arts does compete in this space, with Warhammer Online for example, but it's a fairly small part of EA's business.

On the other side of the equation, the single biggest contributor to EA's revenues was the Nintendo Wii platform, which has grown strongly in prominence in the past year. In second place on the publisher's chart was the PC platform. The publisher's champion products reflect that - EA Sports Active and The Sims 3 are named as top performers.

Compare that with Activision, whose financials noted that aside from World of Warcraft, the bulk of its revenue came from the Xbox 360 platform. The PS3 came in a fairly distant second place (EA, by comparison, sold more on PS3 than on Xbox), with the Wii trailing in the distance, accounting for just over half the revenues of the Xbox 360. Even more dismal were the PC figures - WoW aside, the PC took just 41 million dollars for Activision Blizzard, less revenue than the venerable PS2 managed.

These figures demonstrate two very different businesses, which continue to compete with one another - but whose core values are obviously diverging in some important respects. EA is struggling with the transition to self-owned IP, where Activision controls franchises like Call of Duty and Warcraft - but EA is quickly learning how to capitalise on the market expansion created by the growth of the Wii, the casual market, the expanding female game demographic and the explosion of the mobile sector. Activision has properties which appeal to that space, but its line-up remains focused on the core market.

Of course, remaining focused on the core market is by no means a bad idea. It's a common fallacy to assume that the expansion of the market into new areas somehow diminishes the value of what came before - the reality is that there are still tens, if not hundreds, of millions of consumers who want core market games of some kind. Their tastes may be diversifying, just as the market itself is diversifying, but the 16-30 male demographic shows no signs of evaporating overnight.

In this regard, the fascinating part of this chapter in the EA / Activision story is not that Activision is maintaining its lead - it's that both companies are successful (even despite a dip in EA's figures), and are achieving that success in markedly different ways. Five years ago, it seemed that there was only one path to becoming a top-flight publisher - achieved largely through dominance of the licensed, boxed game market on consoles. Today, it's clear that multiple different models for success exist, and as revenues from sectors like mobile and web games continue to grow, those models will diversify even further.

The fabled "mass-market", I've argued before, is nothing more than a collection of niches - address enough niches and you're suddenly a mass-market company. As a result, the "my dad's bigger than your dad" battle for publisher supremacy is becoming obsolete.

Instead, both Activision and EA are demonstrating that the real challenge is achieving success in a diversifying market - which means taking the lead in the market sectors you're good at rather than trying to find some unifying strategy that will allow you to lead the entire industry. Rather than concerning ourselves with the bottom line, it will be much more interesting, in the coming months and years, to watch which niches these two giant companies choose to focus on. We may even reach a point where companies like EA and Activision can co-exist in the games industry - without directly competing with one another at all.