Has Call of Duty finally peaked? | This Week in Business

This Week in Business is our weekly recap column, a collection of stats and quotes from recent stories presented with a dash of opinion (sometimes more than a dash) and intended to shed light on various trends. Check back every Friday for a new entry.

Sometime around 2010 or so, I was on the GameSpot podcast talking about how absolutely certain I was that Call of Duty's commercial performance was going to start tanking.

(I believe I prefaced those comments the same way I preface these ones, with a disclaimer that this is not financial advice and why would you even consider taking such a thing from a person so financially reckless as to deliberately pursue a career in games journalism?)

So back in 2010, Call of Duty had been big for a while, but every annual installment offered something that I could understand people getting excited about.

Call of Duty 4: Modern Warfare launched in 2007 and turned the series from one of a number of military shooter franchises into something bigger, an industry-wide event unto itself.

2008's World at War was a chance to bring some of the shine of Modern Warfare back to the World War 2 setting that spawned the military shooter boom in the first place (and introduced the popular Zombies game mode).

2009's Modern Warfare 2 was a prototypical crowd-pleasing follow-up with a couple splashy hooks like picking suburban America as a warzone and a cynically headline-grabbing scene in which players are encouraged to gun down civilians in an airport.

2010's Black Ops explored a then-novel Cold War setting for the series.

Then Activision fired Infinity Ward co-founders Jason West and Vince Zampella, prompting a small exodus of key talent go with them to form Respawn Entertainment. With Black Ops, Treyarch showed it could measure up to the standard Infinity Ward had set, but I thought the series formula was getting long-in-the-tooth already, even before you factored in the disarray on the development side.

I was ready to write Call of Duty off in 2010, fully expecting a managed decline from "new hotness" to "Oh, they still do those?"

I was ready to write the franchise off at that point, fully expecting a managed decline from "new hotness" to "Oh, they still do those?" much like Activision's Tony Hawk's Pro Skater and Spider-Man series had experienced.

Needless to say, that has not happened.

There were moments where I thought maybe I was just a little premature in my assessment -- fan reception to the 2013-2014 back-to-back combo of Call of Duty Ghosts and Call of Duty Advanced Warfare seemed a bit tepid to me -- but Call of Duty kept going.

Then the series went free-to-play with Call of Duty Mobile in 2019 and the PC/console spinoff Call of Duty: Warzone last year. The user base obviously blew up, the franchise found another gear, and I've felt particularly foolish about my earlier assessment ever since.

It doesn't even appear that these free-to-play games are cannibalizing the primary series, as the mainline Call of Duty has been lodged in the top 10 of the NPD Group's best-selling charts every month since Call of Duty Mobile debuted in October of 2019, often at the very top, or at least within spitting distance.

But this week rekindled hope that my prediction that Call of Duty would go downhill was merely premature. 11 years premature, sure, but not actually wrong (technically speaking).

Activision was the only segment of Activision Blizzard to see revenues decline, down 17% year-over-year

Activision Blizzard reported its third quarter financial results this week, and while the publisher managed to slightly raise sales year-over-year -- an impressive feat given the boost it received from the pandemic in the year-ago quarter -- Activision was not the business unit driving the growth.

Not only was this the first quarter since Call of Duty Mobile launched that the Activision division did not have the highest net revenues in the company -- a record quarter from King overtook it at $652 million to $641 million -- but the Activision segment was the only one to see revenues decline, down 17% year-over-year.

QUOTE | "Segment revenue was lower year-over-year in the third quarter due to the launch of Tony Hawk's Pro Skater 1 + 2 in the year ago quarter and declines in Call of Duty against a quarter that benefited from shelter-at-home mandates and the early ramp of Warzone." - Activision Blizzard explaining last quarter's slide in Activision sales.

The pandemic explanation could very well be legitimate, but it's curious that we didn't see any similar effects for Blizzard or King. And as for claiming a tough comparison against a remake of some decades-old games, I'm skeptical as to how much they really padded out the sales figures, especially as the studio that made Tony Hawk's Pro Skater 1 + 2 was offloaded onto Blizzard shortly after the game's launch rather than put to work on Tony Hawk's Pro Skater 3 + 4. (The fact that Activision hasn't announced any other follow-ups in its nostalgia-driven line that also featured Crash Bandicoot and Spyro games suggests the return on those games was small enough for the company to lose interest.)

You might dismiss that as a blip, but Activision was also down the previous quarter, with revenues down 21% to $789 million. It blamed that shortfall on a difficult comparison against the first full quarter of Warzone and Modern Warfare 2 Remastered campaign mode. I'm mildly skeptical of that, partly because the idea with live service games is to grow them over time. The other part is because I question the market size for a mildly updated port of a brief single-player campaign mode in a franchise that has become so multiplayer focused Activision can launch new entries without a campaign mode at all to no apparent detriment.

It's not just revenues that are taking a dip either. Activision's monthly active users have been headed down of late as well

It's not just revenues that are taking a dip either. Activision's monthly active users have been headed down of late as well. After peaking at 150 million users in the quarter ended March 31, it declined to 127 million in the June quarter and 119 million in the most recent quarter. The previous year saw both the June and September quarters beat the March quarter total significantly.

Perhaps more concerning is the general stagnation of that active user number longer term. In the fourth quarter of 2019, Activision MAUs almost quadrupled instantly thanks to the launch of Call of Duty Mobile. It went from 36 million MAUs one quarter to 128 million the next. It wouldn't match that number even with the launch of Warzone the following March, or in the first full quarter it had the two free-to-play titles on offer.

The peak in this year's March quarter is the only time Activision's MAUs surpassed the Call of Duty Mobile launch, even though that launch had none of the pandemic boost that has by Activision Blizzard's own admission boosted its numbers for the past year and a half.

Interestingly, the recent decline in Activision's revenues came despite the company saying Call of Duty Mobile bookings were up 40% year-over-year in the most recent quarter. It's unclear how much of that boost would be apparent in the revenues of the recently completed quarter, but even with a healthy chunk of that going down as deferred revenue to be recognized in later quarters, I would still have expected that to keep the segment revenues decline from being as steep as it was.

So that's two down quarters, and Activision Blizzard's company-wide forecast for the current quarter isn't much rosier.

STAT | $2.02 billion - Activision Blizzard's net revenue forecast for the holiday quarter, a total down 16% from what it posted for last year's fourth quarter.

Okay, I concede that this looks like a great point in my favor, and I'd love to just let it pass without comment to strengthen my position, but under no circumstances should you read anything into that forecast.

STAT | 0 - The number of times Activision Blizzard (or Activision before it) has missed a quarterly revenue forecast since it began issuing quarterly revenue forecasts regularly in 2003, when their flagship holiday title was Tony Hawk's Pro Skater 4 and they were churning out adaptations for movies like Blade 2, Minority Report, Shrek 2, Stuart Little 2, and XXX.

It's no secret that publicly traded companies might lowball their forecasts because headlines about them overperforming look so much better than headlines about them missing their targets. But Activision Blizzard forecasts are often wildly conservative. We're talking populating-your-executive-ranks-with-torture-apologists conservative.

STAT | 96% - The amount Activision Blizzard's Q1 2009 revenue beat guidance by, coming in at $981 million versus a forecast of $500 million.

Again, I'm cheating. That was the quarter Blizzard was merged into Activision, so the guidance was given in Q4 of 2008, without taking into account the addition of the World of Warcraft maker. Disregard that stat.

STAT | 72% - The amount Activision's Q4 2008 revenue beat guidance by, coming in at $602 million versus a forecast of $350 million.

Huh. Maybe this company just isn't good at forecasts. Or thinks very little of its investors' ability to see through this stuff.

I'm not sure the Call of Duty brand extensions are growing their audience any further than the launch of Call of Duty Mobile did

Regardless, I'm not sure the Call of Duty brand extensions are growing their audience any further than the launch of Call of Duty Mobile did. That doesn't mean Activision can't extract growing revenues from that same audience, but I do think it's going to be harder for the series to continue its growth trajectory going forward.

Even in its financial earnings release, Activision Blizzard said the Call of Duty ecosystem "sustained" its metrics rather than growing them, preferring to make comparisons to before Call of Duty Mobile launched. And yeah, of course those are going to look good, because Call of Duty Mobile was free-to-play and a huge hit.

STAT | $209 million - The Activision segment's net revenue for the quarter ended September 30, 2019, the last quarter before Call of Duty Mobile's debut. (Way back when Activision would still release games that were not Call of Duty.)

STAT | $641 million - The Activision segment's net revenues for the quarter ended September 30, 2021, as reported this week.

Beginning this quarter, Activision Blizzard is going to have to start growing Call of Duty substantially year-over-year, or I suspect it will quickly run out of excuses shareholders find acceptable. It can't keep comparing each quarter's performance to numbers that are more than two years old.

And that brings us back to my big prediction: Call of Duty's commercial performance is going to decline.

Sure, Call of Duty: Vanguard comes out today. And maybe it's a big hit and Call of Duty's continued unparalleled growth and success continues to make me look foolish like it has for the past decade.

But I'm pretty sure you can't sell games after the heatdeath of the universe, so if I can just cling to this idea long enough, I'm confident I'll be proven right eventually.

The rest of the week in review

QUOTE | "I don't believe you're going to wake up in the morning, go into a dedicated room, sit in a dedicated chair, strap on a headset and do absolutely everything at home that you currently do out in the world. I think all of us found in the pandemic that we spend way too much time doing that as it is." - Take-Two CEO Strauss Zelnick underscores that the thing standing in the way of most metaverse start-ups right now is not the technology or the funding, but a lack of consumer demand for the vision being offered.

QUOTE | "I do think [NFTs] will be an important part of our -- of the future of our industry on a go-forward basis." - EA CEO Andrew Wilson surprises nobody by confirming the publisher dependent on its definitely-not-gambling Ultimate Team modes is keenly interested in another business that could pad the coffers despite the potential for tremendous collateral harm.

QUOTE | "In the first six months of the fiscal year, approximately 100 million players have engaged with our EA Sports global football franchise across all platforms." - In a delightful example of games industry pettiness, Electronic Arts goes out of its way not to mention the FIFA franchise in its latest financial results press release. EA's exclusive deal for the FIFA brand expires at the end of next year, and the pair's public comments make it seem like they're ready to walk away from the decades-long partnership.

QUOTE | "I have been pretty actively arguing against every single metaverse effort that we have tried to spin up internally in the company, from even pre-acquisition times. I want it to exist, but I have pretty good reasons to believe that setting out to build the metaverse is not actually the best way to wind up with the metaverse." - John Carmack uses his keynote at the Facebook Connect conference to be openly skeptical of how Facebook/Meta is setting out to build the metaverse.

STAT | $950 million - The initial valuation of Devolver Digital after the independent game publisher started trading on the London Stock Exchange. That's good, because I don't know what I would do it the company responsible for those E3 stage shows (epilepsy warning) was an actual billion-dollar company.

QUOTE | "Are the demon monkeys good or bad? A little spoiler is 'neither.' Not a lot of people know that yet. We have a lot of background and story to tell, and we plan to do that through this evolving, growing ecosystem of the Temple Run universe." - Imangi CEO Walter Devins looked at the company's long-running (lol) casual mobile hit and said, "You know what these needs more of? Lore." (Rovio's doing the same thing with Angry Birds. Are decade-old mobile hits OK? Someone check in on the Flight Control devs.)

STAT | 92.8 million - The number of Nintendo Switch units sold worldwide as of September 30. It seems only a matter of time until it surpasses the Wii's nearly 102 million units sold to be the company's most successful home console ever. The Game Boy's more than 118 million total may also be in play, but it might take some impressive late console cycle management and hardware refresh(es) to challenge the Nintendo DS' status as most successful portable with an installed base of 154 million.

QUOTE | "Nonetheless, taking on the [games-as-a-service] model highlighted issues that we are likely to face in future game development efforts such as the need to select game designs that mesh with the unique attributes and tastes of our studios and development teams." - Square Enix president Yosuke Matsuda says it wasn't a great idea to put Crystal Dynamics on the Marvel's Avengers game.

QUOTE | "Crystal has always been a company that's made games in the action-adventure space. In that sense, I thought that it would be good fit in terms of making a game with Marvel using the Avengers, which would naturally be an action-based game." - Matsuda, in a 2019 interview with VentureBeat (as spotted by VGC), provides a sad reminder that experience with a business model can be more important than experience with a genre.

STAT | $0 - The amount of profit Riot Games has earned from League of Legends esports since it started running tournaments for the game a decade ago.

QUOTE | "The temptation is to just brute force it, put our heads down and run through the brick wall." - In advocating for a better, healthier approach to game development, Insomniac's Ted Price shares a concerning glimpse into the mindset of AAA game dev leadership.

STAT | 7 months - The length of time GameStop COO Jenna Owens served in that position before her departure late last month. Regulatory filings suggest she was involuntarily terminated without cause.

STAT | 3 months - The length of time between Jen Oneal being appointed co-leader at Blizzard and her announcing her departure from the company.

QUOTE | "Not all games are meant to last forever. Our goal with Harry Potter: Wizards Unite was to bring the magic of the wizarding world to life for millions of players as they stepped outside and explored their neighborhoods. We accomplished that together, delivering a two-year narrative story arc that will soon complete." - Niantic explaining why it will shut down its Harry Potter: Wizards Unite location-based AR game in January, two and a half years after launch.

QUOTE | "And since I'd achieved all of my goals as President in one term, there was no need for a second." - George H.W. Bush (as voiced by Harry Shearer), concluding his memoirs in the season seven Simpsons episode "Two Bad Neighbors."