What's next for Activision Blizzard's $300m merchandise business

There was a time when the term 'franchise' to Activision Blizzard was all about the game.

We've asked the company many times down the years about the prospect of a Call of Duty movie or a Skylanders TV show, only to be looked on incredulously and given the response: "But the game is the movie."

Fast forward a number of yers, and Skylanders is now on Netflix, World of Warcraft is a hit film, and Overwatch online videos have amassed over a quarter of a billion views.

An entire division has been set up to take brands such as Call of Duty to cinemas. And that's only one part of Activision Blizzard's franchise expansion plan, with the publisher adding an Esports and Consumer Products division, too.

"We call these 'the franchises of the future'... it's a new way to think about franchises and how you go to market with them," says Tim Kilpin, CEO and president of Activision's Consumer Products division. "It's about going beyond the title, so to speak. It's a change of philosophy."

He continues: "We truly are thinking and planning around these things as franchises. Call of Duty, Overwatch, Destiny... they are long lived, robust, complex, multiplatfom franchises. Not only is it a game, but it has the opportunity for linear storytelling content, it has the opportunity for consumer products and it has the opportunity for esports - well, some of them do.

"We are not going to do it for the sake of doing it. We will only do it where it makes sense. If there is an opportunity to tell a story that reaches beyond where we've been in the game... today, it happens with Overwatch through the short-form content. For that game, there is an audience and an appetite for the storytelling that go beyond just what happens in the game. So we want to take advantage of that."

Kilpin's role is devoted to consumer products - toys, clothes, statues and all the other associated merchandise. Activision Blizzard has operated in this area for years with, but it was always disparate and handled by various different pockets across the organisation.

"Consumer products was not a proper division," he explains. "It was living inside Activision and Blizzard, and so we wanted to level it up, pull it together and leverage the power of the portfolio. Now if we go to licensees, we can tell the whole story. There are a number of partners that we are working with that work across a bunch of the IP. So we're building a bit of connective tissue within the organisation."

Kilpin joined Activision earlier this year, and although the publisher is already generating around $300m from consumer products, the aim is to "make it orders of magnitude higher".

"Over the last ten years, there's been a rise in products that serve fan affinity," says Kilpin. "So whether you're talking about Star Wars or Doctor Who... those are properties that have an affinity and people want to express their love for them in different ways. A licensee of ours that we think does that really well is Funko. Their point-of-view is that everybody is a fan of something.

"We had cosplay for Overwatch before we'd even launched the game. That's a pretty extreme version of that fan affinity"

"If there is a franchise that people have an affinity for, that is aspirational in some way, with an engaging story or universe, such as Harry Potter or Overwatch, then people want to surround themselves with it. That takes the form of multiple consumer product opportunities that goes beyond just a few action figures. There are retailers that are doing more to service that fan. GameStop has publicly said it will be giving a much greater proportion of their shelf space to merchandise."

He adds: "If you have a great universe, those that love it want to wear it, or have a Funko on their desk, or a novel on their book shelf. We actually have a robust book publishing business, particularly on Warcraft and now on Overwatch. People are collecting stories in about the most old-fashioned way going. There is a tangible quality to bringing these franchises to life in 3D. The challenge for us is to do it in a clever, engaging and fun way, at the right value."

Overwatch has been a particular merchandise success for Activision Blizzard, and that's largely down to its characters.

"People love and want to be those characters," Kilpin continues. "We had cosplay for Overwatch before we'd even launched the game. They'd been watching the shorts and falling in love with the characters. That's a pretty extreme version of that fan affinity."

The Consumer Products team has quite an eclectic bunch of franchises to work with, all with their unique challenges. The Blizzard brands and titles like Destiny appeal to a certain dedicated community, but then there's titles like Candy Crush...

"That's different," Kilpin explains. "It is not the same kind of affinity. The affinity with Overwatch is deep, it is aspirational. With Candy Crush, it is rich in terms of the amount of time people are playing... people are playing half an hour a day on average, and there's 314m monthly players. But it is a casual connectivity. There are certain categories that work really well for us here, but it is not the same as when you have something that is aspirational."

But even some of the core IP presents unique challenges. Call of Duty, for instance, has so many different sub-brands and variations of fans, that it can be hard to know how to target them with the right merchandise.

"For Call of Duty, in the past, it was very much 'title, title, title'," Kilpin continues. "We are now moving towards a franchise-orientated set-up. So regardless of where you come into Call of Duty, we will create products that can speak to you. It might be through apparel, or accessories, or what have you... things that are more lifestyle-orientated. It's not really character driven. Your affinity is for what Call of Duty stands for, rather than anything else. But in the past, it has been overly title-centric."

And then there's something like Crash Bandicoot, a traditionally kids IP that was bought by millions of nostalgic adults this summer.

"We had an opportunistic licensing programme ready to go for Crash," Kilpin says. "We had a few things going on and planned, and then [snaps fingers] it surprised everybody with the way it just exploded. So we have added licensees since then, and you'll see some of that product out there. There is a viable life in that kind of retro experience, so it is just a matter of watching how that ebbs and flows."

The Consumer Products team spends most of its time with licensing partners - offering out its eclectic slate of brands to t-shirt companies, toy firms, book publishers, lunch box designers and so on. It then works closely with the development teams to ensure the IP is being treated with care.

"We want to be true to what is being created, and be timely, but the studios also have the best window into what is making the game, or the characters, stand out," Kilpin justifies. "So we want their input. It is a back and forth process, and that takes time. But we support where they're going with their franchise, we're not driving it. We want to make sure we're faithful to what they are creating."

Not everything is licensed, either. Activision is more than capable of creating its own toys and peripherals - as we've see with Skylanders and Guitar Hero - and it's already working with Blizzard on specific product lines.

"There are certain categories where we want our Blizzard artists to be more directly involved," Kilpin tells us. "They are actually sculpting statues. We are selling them through our store, and through distributors. As a percentage of our total business, it's nothing dramatic. The business is largely licensing driven. But we do think there are areas that allow for this sort of differentiation."

From the various brands to the internally-made products, there's lots going on within the Consumer Products team, and that's before we even get to esports. Kilpin has put together a dedicated esports merchandise team, and he has ambitious ideas on how to capitalise on competitive gaming.

"There are certain categories where we want our Blizzard artists to be more directly involved"

"[The esports opportunity] is significant," he begins. "With Overwatch, we have announced 12 teams. As those teams build affinity with their fans on a global basis, we think there will be opportunities to build products.

"Now from the outset it will be relatively traditional - t-shirts, jerseys, mouse pads etc. That's the sort of thing you might expect. The thing that is cool and helps separates esports, is... for example, let's say we have [Overwatch esports teams] the Shanghai Dragons and the Dallas Fuel facing off in a match. Not only will the team players be dressed out in their kit, but the Overwatch characters that they are controlling will also have special skins that will be in their team's style.

"Not only does that open opportunities for virtual merchandise, it also creates an opportunity for physical items where we can create things that are based upon certain moments. If there's a big match coming up between teams, we can create special edition products based upon the [in-game] characters. That is another layer that frankly doesn't exist in other categories."

It's a complex world to understand, and one Kilpin is finding fascinating. The exec's CV is littered with toy and mainstream media companies such as Mattel, Build-A-Bear and Disney. Video games is a relatively new medium to him, and one that's proving to be unlike anything he's experienced before.

"As someone coming in, the depth of engagement with these franchises has been the thing that I didn't realise was as deep as it was," Kilpin concludes.

"When you talk about Overwatch having 30m people playing it after 15 months... that's pretty meaningful. You have people playing it an average of 2 hours a day. And they're not just playing the game, but getting the seasonal content, the new maps, the new characters, going through the loot boxes, the DLC, the microtransactions... all of this stuff that keeps people inside of the ecosystem, and ultimately keeping them inside the ecosystem for consumer products.

"That's a level of engagement that I've never seen before, and it's pretty powerful."