Activision profits despite 1% decline in game sales

Activision Blizzard Inc., the world’s largest video game company, posted a third-quarter profit, but sales slipped slightly as consumers continued to keep close tabs on spending.

Sales of games including Guitar Hero 5 totaled $703 million in the quarter, down 1% from a year earlier. The Santa Monica game developer, however, swung to a $15-million profit, up from a $108-million loss in the same quarter a year earlier.

It earned a penny a share in the quarter ended Sept. 30, compared with an 8-cent loss a year earlier. The results beat expectations of many investors, who rewarded Activision by bidding up its shares, which rose 19 cents to close at $10.87 before gaining 31 cents in after-hours trading following the earnings release.

Looking ahead, Activision Chief Executive Robert Kotick said sales during the crucial holiday period for the entire industry were unlikely to top last year’s.


“If the consumer materializes and spends money, we’ll do well,” Kotick said in an interview. “If not, things will be a challenge. And today, you really have no way of knowing what will happen. Consumers saw significant discounts last year after Black Friday, and they’re waiting for it to happen again this year.”

Activision is better positioned than most to weather the economic storm. Anchored by a trio of blockbuster franchises including Guitar Hero, Call of Duty and World of Warcraft, the company has remained profitable despite a 12% drop in industrywide U.S. game sales in the first nine months of the year, according to NPD Group Inc.

But the main event for Activision is just ahead. Next week, the company is set to release Call of Duty Modern Warfare 2, one of the most highly anticipated games this year. Expectations are high for the title, which some say will outsell previous blockbusters such as Grand Theft Auto IV, which raked in $500 million in its first week of sales, and Halo 3, which took in $300 million in its first week.

“All eyes are on Call of Duty,” said Ben Schachter, an analyst with Broadpoint AmTech. “It’s the biggest game launch of all time, and possibly one of the biggest entertainment launches of the year.”

Not everything has gone smoothly for Activision. On Thursday, the company was hit with a lawsuit from the band No Doubt, whose lead singer, Gwen Stefani, objected to a feature in an Activision game called Band Hero. Using the game’s “character manipulation” feature, players can have bands perform songs written by other artists, which the lawsuit alleged violated the terms of No Doubt’s contract by turning the band into a “virtual karaoke circus act.”

Activision said in a statement that its contract with No Doubt encompassed such a scenario and that the lawsuit was without merit.