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Activision Collaborates with Disney

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Activision Blizzard Inc. (ATVI) has collaborated with Disney Interactive, a division of  Walt Disney Co. (DIS) for the production and distribution of its Wreck-It Ralph video game. Disney Interactive provides a broad portfolio of games for console, mobile and social platforms.

The game features Ralph as the protagonist who along with “Fix-It Felix” embarks on a mission to protect their friends and save their home from “Cy-Bug” invasion. Players have to journey through different levels in the game (Sugar Rush, Hero's Duty, and Fix-It Felix, Jr.), solving the enthralling puzzles. The game can be played in story campaign and two-player co-operative mode and will be available on Nintendos’ Wii, Nintendo 3DS and Nintendo DS hand-held systems.

The game is expected to release in November, along with the namesake animation movie. Activision has a history of developing games based on Hollywood films and Battleship and Transformers: Dark of the Moon are a few names that come to the mind instantly. While the Transformers game was well received by the gamers, Battleship failed to live up to expectations.

Buoyed by the success of Transformers, the company is set to release Transformers: Fall of Cybertron later in the year. Additionally, Activision plans to release The Amazing Spiderman this year, based on the Spiderman movie that has a huge fan following. Thus, going by the response that Activision has received from the earlier movie-based games, it is difficult to predict the performance of Wreck-It Ralph.

However, looking at Activision’s portfolio of games, it is evident that the company is looking at a strong 2012. Its initiatives to strengthen its Call of Duty and Skylanders portfolio through the launch of new versions and content packs would be beneficial in the long run. Moreover, the revival of some of its old franchises, like Diablo, is expected to act as a tailwind. Activision’s foray into the mobile gaming market, through the launch of World of Warcraft and Skylanders Cloud Patrol should also be a long-term positive.

However, softness in the video game industry and Activision’s limited presence in the social gaming market coupled with significant competition from Electronic Arts Inc. (EA) and Take-Two Interactive Software Inc. (TTWO) are the near-term headwinds. Moreover, the lack of new titles (not sequels or downloadable contents) and over-dependence on old franchises, particularly on Call of Duty and World of Warcraft, are the other challenges going forward.

We have a Neutral recommendation on Activision in the long term. Currently, Activision Blizzard has a Zacks #3 Rank, which implies a Hold rating in the short term.

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