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Activision Set to Launch New DLC

Zacks Equity Research

Activision Blizzard Inc (ATVI) is set to release a new downloadable content (“DLC”) pack for Call of Duty: Black Ops 2 on January 29, 2013. The pack will be exclusively available to Microsoft’s (MSFT) Xbox Live users, who can buy it for $14.99 or in exchange of 1200 Microsoft points. However, Xbox users having a season pass can download the game without any extra charges.

Revolution is the first of the four DLC packs for Call of Duty: Black Ops 2, scheduled to release in 2013. Developed by Activision’s Treyarch game studio, Revolution adds a complete new dimension to Call of Duty: Black Ops 2. The pack adds four new maps for competitive multiplying namely “Mirage”, “Downhill”, “Grind” and “Hydro”. Revolution is the first Call of Duty content pack that introduces a new submachine gun called the “Peacekeeper”.

However, the major attraction of Revolution is the new game mode called “Turned”, which allows gamers to play the role of a Zombie. This particular mode is available with another new map called “Die Rise”, set in a ruined Chinese city. In this map, gamers will be able to use new powerful weapons and build new devices in order to fight off Zombies.

We believe that the upcoming new content packs will boost Activision’s customer base in 2013. Call of Duty: Black Ops 2 has already become a blockbuster, crossing the coveted $1 billion sales mark within 15 days of its release, beating Modern Warfare 3’s record by a day, as per data available from Chart-Track and retail customer sell-through information. 

The game’s robust performance is expected to drive Activision’s top-line growth for the fiscal year 2012, which ended on December 31, 2012. Currently, Activision expects sales of $2.41 billion for the fourth quarter and $4.81 billion for the full year.

We believe that Activision will continue to release DLCs and expansion packs for its major franchises going forward. Since the DLCs and expansion packs offer new content, they help aging gaming franchises such as Call of Duty to remain fresh for a long time. Moreover, the new content improves competitive prowess of a game such as Call of Duty, whichfaces significant competition from Electronic Arts (EA) Battlefield franchise.

Another major benefit of these expansion packs are their cost effectiveness. The content packs are mostly delivered online, which costs less than the traditional physical format, as they require minimum packaging cost. This low-cost feature will not only attract more customers but will also drive Activision’s profitability over the long term.

Activision is expected to benefit from its strong product pipeline in 2013. However, continued softness in the video game industry, sluggish macroeconomic conditions and Activision’s limited presence in the mobile and social gaming segment remain headwinds going forward.

We remain Neutral over the long term (6-12 months). Currently, Activision has a Zacks Rank #3 (Hold).

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