Activision’s CEO Bobby Kotick has said that there is enormous potential to expand the videogame business by bypassing home consoles and dealing directly with TV consumers.
Future products such as Guitar Hero won’t need to be tethered to additional hardware, said Kotick, in part due to the advancements in bringing broadband technology to home televisions.
“When you look at the installed bases of these devices, and you look at the size of our business today worldwide at USD 50 billion, there are so many more places that we have to exploit videogames and sell our content than we’ve been able to sell today,” Kotick told the Deutsche Bank Securities Technology Conference.
“As you start to see broadband connections to the television, that’s where you see the 350 million users who may not be tethered to an Xbox 360 or a PlayStation 3 but can have a browser on a television – that is an enormous amount of expansion opportunity.”
Kotick said that Activision intends to bring multiple products to homes directly through browser-to-TV technology.
“It’s just a question of time where you’ll see the television as an additional delivery platform independent of a console.
“I think what the untethered Guitar Hero does is it maybe equals the playing field a little bit more and gives you some leverage with first party’s on things like downloadable content or the business model.
“You should expect to see many of our products will be playable on the television independent of a console,” he added.
Further expansion can come from cash prizes in online play, said Kotick – an extension of rewarding dedicated players keen to show off their loyalty through social networking sites.
“If you bought a videogame in 1980 for the Atari 2600 and you took a picture of your high score on your television we would send you a patch that you could sew onto your jacket. That recognition system that was started in the 1980s continues today.
“As we start to add cash play and prize pay and better reward recognition systems that come through the internet, you will start to see audiences expand even further,” he said.
Highlighting the radical changes a product like Guitar Hero has brought to the current videogame business, Kotick said a simple transaction for a disc at retail has expanded with multiple opportunities to sell that same consumer additional peripherals and online content.
“Guitar Hero really represents one of the biggest changes in the way people really consume videogames. In the last cycle of videogames you spent USD 50 on a game, played it and took it back to the shop for credit.
“Today, we’ll sell you for USD 100 a guitar. You might add a microphone or drums, you might buy two or three expansions packs, different types of music. Over the life of your ownership you’ll probably buy around 25 additional song packs in digital downloads. So what used to be a USD 50 sale is a USD 500 sale today.
“And the best of all margins – the 25 per cent operating margin business – has the potential as we can see with World of Warcraft to be a 50 per cent operating margin business. What used to be a low 20s return on invested capital business is now growing to a plus 40 per cent return on invested capital business.
“And that’s just one product example. I can give numerous examples in this business model transformation that are taking place that will likely result in broader audience penetration and higher operating margins,” he concluded.
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