Overview

Company Background/s & HistoryActivision, Inc. was founded in 1979, is a developer and publisher of interactive softwarefor game platforms like Sony PlayStation, Microsoft Xbox, Nintendo and various handleddevices. By 2007, it had grown into an $8 billion company do to the publishing anddistribution of very popular games such as Guitar Hero, Call of Duty and Tony Hawk. Also,the company is know by his strategy of acquiring strong brands with sustainablefranchising and also making strategic alliances, partnerships for the main objective ofbecoming “a worldwide leader in the development, publishing and distribution of qualityinteractive entertainment software and peripheral products that deliver a highlysatisfying consumer entertainment experience”. It has over 2125 employees in differentareas, most of them in product development. Another aspect is the merger with one of thebiggest companies and developers of PC interactive software’s, Blizzard from Vivendi Gamesto become not only one of the most popular in console gaming but also in PC´s.

Vivendi Games is a French conglomerate involved in multiple sectors within theentertainment industry. One of the most successful divisions is Blizzard Entertainment, adeveloper and publisher of one of the biggest games for PC, Warcraft, Starcraft, Diablo,and World of Warcraft. Also, it has a big participation in the Asian market, which is oneof the most difficult markets for western developers to enter and is the largest massivemultiplayer online game (MMOG) in the world. With the merge, Activision will become one ofthe leader publishers and developer in the industry because it will have not only a majorpiece of the pie on the console gaming but also with over 10 million PC users withBlizzard.

Industry, Competitors, & Firm/s EvolutionActivision is part of the “Video Games industry” that includes the broader operations ofall video games components, and the principal players includes THQ, Electronic Arts Inc,Take-Two Interactive Software, etc.…. For this reason, the industry consists basicallywith the distribution, publishing, retailing, manufacturing of interactive software’s.More specifically, it concentrates on the distribution of games made for consoles andgames produced specifically for personal computers. Another aspect is the growing revenuefrom online gaming subscriptions. The industry will expect a growth of about 6.7 percentover the next five years. On 2007, Activision reported $1.51 billion in revenues, 3.4%more than 2006. Facebook reported $1 Billion profit. This industry is expected to grow ata high pace in the next five years, thanks to the constant development of new platformsand innovation that meet the customer needs. Big players are expected to keep growing, andwill be easier for them to keep being dominant in the industry, for Activision for exampleif the number of consumers keep increasing with the merge with Blizzard it will probablybecome one of the leaders in the industry.

External Analysis – Macro Environment

Technological Demographics Culture Economic Legal InternationalConstant change in technology leads to new and better gaming systems- better quality.

The video game environment is changing. More 30 yearsold are playing than teenagers.

More and morepeople are connecting throughout the internet and online video games.

The industry will expect agrowth of about 6.7 percent over the next fiveyears.

Possible regulations that interdicts violent gamesor other games.

Asian population isstarting to migrate to different kind of games.

Relevant R&CsExample 1 (VR)

Example 2 (VRIO)

Example 3(V) Example 4 (VRIO)

External Analysis - Porter’s 5 Forces - Threats

Threat of Entry Threat of Rivalry

Threat of Substitutes

Threat of Suppliers

Threat of Buyers

EoS : YES # of Similar Firms : YES

Substitute Products : YES

# of Suppliers :HIGH

# of Buyers : HIGH

Differentiation : YES, people are very familiar with Activision games.

Slow Growth : NO, is one of the industries in growth stage.

Any other publisher and distributer of interactive software.

EA, TTWO, THQ, etc…

Unique Inputs : YES, high skilled developers.

Standard Product: NO, different types of interactive softwares.

CIS (i.e. proprietary tech, know-how, favorable access, learningcurve) : YES, high skilled labor is required.

Differentiation : YES, people know the interactive software’s that Activision produce and theyknow how to use them.

Also, mobile game substitutes. Lowswitching costs from consoles tomobiles.

Substitute Inputs:Digital distribution is expected to growand become cheaper, so the cost of producing games should decrease.As production costs decrease,

% of Buyer’s Costs :NO

this gives the industry power over suppliers.

Gov. Regulation : No,very light regulations

Capacity Increments : NO

Vertical Integration : YES, they have the opportunity to create their own interactive sowtfare

Buyer’s Earnings: YES, they haveenough profit.

FF are Important: Customer is important for suppliers.

Back V Integration : NO

Threat = Moderate-High

Threat = Moderate

Threat = Moderate-High

Threat = High Threat = LOW

(+ high, 0 neutral, - low)Overall Expected Returns in the Industry

External Analysis - Industry Stage - Opportunities

Industry Stage Opportunities“Growth: This industry has experience a lot * Technology leadership.

of growth for about 30 years and it expectsto continue growing, however, it has reallyhigh competition and requires a high levelof constant innovation that meets customer”needs.

* Create switching costs to retain current customers.* Locking up important assets.

Relevant R&CsExample 1 (VR)Example 2 (VR)

Internal Analysis - VRIO

R & Cs Valuable Rare Costly to Imitate

Organized Implications

Diversity of the products- distribution and publishing differenttypes of games (Call of Duty, Guitar Hero, Tony Hawk, etc…)

YES YES YES YES Sustained Advantage, above normal economic implications.

Franchising: Activision is the one of the most dominant in the industryreward the franchises they have for their games.

YES YES NO YES Temporary advantage with above normal economic implications.

Strategic alliances. Partnership, contracts, different licenses.

YES YES YES YES Sustained Advantage, above normal economic implications.

Quality control- It usesa “Greenlight Process” for the quality of theirgames.

YES YES YES YES Sustained Advantage, above normal economic implications.

Distribution- Activisionis one of the leading companies in distribution.

YES YES YES YES Sustained Advantage, above normal economic implications.

Asian distribution: one of the biggest markets to explode.

YES YES YES YES Sustained Advantage, above normal economic implications.

Massively Multiplayers Online Games (MMOG): Is the leader on MMOG

YES YES YES YES Sustained Advantage, above normal economic implications.

Blizzard Portfolio: the portfolio of greatest and successful online video games.

YES YES YES YES Sustained Advantage, above normal economic implications.

Development lifecycle YES YES NO YES Temporary advantage with above normal economic implications.

Includes: R&Cs, Sources of Cost Leadership, Bases of Differentiation, Vertical Integration/ Capabilities Perspective, Diversification & Economies of Scope, Alliances, Mergers & Acquisitions

Business Level Strategy

Business Level StrategyProduct Differentiation: In this kind of industry differentiation and constant innovationis the key to success. Consumers want to have constant change and new products andinteractive games and Activision is trying to never stop innovating with is great team ofdevelopers. In Activision we can see three types of product differentiation:1. Product attributes: Activision is creating unique interactive software’s across theindustry, not only allowing people to experience the best quality but also connecting themwith online features.2. Firm/customer relationship: With the franchises, Activision is creating a better andcloser relationship with its customers trying to improve and customized their products insuch way that customers can really enjoy every time they play. Reputation and marketingare also clear strengths Activision.3. Firm Linkages: Thanks to its willingness to acquire, form strategic alliances,partnerships, the company has done important associations with developers, and companies.Activision is able to coordinate capabilities across functional groups.

Corporate Diversification

Type of Corporate Diversification Evidence

Economies of Scope through Diversification (Table 7.1)Example 1 (VR)Example 2 (VRIO)

Relevant R&CsExample 1 (V)Example 2 (VRIO)Example 3 (VR)

Corporate Diversification – Organization

Organizational Structure Management Controls Compensation Policies

Strategic Alliances

Type of Alliance Motivation EvidencePartnerships: throughout licenses to create and publish popular franchises.

To create and generate the best product for customers. Generate more revenue by being the leader on development and publishing.

Different licenses for franchises like Tony Hawk , James Bond (MGM Interactive and EON Productions), World Series of Poker (Harrah’s)

Alliance Threats (Table 9.2)Adverse Selection Moral Hazard Hold-UpThere is no adverse selection because almost allof Activision partners and allies have pretty much similar resources and capabilities.

NO, there is no moral hazard because Activision has a Greenlight process to ensure the best quality. For that itchooses the best partners andacquisitions.

NO

Mergers & Acquisitions

Strategic Relatedness of M&A- Value(Tables 10.1, 10.2)

Motivation (Table 10.4) Evidence

Product Extension Merge: Activision is acquiring complementary products trough their merge with Blizzard because both of them are in the industry of video game software distribution and publishing and Blizzard specifies in the creation of interactive software for computers and Activision for consoles and a little bit of computers.

The potential for economic profits: In this case, Activision is trying to generate more profit by reinforcing his interactive software creation and distribution for computers.-Activision is also enteringthe Asian market and expand his economy of scope.-Complementary nature of itsportfolio of games.

An increase from $1.00 to $1.200 expectations on the EPS fiscal year of 2009 with the merger with Blizzard.-Lower manufacturing and distribution costs

Competitive Implications of M&AExample 1 (V)Example 2 (VRIO)Example 3 (VR)

Relevant R&CsExample 1 (V)Example 2 (VRIO)Example 3 (VR)

Bidding Firm Rules (Value goes to Bidder)

Yes/No

Target Firm Rules (Value goes to Target) Yes/No

(VR) Economies of ScopeAsymmetrical Information with BiddersAsymmetrical Information with TargetsAvoid Bidding WarsClose the Deal QuicklyOperate in “thinly traded” acquisition markets

YESYESNOYESYESNO

Seek Information from BiddersInvite other Bidders to JoinDelay but do not stop Acquisition

Miscellaneous Economic Evaluations / Additional Considerations

ConclusionsRecommendations