Huge pent-up demand exists for Blizzard IP based mobile games (e.g., Warcraft, Starcraft, and Diablo). We see strong market evidence of this demand in the countless number and success of infringing mobile games that operate without formal licensing with Activision Blizzard.
Especially for fantasy gamers, the ultimate IP in mobile gaming is from Blizzard’s Warcraft universe. Overall, this IP is likely second or third only to Nintendo and Shueisha/Shogakukan (who own most of the Japanese anime IP) as underutilized IP assets for mobile games.
Activision Blizzard could easily become the largest mobile gaming company in the world by applying Blizzards old strategy of perfecting proven game models with high polish and launching new mobile games leveraging the company’s elite roster of IP.
Hearthstone is a great initial success but what does it need to do to get to the next level?
To get to the next level Activision Blizzard should:
- Scale its mobile product line
- Acquire the right kind of talent
- Build a mobile game network to cross-promo against ridiculously high user acquisition costs
Although internal organic growth of new mobile teams is possible, why take the risk?
- No guarantee of being able to build good teams internally
- The company would lose time while waiting for internal teams to build – this is time that new entrants could enter the market, user acquisition costs could continue to rise, and the timing is ripe for new games to compete with the aging giants in the mid to hard core space like Clash of Clans and Game of War
So who should Activision acquire?
To me there are only a few viable candidates and the best of these may be Glu Mobile and Ember Entertainment.
The one other company to consider is Com2Us the developers of the game Summoners War which may quite possibly be the best designed mobile game ever created. However, Glu/Ember from a high level outsider’s view seems to be a closer fit culturally and with ready to go product fit for IP.
Why Glu and Ember?
- You need network effects from a portfolio of mobile game products to more effectively market games. UA has moved from advertising single games to monetizing networks across an entire portfolio via cross-promotion. Both Glu and Ember can add meaningfully here.
- Has deep experience building mid/hard core games with high production value
- Experience working with high profile licensed IP
- Good cost structure with globally distributed teams
- Ember Entertainment:
- Has developed a Top 100-150 grossing game (Empire Z) in a proven category (march battle similar to Game of War) that could get supercharged by a newer version leveraging Warcraft IP
- Brings key mobile experience in monetizing hard core users
Glu + Ember + Activision Blizzard IP:
Let’s imagine a scenario where we take the game engines of Glu + Ember and apply Activision/Blizzard IP:
|Mobile Game Category||Game Engine||IP Used||Grossing Potential|
|March Battle||Empire Z||Warcraft||Top 10|
|Active Skill Battle |
(e.g., DOTA Legends / Heroes Charge)
|Heroes of Destiny (some mod required)||Warcraft||Top 10|
|Call of Duty|
Right off the bat we could have 3-4 easy wins that could all be developed on existing engines. Hence, unlike Hearthstone which took 6 years to release, these wins could conceivably all launch in less than 1 year.
A comparison of the companies market capitalization:
|Activision Blizzard (NASDAQ: ATVI)||$18.6B|
|Glu Mobile (NASDAQ: GLUU)||$0.5B|
|Ember Entertainment (Private)||Private|
These acquisitions likely wouldn’t be easy: there are certainly some changes and areas of weakness to shore up to make this vision a reality. Glu has some particular weaknesses as does Ember.
However, I see great potential for these acquisitions to lead to the creation of the world’s biggest mobile gaming company. Activision could with < $1B in acquisitions cost potentially generate 3-5 Top 10 grossing hits over time. Hence, an acquisition that may be able to create as much as $5B-$10B+ in future market capitalization.
The combination I describe could result in essentially the world’s greatest mobile gaming company to date.
Activision Blizzard… what are you waiting for?