Activision Blizzard’s next big eSports franchise might be a game you’ve never heard of
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Activision Blizzard’s next big eSports franchise might be a game you’ve never heard of

When it comes to market leading video game developer and publisher Activision Blizzard, investors tend to have a fairly limited knowledge of the actual games in their stable. Usually, investors know the following names: World of Warcraft, Candy Crush, Call of Duty, and Overwatch. One name that is left out of that list for now, but soon may not be, is Hearthstone – a popular digital card game that generates little revenue compared to its more famous peers, but has managed to add 30 million players in the last 15 months. According to some observers, it could be perfectly positioned to become the company’s next big eSports franchise.

Activision Blizzard’s share price has dropped by 2% in the last 5 days

graph 2611 activision

Source: Yahoo Finance

Activision Blizzard is top dog in eSports – definitely in the west, and maybe worldwide. The reason is that Activision mixed brains with bravery and made the first move – its Overwatch League was a calculated risk, and it paid off… big time. Investors have come around to the idea that another one of the company’s major franchises Call of Duty is headed for a similar treatment. In the company’s recent third-quarter earnings report, CEO Bobby Kotick said that Activision was “actively advancing how the Overwatch League model and infrastructure will be applied to Call of Duty and other franchises.”

That puts Activision Blizzard in a brilliant position. According to Goldman Sachs, the eSports market could triple in size over the next five years to $3 billion. Kotick has even greater ambitions, writing, in his 2017 letter to shareholders: “Over time we believe our esports initiatives could rival traditional sports for audience interest, advertisers, sponsors, ticket sales and merchandise sales (both virtual and physical).” Beyond Overwatch, and beyond Call of Duty, Hearthstone could play into those ambitions.

Hearthstone is a free-to-play digital card game that gathers revenue from in-game purchases (the purchases, in this case, being sets of digital cards). There are three good points about this set-up: the first is that the ‘freemium’ model, as it’s called, represents a low-barrier to entry, meaning a good game can quickly amass a huge fan following (Hearthstone currently has 100 million players). The second point is that freemium is a particularly good business model for this game. The whole idea is to collect a selection of the best cards possible – that means buying new packs has a deep effect on how the game actually plays, hence incentivising players to purchase them. The last point is that, while Hearthstone is not a huge revenue earner, the margins are probably incredible – creating digital cards is far less expensive than programming more complex games which involve teams of writers, voice actors, 3D software modellers and more.

Here’s the real kick though: people love watching Hearthstone be played. It’s constantly featured in the top ten most-watched games on Twitch, Amazon’s live-streaming video game channel. There’s not really anything to it – you’re just watching two people play cards on a screen – but somehow, people spent 22 million hours watching it (watching – not playing) in October alone!

Overwatch and Call of Duty are both big, bombastic titles that feature plenty of action and lend themselves well to team eSports. Hence, it’s understandable why Activision Blizzard would focus on them first. But let’s be clear: Hearthstone looks like it could be an eSports phenomenon just waiting to happen.

Disclosure
Dominion holds Activision Blizzard in its Global Trends Ecommerce Fund.


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