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Activision Forecasts Disappoints; Shares Tumble

Thursday, 10 Feb 2011 | 10:54 AM ET

Activision Blizzard's earnings and revenue both beat estimates — Q4 was its most profitable quarter ever — but Wall Street is disappointed by the company's forecasts for the fist quarter and the full year. Shares tumbled in late trading Wednesday after the company's announcement and continued to fall Thursday morning .

Playing Guitar Hero
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Playing Guitar Hero

The company says it expects revenue of $640 million and 7 cents of EPS, falling far short of the Street's expectations of $735 million and 10 cents in EPS.

The shortfall for the full year is even worse — the company's projections of $3.9 billion in full year revenue is 800 million short of Street projections, and the company's expected 70 cents in EPS falls 13 cents short.

The company also announced it'll no longer develop "Guitar Hero" games, putting a once popular franchise to bed, and canceled development of its expected "True Crime: Hong Kong" game.

Now the company is focusing on its biggest brands — doubling down on its hit "Call of Duty" franchise. On the earnings call CEO Bobby Kotick says the company's moving away from less profitable areas and "accelerating areas which offer higher margin growth and potential." There's no question after this past quarter that "Call of Duty" is just that — it was the biggest video game of the year after launching in November. Now the company's launching a new studio, called Beachhead, to focus on a new community platform for "Call of Duty." We can expect this to be a way to turn "Call of Duty" into an ongoing subscription revenue.

Kotick stressed "Social" and "Interactive Entertainment" throughout the conference call. While rival Electronic Arts invests in acquiring social and mobile game developers, Kotick emphasized that its current assets, like "World of Warcraft: Cataclysm" are inherently social. He stressed that people no longer play their games isolated in their living rooms — they interact and play against each other online.

Digital distribution was the other buzzword Kotick threw around during the call. He noted that revenue from digital channels, which now account for over 30 percent of overall revenues, was driven by digital downloads for the Call of Duty game. Selling more digital extras, as well as digital subscription services will clearly be a big focus moving forward. It's harder to get people to drive to Game Stop and buy a packaged video game, so the company is focusing in on the sure things. And now the company wants to make sure that it transforms those big games from $60 one-time-sales, to monthly subscription fees, aka "digital distribution."

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  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.