Activision’s Next Blockbuster as Starcraft II Hits Shelves

StarCraft 2
Courtesy of Activision
StarCraft 2

Normally, the release of a PC game – even a highly anticipated one – wouldn’t be a particularly big deal for investors. But when that game is “Starcraft II,”all the usual rules are thrown out the window.

Analysts expect the game, which ships to retail on Tuesday, to sell up to 4.5 million copies by the end of August. To put that in perspective, that’s nearly twice as many copies as the year’s best selling console game to date.

By the end of the year, it’s expected to sell 6.5 million units – which won’t be on quite the same level as a “Call of Duty” or “Halo” title, but is still significantly better than most games that will come out this year (for any system).

“Starcraft II,” which was developed by Blizzard Entertainment, the team behind “World of Warcraft,” is a rare PC title that will significantly move the earnings needle for Activision- Blizzard. Colin Sebastian, of Lazard Capital Markets, estimates it could contribute up to 5 cents to Activision’s earnings this quarter.

“For those that are looking for some outperformance from Activision, this is it,” adds Eric Handler, senior equity analyst for MKM Partners. “It’s the biggest game they have in their quarter and one of the three biggest games of the year.”

StarCraft 2
Courtesy of Activision
StarCraft 2

This level of excitement is not what you would expect for the sequel to a game that first came out in 1998.

Virtually any other title that old would have been long forgotten, but “Starcraft” is widely considered to be one of the best PC games ever released.

It has sold over 11 million copies worldwide – and is a cultural phenomenon in South Korea. The country has two television networks dedicated to “Starcraft” tournaments and, in 2006, one professional player signed a three-year deal worth $690,000 – plus endorsements.

The 4.5 million sales estimate vastly tops the performance of Take-Two Interactive Software’s “Red Dead Redemption” so far in 2010, according to data from The NPD Group. That game, which is the top-selling console game so far this year, has sold just shy of 2.5 million copies through the end of June. (It’s worth noting, though, that NPD numbers do not include international sales.)

Because the game is a PC release, Activision will see higher profits on it than it does on console titles. Publishers must make a $9 royalty payment to Microsoft and Sony for each console game sold on those companies’ respective systems. On PC games, though, Activision pockets the entire wholesale cost – and makes even more money when it sells a digital copy of the game, since it still charges the full $60 price, but pockets the 20 percent usually claimed by retailers.

"For those that are looking for some outperformance from Activision, this is it...It’s the biggest game they have in their quarter and one of the three biggest games of the year." -MKM Partners, Eric Handler

Digital sales could be especially important over the next few years, as Blizzard develops and releases two expansion packs for the game. While the company certainly won’t ignore retail outlets, it’s hoping that the bulk of those will be sold via the company’s Battle.net Web site, which is the hub all of its games tie into. (A login account is required to play any Blizzard title.)

Analysts expect “Starcraft II” to be a game that will have a long-term earnings impact. While South Korea gets it Tuesday, other overseas markets, including China, won’t be able to buy a copy until 2011.

It’s also the beginning of a string of big PC titles from Activision-Blizzard. Later this year, “World of Warcraft: Cataclysm” will hit shelves – the latest expansion to the juggernaut massively multiplayer online franchise that has over 11.5 million subscribers paying a monthly fee to play.

And next year, presumably, Blizzard will release “Diablo 3,” the latest installment in yet another fan favorite franchise – that could be an even bigger breadwinner.

“The ‘Diablo’ franchise is bigger than ‘Starcraft’,” says Sebastian. “There are too many unknowns at this point, but it has the potential to be at least as big as ‘Starcraft II’.”

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