Activision's CEO Bobby Kotick on Ditching Guitar Hero

Guitar Hero III video game set by Activision Inc.
Guitar Hero III video game set by Activision Inc.

I just sat down with Activision Blizzard CEO Bobby Kotick on the heels of the company's earnings. The stock took a massive hit after hours yesterday and this morning traded off dramatically . The company's decision not to continue its Guitar Hero franchise also raised some eyebrows.

Kotick explained to me why it made sense to kill the Guitar Hero brand in which the company has invested millions and millions. Demand has dwindled — no question — and Kotick says he partially blames the company for not innovating more. If he company had really revolutionized the genre with each successive game maybe families wouldn't have switched over to play Nintendo's Wii tennis or bowling .

In addition to that admission, Kotick added that the music game genre has enormous built in costs. Activision Blizzard entered the business of selling music — songs for the various games. The company was shelling out 100,000 to convert songs to its game format, then sharing the revenue with the range of rights-holders.

The return just wasn't worth it.

What about the fact that rival Electronic Arts has snapped up a number of social gaming and mobile app developers while Activision Blizzard sticks to expanding its current brands onto mobile and social platforms? Kotick recalled Jeff Zucker's comments about trading analog dollars for digital dimes, saying that the social/mobile app business is still tiny compared his massive revenue streams — packaged games like "Call of Duty," digital add-ons for the game, and subscription games like "World of Warcraft." Kotick says the company will work to extend its brands onto the various new platforms — mobile apps, social gaming like Zynga's Farmville. But in effect, Kotick scoffed at the idea of Angry Birds as a threat.

Kotick didn't seem particularly anxious about reassuring investors as the stock sells off today, saying that the company is doing a $1.5 billion stock buyback. He did seemed peeved by Wall Street's forward-looking focus — though can you blame investors? — he just report ATVI's strongest quarterly earnings ever.

And the company's decision to drop "Guitar Hero" and ramp up investment in "Call of Duty" doesn't mean that it's not introducing new brands. Tomorrow it's announcing a new toy-themed interactive game for kids — it sounds like it's some sort of massive multiplayer online game that could love on social networks or mobile apps. Kotick's 8 year-old daughter was in the room watching her dad's interview. She wouldn't give away the name of the game but she did say she's a big fan. Can the company create another "World of Warcraft" style service for kids? We'll see — and we'll see how Wall Street responds to the news after today's drop.

Questions? Comments?