Activision: WOW could become "obsolete"

Activision has made a worrying risk assessment of World of Warcraft, claiming the MMO giant could be toppled - rendered "obsolete" - by the emerging social gaming scene.

"We also compete with other forms of interactive entertainment," said Activision in its 10-K annual report, "such as casual games like iPhone applications and other mobile phone games, and games developed for use by consumers on social networking sites.

"Future increased consumer acceptance and increases in the availability of such games or other online games, or technological advances in online game software or the Internet, could result in a decline in platform-based software and negatively impact sales of our console and hand-held products.

"Newer technological advances in online game software may also render products such as World of Warcraft obsolete."

Call of Duty, Guitar Hero and World of Warcraft made up 68 per cent of Activision's net revenues in 2009, apparently.

"A substantial portion of our revenue and profitability will depend on the subscription-based massively multiplayer online role-playing game category. If we do not maintain our leadership position in this category, our financial results could suffer," added the publisher.

Maintaining leadership involves staying ahead of competitors, the publisher said. And there are plenty of would-be threats ready to steal the crown.

"A number of software publishers have developed and commercialised - or are currently developing - online games for use by consumers over the Internet, which pose a threat to the popularity of World of Warcraft and we expect new competitors to continue to emerge in the MMORPG category," Activision offered.

"If consumer demand for World of Warcraft games declines and we have not introduced new MMORPG or other products that replace World of Warcraft's potentially decreasing revenue, or added other sources of revenue, our financial condition could suffer.

"Additionally, if new technologies are developed that replace MMORPG games, consumer preferences trend away from MMORPG games or new business models emerge that offer online subscriptions for free or at a substantial discount to current MMORPG subscription fees, our revenue and profitability may decline," the report added.

World of Warcraft growth has plateaued at 11.5 million users worldwide. The potential vulnerability of the MMO that has lead the genre for over five years may raise some eyebrows.

However, World of Warcraft expansion Cataclysm may revitalise consumer enthusiasm when released sometime this year, and Activision's 10-K form is designed to air as many potential risks as possible, so take it with a pinch of salt.

Activision dominated headlines yesterday by sacking two Infinity Ward bosses for rumoured "insubordination" - being in talks with other publishers, sources claimed. Should the Infinity Ward team follow their leaders, Activision could find itself without its flagship Call of Duty team.

That doesn't appear to have dampened Activision's plans for Call of Duty, however.

Still, given the circumstances, it's ironic that one of Activision's risk assessments outlines attracting and retaining "key personnel".

"Our success depends to a significant extent on our ability to identify, hire, and retain skilled personnel, particularly personnel with the specialized skills needed to create the high-quality 'hit' titles upon which our business is substantially dependent," the report continued.

"The software industry is characterised by a high level of employee mobility and aggressive recruiting among competitors for personnel with technical, marketing, sales, product development, and management skills.

"We may have difficulties in attracting and retaining skilled personnel or may incur significant costs in order to do so. If we are unable to attract additional qualified employees or retain the services of key personnel, our business and financial results could be negatively impacted."