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Destiny is a hit, who cares if it's profitable? (Correction)

Destiny is a reported $500 million investment for Activision Blizzard, and the game has had a middling critical reception at launch.

Correction: According to the earnings call from last November, the game was profitable on day one. Here's the relevant quote:

And despite the large investment, which Dennis will talk about -- or maybe because of that large investment, we were able to be profitable from day one, and we think it's only a matter of time now before it becomes our next billion-dollar franchise.

The main thrust of this op-ed was to point out that Destiny was a very large success for all the parties involved, and short-term profitability wasn't a pressing concern. In making that point, we failed to check to make sure if our central thesis had already been answered, and for that we apologize. The story continues, unedited from its original state, below.

That doesn't seem to have impacted the the game's success however, as Destiny continues to enjoy what seems to be a strong, often temperamental community of hardcore players.

Let's get this out of the way now: Destiny is a hit game. It sold impressive numbers, it's keeping players engaged, and it continues to be a topic of conversation in the major gaming media. Activision has successfully launched a new franchise, and will continue to support it in the coming years.

The big question is whether Activision lost money to get to that point, and I'll give you my professional opinion to that question: They might have, but even if they did? They don't give a shit.

What Activision says

"In North America and Europe combined, Activision Publishing was the #1 retail publisher and had three of the top five best-selling new releases for the calendar year," Activision's earnings reported stated. The first was Call of Duty in the number one slot, with Destiny in the number three chair and Skylanders Trap Team coming in at number 5. Three hits that big, and repeatable, isn't just a solid accomplishment. That slate makes Activision one of the most stable publishers in the business. They can afford to bet big, for the long term.

"Activision Publishing’s Destiny was the most successful launch of a new video game franchise in history," the official report continued. "Destiny was also the #1 top-selling new video game IP and the #3 top-selling new release in North America and Europe, combined, for the calendar year. To date, Destiny has more than 16 million registered users and active players are playing the game an average of over three hours per day."

Let's break this down, because there's a good amount to digest. 16 million registered users doesn't necessarily mean 16 million sold, and in fact I contacted Activision to ask if they could be a bit more specific about what that number means. They declined to offer any details that weren't in the earnings report or the press release.

Activision did, however, give a bit more information to Engadget last November. "We've received a response, and Activision says that the 'registered users' refers to unique PlayStation Network / Xbox Live accounts, while multiple characters per account are not factored in," Engadget reported. "That's still potentially less than an exact 1:1 sales number, but reflects an impressive amount of sales since launch."

What this means

So this doesn't mean they've sold 16 million copies of the game, but it also means that number may not be far off the mark. Let's say they've only sold 10 million copies, which is a conservative estimate, and each copy cost $60. That's still $600 million in revenue, without factoring in the higher margins of the collector's editions and for-pay content packs like "The Dark Below."

Those aren't exactly Call of Duty sales numbers, but they're surprisingly close for a new franchise. There is also the kind of huge fact that people who play the game are borderline obsessive about it. According to Activision, the average play length is three hours, which is a surreal achievement in a world of mobile games and brutally short attention spans. Active players grew from November to December, a fact Activision uses to prove interest in "The Dark Below" content.

Destiny stories in this publication, as I've noted before, almost always do well. People love reading and arguing about Destiny, which proves that even if someone doesn't like the game, they enjoy discussing it. The Polygon writers and editors who remain players admit that the game has huge problems ... right before noting how hard it is to stop playing.

So the game is a hit, but that hit was at least partially paid for with a monstrous budget and an ad-spend that's the envy of the entire business. Activision has a hit on its hands, but it certainly paid dearly for that hit, and will continue to do so as new content is developed and released, including the inevitable sequel.

It's very possible Activision is still losing money on this game, but being in the red to date with Destiny isn't anything that's keeping CEO Bobby Kotick up at night.

Activision is in a great place to lose money in the short term

Let's say Activision is $100 million in the red when it comes to Destiny. That's a dim view of what's likely a much rosier picture, but even if the company has yet to recoup its investment they can easily pay for the losses with the continued success of Call of Duty and Skylanders. Plastic means one thing in video games: A high profit margin. And Skylanders sells what can only be described as a shit-ton of plastic. Call of Duty is still the best-selling franchise of 2014.

Activision has money to invest in a long-term view, and the most punishing expenses for Destiny are one-time costs. The engine is made. The infrastructure exists. In fact, during an early look at the game Bungie developers stressed to me the importance of paying for the best possible tools to quickly make, and implement, new content. Content they can sell.

The point is that Activision Blizzard has the money to dump into Destiny

Activision stated that digital revenue is at "an all-time high," in its earnings report, and the 25 million registered players of Hearthstone and 9 million registered Heroes of the Storm players aren't hurting its bottom line. Blizzard is selling a huge amount of digital goods, and will continue to do so for a very long time with those two games.

The point is that Activision Blizzard has the money to dump into Destiny, and the one-time costs have all been paid in full. The sequels and new content are going to enjoy a much higher margin, and that's a great situation for everyone involved. You only pay for the factories once, and then you get to enjoy the act of selling the widgets. We're moving into the widget phase of Destiny's life.

Destiny is, in many ways, an unprecedented thing in gaming: A huge release that stumbled critically as it launched across four platforms but continues to be played and discussed as new content is released.

Unless Activision gives up data we'll likely never know how well or poorly the game is doing for them in terms of profits, but the game is a hit, and it's a smart investment. Destiny isn't a game, it's a franchise. Activision and Bungie have laid the foundation of what Activision is hoping will eventually be a skyscraper.