Activision, Inc. History

Address:

3100 Ocean Park Boulevard
Santa Monica, California 90405
U.S.A.

Telephone: (310) 255-2000
Fax: (310) 255-2100

Public Company
Incorporated: 1979
Employees: 800
Sales: $436.5 million (1999)
Stock Exchanges: NASDAQ
Ticker Symbol: ATVI
NAIC: 51121 Software Publishers

Company Perspectives:

Every day, the employees of Activision work hard to provide audiences around the world with compelling interactive entertainment. The company is recognized as a leading publisher, developer and distributor of quality innovative software and is affiliated with some of the most important brands in entertainment, including Disney/Pixar's Toy Story 2 and A Bug's Life, Disney's Tarzan, LucasArt's Star Wars: Episode 1 The Phantom Menace; Marvel Comic's X-MEN and Spider-Man and Paramount's Star Trek. Key Dates:

Key Dates:

1979:: Activision is founded.
1980:: Designs and sells its first Atari 2600 game series, Pitfall!
1983:: Company goes public.
1988:: Activision becomes Mediagenic.
1991:: Robert Kotick and Brian Kelly acquire Mediagenic.
1992:: Company is restructured, reincorporated, and again named Activision.
1997:: Revenues hit $189.2 million, 119 percent over previous year's $86.6 million.
1998:: Revenues snowball to $312.1 million.
1999:: Revenues top $436.5 million; income increases by 193 percent to $15.3 million.

Company History:

Headquartered in Santa Monica, with five domestic and ten international offices, Activision, Inc. is a leading designer, publisher, and distributor of interactive entertainment software. Although the company's mainstay is electronic games for PlayStation, Nintendo, and Sega system consoles, Activision also sells lifestyle CDs and a broad range of PC games (Earthworm Jim, Muppet Treasure Island, Battletech, Spycraft) appealing to all ages. From the notorious Quake and Cabela's Big Game Hunter series to Star Trek and Disney title franchises, Activision has seen its revenues jump to nearly half a billion dollars in the last few years. Led by Robert Kotick and Brian Kelly, its under-40 wunderkinds, Activision is poised for the new century with a myriad of software titles, from value-based to top-of-the-line graphics, and several exclusive distribution agreements with the industry's top game designers.

Birth of Electronic Gaming in the 1970s and 1980s

Activision's story begins in 1979, just a year after the first compact disc (CD) was developed by the Philips Consumer Electronics company based in The Netherlands. Video arcade games had been in existence since Bruce Bushnell founded Atari and created Pong in 1972, launching what became the electronic gaming industry. As a result of Bushnell's achievements, northern California-based Activision put out its shingle as the first independent developer and distributor of entertainment software. The fledgling company's aim was to enter the embryonic gaming market and capture a healthy chunk before competitors realized the industry's true potential. In 1980, following the introduction of the Atari 2600 home video console, Activision debuted its first series of titles for the Atari 2600 called Pitfall! While Atari designed and sold its own games, including Centipede and Missile Command, Activision countered with Kaboom! in 1981 and River Raid in 1982. Activision's titles went on to sell millions and put the company on the map; Atari reaped billions and then fell into disarray from poor management.

Although Atari was acquired, split up, and able to reemerge many years later, it had lost its edge in the 1980s. Activision and several other start-ups picked up the slack and ran. One of Activision's major competitors, Infocom, introduced the adventure game Zork in 1982. Zork, like the Pitfall! series, was a phenomenal success and spawned four sequels and two spinoffs (Enchanter and Sorcerer), which eventually became part of the Activision brand lineup.

In 1983 Activision capitalized on its recognition by going public. Yet trouble, similar to the fate suffered by Atari, was down the road. Following the old adage of beating the competition by joining it, Activision acquired Infocom in 1987. The newer, bigger Activision's vision for the future included not only changing its name to Mediagenic in 1988, but expanding its product line beyond gaming software to include business applications programs as well. In retrospect, this was a miscalculation--the Activision name and brand recognition were quite strong and taking its core business beyond electronic entertainment was a mistake. Yet Mediagenic did leave its mark on the industry by producing the first CD-ROM interactive entertainment game, The Manhole, and by having the prescience to open an office in Japan, a technological hotbed of the industry.

Interactive Games Boom: 1990s

By the dawn of the 1990s, the Activision name was about to be resurrected. The executive management of the BHK Corporation, Robert A. Kotick and Brian G. Kelly, bought a controlling interest in Mediagenic in 1991, a year in which Mediagenic lost $26.8 million on revenues of $28.8 million. The following year, after merging the Disc Company into Mediagenic, the company was restructured, changed its name back to Activision, and moved to a new headquarters in Santa Monica. Kotick was chairman and CEO, and Kelly was president and COO of the rechristened company. The same year, 1992, the company continued global expansion by opening its first office in Australia and another in the United Kingdom in 1993.

By 1994 Activision needed funds to keep up its aggressive production schedule for new and improved game titles and to maintain its share of the North American entertainment software market, which had reached sales of $930 million. The company raised some $40 million to further these needs, as the average cost to produce an exciting, well-developed electronic game ran upwards of $200,000, and the company needed to sell around 40,000 copies to break even. But Activision was doing something right; by fiscal 1995 (March 31) revenues reached $57.8 million and the following year brought a healthy climb to $86.6 million, with earnings jumping from $1.9 million in 1995 to $5.9 million for 1996.

For Activision, 1997 was a heady year. Not only did the company buy worldwide interactive rights to the popular Heavy Gear robot role-playing games (a successor to the Mech Warrior 2 product line) and the best-selling Quake II, but it teamed up with Hollywood action movie heavyweight Bruce Willis on the PlayStation game Apocalypse. This marked the debut of any creative property or game designed specifically for a well-known personality. In addition, Activision made several significant acquisitions, including that of game developer Raven Software Corporation (maker of the popular Heretic series of titles), a German marketing firm, and two interactive software distributors (CentreSoft Ltd. of the United Kingdom and NBG EDV Handels & Verlag GmbH, based in Germany). The company finished its fiscal year with revenues of $189.2 million, a stunning 119 percent increase over the previous year's $86.6 million.

Continuing with its international expansion efforts, Activision opened an office in France in 1998. On the domestic front came the purchase of Head Game Publishing, the Minnesota-based software distributor of sporting games, such as the best-selling Cabela hunting series, and the worldwide rights to the next installment of the ever popular Quake series from Id Software, called Quake III Arena. The company also inked several development deals with corporate giants: with Marvel Comics, to develop PlayStation games featuring perennial cartoon and comic book favorites Spiderman and the X-Men; with Disney Interactive, to create tie-in games from its popular animated films, including Tarzan, Toy Story 2, and A Bug's Life; and with Viacom Consumer Products, to design and distribute games based on the Star Trek franchise, which included the original Star Trek television series and its successors Star Trek: The Next Generation, Star Trek: Deep Space Nine, and Star Trek: Voyager. The Viacom deal also included the nine Star Trek feature films. Yet another coup came when Activision and LucasArts Entertainment Company (founded by George Lucas of Star Wars fame) entered into an exclusive two-year publishing and distribution partnership in the United Kingdom and 45 other countries to distribute all forthcoming LucasArts games for computers and PlayStation consoles.

Each of the aforementioned agreements put Activision in an incredibly strong position for the next few years. This was backed up by its fiscal 1998 numbers, which were restated to include revenues from acquisitions, and reached nearly $312.1 million. On the management front, Kelly was named co-chairman with Kotick, and was replaced as president and COO by former Con-Agra snack foods president Ron Doornink.

Trouble in Mind: 1998 and 1999

Despite Activision's growth through acquisitions and exclusivity agreements, the company also was affected by major changes in the industry itself. The phenomenal success of electronic gaming, which increased by more than 40 percent to $5.5 billion in 1998 (sales came close to rivaling movie box office receipts at $6.9 billion), brought greater visibility. With this visibility came the worst kind of scrutiny after the teenage shooting sprees in Colorado, Kentucky, and Washington. Belatedly, parents became concerned about the games their children were playing and the possible effects of violence and blood-spattered screens. For their part, game developers, Activision included, toned down the blood and gore in some of the more popular games played by younger kids, while labeling games with age indicators ("E" for everyone, "T" for teens, "M" for mature, "A" for adults only). If the labels were not enforced by retailers or renting establishments, however, they did little good. Some legislators proposed making it a crime to sell "mature" or "adults only" games to minors; the gaming industry proposed electronic tagging for adult or mature games, which alerted cashiers during scanning to require identification if the purchaser was not an adult. Regardless of these or other measures, however, many violent games were downloaded from the Internet, for which there was no regulation.

Caught in the maelstrom was Activision. Several of its games were known for explicit graphics, including the best-selling Quake series the company distributed for Id Software. Activision was also the target of a Seattle advocacy group called Mothers Against Violence when a member's son saw an advertisement for Vigilante 8 featuring an armed school bus and an expelled misfit named Molo who sought retribution through violent acts. In a May Wall Street Journal article, Doug Lowenstein, president of the Interactive Digital Software Association (IDSA), a lobbying group for electronic game developers and distributors, stated that though there was little research, this much could be said: about 57 percent of all electronic games were played by adults, and converted board games such as Life and Monopoly were among the market's fastest-growing products. Further, in the past five years, of the 5,000 games put into the rating system, more than two-thirds were deemed appropriate for all ages to play. Quoted in a May New York Times article, Lowenstein was determined to put the issue to rest once and for all: "The evidence does not exist to support a link between playing violent video games and community mass murder. Video games don't teach people to hate. Video games don't teach people to become Nazis." Yet for legislators and parents, the issue was far from over.

Although legislation controlling video game content had not been passed, Activision and several other developers independently scaled back the graphic gore in some of the historical warfare or "god-games." Activision's popular Civilization: Call to Power was among the toned down games, and less brutal versions from both Microsoft (Age of Empires II) and Electronic Arts (Alpha Centauri) were released as well. Although the violence question was not settled and would not be for some time, Activision carried on business as usual in 1999. The company continued its trend of exclusive distribution agreements with three more deals: the first with the Liverpool-based Psygnosis, for the company to sell and distribute all of Psygnosis's PlayStation and CD entertainment software titles (including the multimillion-selling Formula One, Destruction Derby, and Colony Wars series) in North America; the second with Fox Sports, for international territories including Europe, Asia, India, the Middle East, and South Africa; and the third with Codemasters Limited, to become its exclusive North American affiliate label.

Activision's next move, a merger/acquisition, hinged on its desire to provide customers with a wide-ranging product line. Expert Software, Inc., a Florida-based mass market developer and distributor of value-priced leisure software, was merged into Activision's holdings and marked its segue into the burgeoning lower-priced software market segment. This was followed by the purchase of another Florida-based developer, Elsinore Multimedia, which had created the Cabela's Big Game Hunter series for Head Games (acquired by Activision in 1997), which had become a huge best-seller because of what Johnny Wilson, editor-in-chief of Computer Gaming World, considered the "Bubba factor," that is, low-cost games sold through discount chains such as Wal-Mart. Then came another software developer, the Los Angeles-based Neversoft Entertainment, designers of the successful Tony Hawk Pro Skater titles.

In the late 1990s game designers and distributors, Activision included, were experiencing a substantial shift away from PC games to consoles. The introduction of Sega's Dreamcast system provided another jolt to the trend in the fall of 1999. Although Activision rolled with the punches by creating games for Dreamcast systems, just as it did for PlayStation and Nintendo 64, it soon became a question of how many dollars to allocate to developing new PC games if consumers were abandoning them in favor of the much more realistic console games. As the competition grew more intense, rising development costs (running as much as $2 million per game) and retail space (usually for from 50 to 75 titles, when nearly 4,000 were released annually) were serious threats. Statistics quoted in the Wall Street Journal found that the consoles were eating away at the PC market share, which was 40 percent of the gaming market in 1997 and down to 34 percent in 1998. The trend was due to continue after Dreamcast's heavily touted debut and new Nintendo and PlayStation consoles due out in 2000.

For fiscal year 1999, Activision was on a roll with year-end revenues rocketing 40 percent to $436.5 million, with net income leaping to $15.3 million from the previous year's $5.1 million, a whopping 197 percent increase. North American operations in 1999 increased from the previous fiscal year's 24 percent to 34 percent of revenues, while international revenues fell slightly from 1998's 71 percent to 1999's 66 percent. Yet both segments experienced significant growth, with domestic operations rising 66 percent and international operations climbing 29 percent for 1999. To keep up with expanding operations, Activision's top three, Kotick, Kelly, and Doornick, added two new executive vice-presidents to the fold--Michael Rowe and Kathy Vrabeck&mdashø oversee human resources and global brand management, respectively.

PCs, Consoles, and Beyond: 2000 Forward

As the turn of the century approached, Activision was well positioned to maintain its status as a leading interactive entertainment company with publishing and development operations in the United States, Canada, the United Kingdom, France, Germany, Japan, and Australia and distributing arms in Belgium, Germany, The Netherlands, and the United Kingdom. With the company's extensive domestic distribution network, upwards of 11,000 retail locations in North America, Activision hedged its bets by designing and distributing games for a variety of platforms, from PCs to the consoles, including PlayStation, Nintendo 64, Dreamcast, and even Nintendo's handheld Gameboy. With increased exposure through motion picture tie-ins, both from movies to games (A Bug's Life and Toy Story 2), and from games to movies (Interstate 76, Spycraft, and Zork), Activision continued to support its current franchise titles and was actively seeking new properties with proven potential.

Principal Divisions: Activision Merchandising TDC; Activision Publishing; Activision Studios.

Principal Competitors: Electronic Arts, Inc.; Nintendo Company; GT Interactive Software Corporation; Eidos Interactive Inc.; Microsoft Corporation; Sony Corporation.

Activision, Inc. History

Company Perspectives:

Key Dates:

Company History:

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