This excerpt taken from the ATVI DEFA14A filed Mar 5, 2008.
Im going to start with a high-level question just to get the blood flowing. And we will go on for about five to ten minutes, and then we will open it up to the audience. We will hopefully have some questions.
Actually, sometime soon in the first half of this year youre going to become President and CEO of Activision Blizzard. I guess just really quickly what do you think, one, your priorities will be initially? But then also what are going to be the challenges that you think youll see initially as you transition into this new role?
I think the first priority is to manage the integration so we get the maximum amount of synergies, not just obvious synergies, but real long-term operational and strategic synergies. I think one of the nice things about the transaction is we have had a lot of opportunity in the integration process the planning process to really understand what is definitely different, but turns out very complementary business in Blizzard. And made sure that were figuring out how to capture the very best resources from all parts of both our business, as well as the Vivendi business. I would say those would be the top priorities.
As far as challenges, you are in a double-digit growing environment. Weve got an incredible platform for opportunities, so that the greatest challenge is probably going to be prioritization of opportunity, and how do you make sure that you are focused on all the low hanging fruit opportunities that exist for continued margin expansion.
You mentioned, I guess maybe we can go back a little bit. You mentioned about how Activision is going to be you expect it to be complementary. And we understand the increased scale. You certainly have the increased distribution network now, and I guess geographic footprint. Im wondering if you can and maybe obviously a new product line suddenly, with the MMO space and with World of Warcraft. Beyond that where do you think the synergies can be? What is going to make this more than just a 1 plus 1 equals 2 story?
Lets start with the insight that we have developed through this process on the massively multiplayer opportunities, and what is happening that is really transformational in gaming. But when we looked over the last five years now at investments that we could make to compete in the massively multiplayer area, what other investments have been made by some of our competitors, whether it is Electronic Arts or Lucas or any of the incredibly well-funded startups that have tried, or Sony or Microsoft. What we saw is a very consistent pattern of investment in massively multiplayer that ultimately turned into failure, cancellation, or money-losing experiences.
And what we realized is that the moat, literally in World of Warcraft, the moat is so big, and the likelihood of success was so low. And what we would do to our operating margin to invest the $500 million or more that it would take to even make an effort, would likely result in failure. And so we stepped back and said, look, this is one of the fastest-growing categories. This company has established itself in markets like Korea and China, where no Western entertainment company and not just games, but movies, music no Western entertainment company has had the success that they have had in the fastest-growing markets in the world.
And we realized that there would be no way for us to effectively compete without taking on enormous risk and compromising our margins. That is when we started the conversation. And Vivendi recognized that this was their fastest growth business of many of the businesses that they own and control. But they wanted to figure out how to get more scale in the areas that they werent operating in, namely the consul gaming business and the handheld gaming business.
And so after what was a fairly lengthy period of time in trying to figure out what would make the most sense from a transaction standpoint, we ended up getting this deal almost done. And what we have realized is that the opportunity, just taking the institutional knowledge that exists at Blizzard. So for example, how do we take Guitar Hero, which is the best-selling game that we have ever had, and take that to Korea or take that to China, and be thoughtful about it?
These guys have so much institutional expertise on how you go to market in these territories that just the few hours of conversation we have had and brainstorming has given us a lot of value in thinking about those markets. And then when you think about other properties that we own and control like Call of Duty, and what would be the natural evolution of a property like Call of Duty into a massively multiplayer environment, and how do you monetize that? The same rules apply.