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Activision, Inc.

Activision, Inc.

3100 Ocean Park Boulevard, Suite 1000
Santa Monica, California 90405-3067
U.S.A
.
Telephone: (310) 255-2000
Fax: (310) 255-2100
Web site: http://www.activision.com

Public Company
Incorporated:
1979 as Activision, Inc.
Employees: 2,125
Sales: $1.51 billion (2007)
Stock Exchanges: NASDAQ
Ticker Symbol: ATVI
NAIC: 511210 Software Publishers

BIRTH OF ELECTRONIC GAMING

INTERACTIVE GAMES BOOM

TROUBLE IN MIND: 1998 AND 1999

2000 FORWARD

THE FUTURE OF GAMING

PRINCIPAL SUBSIDIARIES

PRINCIPAL DIVISIONS

PRINCIPAL COMPETITORS

FURTHER READING

Headquartered in Santa Monica, with offices in several countries, Activision, Inc., is a leading designer, publisher, and distributor of interactive entertainment software. The companys mainstay is electronic games for system consoles such as the PlayStation, Nintendo, and XBox. Activision also sells lifestyle CDs and a broad range of PC games. After nearly folding in the early 1990s, Activision has seen its annual revenues grow steadily to more than $1.5 billion. The companys winning business model is to acquire small studios after they have developed hits, such as RedOctane, Inc. and its Guitar Hero. Licensing deals with entertainment companies and sports figures are another way to keep top-selling new titles coming. Sequels and spinoffs extend the life span of winning concepts.

BIRTH OF ELECTRONIC GAMING

Activisions story begins in 1979, just a year after the first compact disc (CD) was developed by Philips Electronics N.V. 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 Bushnells achievements, northern California-based Activision put out its shingle as the first independent developer and distributor of entertainment software. The fledgling companys aim was to enter the embryonic gaming market and capture a healthy chunk before competitors realized the industrys 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. Activisions titles went on to sell millions and put the company on the map; Atari reaped huge profits 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 Activisions 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 Activisions 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. However 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

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. Activision was doing something right, though; 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 bestselling 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 years $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 Bugs 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. 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.

COMPANY PERSPECTIVES

Activisions objective is to be a worldwide leader in the development, publishing and distribution of quality interactive entertainment software products that deliver a highly satisfying consumer entertainment experience.

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 Activisions 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 members 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, 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 markets 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 dont teach people to hate. Video games dont teach people to become Nazis. However, for legislators and parents, the issue was far from over.

KEY DATES

1979:
Activision is founded.
1980:
Company 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, a 119 percent increase over the previous year.
1998:
Revenues snowball to $312.1 million.
1999:
Revenues top $436.5 million; income increases by 193 percent to $15.3 million.
2000:
Activision invests in Wolfenstein developer Gray Matter Interactive Studios.
2005:
Game developers Vicarious Visions, Toys for Bob, and Beenox, Inc., are acquired; revenues exceed $1 billion.
2006:
Guitar Hero publisher RedOctane, Inc., is acquired.
2007:
Revenues reach a record $1.5 billion.

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. Activisions 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. While 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 Psygnosiss 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.

Activisions 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 Activisions 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 Cabelas Big Game Hunter series for Head Games (acquired by Activision in 1997), which had become a huge bestseller 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 Segas 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 Dreamcasts heavily touted debut and new Nintendo and PlayStation consoles due out in 2000.

For fiscal 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 years $5.1 million, a 197 percent increase. North American operations in 1999 increased from the previous fiscal years 24 percent to 34 percent of revenues, while international revenues fell slightly from 1998s 71 percent to 1999s 66 percent. 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, Activisions top three, Kotick, Kelly, and Doornink, added two new executive vice-presidents to the fold, Michael Rowe and Kathy Vrabeck, to oversee human resources and global brand management, respectively.

2000 FORWARD

As the new 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 companys 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, Dream-cast, and even Nintendos handheld Gameboy. With increased exposure through motion picture tie-ins, both from movies to games (A Bugs 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.

Activision navigated the transition to another generation of video game consoles around 2000. The company was reorganized at the same time. It adopted a holding company structure while dropping some divisions. A new parent company, Activision Holdings, Inc., was formed and renamed Activision, Inc.; the company formerly known as Activision, Inc., became Activision Publishing, Inc.

Activision continued to make strategic acquisitions. It bought Treyarch Innovation, LLC, for $20 million in 2001. Treyarch, also based in Santa Monica, had been working mostly for Activision, producing very successful titles in the Tony Hawk and Spiderman lines.

A handful of developers were acquired in 2002: Shaba Games LLC, Z-Axis Ltd., Luxoflux Corporation, and Wolfenstein developer Gray Matter Interactive Studios. Activision also picked up rights to distribute the best-selling DOOM III from id Software. However, its bid to buy id for $90 million a couple of years later failed.

In May 2002 Activision invested in a 30 percent holding in Infinity Ward, a developer of games for personal computers based in Encino, California. The remaining shares were acquired in October 2003.

Activisions revenues exceeded $1 billion in 2003. By this time, the video game market as a whole was estimated to be worth more than that for theatrical releases of movies. Activision was second only to Electronic Arts among independent video game publishers.

While Activision was investing its time and talents in finding future hits, another company was mining Activisions past for a retro games package. In 2003 Aspyr Media Inc. of Austin, Texas, bundled dozens of its classic Atari 2600era games in its Activision Anthology for Nintendos portable GameBoy Advance device.

One of the more notable acquisitions of 2005 was Vicarious Visions, which had worked on 20 titles with Activision over the previous five years. Based in North Greenbush, New York, it had been founded in 1994 by the Bala brothers while in high school. Toys for Bob of Novoto, California, and Quebecs Beenox, Inc., were also acquired in 2005.

In 2006 Activision bought RedOctane, Inc., publisher of the red-hot Guitar Hero series. Activision also acquired its Seoul, Korea-based software distributor, a unit of CSR Entertainment. The next year, Dublin, Ireland, firm DemonWare Ltd., which produced networking technologies for various gaming platforms, was added.

THE FUTURE OF GAMING

Around this same time, Microsoft, Sony, and Nintendo were introducing another generation of game consoles. Increased connectivity with the Internet added a new dimension to the potential of games as an advertising medium, noted the Wall Street Journal. Taking a concept from the entertainment business, Activision had begun to experiment with product placement in its games. Advertisers included McDonalds and Sirius Satellite Radio. The latter cross-promoted Activisions Tony Hawk video games on a radio program hosted by the skater.

Activisions agreement with DreamWorks Animation SKG Inc. had been extended through 2010 (Activision would retain long-term rights to the resulting games whether or not the agreement was renewed). The high resolution of the latest generation of video game consoles allowed developers to make good use of original CGI animation from the film studios. Activision set up an office at DreamWorks Animations site in Glendale, California, in 2006. This paved the way for games and movies to be produced at the same time.

Activision latched on to concepts from television as well as movies. For example, it signed up to produce a game based on Discovery Channels American Chopper show, about a shop specializing in custom motorcycles. This and other moderately priced titles were handled by the Activision Value Publishing, Inc., subsidiary in Eden Prairie, Minnesota.

Some tie-ins helped Activision reach new demographics. It signed up to distribute games based on Mattels Barbie doll in 2006. The same year, it announced a deal to distribute a series of titles based on childrens television shows from Nickelodeon.

Activisions revenues rose slightly to $1.5 billion in the fiscal year ended March 31, 2007. Net income more than doubled during the year to $85.8 million. Acquisitions had swelled the companys workforce to more than 2,100 employees.

PRINCIPAL SUBSIDIARIES

Activision Asia Pacific Holding Pte. Ltd. (Singapore); Activision Beteiligungs GmbH (Germany); Activision Canada, Inc.; Activision Deutschland GmbH (Germany); Activision Europe, Limited (U.K.); Activision GmbH (Germany); Activision International B.V. (Netherlands); Activision International Europe, LLC; Activision Italia, S.r.l. (Italy); Activision Japan; Activision Korea, Ltd. (South Korea); Activision, Ltd. (Japan); Activision Luxembourg S.a.r.l.; Activision Luxembourg S.a.r.l.; Activision Nordic; Activision Productions, Inc.; Activision Pty Ltd. (Australia); Activision Publishing Europe, LLP (U.K.); Activision Publishing, Inc.; Activision Publishing International, Inc.; Activision Publishing Ireland Ltd.; Activision Singapore Pte, Ltd.; Activision Spain, S.A.U.; Activision Testing & Verification Inc.; Activision Texas, Inc.; Activision U.K. Ltd.; Activision Value Publishing, Inc.; Activision Vermogensverwaltungs GmbH (Germany); Advantage Entertainment Distribution Limited (U.K.); ATVI France SAS; Beenox Inc. (Canada); CD Contact Data BV (Netherlands); CD Contact Data GmbH (Germany); Centresoft Ltd. (U.K.); Combined Distribution Holdings Ltd. (U.K.); Contact Data Belgium N.V.; Demonware, Inc.; Demon-ware Ltd. (Ireland); Demonware Canada; Expert Software, Inc.; Igloo Distribution Limited (U.K.); Infinity Ward, Inc.; Kaboom.com, Inc.; Luxoflux, Inc.; NBG EDV Handels-und Verlags GmbH & Co. KG (Germany); Neversoft Entertainment, Inc.; PDQ Distribution Ltd. (U.K.); RedOctane, Inc.; RedOctane Limited (U.K.); RedOctane Technologies Pvt. Ltd. (India); Shaba Games, Inc.; Target Software Vertriebs GmbH (Germany); Treyarch Corporation; Toys for Bob, Inc.; Vicarious Visions, Inc.; Z-Axis, Ltd.

Nelson Rhodes
Updated, Frederick C. Ingram

PRINCIPAL DIVISIONS

Activision Merchandising TDC; Activision Publishing; Activision Studios.

PRINCIPAL COMPETITORS

Electronic Arts, Inc.; Nintendo Company; Microsoft Corporation; Sony Corporation; THQ Inc., Ubisoft Entertainment.

FURTHER READING

Activision Buys Infinity Ward, Los Angeles Business, October 30, 2003.

Activision Buys Part of CSR Entertainment; Opens Office in South Korea, Los Angeles Business, June 21, 2006.

Activision Setting Up Shop at DreamWorks Animation, Los Angeles Business, May 10, 2006.

Activision to Buy DemonWare, Los Angeles Business, March 6, 2007.

Activision to Develop American Chopper Video Game, St.Paul Business Journal, July 16, 2004.

Aspyr Features Retro Games, Austin Business Journal, August 20, 2003.

Cooke, Tony, Honestly: When Disloyalty Is Good, Wall Street Journal, January 8, 2003, p. C13.

Cummings, Betsy, From Showdown to Good Times, New York Times, Bus. Sec., January 25, 2004, p. 2.

DErrico, Richard A., Game Developer, Partners Sk8 into Nintendos Wireless World, Business Review (Albany, N.Y.), November 18, 2005.

________, Vicarious Visions Sold to Activision, Business Review (Albany, N.Y.), January 20, 2005.

Dunphry, Laura, New Platforms, Hard Times for Video-Game Publisher, Los Angeles Business Journal, April 17, 2000, p. 69.

Fixmer, Andy, No Games, Los Angeles Business Journal, April 24, 2006, p. 43.

Fritz, Ben, Activision Extends Dream Deal, Variety, November 17, 2005, pp. 1, 33.

Hendricks, Mike, Why We Need More Cool Restaurants and Coffeehouses, Business Review (Albany, N.Y.), July 28, 2006.

Id Software Rejected $90 Million Offer for Three Programs, Wall Street Journal, September 28, 2005, p. B13.

King, Danny, Game Over for Activision Public Offering, Los Angeles Business Journal, November 5, 2001, p. 16.

Marcus, Alfred Allen, Big Winners and Big Losers: The 4 Secrets of Long-Term Business Success and Failure, Upper Saddle River, N.J.: Wharton School Publishing, 2006.

New Tony Hawk Game Features Large Cross-Branding Effort with Sirius, Los Angeles Business, October 18, 2005.

Parkes, Christopher, Viacom Sued Over Support for Star Trek: Video Games Maker Activision Says Licence Left to Decay, National Post (Canada), July 2, 2003, p. FP10.

Pham, Alex, Acting on His Vision for Gaming: Robert Bobby Kotick Leads Activisions Growth As He Builds on Industrys Gaining Momentum, Los Angeles Times, June 3, 2002, p. C4.

Pollack, Andrew, Star Trek Set to Become Video Games, New York Times, September 28, 1998.

Stuart, Devan, Kona Skates into Video Game Industry, Jacksonville Business Journal, December 12, 2002.

Takahashi, Dean, Deer Hunter Hit Shoots Down Computer-Game Snobs, Wall Street Journal, October 1, 1998, n.p.

________, Entertainment + Technology: Youve Played the Game ... Now See the Movie, or So Hollywood Hopes, Wall Street Journal, March 14, 1999, p. R14.

________, Game Makers, Taking Hits, Try to Shield Kids, Wall Street Journal, May 25, 1999, p. B1.

________, New Video Games Will Challenge PCs, Wall Street Journal, September 2, 1999, p. B6.

________, Three New Games Let You Build Civilizations, but This Time Play Nice, Wall Street Journal, August 5, 1999, p. B1.

________, Video-Game Makers See Soaring Sales Nowand Lots of Trouble Ahead, Wall Street Journal, June 15, 1998, p. R10.

Tanners, Timna, Video Game Makers Score Points Spotting Hot TrendsA Hit Can Boost Sales, Companys Stock Price, Toronto Star, Bus. Sec., October 5, 2000, p. 14.

Wingfield, Nick, Advertising: Videogame Makers Try to Score More Ad Dollars with ResearchStudy Finds Many Gamers Dont Mind Product Plugs; A Pitch to Madison Avenue, Wall Street Journal, December 5, 2005, p. B3.

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Activision, Inc.

Activision, Inc.

3100 Ocean Park Boulevard
Santa Monica, California 90405
U.S.A.
Telephone: (310) 255-2000
Fax: (310) 255-2100
Web site: http://www.activision.com

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

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 companys 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 Cabelas 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 industrys top game designers.

Birth of Electronic Gaming in the 1970s and 1980s

Activisions 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 Bushnells achievements, northern California-based Activision put out its shingle as the first independent developer and distributor of entertainment software. The fledgling companys aim was to enter the embryonic gaming market and capture a healthy chunk before competitors realized the industrys 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. Acti visions 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 Activisions 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 Activisions 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 miscalculationthe 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 Mandéis & 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 years $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 Bugs 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 Activisions 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.

Company Perspectives:

Every day, the employees ofActivision 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/Pixars Toy Story 2 and A Bugs Life, Disneys Tarzan, LucasArts Star Wars: Episode 1 The Phantom Menace; Marvel Comics X-MEN and Spider-Man and Paramounts Star Trek.

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 members 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 markets 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 dont teach people to hate. Video games dont 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. Activisions 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 Psygnosiss 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.

Activisions 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 Activisions 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 Cabelas 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 Segas 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 Dreamcasts 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 years $5.1 million, a whopping 197 percent increase. North American operations in 1999 increased from the previous fiscal years 24 percent to 34 percent of revenues, while international revenues fell slightly from 1998s 71 percent to 1999s 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, Activisions top three, Kotick, Kelly, and Doornick, added two new executive vice-presidents to the foldMichael Rowe and Kathy Vrabeckto 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 companys 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 Nintendos handheld Gameboy. With increased exposure through motion picture tie-ins, both from movies to games (A Bugs 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.

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 years $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.

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.

Further Reading

Pollack, Andrew, Star Trek Set to Become Video Games, New York Times, September 28, 1998.

Takahashi, Dean, Deer Hunter Hit Shoots Down Computer-Game Snobs, Wall Street Journal, October 1, 1998, n.p.

, Entertainment + Technology: Youve Played the Game ... Now See the Movie, Or So Hollywood Hopes, Wall Street Journal, March 14, 1999, p. R14.

, Game Makers, Taking Hits, Try to Shield Kids, Wall Street Journal, May 25, 1999, p. B1.

, New Video Games Will Challenge PCs, Wall Street Journal, September 2, 1999, p. B6.

, Three New Games Let You Build Civilizations, But This Time Play Nice, Wall Street Journal, August 5, 1999, p. B1.

, Video-Game Makers See Soaring Sales Nowand Lots of Trouble Ahead, Wall Street Journal, June 15, 1998, p. R10.

Nelson Rhodes

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