The following table sets forth condensed consolidated statements of operations data for the periods indicated (amounts in millions) and as a percentage of total net revenues, except for cost of revenues, which are presented as a percentage of associated revenues:
|
| | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2020 | | 2019 |
Net revenues | | |
| |
| | |
| |
|
Product sales | | $ | 543 |
| 30 | % | | $ | 656 |
| 36 | % |
Subscription, licensing, and other revenues | | 1,245 |
| 70 |
| | 1,169 |
| 64 |
|
Total net revenues | | 1,788 |
| 100 |
| | 1,825 |
| 100 |
|
| | | | | | |
Costs and expenses | | | |
| | |
| |
|
Cost of revenues—product sales: | | | | | | |
Product costs | | 119 |
| 22 |
| | 152 |
| 23 |
|
Software royalties, amortization, and intellectual property licenses | | 82 |
| 15 |
| | 111 |
| 17 |
|
Cost of revenues—subscription, licensing, and other revenues: | | | | | | |
Game operations and distribution costs | | 258 |
| 21 |
| | 239 |
| 20 |
|
Software royalties, amortization, and intellectual property licenses | | 46 |
| 4 |
| | 61 |
| 5 |
|
Product development | | 238 |
| 13 |
| | 249 |
| 14 |
|
Sales and marketing | | 243 |
| 14 |
| | 207 |
| 11 |
|
General and administrative | | 167 |
| 9 |
| | 179 |
| 10 |
|
Restructuring and related costs | | 23 |
| 1 |
| | 57 |
| 3 |
|
Total costs and expenses | | 1,176 |
| 66 |
| | 1,255 |
| 69 |
|
| | | | | | |
Operating income | | 612 |
| 34 |
| | 570 |
| 31 |
|
Interest and other expense (income), net | | 8 |
| — |
| | 3 |
| — |
|
Income before income tax expense | | 604 |
| 34 |
| | 567 |
| 31 |
|
Income tax expense | | 99 |
| 6 |
| | 120 |
| 7 |
|
Net income | | $ | 505 |
| 28 | % | | $ | 447 |
| 24 | % |
Consolidated Net Revenues
The key drivers of changes in our consolidated net revenues, operating segment results, consolidated results, and sources of liquidity are presented in the order of significance.
The following table summarizes our consolidated net revenues, in-game net revenues, and increase (decrease) in deferred net revenues recognized (amounts in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | Increase (Decrease) | | % Change | | 2020 | | 2019 | | Increase (Decrease) | | % Change |
Consolidated net revenues | $ | 1,954 | | | $ | 1,282 | | | $ | 672 | | | 52 | % | | $ | 5,674 | | | $ | 4,503 | | | $ | 1,171 | | | 26 | % |
Net effect from recognition (deferral) of deferred net revenues | 187 | | | 68 | | | 119 | | | | | 306 | | | 824 | | | (518) | | | |
| | | | | | | | | | | | | | | |
In-game net revenues (1) | 1,283 | | | 734 | | | 549 | | | 75 | % | | 3,331 | | | 2,479 | | | 852 | | | 34 | % |
|
| | | | | | | | | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | Increase (Decrease) | | % Change |
Consolidated net revenues | | $ | 1,788 |
| | $ | 1,825 |
| | $ | (37 | ) | | (2 | )% |
Net effect from recognition (deferral) of deferred net revenues | | 266 |
| | 567 |
| | (301 | ) | | |
| | | | | | | | |
In-game net revenues (1) | | 935 |
| | 943 |
| | (8 | ) | | (1 | )% |
(1) In-game net revenues primarily includes the net amount of revenue recognized for downloadable content and microtransactions during the period.
| |
(1) | In-game net revenues primarily includes the net amount of revenue recognized for downloadable content and microtransactions during the period. |
Consolidated Net Revenues
Q3 2020 vs. Q3 2019
The decreaseincrease in consolidated net revenues for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily driven by a decrease in revenues of $121 million due to:
| |
• | lower revenues from Sekiro: Shadows Die Twice,which was released in March 2019, with no comparable release in 2020; and
|
the absence of revenues recognized from the Destiny franchise in 2019 (reflecting our sale of the publishing rights for Destiny to Bungie in December 2018).
The decrease was partially offset by an increase in revenues of $65$752 million due to higher revenues recognized from from:
•Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4,which was released in October 2018;
•Call of Duty: Mobile, which was released in October 2019, as well as2019;
•Tony Hawk’s Pro Skater 1 and 2, which was released in September 2020;
•World of Warcraft, primarily from higher revenues associated with in-game content and subscriptions; and
•the Call of Duty franchise catalog titles.
This increase was partially offset by a net decrease of $80 million, driven by various other franchises and titles.
YTD Q3 2020 vs. YTD Q3 2019
The increase in consolidated net revenues for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily driven by an increase in revenues of $19$1.23 billion due to higher revenues from:
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4;
•Call of Duty: Mobile;
•World of Warcraft, primarily from higher subscription revenues; and
•Tony Hawk’s Pro Skater 1 and 2.
This increase was partially offset by a decrease in revenues of $102 million due to lower revenues fromSekiro: Shadows Die Twice,which was released in March 2019.
The remaining net increase of $44 million was driven by various other franchises and titles.
Change in Deferred Revenues Recognized
Q3 2020 vs. Q3 2019
The decreaseincrease in net deferred revenues recognized for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was driven by (1) a decreasean increase of $185$128 million in net deferred revenues recognized from Activision, primarily due to lowerhigher net deferred revenues recognized from Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 20182018.
YTD Q3 2020 vs. YTD Q3 2019
The decrease in net deferred revenues recognized for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was driven by (1) a decrease of $339 million in net deferred revenues recognized from Activision, primarily due to lower net deferred revenues recognized from Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4, and (2) a decrease of $120$180 million in net deferred revenues recognized from Blizzard, primarily due to lower net deferred revenues recognized from World of Warcraft, driven by revenues recognized inas the prior periodyear included the recognition of deferred revenues from the August 2018 release of World of Warcraft: Battle for Azeroth®, which was released in August 2018, with no comparable recognition of deferred revenues in the current period given nothe lack of a comparable release in 2019.
In-game Net Revenues
In-gameQ3 2020 vs. Q3 2019
The increase in in-game net revenues for the three months ended March 31,September 30, 2020, were slightly lower than foras compared to the three months ended March 31,September 30, 2019, was primarily due to a decrease in in-game net revenues of $89 million driven by:
lower in-game revenues from King, primarily due to lower revenues from player purchases, driven by the Candy Crush franchise;
| |
• | lower in-game revenues recognized from World of Warcraft;and
|
| |
• | lower in-game revenues recognized from Overwatch.
|
The decrease was offset by an increase in in-game net revenues of $117$528 million due to:to higher in-game revenues from:
| |
• | in-game revenues recognized from •Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 2018;
•Call of Duty: Mobile,which was released in October 2019;
•World of Warcraft; and
•the Call of Duty franchise catalog titles.
Call of Duty: Mobile; and
|
| |
• | higher in-game revenues recognized from Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 2018.
|
The remaining net decreaseincrease of $36$21 million was driven by various other franchises and titles.
YTD Q3 2020 vs. YTD Q3 2019
The increase in in-game net revenues for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily driven by an increase in in-game net revenues of $843 million due to higher in-game revenues from:
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4; and
•Call of Duty: Mobile.
The remaining net increase of $9 million was driven by various other franchises and titles.
Foreign Exchange Impact
Changes in foreign exchange rates had a negativepositive impact of $10$37 million and $9 million on our consolidated net revenues for the three and nine months ended March 31,September 30, 2020, respectively, as compared to the same periodperiods in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound.
Operating Segment Results
We have three reportable segments—Activision, Blizzard, and King. Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker (“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense; amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.
Our operating segments are also consistent with our internal organizational structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments.
Information on reportable segment net revenues and operating income for the three and nine months ended March 31,September 30, 2020 and 2019, are presented below (amounts in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2020 | | $ Increase / (Decrease) |
| Activision | | Blizzard | | King | | Total | | Activision | | Blizzard | | King | | Total |
Segment Net Revenues | | | | | | | | | | | | | | | |
Net revenues from external customers | $ | 773 | | | $ | 393 | | | $ | 536 | | | $ | 1,702 | | | $ | 564 | | | $ | 1 | | | $ | 36 | | | $ | 601 | |
Intersegment net revenues (1) | — | | | 18 | | | — | | | 18 | | | — | | | 16 | | | — | | | 16 | |
Segment net revenues | $ | 773 | | | $ | 411 | | | $ | 536 | | | $ | 1,720 | | | $ | 564 | | | $ | 17 | | | $ | 36 | | | $ | 617 | |
| | | | | | | | | | | | | | | |
Segment operating income | $ | 345 | | | $ | 133 | | | $ | 248 | | | $ | 726 | | | $ | 319 | | | $ | 59 | | | $ | 54 | | | $ | 432 | |
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2019 | | | | | | | | |
| Activision | | Blizzard | | King | | Total | | | | | | | | |
Segment Net Revenues | | | | | | | | | | | | | | | |
Net revenues from external customers | $ | 209 | | | $ | 392 | | | $ | 500 | | | $ | 1,101 | | | | | | | | | |
Intersegment net revenues (1) | — | | | 2 | | | — | | | 2 | | | | | | | | | |
Segment net revenues | $ | 209 | | | $ | 394 | | | $ | 500 | | | $ | 1,103 | | | | | | | | | |
| | | | | | | | | | | | | | | |
Segment operating income | $ | 26 | | | $ | 74 | | | $ | 194 | | | $ | 294 | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2020 | | Increase / (Decrease) |
| Activision | | Blizzard | | King | | Total | | Activision | | Blizzard | | King | | Total |
Segment Net Revenues | | | | | | | | | | | | | | | |
Net revenues from external customers | $ | 2,285 | | | $ | 1,264 | | | $ | 1,587 | | | $ | 5,136 | | | $ | 1,491 | | | $ | 151 | | | $ | 60 | | | $ | 1,702 | |
Intersegment net revenues (1) | — | | | 62 | | | — | | | 62 | | | — | | | 53 | | | — | | | 53 | |
Segment net revenues | $ | 2,285 | | | $ | 1,326 | | | $ | 1,587 | | | $ | 5,198 | | | $ | 1,491 | | | $ | 204 | | | $ | 60 | | | $ | 1,755 | |
| | | | | | | | | | | | | | | |
Segment operating income | $ | 1,088 | | | $ | 533 | | | $ | 615 | | | $ | 2,236 | | | $ | 935 | | | $ | 329 | | | $ | 72 | | | $ | 1,336 | |
| | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2019 | | | | | | | | |
| Activision | | Blizzard | | King | | Total | | | | | | | | |
Segment Net Revenues | | | | | | | | | | | | | | | |
Net revenues from external customers | $ | 794 | | | $ | 1,113 | | | $ | 1,527 | | | $ | 3,434 | | | | | | | | | |
Intersegment net revenues (1) | — | | | 9 | | | — | | | 9 | | | | | | | | | |
Segment net revenues | $ | 794 | | | $ | 1,122 | | | $ | 1,527 | | | $ | 3,443 | | | | | | | | | |
| | | | | | | | | | | | | | | |
Segment operating income | $ | 153 | | | $ | 204 | | | $ | 543 | | | $ | 900 | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2020 | | Increase / (Decrease) |
| Activision | | Blizzard | | King | | Total | | Activision | | Blizzard | | King | | Total |
Segment Net Revenues | | | | | | | | | | | | | | | |
Net revenues from external customers | $ | 519 |
| | $ | 437 |
| | $ | 498 |
| | $ | 1,454 |
| | $ | 202 |
| | $ | 98 |
| | $ | (31 | ) | | $ | 269 |
|
Intersegment net revenues (1) | — |
| | 15 |
| | — |
| | 15 |
| | — |
| | 10 |
| | — |
| | 10 |
|
Segment net revenues | $ | 519 |
| | $ | 452 |
| | $ | 498 |
| | $ | 1,469 |
| | $ | 202 |
| | $ | 108 |
| | $ | (31 | ) | | $ | 279 |
|
| | | | | | | | | | | | | | | |
Segment operating income | $ | 184 |
| | $ | 197 |
| | $ | 156 |
| | $ | 537 |
| | $ | 111 |
| | $ | 142 |
| | $ | (22 | ) | | $ | 231 |
|
| | | | | | | | | | | | | | | |
| Three Months Ended March 31, 2019 | | | | | | | | |
| Activision | | Blizzard | | King | | Total | | | | | | | | |
Segment Net Revenues | | | | | | | | | | | | | | | |
Net revenues from external customers | $ | 317 |
| | $ | 339 |
| | $ | 529 |
| | $ | 1,185 |
| | | | | | | | |
Intersegment net revenues (1) | — |
| | 5 |
| | — |
| | 5 |
| | | | | | | | |
Segment net revenues | $ | 317 |
| | $ | 344 |
| | $ | 529 |
| | $ | 1,190 |
| | | | | | | | |
| | | | | | | | | | | | | | | |
Segment operating income | $ | 73 |
| | $ | 55 |
| | $ | 178 |
| | $ | 306 |
| | | | | | | | |
(1) Intersegment revenues reflect licensing and service fees charged between segments.
| |
(1) | Intersegment revenues reflect licensing and service fees charged between segments. |
Reconciliations of total segment net revenues and total segment operating income to consolidated net revenues and consolidated income before income tax expense are presented in the table below (amounts in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | 2020 | | 2019 |
Reconciliation to consolidated net revenues: | | | | | | | |
Segment net revenues | $ | 1,720 | | | $ | 1,103 | | | $ | 5,198 | | | $ | 3,443 | |
Revenues from non-reportable segments (1) | 65 | | | 113 | | | 232 | | | 245 | |
Net effect from recognition (deferral) of deferred net revenues (2) | 187 | | | 68 | | | 306 | | | 824 | |
Elimination of intersegment revenues (3) | (18) | | | (2) | | | (62) | | | (9) | |
Consolidated net revenues | $ | 1,954 | | | $ | 1,282 | | | $ | 5,674 | | | $ | 4,503 | |
| | | | | | | |
Reconciliation to consolidated income before income tax expense: | | | | | | | |
Segment operating income | $ | 726 | | | $ | 294 | | | $ | 2,236 | | | $ | 900 | |
Operating income (loss) from non-reportable segments (1) | (20) | | | 5 | | | (27) | | | 10 | |
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues | 150 | | | 53 | | | 169 | | | 629 | |
Share-based compensation expense | (53) | | | (27) | | | (138) | | | (127) | |
Amortization of intangible assets | (16) | | | (50) | | | (62) | | | (151) | |
| | | | | | | |
Restructuring and related costs (4) | (9) | | | (28) | | | (39) | | | (108) | |
| | | | | | | |
| | | | | | | |
Consolidated operating income | 778 | | | 247 | | | 2,139 | | | 1,153 | |
Interest and other expense (income), net | 25 | | | (2) | | | 55 | | | (33) | |
Loss on extinguishment of debt | 31 | | | — | | | 31 | | | — | |
Consolidated income before income tax expense | $ | 722 | | | $ | 249 | | | $ | 2,053 | | | $ | 1,186 | |
(1)Includes other income and expenses from operating segments managed outside the reportable segments, including our Distribution business. Also includes unallocated corporate income and expenses.
|
| | | | | | | | |
| | For the Three Months Ended March 31, |
| | 2020 | | 2019 |
Reconciliation to consolidated net revenues: | | | | |
Segment net revenues | | $ | 1,469 |
| | $ | 1,190 |
|
Revenues from non-reportable segments (1) | | 68 |
| | 73 |
|
Net effect from recognition (deferral) of deferred net revenues (2) | | 266 |
| | 567 |
|
Elimination of intersegment revenues (3) | | (15 | ) | | (5 | ) |
Consolidated net revenues | | $ | 1,788 |
| | $ | 1,825 |
|
| | | | |
Reconciliation to consolidated income before income tax expense: | | | | |
Segment operating income | | $ | 537 |
| | $ | 306 |
|
Operating income (loss) from non-reportable segments (1) | | 3 |
| | (3 | ) |
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues | | 171 |
| | 441 |
|
Share-based compensation expense | | (43 | ) | | (63 | ) |
Amortization of intangible assets | | (33 | ) | | (54 | ) |
Restructuring and related costs (4) | | (23 | ) | | (57 | ) |
Consolidated operating income | | 612 |
| | 570 |
|
Interest and other expense (income), net | | 8 |
| | 3 |
|
Consolidated income before income tax expense | | $ | 604 |
| | $ | 567 |
|
(2)Reflects the net effect from recognition (deferral) of deferred net revenues, along with related cost of revenues, on certain of our online-enabled products. | |
(1) | Includes other income and expenses from operating segments managed outside the reportable segments, including our Distribution business. Also includes unallocated corporate income and expenses. |
| |
(2) | Reflects the net effect from recognition (deferral) of deferred net revenues, along with related cost of revenues, on certain of our online-enabled products. |
| |
(3) | Intersegment revenues reflect licensing and service fees charged between segments. |
| |
(4) | Reflects restructuring initiatives, which include severance and other restructuring-related costs. |
(3)Intersegment revenues reflect licensing and service fees charged between segments.
(4)Reflects restructuring initiatives, which include severance and other restructuring-related costs.
Segment Net Revenues
Activision
Q3 2020 vs. Q3 2019
The increase in Activision’s segment net revenues for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to:to higher revenues from:
| |
• | higher revenues from Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 2018;
|
| |
• | revenues from Call of Duty: Mobile, which was released in October 2019; and
|
•Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 2018;
•Call of Duty: Mobile, which was released in October 2019;
•Tony Hawk’s Pro Skater 1 and 2, which was released in September 2020; and
•the Call of Duty franchise catalog titles.
The increase was partially offset by lower revenues from CrashTM Team Racing Nitro-Fueled, which was released in June 2019.
YTD Q3 2020 vs. YTD Q3 2019
The increase in Activision’s segment net revenues for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to higher revenues from:
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4;
•Call of Duty: Mobile;
•the Call of Duty franchise catalog titles;
•Tony Hawk’s Pro Skater 1 and 2;
•the Call of Duty League, which began its first season in January 2020.2020; and
•Call of Duty:Modern Warfare 2 Campaign Remastered, which was first released on March 31, 2020.
The increase was partially offset by:by lower revenues from:
| |
•Sekiro: Shadows Die Twice, which was released in March 2019;
•Crash Team Racing Nitro-Fueled; and
• | lower revenues from Sekiro: Shadows Die Twice,which was released in March 2019, with no comparable release in 2020; and
|
the absence of revenues from the Destiny franchise in 2019 (reflecting our sale of the publishing rights for Destiny to Bungie in December 2018).
Blizzard
Q3 2020 vs. Q3 2019
The increase in Blizzard’s segment net revenues for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to:to higher revenues from World of Warcraft, primarily from higher revenues associated with in-game content and subscriptions, partially offset by lower revenues from the Overwatch League.
| |
• | higher revenues from World of Warcraft,primarily driven by higher subscription revenues due to the release of World of WarcraftClassic in August 2019, and revenues associated with in-game content delivered to customers upon pre-purchase of World of Warcraft:Shadowlands, with no comparable revenues in the prior period; and
|
| |
• | revenues from WarcraftIII: Reforged,which was released in January 2020.
|
YTD Q3 2020 vs. YTD Q3 2019
The increase in Blizzard’s segment net revenues for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to the same factors as noted for the three-month period above.
King
Q3 2020 vs. Q3 2019
The decreaseincrease in King’s segment net revenues for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to lowerhigher revenues from player purchases driven byand advertising in the Candy Crush franchise, partially offset by anfranchise.
YTD Q3 2020 vs. YTD Q3 2019
The increase in King’s segment net revenues for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to higher advertising revenues.revenues in the Candy Crush franchise.
Segment Income from Operations
Activision
Q3 2020 vs. Q3 2019
The increase in Activision’s segment operating income for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to:to higher segment net revenues.
higher revenues, as discussed above;
| |
• | lower cost of revenues and marketing costs for Sekiro: Shadows Die Twice given the launch of the title in the prior year; and
|
lower bad debt provisions.
These increases wereThis increase was partially offset by:
| |
• | •higher cost of revenues and marketing costs service provider fees such as digital storefront fees (e.g. fees retained by Apple and Google for our sales on their platforms) and server bandwidth fees, and software royalties for Call of Duty: Mobile;
•Call of Duty: Mobile in the current quarter with no such costs in the prior-year quarter; and |
higher product development costs driven by higher personnel bonuses as a result of strong business performance.performance;
•higher cost of revenues and marketing costs for Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4; and
•cost of revenues and marketing costs associated with the release of Tony Hawk’s Pro Skater 1 and 2 in the current quarter.
YTD Q3 2020 vs. YTD Q3 2019
The increase in Activision’s segment operating income for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to higher segment net revenues.
This increase was partially offset by:
•higher cost of revenues and marketing costs for Call of Duty: Mobile;
•higher product development costs driven by higher personnel bonuses as a result of strong business performance; and
•higher cost of revenues and marketing costs for Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4.
Blizzard
Q3 2020 vs. Q3 2019
The increase in Blizzard’s segment operating income for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to higher segment net revenues and lower esport production and marketing costs, partially offset by costs associated with the Overwatch League to support team owners during the COVID-19 pandemic.
YTD Q3 2020 vs. YTD Q3 2019
The increase in Blizzard’s segment operating income for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to:
•higher revenues, as discussed above; andsegment net revenues;
•lower product development costs, despite an increase in personnel costs, driven by higher capitalization of software development costs from the timing of game development cyclescycles; and higher personnel
•lower general and administrative costs.
King
Q3 2020 vs. Q3 2019
The decreaseincrease in King’s segment operating income for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to:
•higher segment net revenues; and
•lower revenues,general and administrative costs.
YTD Q3 2020 vs. YTD Q3 2019
The increase in King’s segment operating income for the nine months ended September 30, 2020, as discussed above;compared to the nine months ended September 30, 2019, was primarily due to:
•higher segment net revenues; and
•lower general and administrative costs.
This increase was partially offset by higher sales and marketing costs for the Candy Crush franchise.
These decreases were partially offset by lower service provider fees, primarily digital storefront fees (e.g. fees retained by Apple and Google for our sales on their platforms).
Foreign Exchange Impact
Changes in foreign exchange rates had a positive impact of $28 million and a negative impact of $19$13 million on reportable segment net revenues for the three and nine months ended March 31,September 30, 2020, respectively, as compared to the same period in the previous year. The changes are primarily due to changes in the value of the U.S. dollar relative to the euro and the British pound.
Consolidated Results
Net Revenues by Distribution Channel
The following table details our consolidated net revenues by distribution channel (amounts in millions):
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| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | Increase (Decrease) | | 2020 | | 2019 | | Increase (Decrease) |
Net revenues by distribution channel: | | | | | | | | | | | |
Digital online channels (1) | $ | 1,753 | | | $ | 1,014 | | | $ | 739 | | | $ | 4,782 | | | $ | 3,493 | | | $ | 1,289 | |
Retail channels | 117 | | | 93 | | | 24 | | | 509 | | | 599 | | | (90) | |
Other (2) | 84 | | | 175 | | | (91) | | | 383 | | | 411 | | | (28) | |
Total consolidated net revenues | $ | 1,954 | | | $ | 1,282 | | | $ | 672 | | | $ | 5,674 | | | $ | 4,503 | | | $ | 1,171 | |
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| | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | Increase (Decrease) |
Net revenues by distribution channel: | | |
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Digital online channels (1) | | $ | 1,441 |
| | $ | 1,393 |
| | $ | 48 |
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Retail channels | | 221 |
| | 313 |
| | (92 | ) |
Other (2) | | 126 |
| | 119 |
| | 7 |
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Total consolidated net revenues | | $ | 1,788 |
| | $ | 1,825 |
| | $ | (37 | ) |
(1) Net revenues from “Digital online channels” include revenues from digitally-distributed subscriptions, downloadable content, microtransactions, and products, as well as licensing royalties.
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(1) | Net revenues from “Digital online channels” include revenues from digitally-distributed subscriptions, downloadable content, microtransactions, and products, as well as licensing royalties. |
(2) Net revenues from “Other” include revenues from our Distribution business, the Overwatch League, and the Call of Duty League.
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(2) | Net revenues from “Other” include revenues from our Distribution business, the Overwatch League, and the Call of Duty League. |
Digital Online Channel Net Revenues
Q3 2020 vs. Q3 2019
The increase in net revenues from digital online channels for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31, 2019, was primarily due to:
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• | higher revenues recognized from Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 2018; and
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• | revenues recognized from Call of Duty: Mobile, which was released in October 2019.
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The increase was partially offset by lower revenues from Sekiro: Shadows Die Twice,which was released in March 2019, with no comparable release in 2020.
Retail Channel Net Revenues
The decrease in net revenues from retail channels for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was primarily due to:
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• | lower revenues from Sekiro: Shadows Die Twice; and
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• | lower revenues recognized from Call of Duty: Modern Warfare as compared to Call of Duty: Black Ops 4.
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Net Revenues by Geographic Region
The following table details our consolidated net revenues by geographic region (amounts in millions):
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| | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | Increase (Decrease) |
Net revenues by geographic region: | | |
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Americas | | $ | 948 |
| | $ | 988 |
| | $ | (40 | ) |
EMEA (1) | | 566 |
| | 614 |
| | (48 | ) |
Asia Pacific | | 274 |
| | 223 |
| | 51 |
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Consolidated net revenues | | $ | 1,788 |
| | $ | 1,825 |
| | $ | (37 | ) |
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(1) | “EMEA” consists of the Europe, Middle East, and Africa geographic regions. |
Americas
The decrease in net revenues in the Americas region for the three months ended March 31, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to lower revenues from Sekiro: Shadows Die Twice,which was released in March 2019, with no comparable release in 2020.
EMEA
The decrease in net revenues in the EMEA region for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was primarily due to lower revenues from Sekiro: Shadows Die Twice.
Asia Pacific
The increase in net revenues in the Asia Pacific region for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was primarily due to:
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• | higher subscription revenues from World of Warcraft, primarily driven by the release of World of WarcraftClassic in August 2019;
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• | revenues from WarcraftIII: Reforged,which was released in January 2020; and
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• | revenues recognized from Call of Duty: Mobile, which was released in October 2019.
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Net Revenues by Platform
The following table details our consolidated net revenues by platform (amounts in millions):
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| | For the Three Months Ended March 31, |
| | 2020 | | 2019 | | Increase (Decrease) |
Net revenues by platform: | | | | | | |
Console | | $ | 594 |
| | $ | 677 |
| | $ | (83 | ) |
PC | | 498 |
| | 494 |
| | 4 |
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Mobile and ancillary (1) | | 570 |
| | 535 |
| | 35 |
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Other (2) | | 126 |
| | 119 |
| | 7 |
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Total consolidated net revenues | | $ | 1,788 |
| | $ | 1,825 |
| | $ | (37 | ) |
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(1) | Net revenues from “Mobile and ancillary” include revenues from mobile devices, as well as non-platform-specific game-related revenues, such as standalone sales of physical merchandise and accessories. |
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(2) | Net revenues from “Other” include revenues from our Distribution business, the Overwatch League, and the Call of Duty League. |
Console
The decrease in net revenues from the console platform for the three months ended March 31, 2020, as compared to the three months ended March 31, 2019, was primarily due to lower revenues from Sekiro: Shadows Die Twice,which was released in March 2019, with no comparable release in 2020.
PC
Net revenues from the PC platform for the three months ended March 31, 2020, were roughly equal to the three months ended March 31, 2019, primarily due to higher revenues recognized from from:
•Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 2018. This2018;
•Call of Duty: Mobile, which was released in October 2019; and
•World of Warcraft, primarily from higher revenues associated with in-game content and subscriptions.
YTD Q3 2020 vs. YTD Q3 2019
The increase in net revenues from digital online channels for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to higher revenues from:
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4;
•Call of Duty: Mobile; and
•World of Warcraft, primarily from higher subscription revenues.
Retail Channel Net Revenues
Q3 2020 vs. Q3 2019
The increase in net revenues from retail channels for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, was primarily due to higher revenues from:
•Tony Hawk’s Pro Skater 1 and 2, which was released in September 2020; and
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4.
YTD Q3 2020 vs. YTD Q3 2019
The decrease in net revenues from retail channels for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to lower revenues from Sekiro: Shadows Die Twice, which was released in March 2019, partially offset by higher revenues from Tony Hawk’s Pro Skater 1 and 2.
Net Revenues by Geographic Region
The following table details our consolidated net revenues by geographic region (amounts in millions):
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| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | Increase (Decrease) | | 2020 | | 2019 | | Increase (Decrease) |
Net revenues by geographic region: | | | | | | | | | | | |
Americas | $ | 1,127 | | | $ | 655 | | | $ | 472 | | | $ | 3,188 | | | $ | 2,406 | | | $ | 782 | |
EMEA (1) | 589 | | | 452 | | | 137 | | | 1,770 | | | 1,525 | | | 245 | |
Asia Pacific | 238 | | | 175 | | | 63 | | | 716 | | | 572 | | | 144 | |
Consolidated net revenues | $ | 1,954 | | | $ | 1,282 | | | $ | 672 | | | $ | 5,674 | | | $ | 4,503 | | | $ | 1,171 | |
(1) “EMEA” consists of the Europe, Middle East, and Africa geographic regions.
Americas
Q3 2020 vs. Q3 2019
The increase in net revenues in the Americas region for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, was primarily due to higher revenues from:
•Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 2018;
•Call of Duty: Mobile, which was released in October 2019;
•Tony Hawk’s Pro Skater 1 and 2, which was released in September 2020; and
•the Call of Duty franchise catalog titles.
The increase was largelypartially offset by lower revenues from our professional esport leagues.
YTD Q3 2020 vs. YTD Q3 2019
The increase in net revenues in the Americas region for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to higher revenues from:
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4; and
•Call of Duty: Mobile.
EMEA
Q3 2020 vs. Q3 2019
The increase in net revenues in the EMEA region for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, was primarily due to higher revenues from:
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4; and
•Call of Duty: Mobile.
The increase was partially offset by lower revenues from our Distribution business.
YTD Q3 2020 vs. YTD Q3 2019
The increase in net revenues in the EMEA region for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to higher revenues from Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4.
Asia Pacific
Q3 2020 vs. Q3 2019
The increase in net revenues in the Asia Pacific region for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, was primarily due to higher revenues from:
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4;
•World of Warcraft, primarily from higher revenues associated with subscriptions and in-game content; and
•Call of Duty: Mobile.
YTD Q3 2020 vs. YTD Q3 2019
The increase in net revenues in the Asia Pacific region for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to higher revenues from:
•World of Warcraft, primarily from higher subscription revenues;
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4; and
•Call of Duty: Mobile.
Net Revenues by Platform
The following table details our consolidated net revenues by platform (amounts in millions):
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| For the Three Months Ended September 30, | | For the Nine Months Ended September 30, |
| 2020 | | 2019 | | Increase (Decrease) | | 2020 | | 2019 | | Increase (Decrease) |
Net revenues by platform: | | | | | | | | | | | |
Console | $ | 695 | | | $ | 241 | | | $ | 454 | | | $ | 1,944 | | | $ | 1,324 | | | $ | 620 | |
PC | 514 | | | 341 | | | 173 | | | 1,494 | | | 1,196 | | | 298 | |
Mobile and ancillary (1) | 661 | | | 525 | | | 136 | | | 1,853 | | | 1,572 | | | 281 | |
Other (2) | 84 | | | 175 | | | (91) | | | 383 | | | 411 | | | (28) | |
Total consolidated net revenues | $ | 1,954 | | | $ | 1,282 | | | $ | 672 | | | $ | 5,674 | | | $ | 4,503 | | | $ | 1,171 | |
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(1) Net revenues from “Mobile and ancillary” include revenues from mobile devices, as well as non-platform-specific game-related revenues, such as standalone sales of physical merchandise and accessories.
(2) Net revenues from “Other” include revenues from our Distribution business, the Overwatch League, and the Call of Duty League.
Console
Q3 2020 vs. Q3 2019
The increase in net revenues from the console platform for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, was primarily due to higher revenues from:
•Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 2018;
•Tony Hawk’s Pro Skater 1 and 2, which was released in September 2020; and
•the Call of Duty franchise catalog titles.
YTD Q3 2020 vs. YTD Q3 2019
The increase in net revenues from the console platform for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to higher revenues from:
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4; and
•Tony Hawk’s Pro Skater 1 and 2.
The increase was partially offset by lower revenues from Sekiro: Shadows Die Twice.Twice, which was released in March 2019.
PC
Q3 2020 vs. Q3 2019
The increase in net revenues from the PC platform for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, was primarily due to higher revenues from:
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4; and
•World of Warcraft, primarily from higher revenues associated with in-game content and subscriptions.
YTD Q3 2020 vs. YTD Q3 2019
The increase in net revenues from the PC platform for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to higher revenues from:
•Call of Duty: Modern Warfare, as compared to Call of Duty: Black Ops 4; and
•World of Warcraft, primarily from higher subscription revenues.
Mobile and Ancillary
Q3 2020 vs. Q3 2019
The increase in net revenues from mobile and ancillary for the three months ended March 31,September 30, 2020, as compared to net revenues for the three months ended March 31,September 30, 2019, was primarily due to higher revenues recognizedfrom:
•Call of Duty: Mobile; and
•the Candy Crush franchise, driven by higher revenues from player purchases and advertising.
YTD Q3 2020 vs. YTD Q3 2019
The increase in net revenues from mobile and ancillary for the nine months ended September 30, 2020, as compared to net revenues for the nine months ended September 30, 2019, was primarily due to higher revenues from Call of Duty: Mobile, which was released in October 2019..
Costs and Expenses
Cost of Revenues
The following table details the components of cost of revenues in dollars (amounts in millions) and as a percentage of associated net revenues:
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| Three Months Ended September 30, 2020 | | % of associated net revenues | | Three Months Ended September 30, 2019 | | % of associated net revenues | | Increase (Decrease) |
Cost of revenues—product sales: | | | | | | | | | |
Product costs | $ | 101 | | | 25 | % | | $ | 137 | | | 53 | % | | $ | (36) | |
Software royalties, amortization, and intellectual property licenses | 37 | | | 9 | | | 9 | | | 3 | | | 28 | |
Cost of revenues—subscription, licensing, and other revenues: | | | | | | | | | |
Game operations and distribution costs | 290 | | | 19 | | | 246 | | | 24 | | | 44 | |
Software royalties, amortization, and intellectual property licenses | 41 | | | 3 | | | 50 | | | 5 | | | (9) | |
Total cost of revenues | $ | 469 | | | 24 | % | | $ | 442 | | | 34 | % | | $ | 27 | |
| | | | | | | | | |
| Nine Months Ended September 30, 2020 | | % of associated net revenues | | Nine Months Ended September 30, 2019 | | % of associated net revenues | | Increase (Decrease) |
Cost of revenues—product sales: | | | | | | | | | |
Product costs | $ | 357 | | | 24 | % | | $ | 388 | | | 30 | % | | $ | (31) | |
Software royalties, amortization, and intellectual property licenses | 152 | | | 10 | | | 171 | | | 13 | | | (19) | |
Cost of revenues—subscription, licensing, and other revenues: | | | | | | | | | |
Game operations and distribution costs | 819 | | | 20 | | | 714 | | | 22 | | | 105 | |
Software royalties, amortization, and intellectual property licenses | 115 | | | 3 | | | 164 | | | 5 | | | (49) | |
Total cost of revenues | $ | 1,443 | | | 25 | % | | $ | 1,437 | | | 32 | % | | $ | 6 | |
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| Three Months Ended March 31, 2020 | | % of associated net revenues | | Three Months Ended March 31, 2019 | | % of associated net revenues | | Increase (Decrease) |
Cost of revenues—product sales: | | | | | | | | | |
Product costs | $ | 119 |
| | 22 | % | | $ | 152 |
| | 23 | % | | $ | (33 | ) |
Software royalties, amortization, and intellectual property licenses | 82 |
| | 15 |
| | 111 |
| | 17 |
| | (29 | ) |
Cost of revenues—subscription, licensing, and other revenues: | | | | | | | | | |
Game operations and distribution costs | 258 |
| | 21 |
| | 239 |
| | 20 |
| | 19 |
|
Software royalties, amortization, and intellectual property licenses | 46 |
| | 4 |
| | 61 |
| | 5 |
| | (15 | ) |
Total cost of revenues | $ | 505 |
| | 28 | % | | $ | 563 |
| | 31 | % | | $ | (58 | ) |
Cost of Revenues—Product Sales:
Q3 2020 vs. Q3 2019
The decrease in product costs for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was in line with theprimarily due to a $34 million decrease in product costs for our Distribution business as a result of lower revenues.
The increase in software royalties, amortization, and intellectual property licenses related to product sales for the three months ended September 30, 2020, as compared to the three months ended September 30, 2019, was primarily due to a $25 million increase in software amortization and royalties from Activision, driven by amortization and royalties from Tony Hawk’s Pro Skater 1 and 2, which was released in September 2020.
YTD Q3 2020 vs. YTD Q3 2019
The decrease in product costs for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to a $19 million decrease in product costs from Sekiro: Shadows Die Twice, which was released in March 2019.
The decrease in software royalties, amortization, and intellectual property licenses related to product sales for the threenine months ended March 31,September 30, 2020, as compared to the threenine months ended March 31,September 30, 2019, was primarily due to:
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• | a $20•a $12 million decrease in software amortization and royalties from Blizzard, driven by lower software amortization and royalties from World of Warcraft, as the prior year included software amortization expense from the August 2018 release of World of Warcraft: Battle for Azeroth with no comparable amortization in the current year; and
•a $6 million decrease in software amortization and royalties from Activision, driven by lower software amortization and royalties from (1) Sekiro: Shadows Die Twice and (2) Call of Duty: Modern Warfare, which was released in October 2019, as compared to Call of Duty: Black Ops 4, which was released in October 2018, partially offset by software amortization and royalties from (1) Tony Hawk’s Pro Skater 1 and 2, and (2) Call of Duty:Modern Warfare 2 Campaign Remastered, which was first released on March 31, 2020.
Sekiro: Shadows Die Twice, which was released in March 2019, with no comparable release in 2020; and
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• | an $8 million decrease in software amortization and royalties from Blizzard, driven by lower software amortization and royalties from World of Warcraft, as the prior year included software amortization from the August 2018 release of World of Warcraft: Battle for Azeroth with no comparable amortization in the current year.
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Cost of Revenues—Subscription, Licensing, and Other Revenues:
Q3 2020 vs. Q3 2019
The increase in game operations and distribution costs for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to (1) an increase of $13$43 million in service provider fees, such as digital storefront fees (e.g., fees retained by Apple and Google for our sales on their platforms), payment processor fees, and server bandwidth fees, as a result of higher revenues, and (2) an increase of $14 million associated with our professional esports broadcast costs, driven by the Call of Duty League, which began its first season in January 2020.leagues.
The decrease in software royalties, amortization, and intellectual property licenses related to subscription, licensing, and other revenues for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to a decrease of $22$36 million in amortization of internally-developed franchise and developed software intangible assets acquired as part of our acquisition of King. The decrease was partially offset by an increase in software amortization and royalties from Activision of $7$24 million, driven by software royalties on Call of Duty: Mobile, which was released in October 2019.
YTD Q3 2020 vs. YTD Q3 2019
The increase in game operations and distribution costs for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to a $93 million increase in service provider fees, such as digital storefront fees, payment processor fees, and server bandwidth fees, as a result of higher revenues.
The decrease in software royalties, amortization, and intellectual property licenses related to subscription, licensing, and other revenues for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to a decrease of $92 million in amortization of internally-developed franchise and developed software intangible assets acquired as part of our acquisition of King. The decrease was partially offset by an increase in software amortization and royalties from Activision of $39 million, driven by Call of Duty: Mobile.
Product Development (amounts in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | % of consolidated net revenues | | September 30, 2019 | | % of consolidated net revenues | | Increase (Decrease) |
Three Months Ended | $ | 274 | | | 14 | % | | $ | 210 | | | 16 | % | | $ | 64 | |
Nine Months Ended | $ | 802 | | | 14 | % | | $ | 702 | | | 16 | % | | $ | 100 | |
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| March 31, 2020 | | % of consolidated net revenues | | March 31, 2019 | | % of consolidated net revenues | | Increase (Decrease) |
Three Months Ended | $ | 238 |
| | 13 | % | | $ | 249 |
| | 14 | % | | $ | (11 | ) |
Q3 2020 vs. Q3 2019
The decreaseincrease in product development costs for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to higher development costs of $92 million, driven by higher personnel bonuses as a $40result of strong business performance. The increase was partially offset by a $29 million increase in capitalization of development costs, driven by the timing of Blizzard’s game development cycles.
YTD Q3 2020 vs. YTD Q3 2019
The decrease was partially offset by higherincrease in product development costs for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to higher development costs of $29$219 million, driven by higher personnel bonuses as a result of strong business performance. The increase was partially offset by a $120 million increase in capitalization of development costs, driven by the timing of Blizzard’s game development cycles.
Sales and Marketing (amounts in millions)
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| March 31, 2020 | | % of consolidated net revenues | | March 31, 2019 | | % of consolidated net revenues | | Increase (Decrease) |
Three Months Ended | $ | 243 |
| | 14 | % | | $ | 207 |
| | 11 | % | | $ | 36 |
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| September 30, 2020 | | % of consolidated net revenues | | September 30, 2019 | | % of consolidated net revenues | | Increase (Decrease) |
Three Months Ended | $ | 238 | | | 12 | % | | $ | 182 | | | 14 | % | | $ | 56 | |
Nine Months Ended | $ | 722 | | | 13 | % | | $ | 580 | | | 13 | % | | $ | 142 | |
Q3 2020 vs. Q3 2019
The increase in sales and marketing expenses for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was driven byprimarily due to an increase of $51$49 million in marketing spending, and personnel costs, primarily associated with higher marketing costs for driven by the Call of Duty: Mobile Duty franchise.
YTD Q3 2020 vs. YTD Q3 2019
The increase in sales and marketing expenses for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, was primarily due to an increase of $145 million in marketing spending, driven by the Call of Duty franchise and the Candy Crush franchise, partially offset by lower marketing costs for Sekiro: Shadows Die Twice and a decrease in bad debt provisions.franchise.
General and Administrative (amounts in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2020 | | % of consolidated net revenues | | September 30, 2019 | | % of consolidated net revenues | | Increase (Decrease) |
Three Months Ended | $ | 186 | | | 10 | % | | $ | 177 | | | 14 | % | | $ | 9 | |
Nine Months Ended | $ | 529 | | | 9 | % | | $ | 527 | | | 12 | % | | $ | 2 | |
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| March 31, 2020 | | % of consolidated net revenues | | March 31, 2019 | | % of consolidated net revenues | | Increase (Decrease) |
Three Months Ended | $ | 167 |
| | 9 | % | | $ | 179 |
| | 10 | % | | $ | (12 | ) |
Q3 2020 vs. Q3 2019
The decreaseincrease in general and administrative expenses for the three months ended March 31,September 30, 2020, as compared to the three months ended March 31,September 30, 2019, was primarily due to a $10an $18 million decreaseincrease in personnel costs as a result of higher share-based compensation.
YTD Q3 2020 vs. YTD Q3 2019
General and professional service fees.administrative expenses for the nine months ended September 30, 2020, were comparable to expenses for the nine months ended September 30, 2019.
Restructuring and related costs (amounts in millions)
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| September 30, 2020 | | % of consolidated net revenues | | September 30, 2019 | | % of consolidated net revenues | | Increase (Decrease) |
Three Months Ended | $ | 9 | | | — | % | | $ | 24 | | | 2 | % | | $ | (15) | |
Nine Months Ended | $ | 39 | | | 1 | % | | $ | 104 | | | 2 | % | | $ | (65) | |
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| March 31, 2020 | | % of consolidated net revenues | | March 31, 2019 | | % of consolidated net revenues | | Increase (Decrease) |
Three Months Ended | $ | 23 |
| | 1 | % | | $ | 57 |
| | 3 | % | | $ | (34 | ) |
During 2019, we implemented our previously announcedbegan implementing a restructuring plan which was aimed at refocusing our resources on our largest opportunities and removing unnecessary levels of complexity and duplication from certain parts of our business. Since the roll out of the plan, we have been, and will continue, focusing on these goals as we continue to execute against our plan into 2020.plan. The restructuring and related costs incurred during the three and nine months ended March 31,September 30, 2020, relatesrelate primarily to severance costs for actions under this plan being executed in 2020. Refer to Note 11 of the notes to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q for further discussion.
Interest and Other Expense (Income), Net (amounts in millions)
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| March 31, 2020 | | % of consolidated net revenues | | March 31, 2019 | | % of consolidated net revenues | | Increase (Decrease) |
Three Months Ended | $ | 8 |
| | — | % | | $ | 3 |
| | — | % | | $ | 5 |
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| September 30, 2020 | | % of consolidated net revenues | | September 30, 2019 | | % of consolidated net revenues | | Increase (Decrease) |
Three Months Ended | $ | 25 | | | 1 | % | | $ | (2) | | | — | % | | $ | 27 | |
Nine Months Ended | $ | 55 | | | 1 | % | | $ | (33) | | | (1) | % | | $ | 88 | |
InterestQ3 2020 vs. Q3 2019
The increase in interest and other expense (income), net, for the three months ended March 31,September 30, 2020, was comparableas compared to the three months ended March 31, 2019. September 30, 2019, was primarily due to a $19 million decrease in interest income due to lower returns on our investment portfolio as a result of interest rate cuts, reflecting actions by central banks around the world.
YTD Q3 2020 vs. YTD Q3 2019
The increase in interest and other expense (income), net, for the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019 was primarily due to:
•a $41 million decrease in interest income driven by lower returns on our investment portfolio as a result of interest rate cuts, reflecting actions by central banks around the world; and
•a $38 million gain recognized in the prior-year period as a result of adjusting a cost-method equity investment to fair value, as compared to only a $3 million gain recorded in the current year.
As of March 31,September 30, 2020, based on the composition of our investment portfolio and as a result of the COVID-19 pandemic and recent actions by central banks around the world, including the interest rate cuts by the U.S. Federal Reserve, we anticipate investment yields may remain low, which would lowercontinue to negatively impact our future interest income. Such impact is not expected to be material to the Company’s liquidity.
Income Tax Expense (amounts in millions)
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| March 31, 2020 | | % of pretax income | | March 31, 2019 | | % of pretax income | | Increase (Decrease) |
Three Months Ended | $ | 99 |
| | 16 | % | | $ | 120 |
| | 21 | % | | $ | (21 | ) |
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| September 30, 2020 | | % of pretax income | | September 30, 2019 | | % of pretax income | | Increase (Decrease) |
Three Months Ended | $ | 118 | | | 16 | % | | $ | 45 | | | 18 | % | | $ | 73 | |
Nine Months Ended | $ | 365 | | | 18 | % | | $ | 208 | | | 18 | % | | $ | 157 | |
The income tax expense of $99$118 million for the three months ended March 31,September 30, 2020 reflects an effective tax rate of 16%, which is lower than the effective tax rate of 21%18% for the three months ended March 31,September 30, 2019. TheThis decrease is primarily due to a discrete tax benefitbenefits recognized in the current quarter for the remeasurement of deferred tax assets, partially offset by an increase in taxes on foreign earnings.
The income tax expense of $365 million for the nine months ended September 30, 2020, reflects an effective tax rate of 18%, which is comparable to the effective tax rate of 18% for the nine months ended September 30, 2019. Discrete tax benefits recognized in the current year in connection withfor the remeasurement of a U.S. deferred tax asset related toassets were offset by an increase in taxes on foreign earnings earnings.
resulting from an intra-group asset transfer.
The effective tax raterates of 16% and 18% for the three and nine months ended March 31,September 30, 2020, isare lower than the U.S. statutory rate of 21%, primarily due to lower U.S. taxes on foreign earnings,discrete tax benefits recognized for the remeasurement of a U.S. deferred tax asset related to foreign earnings,assets and the recognition of federal research and development credits.excess tax benefits from share-based payments.
The overall effective income tax rate in future periods will depend on a variety of factors, such as changes in pre-tax income or loss by jurisdiction, applicable accounting rules, applicable tax laws and regulations, and rulings and interpretations thereof, developments in tax audits and other matters, and variations in the estimated and actual level of annual pre-tax income or loss.
Further information about our income taxes is provided in Note 13 of the notes to the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.
Liquidity and Capital Resources
We believe our ability to generate cash flows from operating activities is one of our fundamental financial strengths. Despite the impacts of the COVID-19 pandemic on the global economy, in the near term, we expect our business and financial condition to remain strong and to continue to generate significant operating cash flows, which, we believe, in combination with our existing balance of cash and cash equivalents and short-term investments of $6.0$7.6 billion, our access to capital, and the availability of our $1.5 billion revolving credit facility, will be sufficient to finance our operational and financing requirements for the next 12 months. Our primary sources of liquidity, which are available to us to fund cash outflows such as potential dividend payments or share repurchases and scheduled debt maturities (the next of which is not until 2026), include our cash and cash equivalents, short-term investments, and cash flows provided by operating activities.
As of March 31,September 30, 2020, the amount of cash and cash equivalents held outside of the U.S. by our foreign subsidiaries was $2.0$1.9 billion, as compared to $2.8 billion as of December 31, 2019. These cash balances are generally available for use in the U.S., subject in some cases to certain restrictions.
Our cash provided from operating activities is somewhat impacted by seasonality. Working capital needs are impacted by weekly sales, which are generally highest in the fourth quarter due to seasonal and holiday-related sales patterns. We consider, on a continuing basis, various transactions to increase shareholder value and enhance our business results, including acquisitions, divestitures, joint ventures, share repurchases, and other structural changes. These transactions may result in future cash proceeds or payments.
Sources of Liquidity (amounts in millions)
| | | March 31, 2020 | | December 31, 2019 | | Increase (Decrease) | | September 30, 2020 | | December 31, 2019 | | Increase (Decrease) |
Cash and cash equivalents | $ | 5,906 |
| | $ | 5,794 |
| | $ | 112 |
| Cash and cash equivalents | $ | 7,415 | | | $ | 5,794 | | | $ | 1,621 | |
Short-term investments | 78 |
| | 69 |
| | 9 |
| Short-term investments | 188 | | | 69 | | | 119 | |
| $ | 5,984 |
| | $ | 5,863 |
| | $ | 121 |
| | $ | 7,603 | | | $ | 5,863 | | | $ | 1,740 | |
Percentage of total assets | 31 | % | | 30 | % | | |
| Percentage of total assets | 35 | % | | 30 | % | | |
The primary driver of net cash flows associated with our operating activities is the collection of customer receivables generated from the sale of our products and services. These collections are typically partially offset by: payments to vendors for the manufacturing, distribution, and marketing of our products; payments for customer service support for our consumers; payments to third-party developers and intellectual property holders; payments for interest on our debt; payments for software development; payments for tax liabilities; and payments to our workforce.
The primary drivers of net cash flows associated with our investing activities typically include capital expenditures, purchases and sales of investments, changes in restricted cash balances, and cash used for acquisitions.
The primary drivers of net cash flows associated with our financing activities typically include the proceeds from, and repayments of, our long-term debt and transactions involving our common stock, including the issuance of shares of common stock to employees upon the exercise of stock options, as well as the payment of dividends.
On February 6, 2020, our Board of Directors declared a cash dividend of $0.41 per common share. Such dividend is payable onOn May 6, 2020, we made an aggregate cash dividend payment of $316 million to shareholders of record at the close of business on April 15, 2020. We have recorded $316 million