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How much did the Chinese downtime for World of Warcraft cost Activision?

By on July 30, 2009

World of Warcraft’s servers have been down for a couple of month now, but the end appears to be in sight. GamaSutra reports that the Chinese government has now approved a “limited beta” to start on July 30th.

A number of people have commented that the loss of 6 million accounts in China has had little impact on Activision, given that low Average Revenue Per User (ARPU) in China, suggesting that this is nothing more than a blip for Activision, and some dented pride.

This is not true.

The downtime will definitely affect Activision’s numbers.

How much? Well this is only an estimate, but sources suggest that WoW in China represents approximately $200 million of revenue for Activision. That’s not a huge amount of the estimated $1.4 billion in annual sales for Blizzard, or the £4.8 billion or so forecast for the whole of Activision.

But the Chinese WoW revenue is pure profit: It’s a royalty and goes straight down to the bottom line. It has a disproportionate impact on Activision’s earnings.

If we imagine that the Activision makes no money from WoW in China are hit for an entire quarter, that’s a loss of $50 million of profit. Activision is likely to make around $850 million in profit in 2009, but it has to had to warn that “actual results may deviate materially from the outlook”.

In Wall Street parlance, they’re expected to make earnings per share (EPS) of 63 cents.The Chinese downtime could knock 4 cents of that figure. Or to put it another way, their operating margin will fall from 25.5% to 24.5%.

Activision is currently trying to convince investors that it is immune to the recession, that it doesn’t have to make cuts, that it is different from all the other games companies.

Anything that might make them miss their earnings targets is a very big deal indeed.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com