Michael Whitt Marketing Analysis for

INTRODUCTION This paper will analyze Blizzard Entertainment’s marketing strategy in relation to core and peripheral marketing theories and will explore potential alternatives that aim to improve their overall strategy. Since 2005, Blizzard Entertainment has implemented various tactics to navigate China’s volatile and difficult government policy landscape with varying success. After years of cooperation, Blizzard still has difficulties with punctual launch dates, localization, and general marketing throughout China. Recommendations for a future marketing strategy will be considered and given after thorough conceptualization. A subsidiary of -Blizzard, Blizzard Entertainment was founded in January of 1991 in Irvine, . Blizzard’s contribution to Activision-Blizzard’s 2016 record net revenue of $6.6 billion (42% increase YoY), was $2.4 billion, placing Activision-Blizzard among the most successful gaming companies of all time (Activision-Blizzard, 2017). Blizzard Entertainment is at the vanguard of the gaming industry, which is evident as Activision-Blizzard is the only gaming company named in the top 10 of Fortune’s Future 50, a new list that identities the top 50 companies in a position for strong future growth (Fortune, 2017). Much of AB’s success can be attributed to Blizzard’s innovative marketing strategy and products, which will continue to be a powerful factor in future endeavors but should be altered when pivoting focus to a new brand domain. ANALYSIS OF THE MARKETING ENVIRONMENT After a thorough examination of external and internal opportunities and disadvantages in relation to the PESTLE, SWOT, and Porter’s Five Forces analyses, we can see that Blizzard Entertainment has areas for improvement but also is a force to be reckoned with. China has overtaken the rest of the world in the global video game market in 2017 and is projected to continue growth at 2 billion USD per year until 2020. However, by 2020 63% of the market share is projected to be mobile gaming, which is a threat to Blizzard as they currently own one IP playable on mobile platforms (Newzoo, 2017). Mobile game success coupled with China’s political landscape, government policies, direct and indirect competition, and growing middleclass must all be treated as major factors in these subsequent analyses.

PESTLE ANALYSIS As expressed in Figure 1 below, there are many factors displayed in the PESTLE analysis that affect current and prospective outcomes for Blizzard Entertainment. General government policies, such as censorship of violence, language, and free speech, greatly determine the release date of not only new IPs from Blizzard, but also all upcoming content patches which are incremental changes to a game, both aesthetic and gameplay. Historically, Blizzard has entered into contractual joint ventures, defined as two or more companies creating a partnership without a singular entity being formed (Jobber & Ellis- Chadwick, 2016), with production and distribution companies in China with mandates from the government to alter the Blizzard IP through content localization (such as the removal of skeletons from World of ) prior to joint release. This is evident as Blizzard partnered with The9 and later NetEase for the release of : Wrath of the Lich , an expansion previously released November 13th, 2008 in the US and subsequently delayed in China until August 31st, 2010 after multiple iterations were deemed inappropriate by the Chinese government (Engadget, 2010). A solution to these issues would be to wholeheartedly comply with the government’s wishes, as Blizzard has done previously and according to the fact that they haven’t pulled all IPs from China implies the political and legal hurdles are worth the effort.

ECONOMIC Figure 1: PESTLE POLITICAL Government Purchasing Policies Power

ENVIRONMENT SOCIAL BLIZZARD Recycleable IN Culture Localization Materials CHINA

TECH LEGAL Mobile Phone Delays / Bans Competition

In terms of economic factors, the growth of Chinese purchasing power is evident and notable. The overall GDP per capita, which has risen to nearly 7000 USD in 2016 up from 4900 USD in 2010 expressed in figure 2, is relevant for Blizzard to consider launching a new IP, altering, adding or removing paid features from existing IPs (Trading economics, 2017). With the existence of free-to-play (F2P) games taking over large market segments, games that have an upfront cost and a subscription fee (such as Blizzard’s World of Warcraft), experts have wondered how Blizzard’s golden goose has remained relevant. With a lofty15 USD a month on top of a $40 initial purchase, WoW is still competing with F2P games such as League of Legends, which makes money from microtranscations in-game. While these microtransactions occasionally can give players a competitive advantage, they allow players to boost their experience through customization purchases such as changing the aesthetics of a character or even as far as increasing experience or resources gained. While World of Warcraft is one of few games to still run on the subscription model, Blizzard’s other IPs such as and Overwatch have adapted new payment models; F2P and F2P after initial purchase respectively. This allows Chinese gamers to play the games and compete without spending a massive amount of money each year on subscriptions, which I argue is a strategic advantage and necessary for World of Warcraft and future IPs to survive and thrive in China.

Figure 2: China GDP Per Capita, taken from www.tradingeconomics.com/china/gdp-per-capita Social elements comprise an important facet of the Chinese market, as these are somewhat unique to China and closely related to government regulation. As stated before, content localization is necessary before a game can even be released in China. Regardless of the political oversight, this localization is an intelligent step in the right direction for Blizzard. Using Blizzard’s 4th expansion for analysis, World of Warcraft: Mists of Pandaria (MoP) we can see that MoP was not only localized to China, but was designed for it as well. This expansion features not only a new playable race, “Pandaren”, which is not only all but identical to pandas, but “Pandaren” can be broken down into “Panda-ren”, where “ren” means person in Chinese. A clever race design choice to appeal to a Chinese audience. Additionally, a newly added playable location to the game,”Pandaria”, closely resembles China in not only architecture, but also ancient culture. In figure 3, it is difficult to not see the similarities immediately. While government policies historically have forced Blizzard to localize content in order to release a game, it is evident that Blizzard embraced this issue and learned to overcome it through creative design and lore solutions; something Blizzard must continue doing on all IPs in China.

Figure 3: World of Warcraft: Mists of Pandaria ad screenshot, taken from us.blizzard.com/en-us/games/mists/ A major threat to all but one of Blizzard’s IPs currently released in China, mobile phone gaming poses is a considerable problem as China’s mobile game revenue and popularity has already surpassed that of PC and is projected to gain further control (Newzoo, 2017), as shown in figure 4. Figure 4 (below):

As mobile phones are widely used and relatively inexpensive compared to gaming computers in China, and with mobile quickly gaining traction in China, Blizzard must be prepared to deliver a solution. Two responses would be for Blizzard to design and release another successful IP for mobile phones, or find a way to optimize current IPs for mobile phone use. However, with the overwhelmingly successful releases of both Overwatch and Destiny 2 shattering multiple records not only in revenue but also customer retention, there is little reason to adapt to mobile users. However, adding mobile versions of current IPs could help prepare for users leaving PC gaming for mobile gaming. Additionally, Blizzard is experiencing record years in revenue and is projected to continue high margins across all IPs (Activision-Blizzard, 2017) so I argue a contingency plan that can quickly be implemented is sufficient. Lastly, a minor issue for gaming companies in general is the environmental impact. Blizzard sells the vast majority of their games online, nearly 10 times the amount of sales online compared to brick and mortar sales (Activision-Blizzard, 2017). The major issue is that materials used for video game production do not decompose. In 2012 Big Fish Games, a gaming blog, posted an infographic analyzing the environmental effects of Nintendo’s games in circulation, with the bottom line being games should be sold online as landfills are too full (figure 5).

Figure 5: Nintendo’s contribution to pollution, taken from https://www.bigfishgames.com/blog/environmental-impact-of-video-games/

PORTER’S FIVE FORCES ANALYSIS Blizzard has low to moderate competitor threat overall, but is in a thriving position in the Chinese market for a number of reasons. According to Porter’s Five Forces Analysis, it is evident that Blizzard will be able to defend their position in the Chinese market, although there are certainly strategic decisions available to gain further market share.

New Entrant Threats

-Market Share Defense -Entry Barriers -Low Customer Switching Cost -High Production Cost

Supplier Power Industry Competition Buyer Power

-Highly Saturated -Highly Saturated Market -Low Buyer Switching Costs -Government Policy -High Market Growth -Brand Identity on Quality -Low Buyer Switching Costs -Low Switching Costs -Substitute Ability -Brand Identity on Quality -Brand Identity -Product Differences

Substitute Threats

-Low Substitute Performance -Low Substitute Cost

Figure 6: Porter’s Five Forces Analysis

Figure 6 conveys various advantages and disadvantages, but overall Blizzard is in a strong position. Blizzard’s sole publishing partner, NetEase, boasted a revenue report of 12.5 billion RMB for 2016, much of this surely attributed to the release of Blizzard’s Overwatch, and taking about 36% of the market share behind only tech-giant Tencent (Seeking Alpha, 2016). While entry barriers for mobile gaming are low, quality computer games require quite the opposite. Development and maintenance for World of Warcraft has reached over 250 million USD, with three years of costs missing from this figure (MMOS, 2015). Additionally, customer switching costs are quite low, with the average computer game costing 40 USD. In light of this, the threat of new entry is low.

Despite customer switching costs being low, once a game is purchased the customer owns the game forever, meaning buyers can switch back and forth without any cost after purchase, depending on the title. For example, World of Warcraft requires a 15 USD subscription fee each month, whereas Overwatch is free to play once purchased, as are every other IPs that Blizzard offers. The gaming industry typically follows a F2P pay structure, where a customer can buy a game and not pay anything to play it. However, Tencent’s League of Legends is completely free to download and play. Despite this, customers can purchase items in-game which is how League of Legends successfully makes money, and a staggering amount at that. Additionally, gamers are concerned with quality of not only the prospective game, but also the company. As Blizzard, NetEase, Tencent, Nintendo, Sony, Microsoft, and many other wildly successful gaming companies are concerned, their brand names and identities carry weight in the form of loyal customers. While substitution quality might be high, there are other factors in the decision process. Prospective customers also consider the cost of the game, brand quality, specific genre, and critic and player reviews. Buyer power is moderate.

Substitution threats are not to be discounted. Although certainly substitution threats do exist, gamers usually gravitate to the game that is most fun, which is a subjective term. For example, many gamers want to play games to socialize with friends and trust their friend’s word as much as a third party critic. An M Science survey found that “…….. 29% of "Overwatch" players joined the game because their friends are playing it. And 14% joined in because the game is so popular.” (Investor’s Business Daily, 2016) Additionally, the popularity of games comes both organically and synthetically. Companies with substantial funds often are difficult adversaries as airwaves are flooded with critic reviews, social media endorsements, experiential and traditional marketing tactics, and of course, the subtle promise of an outstanding game. If a consumer is substituting, it is likely for a game of similar popularity, reviews, and backing. Arguably, as gamers typically pay an initial fee to purchase a game and own it forever, little is lost post- substitution, meaning the threat is low.

Supplier power poses a considerable threat everywhere else in the world, but with strict government policies in China preventing many prospective competitors from even entering the Chinese market, threat from this facet is low. When examining the success of Finnish gaming company, Supercell, “The key to its success has been its ability to successfully enter Asian markets, something that other developers have failed to achieve” (Jobber & Ellis-Chadwick, 2016). Additionally, the market is already saturated and controlled by a handful of massive and powerful companies with incredible resources. However, industry disruptors that offer a new gaming genre (such as Player Unknown’s Battlegrounds) are a threat, though such innovation is rare.

As such, industry competition is low-moderate. Blizzard has nearly three decades of market experience, and since the release of World of Warcraft in 2004, Blizzard has been able to defeat all new competitors for market share in the Massively Multiplayer Online Role Playing Game (MMORPG) genre, which is an incredible feat. Further cooperation with NetEase and the Chinese government is vitally important for success in the Chinese market, and so far Blizzard has successfully traversed the bureaucratic requirements and the explosive market growth of Chinese gaming.

SWOT ANALYSIS Blizzard is again in a strong position overall, but as the Chinese market is heavily regulated and at times volatile and unreliable, these weaknesses can quickly halt Blizzard’s expansion into China. Blizzard’s strengths are apparent across all IPs, but specifically needs to focus on the areas of opportunities while working carefully with NetEase and the government to approve future IP releases and patch updates with punctuality. Figure 7 expresses the contrast of current and potential areas of growth and stagnation.

-Localization of Products -Reliance on NetEase and Government -Positive Brand Reputation -Late arrival in Chinese Market -Diversified PC Product Portfolio -Limited Mobile Game Development -Industry Experience -Decentralization

- Emerging eSports Market -Chinese “Copies” - Mobile Game Development -Limited Connection to Western Gaming - Purchase / Payment Structure Changes -F2P and Mobile Game Alternatives

Figure 7: SWOT Analysis

Blizzard has an incredible track record over the past 25 years in the West, but their success in China will be determined by their ability to cooperate with and satisfy NetEase and the government. Blizzard’s localization team, as expressed before when referencing World of Warcraft: Mists of Pandaria, is experienced and outstanding at targeting local markets. Blizzard is also consistently outperforming their competition and maintains substantial market share for each respective IPs genre. With such a diverse portfolio, dedication to their product’s quality and the consumer experience, Blizzard has forged an overwhelmingly positive brand identity. Additionally, Blizzard has been featured on Fortune’s Top 100 companies to work for on three occasions (Fortune, 2017). Blizzard’s dedication to employee growth and consumer experience are representative of Blizzard’s brand values, which are the core characteristics and values of a brand (Jobber & Ellis-Chadwick, 2016).

Blizzard’s major weaknesses, which have been proven to be a considerable threat, are existent but potentially unavoidable. Their dependency on NetEase to produce their IPs in China leaves significant room for error on multiple fronts. Despite having a great localization team, Blizzard’s marketing operations in China are fully given to NetEase, which is defined as decentralization (Jobber & Ellis-Chadwick, 2016). While this situation is surely unavoidable, this gives NetEase leverage over Blizzard as they not only control the marketing ops, but also the licensing and product support. This relationship could harm Blizzard’s brand image as these IP releases and their relative consumer experience are not truly overseen by Blizzard and therefore are not the exact same quality or experience for players. Blizzard is a late arriver in the Chinese gaming scene, as Tencent currently has market dominance, with NetEase slowly lagging behind. Again, this is likely unavoidable as Tencent is a solely domestic competitor and arguably may have certain governmental deals that allow operations at a higher level, with the prospect of guanxi networks being a real factor, which are “a set of personal connections on which a person can draw to obtain resources or an advantage when doing business” (Jobber & Ellis-Chadwick, 2016). Additionally, governmental politics and policies, include those on an international level, at any point in time can change and adversely affect Blizzard’s ability to operate in China. For the time being, their current situation seems to be effective, but alas, it is fragile.

Blizzard’s threats are unique to the Chinese market, which could pose a significant risk but so far have not negatively affected their success. First, China is often charged with creating copies of Western ideas. While China over the past decade has grown explosively and started to pivot to innovation and creation, the threat of releasing very similar copies to Blizzard’s unique IPs is still apparent, and already happening. Segment Next has reported that an Overwatch copy, Heroes of Warfare, has reportedly been legally targeted by NetEase and Blizzard and subsequently removed from the Chinese Apple app store, a major win for the gaming duo (Segment Next, 2017). Another potential threat is the limited interaction between Chinese gamers and the rest of the world. Although China alone has more gamers than most of the world combined, limiting gamer creativity and competition in an age of globalization may pose a threat to Blizzard’s upcoming eSports league kicking off in 2018, . Again, this is due to Chinese governmental policies and cannot be avoided. Lastly, F2P games such as League of Legends (which is the number one game in the world and in China in terms of concurrent users) and mobile games such as Wang Zhe Rong Yao (王者荣 耀) pose a threat as well as many other F2P games already have over a billion downloads, making the threat of substitution real. Blizzard should develop an answer to the rising popularity of mobile games, which will be recommended later in this paper. Despite these threats, Blizzard has successfully navigated the Chinese market for about 14 years with record profits last year, so while strict regulation may adversely affect overall earning potential, so far Blizzard is able to stay competitive.

Blizzard has multiple opportunities to exploit, many of which are currently being considered. The recent development of the eSports Overwatch League will prove successful in 2018. Blizzard again needs to focus on the development of mobile games to combat the Chinese mobile market, which is projected to comprise 63% of the market by 2020. One reason for their lack of development could be that Activision-Blizzard recently purchased King Games, which is a leader in the mobile game industry. Arguably this decentralization allows King to focus on mobile development, Blizzard to focus on PC development, and Activision to focus on console development, all three of which are leaders in their respective platform development efforts. The second recommendation will be related to revising purchase and payment structures on all IPs, which I will argue is necessary to grab more market share in a highly saturated market.

ANALYSIS OF THE MARKETING MIX

Blizzard has managed to grow from a tiny Irvine startup into one of, if not the most successful gaming companies in the world despite competing in a highly competitive environment. Their success can be attributed to superior innovative products offered at the right price, using the proper marketing tactics for promotion, and targeting promising markets under advantageous conditions. For the sake of simplicity, subsequent subsections will focus on Blizzard’s efforts with World of Warcraft. PRODUCT

At the time of its release in 2004, WoW was not the first MMORPG to market, but instead was an early adopter. Blizzard incorporates recombinant innovation when seeking to develop new content, which is defined as “… transferring or combining old ideas in new contexts” (Bessant & Tidd, 2015). The CEO of Blizzard, Michael Morhaime stated in an interview that World of Warcraft came to Blizzard after the team had experienced Dune II, a single player Real-Time Strategy (RTS) game, and realized “that a game like that where you could play against another person would be so cool, so much fun” (Takahashi, 2016). 10 years later, World of Warcraft released. In 2016, World of Wacraft:Legion hit stores with its sixth expansion, and thirteen years later continues to be a powerhouse in the MMORPG genre. According to Blizzard’s 2016 3rd quarter financial presentation, “On August 30, 2016, Blizzard launched World of Warcraft: Legion, which sold‐through 3.3 million copies on day one, matching all‐time records achieved by previous expansions, and ranking amongst the fastest‐selling PC games ever. The new expansion grew franchise MAUs by nearly 30% quarter‐over‐quarter” (Activision-Blizzard, 2017). The launch of Legion is proof that WoW and Blizzard are very much here to stay, and will continue to dominate the genre.

PRICE World of Warcraft is somewhat of a statistical outlier, in the sense that it is currently one of very few games with an initial game cost, recurring subscription fees, and subsequent costs for new expansions. However, as stated in subsection 3.1, WoW is proven to be successful financially. With the recent innovation of free to play games, such as League of Legends or most successful mobile phone games, it is clear that these games can earn an incredible amount of money even though being completely free to play. Strategic in-game barriers that prevent the player from advancing further without paying X amount of dollars or waiting Y amount of time are not only a nuisance, but a profitable one at that. According to Business Insider, mobile hit Candy Crush, which is completely free to play, earns a staggering 633,000 USD per day (Business Insider, 2017). Although an attractive feature of WoW is that you cannot pay to win as all microtransactions are only cosmetic, whereas in games like League of Legends and Candy Crush, these purchases sometimes can enhance player ability in-game and remove the handicaps that are placed on an account to give the illusion of fair competition. Blizzard’s answer to this new payment seems to have worked. To combat illegal resource farming, Blizzard now offers players the ability to purchase gold in-game and exchange gold for game time. Meaning, if a player spends ample amount of time each month money earning gold in-game, it is possible to exchange that gold for multiple months of playtime. A tactical decision that seems to have paid off in the interim.

PROMOTION

Blizzard uses multiple methods for product promotion, namely targeted advertising through multiple channels. Two months prior to the release of Legion in 2016, Blizzard’s “Warcraft” movie released in China generating an incredible amount of buzz and nearly 300 million USD in the box office. Richard Huang, an entertainment analyst with Nomura stated in an interview that “‘Warcraft’ is benefiting from the fact that many Chinese in their 20s and 30s grew up playing World of Warcraft" (Pamela Boykoff, 2017). This of course also excited Chinese gamers and encouraged prospective gamers to try the game by offering Legion discounts and specials through various social media platforms in conjunction with purchasing a movie ticket. Additionally, NetEase has over one billion followers on WeChat and Weibo combined, reaching millions of prospective players with any advertisement.

PLACE

Activision-Blizzard’s decision to enter the Chinese market has proven to be a tough but rewarding strategical move. AB has conducted market research on China and with the previous releases of earlier WoW expansions, has found that China indeed is a market worth targeting despite the setbacks and difficulty. This is evident as their partnership with NetEase has lasted for nearly a decade and both are mutually profiting, and continue to work together as another contract was signed for Overwatch in 2016 (Fool, 2017). With China being a tough market to enter, AB has strategically positioned their IPs and brand to be successful in the new market, and now has a semi-reliable partner to assist with releases and governmental issues.

RECOMMENDATIONS In light of this information and the current trajectory of Blizzard in China, both recommendations involve heavy investment into mobile gaming development and payment restructuring. It is evident that mobile games currently and will continue to control the Chinese market for years to come, and with that it is necessary to develop mobile versions of two specific IPs: Overwatch and . These two products would greatly benefit from mobile app versions as controls and in-game functionality could be integrated and optimized quickly, and Blizzard would still be able to steal market share from other similar mobile games that are currently successful as Blizzard’s brand reputation and resources are significant.

Additionally, consideration of restructuring WoW’s payment methodology is necessary. F2P games are the new market standard, and despite WoW’s ability to successfully prosper in this new environment mobile game popularity and trajectory is poised to continue to grow in China. WoW’s subscription method is outdated and will eventually start to hemorrhage players to F2P games, which may cause issues for NetEase when considering an option to sign with an upcoming industry disruptor F2P game instead. Player Unknown’s Battlegrounds has already proven to be a force to be reckoned with two million concurrent players and not even being two years old (Paul Tassi, 2017). Blizzard must reevaluate their stance if future concurrent quarterly WoW revenue falls negative.

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