Activision to Kick-Start Beta Test

A leading video game developer and publisher, Activision Blizzard Inc. (ATVI - Snapshot Report) announced that it will flag off Starcraft II open beta testing in China from March 29, 2011. Developed by Blizzard Entertainment Inc., a division of Activision, StarCraft II is the sequel to Blizzard Entertainment's 1998 blockbuster hit StarCraft.

During the open beta test, beta testers will be able to access the multiplayer modes of StarCraft II for free. Players interested to be a part of the open beta process will have to visit Blizzard’s Battle.net website. Blizzard has upgraded its Battle.net website with several new enhancements and new features including voice communication, leagues and ladders, achievements and stat-tracking.

Following the end of the open beta period, Activision will release StarCraft II in China. Gamers will be able to purchase game time for both the multiplayer and single-player level in 30-day increments for a retail price of approximately RMB 20. Activision is yet to declare the release date for Starcraft II in China.

StarCraft has been a hit franchise for Activision over the years. The original version won critical acclaim as one of the top real-time strategy games of all time. Starcraft has sold more than 11 million copies since its launch in 1998.

StarCraft II centers on the clash between the protoss, terrans, and zerg, with each side deploying legions of veteran, upgraded and new unit types. StarCraft II also features a powerful map editor that allows players to create and share custom maps.

The game was released simultaneously in North America, Europe, South Korea, Australia, New Zealand, Russia, Brazil, Chile, Argentina, Singapore, Indonesia, Malaysia, Thailand, the Philippines, Taiwan, Hong Kong and Macau on July 27, 2010.

StarCraft II sold more than 1.5 million copies within the first 48 hours of its launch, thereby making it the fastest-selling strategy game of all time. The game has gone on to sell more than 4.5 million copies worldwide to date.

Activision is also working on its next offering StarCraft II: Heart of the Swarm, of which not much detail is available currently.

Our Take

According to PriceWaterhouseCoopers, China's video gaming sector is expected to grow by an annual rate of 33.5%, contributing two-thirds of the sector's total growth in the Asia-Pacific in the coming five years.

We expect StarCraft II to get a strong response in China, which will boost Activision’s top-line growth for the fiscal year ending March 31, 2011. Moreover, Activision’s Chinese partner NetEase.com Inc. (NTES - Snapshot Report) has a strong foothold in the Chinese online gaming market (16.3% in the December quarter), which will also drive growth in our view.

However, Activision is expected to face strong competition in China from Tencent Holdings Limited  (28.5% market share in December quarter) and Shanda Interactive Entertainment Limited (SNDA) (18.1% market share in December quarter) over the long term.

We have a Neutral rating on Activision over the long term (6-12 months). Currently, Activision has a Zacks #4 Rank, which implies a short-term Sell rating.

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