Activision Partners Toys "R" Us

Video game developer and publisher Activision Blizzard Inc. (ATVI - Snapshot Report) recently entered into a marketing partnership with Toys "R" Us, one of the leading toy and juvenile products retailers, to launch its new video game Skylanders Spyro's Adventure.

On October 8, 2011, Activision and Toys ”R” Us unveiled the latest video game by launching full game demos and interactive game kiosks across over 1200 Toys ”R” Us retail stores worldwide. The new game will hit retail stores on October 16, 2011.

Although the game supports 30 characters, the initial offering will include three characters (exclusively from Toys "R" Us), the USB portal, and the game itself for around $70. Gamers will be able to buy booster packs of toys for an unspecified price to increase the number of characters going forward. Moreover, Toys "R" Us will be the only retailer to sell Skylanders Spyro's Adventure Darklight Crypt Adventure Pack for the first 30 days beginning October 16 until November 15, 2011.

Skylanders Spyro's Adventure will be available on Sony Corp.’s (SNE - Snapshot Report) PlayStation 3 and Microsoft Corp.’s (MSFT - Analyst Report) Xbox and Nintendo’s Wii. The game has cross-platform functionality, which means that the gamers can play any level of the game from any console or platform of their choice. They did not need to start afresh if they switch to another platform.

We believe the new game is largely targeted at kids. The game has been rated E10+, which means that it is suitable for everyone aging 10 and above by the Entertainment Software Rating Board (ESRB). We believe the new game will boost the company’s top-line growth going forward.

However, we also note that Activision is hugely popular for mature games such as War of World and Call of Duty and the child gaming market is a largely uncharted territory for the company. We expect Activision to face significant competition from established players such as The Walt Disney Co. (DIS - Analyst Report), Hasbro Inc. (HAS - Analyst Report) and Mattel, Inc. (MAT - Analyst Report) going forward.

Our Take

Activision boasts a strong product pipeline for 2011 and beyond. The company recently announced the development of its new game TRANSFORMERS: FALL OF CYBERTRON, which is expected to release in late 2012. Activision is also expected to ship Cabela’s (CAB - Analyst Report) new game Cabela’s Survival: Shadows of Katmai on November 1, 2011. Moreover, the company is scheduled to release its highly anticipated Call of Duty: Modern Warfare 3 in November 2011.

We believe partnerships with Cabela’s and Toys "R" Us will drive significant growth for Activision going forward. However, Activision does not have a presence in social and mobile gaming platforms, compared to some of its peers such as Electronic Arts Inc. (ERTS) that have made significant strategic acquisitions and partnerships. This could impact its competitive position over the long term. Further, the gloomy macro environment in North America and weak video game results over the last 12 months compel us to remain on the sidelines.

We, therefore, have a Neutral recommendation on Activision over the long term (for the next 3 to 6 months). Currently, Activision has Zacks #3 Rank on the shares, which implies a Hold rating in the short term.

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