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Activision's New Call of Duty DLC

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Activision Blizzard Inc (ATVI - Free Report) is set to release a new downloadable content (“DLC”) pack for Call of Duty: Black Ops 2 on Apr 26. The pack will be exclusively available to Microsoft’s (MSFT - Free Report) Xbox Live users.

Uprising is the second of the four DLC packs for Call of Duty: Black Ops 2, scheduled to release in 2013. Developed by Activision’s Treyarch game studio, Uprising adds four new maps for competitive multiplying namely “Magma”, “Encore”, “Vertigo” and “Studio”.

However, the major attraction of Uprising is the new zombie adventure called “Mob of the Dead”. The adventure takes place at the Alcatraz prison where four mobsters, played by Hollywood actors Ray Liotta, Chazz Palminteri, Joe Pantoliano and Michael Madsen, find themselves surrounded by zombies.

We believe that the new content pack will boost Activision’s customer base in 2013. Call of Duty: Black Ops 2 has already become a blockbuster, crossing the coveted $1 billion sales mark within 15 days of its release, beating Modern Warfare 3’s record by a day, as per data available from Chart-Track and retail customer sell-through information.

We believe that Activision will continue to release DLCs and expansion packs for its major franchises going forward. Since the DLCs and expansion packs offer new content, they help aging gaming franchises such as Call of Duty to remain fresh for a long time. Moreover, the new content improves the competitive prowess of a game such as Call of Duty, which faces significant competition from Electronic Arts’ (EA - Free Report) Battlefield franchise.

Another major benefit of these expansion packs are their cost effectiveness. The content packs are mostly delivered online, which costs less than the traditional physical format, as they require minimum packaging cost. This low-cost feature will not only attract more customers but will also drive Activision’s profitability going forward.

However, continued softness in the video game industry, limited presence in the mobile gaming segment, higher adoption of free-to-play games and significant competition from EA and Take-Two Interactive Software (TTWO - Free Report) are the major headwinds going forward. Moreover, continued investments in new products are expected to hurt margins in the near term.

Currently, Activision has a Zacks Rank #4 (Sell).

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