Activision Blizzard Inc

LSE:0H8X

Earnings Call Transcript 2017-Q4

[Operator]

Good day, and welcome to the Activision Blizzard's Q4 2017 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Amrita Ahuja, Senior Vice President of Investor Relations. Please go ahead.

[Amrita Ahuja, executive]

Good afternoon, and thank you for joining us today for Activision Blizzard's Fourth Quarter 2017 Conference Call. With us are Bobby Kotick, CEO; Coddy Johnson, COO; and Spencer Neumann, CFO. And for Q&A, Dennis Durkin, Chief Corporate Officer; Mike Morhaime, CEO of Blizzard; Eric Hirshberg, CEO of Activision; and Riccardo Zacconi, CEO of King, will also join us.

I would like to remind everyone that during this call, we will be making statements that are not historical facts. The forward-looking statements in this presentation are based on information available to the company as of the date of this presentation. And while we believe them to be true, they ultimately may prove to be incorrect. A number of things could cause the company's actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. These include the risk factors discussed in our SEC filings, including our 2016 Annual Report on Form 10-K, and those on the slide that we're showing. The company undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after today, February 8, 2018.

We will present both GAAP and non-GAAP financial measures during this call. We provide non-GAAP financial measures, which exclude the impact of expenses related to stock-based compensation, the amortization of intangible assets; expenses, including legal fees, costs, expenses and accruals related to acquisitions, including the acquisition of King Digital Entertainment; expenses related to debt financings and refinancings; restructuring charges [indiscernible] tax benefits of these excluded items, along with significant discrete tax-related items such as those results from the Tax Cuts and Jobs Act enacted in December 2017.

These non-GAAP measures are not intended to be considered in isolation from, as a substitute for, or superior to our GAAP results. We encourage investors to consider all measures before making an investment decision. Please refer to our earnings release, which is posted on www.activisionblizzard.com for a full GAAP to non-GAAP reconciliation and further explanation with respect to our non-GAAP measures.

There's also a PowerPoint overview, which you can access through the webcast and which will be posted to the website following the call.

In addition, we will also be posting the financial overview, highlighting both GAAP and non-GAAP results in a one-page summary sheet.

Starting this quarter, we are introducing a new operating metrics, net bookings. Net bookings is defined as net amount of products and services sold digitally or sold physically in the period and is equal to revenues plus the impact from deferrals.

And now, I'd like to introduce our CEO, Bobby Kotick.

[Robert Kotick, executive]

Thanks, Amrita, and thank you, all, for joining us today. This was a record quarter and a record year for Activision Blizzard. We delivered record quarterly net bookings of $2.6 billion and record annual net bookings of $7.2 billion. We delivered record segment operating income of $2.4 billion and record non-GAAP EPS of $2.21 a share, above our initial February outlook of $1.70. We also delivered record annual operating cash flow of $2.2 billion.

Each part of our business reached new milestones and demonstrated the durable and enduring nature of our franchises.

Activision celebrated strong Call of Duty momentum in their best operating income year ever. Blizzard delivered their highest operating income ever for a year with no major game releases, and King returned to growth with the Candy Crush franchise stronger than ever.

2017 was also an important year for us for preparation of our future growth initiatives. We invested in new services, features, content and experiences to connect and engage audiences all across our franchises.

One example is the launch of the Overwatch League. Witnessing the passion of players at the opening matches of Blizzard Arena and the millions of spectators connecting via live stream from around the world was a thrilling moment in our history and a milestone in eSports growth.

Watching fans road trip across the country, spectators in the stands wearing team jerseys, gears in the game wearing team skins, audiences leaping to their feet after daring play and viewing parties around the world, these were also moments that created an incredibly rewarding experience and demonstrated the emergence of professional competition as a way to celebrate our players.

Launching a professional league is an ambitious undertaking, and our teams executed on countless fronts, attracting 12 world-class team owners representing cities in Asia, Europe and North America, signing numerous league and team-level sponsors, bringing eSports spectating and production values to new heights and forming immediate distribution strategy that provides broad reach and fair value for our premium content, while also preserving distribution on owned platforms.

Overwatch League matches are broadcast live in our MLG Network and Twitch and will be available on other broadcast outlets throughout the world. In its first week, the League reached 10 million unique viewers and had more than 280,000 average viewers on a permanent basis.

In the week since, we've seen sustained levels of viewership globally, with new spectators joining each week as the excitement continues to grow. Of course, we're building this league for the long term, and we're pleased with the early strong momentum that we have, which has created value for players, spectators, team owners, partners and sponsors. Our efforts have already led to increased global demand for expansion teams, which we expect to start selling later this year.

We also believe in the growth potential of each new opportunity we're pursuing, whether in-game advertising, consumer products, cinematic productions or eSports, all of these support our communities and help to drive engagement with our franchises. Each new experience we provide that enables our players to demonstrate their passion creates a virtuous cycle of engagement, investment and growth. It's still early days for many of these efforts, but making progress in these strategic growth areas will be an important focus for us in 2018 and beyond.

I have the privilege to lead one of the best teams in the entire business world. And as I begin my 28th year at the helm, I've never been more energized to pursue with focus and determination the great growth opportunities that lie ahead.

Also this quarter, we announced that Reveta Bowers joined our Board of Directors. Reveta brings an immense amount of experience in leadership from education and media institutions, such as Common Sense Media, where she chairs the National Board of Directors, and from the Walt Disney Company, where she served as a Director for 10 years. We're thrilled to have her as our newest board member.

And now, here's Coddy to review the highlights of our operations this quarter.

[Collister Johnson, executive]

Thank you, Bobby. Activision Blizzard had a record year, and throughout 2017, we broke records and posted strong results each quarter by providing an ongoing year-round stream of content, services, features and events, both large and small, to our passionate and deeply engaged communities.

While achieving these records, we also made important investments to drive future growth. We invested in marketing, we grew our franchise reach and new services and features to enable more audience engagement and player investment and new growth verticals to celebrate our fans.

Let's dive into our first strategic pillar audience reach, which was 385 million Monthly Active Users this quarter, up from 384 million in Q3. Starting with King. On our last call, we discussed a number of initiatives underway to stabilize King's user base. Those ongoing efforts include releasing fresh and compelling features, events and content into the live games, ROI-positive marketing to attract and engage new players and a strong pipeline of new titles to expand the network. Several of these initiatives enabled King to finish Q4 with 290 million Monthly Active Users and to grow time spent per user to a record of 37 minutes. The Candy Crush franchise, in particular, was up in Monthly Active Users quarter-over-quarter, while also driving increased engagement with higher daily active users and higher time spent per player.

Activision had the top 2 grossing console game releases in North America, and 2 of the top 5 worldwide, leading to 55 million Monthly Active Users in Q4, up double digits quarter-over-quarter and matching the prior quarterly record.

Call of Duty: WWII was the top grossing console game worldwide in 2017, making it the #1 franchise globally, a spot the franchise has held for 8 of the last 9 years. Call of Duty: WWII also set new a franchise milestone with the biggest launch quarter sell-through on current-gen consoles, higher even than Black Ops III.

The game also set a PlayStation record as the biggest day 1 digital release ever.

We've seen a steady march upward on full game downloads for Call of Duty over the last several years and there's plenty of runway still ahead. All of the strong performance, coupled with a great Black Ops III digital season earlier in the year, means that the most successful video game franchise over the last 20 years continues to be healthy and vibrant and will carry strong momentum into 2018.

To that end, this fall, we plan to continue to exceed fans' expectations with the new release from Activision's Treyarch, the creators of Black Ops, the most successful sub-franchise in Call of Duty history, and we cannot wait to share more about that with you on future calls.

Turning now to Destiny. Destiny 2 had an impressive launch, highly rated and second only to Call of Duty as the highest grossing console in North America in 2017. It added a critically acclaimed PC version with distribution on Blizzard's Battle.net, and the attach rate of Destiny 2's first expansion released in December was higher than that of Destiny 1.

That said, we haven't yet sustainably expanded the Destiny community, but Bungie is hard at work improving the game, and the good news is that the Destiny community is a deeply committed, vocal, passionate player base as they responded well in the past and we've made improvements based on their sentiment.

To that end, last week, Bungie released an update outlining both the changes we've made and the changes that are coming.

So far, these changes have been received positively and the team has a robust slate of services, features and seasonal events still to come. There are also 2 epic adventures on the horizon with expansion 2 in May and a major content launch later this year.

There is magic in this franchise, and we're committed to meeting our own and our players' expectations in the coming quarters.

Crash Bandicoot continued to have strong sales in Q4 after successful summer launch. Crash's performance shows how valuable our library of IP can be, and we brought it back to players in a compelling new way. We look forward to exploring other beloved IP in future offerings as well.

Blizzard is celebrating its 27th anniversary today. Happy birthday, Blizzard. A lot of things have changed over the past 27 years as the business has grown across genres, platforms and geographies, but a few things have not, including Blizzard's commitment to put players first and to release games at an incredibly high level of quality. Blizzard finished the year with 40 million Monthly Active Users continuing a 6-quarter streak of 40 million Monthly Active Users or more. Overwatch continues to attract new players and the most recent Blizzard World content has been well received by the community. Overwatch's motto of delivering year-round content with seasonal events and new heroes and new maps continues to drive strong engagement.

Hearthstone's Monthly Active Users increased year-over-year this quarter as players enjoyed the latest expansion, Kobolds and Catacombs, and the introduction of new free content.

While net bookings did not match the prior expansion's record performance, players did log more playtime, which brings me to our second strategic pillar, deepening engagement.

For Activision, Blizzard and King overall, daily time spent per user was over 50 minutes for the second quarter in a row, placing us on par with Facebook's time per day across Facebook, Instagram and Messenger.

Now that 50 minutes per day is just the time spent in our games. It does not include the growing popularity of watching our games on other online platforms.

For the year, Activision Blizzard had 7 of the top 20 games on Twitch, the next closest publisher had just 2, demonstrating the broad eSports appeal of our franchises.

Bobby already shared that launching the Overwatch League was a key milestone for us and that we're seeing strong early momentum.

And Call of Duty World League also opened its next season in December and is off to a good start, selling out each of its World League global open events. And the season's launch event more than doubled viewership hours over the prior year.

Turning now to our third pillar, player engagement. In-game services, features and content continued to engage our fans and help drive our results, delivering a Q4 record of over $1 billion of in-game net bookings and an annual record of over $4 billion.

We focused on offering compelling content for our communities wherever they play. Activision had some of the industry's best-selling downloadable content in 2017, including Zombies Chronicles for Call of Duty Black Ops III, which was the #1 offering of the year for PlayStation North America. This is notable and impressive given that Chronicles came out nearly 2 years after Black Ops III launched, and it illustrates the value of releasing great content to our engaged communities wherever they're playing.

Just as impressively, player investment in additional virtual goods and services surpassed investment in downloadable content in 2017 for Call of Duty and for Destiny, and we expect that to be the same for 2018.

Activation has a great digital roadmap ahead, including Destiny 2's Expansion Pass and Call of Duty: WWII Season Pass.

King was the biggest contributor to our record year of in-game net bookings. King continues to have 2 of the top 10 grossing games on U.S. iOS and Android app stores, a level of performance they delivered for over 4 years now.

For the first time, King actually held both the #1 and the #2 spots at the same time with Candy Crush Saga and Candy Crush Soda Saga, respectively, demonstrating the remarkable durability of the Candy Crush franchise.

Overall, King had an incredible year in 2017, delivering not only 4 straight quarters of growth in consumer spend on Candy Crush, but also new mobile net bookings record with their biggest year, their best quarter in Q3 and their best week ever in Q4.

Finally, we continue to make progress on our company-wide mobile pipeline. We are hard at work on initiatives across a number of our franchises. We plan to see some earlier results later this year and for the bulk of our new mobile opportunities to be driving growth in 2019 and beyond.

In summary, 2017 was our best year yet because of the broad-based success we delivered and because of the groundwork we laid to realize significant growth in years ahead. We had a great slate on the road for 2018 and beyond. And we look forward to continuing to serve our passionate fans, communities and audiences around the world.

Spence will now review the 2017 numbers in more detail and discuss 2018 guidance. Spence?

[Spencer Neumann, executive]

Thanks, Coddy. So today, I'll review our Q4 and 2017 results as well as our outlook for 2018. Q4 was another strong quarter, capping off a record-setting year, with record quarterly and annual revenues, driven by record annual digital revenues as our business is now 78% digital and record in-game revenues consistent with our entertainment as a service model. With an increasingly diversified business, we generated, for the first time, over $2 billion in annual revenues on each of 3 interactive platforms: Console, PC and mobile. And with record profits, record annual non-GAAP operating income and earnings per share and record cash flows.

Each of Activision, Blizzard and King contributed to our overperformance for the year, delivering record annual total segment revenues and operating income. And as Bobby noted, this was without the benefit of a new full game release from Blizzard, underscoring the strength of our continuous engagement model.

Activision had an impressive fourth quarter, capping off their best year ever, with segment records for operating income of over $1 billion and operating margin of over 38%. Activision's performance was driven primarily by the resurgence of the Call of Duty franchise with the successful launch of Call of Duty: WWII, as well as strong sales for Crash Bandicoot.

Q4 segment revenues and operating income increased 16% and 32% over prior year, respectively, with the full year growing at similarly strong rates.

King had an outstanding year with revenue and operating income up 7% and 12%, respectively, on a pro forma basis that includes the 2016 pre-acquisition period for King. This is a major accomplishment. It's testament to the strong execution of the King team, their increased prioritization on the Candy Crush franchise and other live titles and their intense focus on leveraging their platform to drive continuous improvements in engagement, game features and player investment.

While margins expanded year-over-year, we did see some compression in Q4, as King strategically invested in marketing live titles to profitably drive reach.

Blizzard also delivered a $2.1 billion of revenue and $712 million of operating income, Blizzard generated record results for a year with no major game releases, fueled by a steady stream of content and events across their franchises, in particular, Overwatch, Hearthstone and World of Warcraft.

Revenue, operating income and segment operating income margin were down year-over-year, as expected, given the difficult comp to last year's World of Warcraft expansion and Overwatch release.

We did see some incremental margin and compression in Q4, primarily due to additional marketing initiatives. Nonetheless, with 33% full year OI margins, the team did a nice job delivering the core business while investing in key growth initiatives across the Overwatch League, mobile incubation and MLG Network.

Now before I turn to our consolidated results and 2018 guidance, a brief note on U.S. tax reform. Our 2017 GAAP results include incremental expense of $794 million due to the impact of significant discrete tax-related items, primarily related to the impact of the Tax Cuts and Jobs Act enacted in December of '17.

The charge related to tax reform is a reasonable estimate, but is preliminary and includes a one-time tax on accumulated overseas profits and the revaluation of deferred tax assets and liabilities. As a result of U.S. tax reform, we expect a reduction in our future effective tax rate, which we will reflect in our 2018 guidance. We'll also now have repatriation opportunities for our international cash that enable more efficient global cash management and capital structure flexibility.

So now, let's turn to our consolidated results. Unless otherwise indicated, I'll be referencing non-GAAP figures. Please refer to our earnings release for full GAAP to non-GAAP reconciliations. For the quarter, we generated record GAAP revenues of $2.04 billion, $343 million above our November guidance. This includes the net deferral of revenues of $597 million.

As already mentioned, this quarter, we are introducing a new operating metric, net bookings, which were a record $2.64 billion. We had a GAAP loss per share of $0.77 including a $1.03 expense from the impact of the significant discrete tax-related items that I just mentioned.

Adjusted to exclude these discrete tax-related items, we would have delivered earnings per diluted share of $0.27, ahead of our guidance of $0.10.

We had non-GAAP EPS of $0.49 in Q4, ahead of guidance of $0.36, and both GAAP and non-GAAP EPS figures include net deferrals of $0.45.

For the year, we generated record GAAP revenues of $7.02 billion. That's $1 billion above our initial 2017 guidance. This includes the net deferral of revenues of $139 million, net bookings were a record $7.16 billion.

We generated GAAP EPS of $0.36, which includes a $1.04 expense from the impact of discrete tax-related items in Q4. Excluding the discrete tax-related items, we would have delivered record GAAP EPS this year of $1.39, ahead of initial guidance last February of $0.72.

We generated record non-GAAP EPS of $2.21, ahead of our initial guidance last February of $1.70. These figures include net deferrals of $0.07.

So now, looking at cash flow and capital structure. Our strong business performance for the year also delivered record annual operating cash flow of $2.21 billion and Q4 operating cash flow of $1.16 billion, finishing the year with approximately $4.8 billion in cash and investments.

With regard to capital structure, we have some positive developments throughout the year and continue to take a balanced approach overall.

In Q2, we received another upgrade from S&P to BBB and entered into a leverage neutral $1.2 billion refinancing that locked in attractive long-term interest rates. We paid down $500 million in debt and finished the year with approximately $4.44 billion of aggregate debt outstanding. And we increased our annual dividend 15% to $0.30, paying out $226 million to shareholders in May.

Now we're heading into 2018 with a strong balance sheet and additional flexibility. We ended the year with a net cash position of $335 million. And as discussed, the recent tax reform allows us to repatriate the cash we're holding overseas more efficiently.

This year, we'll once again, take a balanced approach to capital allocation. Our board has authorized a 13% increase in our dividend to $0.34 per share, payable in May, and further debt paydown of over $1 billion.

In addition, our $1 billion stock repurchase authorization remains in effect for another year.

Now let's turn to our outlook for 2018, but before doing so and before I review the numbers, I wanted to quickly discuss ASC 606 and its impact on our guidance.

While ASC 606 will affect our GAAP revenue recognition, it's not expected to materially impact our annual segment results, cash flows or financial performance as reviewed for internal management purposes. We do expect that there'll be some quarterly movements within the year, so please refer to the investor fact we have provided on our website for more information on ASC 606.

Now turning to our 2018 slate. From an operating income perspective, we expect each of our segments to grow in 2018, while we also continue to invest in new releases, mobile pipeline and our future growth initiatives, including advertising, eSports leagues and MLG Network.

We expect in-game revenues to be a primary driver of our growth for both the top and bottom line. Coming off a record year in 2017, we expect in-game net bookings to grow by a double digit percentage in 2018, as we continue to innovate and deliver more engaging content to our players.

Now given the timing of launches in 2018 and the continued ramp of our new initiatives, we expect our performance to be further weighted to the back half of the year relative to what we saw in 2017.

We expect Blizzard to grow year-over-year with the release of World of Warcraft's Battle for Azeroth this summer. And I'm glad to say the presales for Azeroth kicked off last week and are off to an encouraging start. In addition, Blizzard has exciting plans for live ops and additional in-game content across franchises, including Hearthstone's 3 expansions in 2018, and Overwatch's in-game events. Blizzard will also start to see the benefit of its investment initiatives as we expect the Overwatch League to be profitable in 2018, its first full year of operations.

We expect Activision to grow modestly year-over-year, driven primarily by Call of Duty's digital season of content and the exciting new release planned for Q4.

As Coddy mentioned, Activision and Bungie are hard at work on Destiny 2 to improve end-game engagement through regular updates and events, which we anticipate will benefit performance later this year with the release of a new expansion in May and a major expansion in the second half of the year.

And we expect King to be up year-over-year, driven by ongoing live operations across the portfolio and 2 or more new releases during the year, including Social Casino.

As we've indicated on prior calls, we'll begin to ramp our ads business in 2018. We expect a minor positive profit contribution weighted towards the back half of the year, as we continue to roll out additional video ad products, methodically develop capabilities and infrastructure and build the business for the significant opportunity that we see over the long term.

Now turning to the numbers for guidance. On a GAAP basis, for 2018, we expect revenues of $7.35 billion, including GAAP deferrals of $100 million. We expect record net bookings of $7.45 billion. We expect product costs of 22%, operating expenses of 53%. Our GAAP net interest expense is expected to be $136 million and our GAAP tax rate is expected to be 20%. We expect 776 million fully diluted shares, both for GAAP to non-GAAP, and GAAP EPS is expected to be $1.78.

For 2018, on a non-GAAP basis, we expect product cost of 22% and operating expenses of 44%. We expect non-GAAP net interest expense of $95 million, and we expect a non-GAAP tax rate of 20%. We also expect non-GAAP EPS of $2.45, including a GAAP deferral of $0.05.

Now let's turn to our Q1 outlook. On a GAAP basis for Q1, we expect revenues of $1.82 billion, including GAAP deferrals of negative $540 million. We expect net bookings of $1.28 billion, growing year-over-year. We expect product cost of 20%, operating expenses of 53%, and our GAAP net interest expense is expected to be $30 million, our GAAP tax rate's expected to be 20%. We expect 771 million fully diluted shares, both for GAAP and non-GAAP, and GAAP EPS is expected to be $0.47.

For Q1, on a non-GAAP basis, we expect product costs of 20%, operating expenses of 43%.

We expect non-GAAP net interest expense of $29 billion -- sorry, $29 million, a tax rate of 20% and non-GAAP EPS of $0.65, including a GAAP deferral of negative $0.34.

In closing, in 2017, our inspired teams across Activision, Blizzard and King demonstrated the enduring nature of our franchises. We believe the combination of leading owned IP and franchises, a direct digital connection to our consumers, best-in-class content capabilities and creative excellence, geographic platform and business model diversity and continued fiscal discipline, focus and business prioritization provides an incredibly powerful engine for sustained financial performance, driving meaningful growth in 2018 and beyond.

Now I welcome our business leaders, Eric, Mike, Riccardo and Dennis as they join us for the Q&A portion of the call. Operator?

[Operator]

[Operator Instructions] Our first question comes from Chris Merwin with Goldman Sachs.

[Christopher Merwin, analyst]

So this one's for Riccardo. We've seen some pretty impressive growth for King lately as you've invested in some more frequent content updates, and we've seen improved player engagement as a result. But beyond, I guess, the improvements in monetization for King, can you talk a bit more about the pipeline and the 2 or more new releases in 2018 that you mentioned in the prepared remarks?

[Riccardo Zacconi, executive]

Hi, Chris. It's Riccardo. So we have several teams working on new games, first of all, and those are games using the existing franchise IP as well as new IP. So we're creating also new IP. And these games are at various stages of production, and it's a multi-year pipeline. So as you heard before, in 2018, we plan to release at least 2 new games, including Social Casino, in partnership with Playstudios. I would like to highlight that we set ourselves a very high bar for new game launches. We will only launch games of the highest quality, and we would only launch them when they're ready. When we think about games pipeline, it's not just about new games, it's also new content for our existing live games, where we develop new features and live ops. In 2017, we focused these developments on increasing engagement and increasing monetization. And this has allowed us to hit several mobile bookings milestones. As we heard earlier, we had, in Q3, our highest-ever mobile bookings quarter. And in Q4, we hit our highest-ever mobile booking week. In 2018, we will continue focusing on engagement and monetization, but we will also focus these new features on reach initiatives. So we expect to continue to drive positive engagement and monetization as well as we expect to attract new users. So if I think about it, we exited 2017 with a strong momentum. And I believe that we have a great pipeline, both of new titles and new content for our live games.

[Operator]

We'll take our next question from Laura Martin with Needham.

[Laura Martin, analyst]

Let's talk about the Overwatch League. It sounds like everything is going great. Could you sort of give us an update on how it did benchmark against your expectation? And what surprised you, both on the upside and downside? And then, on the monetization, as we're modeling 2018, you said you're going to sell some more team. Could you talk about monetization generally and then whether you think the teams will sell for more than the first 12 teams?

[Michael Morhaime, executive]

This is Mike from Blizzard. First off, I want to take a moment to thank everyone on the Overwatch League team for the amazing job they've done. Overwatch League was an ambitious undertaking. It required support and collaboration across Activision Blizzard, starting from the Overwatch game team, all the way up to Bobby, who, as you know, has been a strong supporter of the League from the beginning, as well as from a host of stakeholders and the community. I want to especially thank all the pro players who compete, the team owners who really got behind our vision for the League, our partners over at Twitch and our sponsors, who believe in what we are building. I want to also thank the viewers who tuned in, especially those people who are coming to the studio and bringing their passion and energy and filling up the stands. They're an inspiration to everyone who works on Overwatch League. It's really been wonderful to see how everything has worked out so far. We're very pleased with the high-quality production that we have been able to enjoy every week. The games have been exciting to watch and the reception from our viewers has been really spectacular. So far, everything has either met or exceeded our expectations. We made a landmark 2-year media rights deal with Twitch, and more than 10 million people tuned in to week 1 worldwide. We had an impressive audience per minute of over 400,000 on opening day. We've also been very happy that several major brands have partnered with Overwatch League, including Intel, HP, Toyota, T-Mobile and Sour Patch Kids. While we're pleased, it's important to note that this is only the beginning. Our focus is going to be on continued growth of the audience through improvements to the broadcast and the live viewer experience. In the mid to long term, we think the audience growth is the key to seeing impact both to the bottom line results and the company as a whole and, I think, also, to drive popularity in the game as well. In terms of selling expansion teams, we're very excited with the reaction and the interest in expansion teams and pretty confident to say that price is going to go up.

[Operator]

We'll take our next question from Matthew Thornton with SunTrust.

[Matthew Thornton, analyst]

Maybe one for Eric on Destiny 2. Can you kind of give us a little more color just on the trends you're seeing around player engagement, in-game monetization and then, again, a little more color just about how you're thinking about the game and the plans for 2018?

[Eric Hirshberg, executive]

Yes. Absolutely, Matt. Happy to talk about Destiny 2. And I want to start just by putting it all in context because we did have a very successful launch of the game. As Coddy mentioned, it was the #2 game in North America, the #4 game globally, and it was also very well received. It had an 87 rating, that was a full 10 points of improvement over Destiny 1, and it received 120 awards and nominations. And on top of that, we saw very positive sentiment and new franchise-high levels of engagement for the first couple of months post launch. Now after that, meaning, after players had poured a significant amount of hours already into the game, we have definitely seen some real sentiment issues surface in a couple of areas. And we've got plans to address those. For example, one of the things we wanted to do with Destiny 2 was to make the game a little bit less of a grind based on feedback we'd heard, and we also want to provide players with more direct paths to getting the game's best rewards. And that actually allowed our core players to consume the content faster than we anticipated. And that has led to an increase in players calling for more challenges and better rewards in the ongoing game. Now this is a live game and responding to player feedback is a part of the process in this game, in any live game, and we feel we have the right plans in place to address the concerns. Last week, Bungie posted a detailed roadmap of the changes that we have coming over the next several months. And thus far, those plans have been very well received, as have the changes that we've already put into the game itself already. And the sentiment is already starting to shift. And also, remember that we have a great expansion coming in May and a major expansion coming at the end of the year, and those events have always been opportunities for us to reengage our community and win back people who have churned out. This is an incredibly passionate group of players. And that passion is a good thing, even when the sentiment is critical because it shows how deeply people care about the game, and we think that's one of the things that makes this a great franchise, and we're fully committed to listening to and communicating with our community more frequently and more transparently than ever and making the right changes to improve the experience, and we think we have the right path forward.

[Operator]

We'll take our next question from Tim O'Shea with Jefferies.

[Timothy O'Shea, analyst]

So Coddy touched on this in the opening remarks, but I wanted to get a better sense for where Call of Duty finished the year in terms of full game downloads? And then, maybe if you could give us a little color on what your expectations are going forward?

[Spencer Neumann, executive]

Great. This is Spence. Thanks for the question, Tim. So as you recall, I mentioned last quarter that we're seeing this consumer-led shift to full game downloads in our console business. It's similar to what we've already experienced in the games business on PC platforms. And of course, digital transition is not unique to gaming, it's impacting pretty much every form of entertainment consumption. So now, the good news for us is, as I also discussed last call, it's good for our business. It brings us closer to our consumer and with better economics. So with that context, Call of Duty finished the year at about a 30% digital mix, and we mentioned last year that our digital mix was about 20% to 25% on Call of Duty. So this year's performance, it's essentially in line, actually, a bit of an acceleration in that historical 5 percentage point increase we've been seeing in the past few years. And I should underscore that these are big absolute numbers when we're talking about Call of Duty because it's such a mass-market game. As Coddy mentioned, Call of Duty: WWII is the biggest day 1 digital release ever for PlayStation. And in aggregate, it represented the biggest Activision digital title ever released on console. As we look forward, Tim, we'd expect the mix shift in 2018 to be similar to what we saw for Call of Duty this year. It's obviously a bit tough to predict with certainty given that it's ultimately consumer-driven. But I know that our teams are -- they're going to continue to innovate with compelling digital offers and other strategies that deliver value to the community and they'll also continue to support our important retail partners. So overall, the trends remain strong. They're positive for our business and the good news is we've got quite a bit of runway ahead of us.

[Operator]

Up next, we have Mike Olson with Piper Jaffray.

[Michael Olson, analyst]

I just have one. You talked about the opportunity for the actual league, but could you talk about the Overwatch League impact on Overwatch, the game itself, as it relates to engagement, monetization and/or core game sales?

[Michael Morhaime, executive]

Thanks for the question. This is Mike again. The Overwatch League has increased overall engagement with the franchise between viewership and gameplay when you consider that hundreds of thousands of fans watching each match and average watch time of over an hour each night. We're tapping into a whole new avenue for players to express their passion for Overwatch. Of course, there are other positives for the game overall. The Overwatch League has driven a ton of buzz and awareness for the game. And so as that increases, our players have new ways to customize their playing experience with in-game digital skins as well as physical merchandise, and we've seen our players respond well to both of those. We're also looking forward to launching additional initiatives to tie the viewing experience better with the play experience. We think that over the long term, the League will bring in new players as people see the excitement around the League and may even start to train to become the next pro player. Outside of the League, we have additional plans to keep Overwatch fresh and players engaged. We already released a new map called Blizzard World in January. We have the Lunar New Year event launching today and there's additional plans later this year for new heroes and seasonal events to come out as well.

[Operator]

Our next question comes from Brian Nowak with Morgan Stanley.

[Brandon Hoffman, analyst]

This is Brandon Hoffman on for Brian Nowak. So you had some strong performance for Call of Duty: WWII, and there's excitement about digital in 2018. Can you talk a bit about the CoD pipeline going forward?

[Robert Kotick, executive]

Absolutely. The CoD pipeline is one of my favorite topics. Before we talk about WWII, I think, it's worth stepping back and talking about how pleased we are with the state of the Call of Duty franchise overall. Obviously, Call of Duty: WWII was the #1 console video game in the world in 2017, and that makes Call of Duty the #1 franchise in the world 8 of the last 9 years. And Call of Duty: WWII also delivered the biggest launch quarter we've seen on current generation console, even higher than Black Ops III, as I think Coddy mentioned. And engagement on WWII has also been strong. Not quite as strong as we've seen from the Black Ops franchise, which, of course, has been our stickiest games, but we have seen strong participation with our first 2 seasonal events, the Winter Siege and The Resistance, and we have actually a more robust calendar, those types of events in the game than we've ever had before. So our strategy of bringing Call of Duty content to whatever game our fans are choosing to play is really continuing to pay off because, also, in 2017, we saw that in Black Ops III, the Zombies Chronicles piece was the #1 top-selling add-on content on PlayStation last year, which is all the more remarkable given that it was released almost 2 years after the launch of the original game. So that, of course, sets the stage for the game we have planned later this year, which is being developed by our team at Treyarch. Now as you know, they have developed some of our most successful games ever and they've proven time and again that they know how to keep our players engaged through the long haul. So overall, I'd say our strategy for Call of Duty is working. WWII is a blockbuster. We've got a thriving Black Ops community, who's excited for the upcoming Treyarch-developed game. I honestly really wish I could say more about what we have in the pipeline because I'm so excited about it, but suffice it to say, I think, we have the best 3 years slate in Call of Duty's history, which is really saying something given this franchise's history, and I think, we've got multiple different game universes that we know our players love on tap. So obviously, more to come on that.

[Operator]

Our next question comes from Eric Sheridan with UBS.

[Eric Sheridan, analyst]

I wonder if you could talk a little bit about some of the moves you've made, whether it be investments, acquisitions, to position the company for the advertising opportunity across King? And then, maybe the second one would be how do you think about extending those capabilities or assets across other brands or platforms of the company in the coming years?

[Riccardo Zacconi, executive]

Hi, Eric. It's Riccardo here. Advertising for us is a strategic focus, given the opportunity we have with our large and engaged audience. So we're prioritizing investments across multiple areas. First of all, we are building a world-class team, and we're investing in our teams on several dimensions, on the ad product, in engineering, in sales and in analytics. And we have already people in place. And this year, we plan to scale these teams further. Second, we are investing in creating great ad products. And by that, I mean, ad experiences that resonate with our highly engaged players and that are well integrated into the gameplay and also deliver real value to our advertisers. So to get this right, we have embedded the ad teams within our game teams, including in Candy. So third, we're investing in our own ad tech infrastructure. In 2017, we've seen early success with a dozen of global brands buying advertising across a number of territories in 5 different games. And we have seen repeat buys as a result of the strong completion and viability metrics. In 2018, as you heard Spence earlier, we're expecting only a modest bottom line contribution from ads as we plan to ramp individual ads opportunity and as we continue to invest in the significant opportunity for the long term. For the second part of the question, I will hand over to Coddy.

[Collister Johnson, executive]

Okay. Thanks, Riccardo, and thanks for the question, Eric. I think, first, you have to step back and know that we have several key initiatives underway where building our capability in one area of the business enables flexibility and option value to bring that capability to other areas of the business over time. Overwatch League could be a great example of this. The focus now is completely and solely on Overwatch success, but over time, the professional city-based league approach, infrastructure, the know-how, the teams, the processes, its support structure could largely go on to support other franchises that had strong eSports momentum. And so that's sort of broadly the way you think about some of these areas. And advertising, we think, is another good example of this. And for ads specifically, I think, we have the opportunity probably in a couple of areas that are worth impacting. The first and foremost one is the opportunity that Riccardo just spoke to. Ads for the King mobile network is our primary focus right now. It's the first step in building out internal ad products, tech stack, team and infrastructure. The second, we do have a near-term opportunity to bring relevant advertising to our eSports audiences. We're already off to a good start there with Overwatch League media rights, sponsorships, advertiser interest, but we see further opportunity in our owned MLG platform. And over time, third, there could be opportunities in other areas of the company, particularly as we explore ad-based experiences across new games that are suited to that form of media. If you then just step all the way back, we have over 50 minutes of engagement per day in our games right now, and that's not yet including all the time spent watching gameplay in our franchises. So we think there's a pretty compelling opportunity to do what you said, which is to be able to bring advertising to other brands and platforms across our network.

[Operator]

Our next question comes from Evan Wingren with KeyBanc.

[Evan Wingren, analyst]

This is for Mike. I was just wondering, what are your expectations for World of Warcraft: Battle for Azeroth in terms of the size, engagement or any other innovation in the game for this expansion?

[Michael Morhaime, executive]

Thanks for the question. So at Blizzard, we always get excited about new launches. And we, in addition to our players, are very excited about Battle for Azeroth's features, which include new Allied Races to give players even more character customization options. The players who pre-ordered the expansion have been enjoying early access to some of the Allied Races already, and that has helped drive early pre-orders. We're very pleased with the results so far. Battle for Azeroth also includes 2 huge continents for players to explore as well as some new gameplay modes. Warfront is a new cooperative mode where players will band together in massive battles inspired by Warcraft's RTS roots. And the Island Expeditions mode will include randomized elements for small groups to enjoy it with great replayability, which is very important in a game like World of Warcraft. Content always drives engagement, so just like we did with Legion, we're planning a steady stream of content after launch to maintain engagement. As for what's ahead in 2018 with Battle for Azeroth, we're looking forward to sharing more in the months to come and releasing the expansion this summer. There's a ton of buzz right now in the community and at Blizzard. The team is very excited about this expansion.

[Operator]

And our last question comes from Colin Sebastian with Robert Baird.

[Colin Sebastian, analyst]

I guess, I just wanted some clarification on where development stands for some of the new mobile titles in the pipeline, not only in King, which, I think, was already addressed, but across Blizzard and Activision, following up on some of the announcements on personnel last year perhaps.

[Collister Johnson, executive]

Hey, Colin, this is Coddy. Thanks for the question. So you're right, I'd probably break the mobile efforts in new games into 2 buckets. The first, you mentioned, which is the ongoing efforts at King on their mobile pipeline. It's just worth highlighting, they are taking a very focused approach to development. And as I mentioned, expect to have 2 or more new releases during the year, in addition to the ongoing updates inside their existing live games, which really are just in the live games initiatives in and of itself that drive new players and bringing new audiences. So there's, as you know, and as we speak to a lot, there's real focus there. But the second opportunity is to take our very successful PC and console franchises and extend them into mobile. And we think this is the time to do it and it's an exciting opportunity for a few reasons. First, mobile gaming is, of course, now very much at scale, large and growing, billions of people around the world. We essentially have a mini-console or PC in our pockets. And it's kind of the second reason that the technology, we feel, has advanced to the point where we feel there's a mobile platform now that can fulfill the requirements of our core IP. There's also, for us, we think, a really important opportunity in Asia, where we already have some of the most successful non-mobile franchises. And as you know, many of the top mobile games there now are based on existing console or PC IP. That was their roots in console and PC and they've moved to mobile. And we think there's an opportunity for us as well over time to explore our IP on mobile in that region. We obviously want to get this right. We want to do it well at super high quality for our players and audiences who matter a great deal to us. So it takes investment and time. But we do plan to see some early results there this year from our mobile investments, and we expect more meaningful impact in 2019 and beyond. So we're working hard on the pipeline, and we'll have more news to share down the road.

[Robert Kotick, executive]

Okay. I think that was the last question, right? So -- well, thank you, all, for joining the call today. We appreciate it. We appreciate your time. And we look forward to seeing or speaking with you and speaking with you over the next few weeks and months. Thanks.

[Operator]

And that does conclude today's conference. We thank you for your participation.