Blizzard Entertainment

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Blizzard Entertainment

P.O. Box 18979
Irvine, California 92623
U.S.A.
Telephone: (949) 955-1380
Toll Free: (800) 953-7669
Fax: (949) 737-2000
Web site: http://www.blizzard.com

Division of Vivendi Universal S.A.
Incorporated: 1991 as Silicone & Synapse
Employees: 750
Sales: $750 million (2005 est.)
NAIC: 511210 Software Publishers

Blizzard Entertainment makes the world's most popular online computer game, World of Warcraft. The company was an early leader in the field of so-called massively multiplayer online games with a string of hits including Diablo, Warcraft, and Starcraft. These are essentially role-playing games, similar to the long-popular Dungeons and Dragons, in that players create characters that acquire powers, carry out quests, and kill enemies while interacting with other player-created characters. Blizzard Entertainment brings in revenue both by selling the game software and by collecting monthly user fees. World of Warcraft has as many as 5 million subscribers worldwide, with over 1 million in North America and another 1.5 million in China. Other subscribers are in Europe, Australia, New Zealand, and South Korea. Blizzard thus dominates the industry, as the games of its next nearest competitor claim only 1.8 million subscribers. Blizzard was founded by three avid gamers in 1991, and has gone through a series of owners. The company is now a part of the French conglomerate Vivendi S.A. and its Vivendi Universal Games division.

AT THE DAWN OF THE INDUSTRY: 1990

Blizzard Entertainment began as a game software developer called Silicone & Synapse. Three friends, Allen Adham, Michael Morhaime, and Frank Pearce, started the firm in Irvine, California, in 1991. For the company's first three years, Silicone & Synapse was a third-party developer, working on software to support games created by other companies. This was evidently a successful niche, and Silicone & Synapse worked on games for Sega Genesis, Super Nintendo, and DOS- and Mac-compatible games for personal computers. Some games Silicone & Synapse worked on included popular titles such as The Lost Vikings, The Death and Return of Superman, Rock 'n Roll Racing, and Blackthorne.

In 1994, Silicone & Synapse changed its name to Blizzard Entertainment and released the first of its own game titles. This was the first edition of Warcraft, called Warcraft: Orcs and Humans, which won accolades as one of the best strategy games of the year. The game featured a blighted landscape, ruined by a long-running war between humans and orcs. The game's kingdom of Azeroth had a quasi-medieval feel, long a popular formula among game makers, and players chose characters and developed strategies to allow survival in this perilous place.

In 1994, multiplayer computer games were still relatively new. The ancestor of multiuser online games like Warcraft and World of Warcraft grew out of the role-play board game Dungeons and Dragons. The first multiplayer computer version of Dungeons and Dragons debuted in 1978 as MUD1. According to Steven L. Kent's history of multiplayer online games in a September 2003 article in Gamespy, "All the elements of MMOGs (massively multiplayer online games) existed by the late eighties, but they did not exist in a single product." Some early games were text based, with words scrolling across a static graphic background. In the mid-1980s, a few games existed that could link as many as 16 people playing at once through a single server. Other games had developed a so-called "persistent world," where the game landscape did not start over from the beginning every time a player logged on. Most multiplayer games required players to log on to a proprietary network set up by the game maker, or to a service such as CompuServe or America Online, and pay by the hour or the minute. Some games thus brought in a lot of revenue, as dedicated gamers played for hours every week. According to a history of the gaming in dustry from Computer Graphic World in March 2002, the first multiplayer game to break out of the hardcore gaming niche and do well at a retail level was Meridian 59, which came out in 1996, two years after Warcraft.

So while Blizzard's Warcraft was a highly touted game, it was not as popular as console games like Nintendo products, or single-player computer games, which dominated the game market in the early 1990s. Warcraft's early buyers would have been aficionados who had the time, money, and technical know-how to access and play the game. A July 1997 profile of the gaming industry published in the New York Times described typical players as "hundreds of thousands of well educated, technically savvy, bewilderingly intense men (mostly) who spend hour upon week locked in various sorts of virtual combat." When Warcraft was first introduced, it was not mainstream entertainment, but a product that appealed to a niche of dedicated fantasy game enthusiasts.

UNDER VARIOUS OWNERS IN THE LATER PART OF THE DECADE

In 1994, the same year that the first Warcraft game came out, Blizzard's founders sold the company to a Los Angeles firm called Davidson & Associates for $7 million. Davidson & Associates was run by a couple, Jan and Bob Davidson, who had developed and marketed an extremely successful educational computer game for children called Math Blaster. The Davidsons "never told us what to do," claimed Blizzard founder Morhaime in an interview with the Los Angeles Times in September 2003. But Blizzard passed through several more owners who were not always so hands-off.

In 1995, Blizzard introduced a new version of Warcraft, called Warcraft II: Tides of Darkness. The next year, Blizzard acquired another California gaming company, Condor Inc., and renamed it Blizzard North. Blizzard North's programmers were principally responsible for Blizzard's next hit, Diablo. The company launched a free online service called Battlenet in 1996 so that more people could play Diablo simultaneously. Diablo itself was not launched until almost two months later, behind schedule. Though it came out just after the Christmas buying season, on December 30, 1996, Diablo went on to be the best-selling game of 1997. By that time, massively multiplayer online games were edging into the mainstream. Diablo and competitors' games such as Everquest and Ultima Online all attracted much bigger markets in the late 1990s than their predecessors had a few years earlier. By that time, too, the industry's revenue model had changed, and players could pay a subscription fee for unlimited play within a certain time period, rather than pay a private network by the minute. This seemed to make the games more accessible. Blizzard came out with another number one game in 1998, Starcraft.

COMPANY PERSPECTIVES

Blizzard Entertainment is a premier publisher of entertainment software. Since establishing the Blizzard label in 1994, the company has quickly become one of the most popular and well-respected makers of computer games.

Blizzard had been a subsidiary of Davidson & Associates since 1994. In 1996, Davidson & Associates was bought in a stock swap valued at approximately $1 billion by a company called CUC International Inc. CUC International's principal business was running shopping clubs, which offered members discounts on all sorts of products through catalog sales and telemarketing. CUC's founder, Walter Forbes, had been interested in something like Internet shopping in the early 1970s, before there was an Internet. An earlier incarnation of his company had failed, but by 1997, the company had revenue of some $2 billion, generated through 73 million memberships in its 20 different clubs.

Davidson & Associates actually seemed something of an odd fit for CUC. But soon after acquiring Davidson, CUC bought two other West Coast computer game companies, Sierra Online Inc. and Knowledge Adventure Inc. These companies were then put together as an operating unit called CUC Software, though they retained their separate names and management. Jan and Bob Davidson remained with their company for only a short time after they sold it to CUC. Then in late 1997, CUC announced that it was merging with a huge hotel franchise company called HFS, owner of well-known brands such as Howard Johnson, Days Inn, and Ramada Inn. HFS also owned the Avis car rental firm and three leading real estate agencies, Coldwell Banker, Century 21, and ERA. The combination of HFS and CUC International led to a new company called Cendant Corporation with revenues in the neighborhood of $5 billion.

Blizzard Entertainment became part of a unit within a much larger company whose principal businesses were in unrelated industries: hotels, realty, and shopping clubs. Working under this management umbrella apparently caused friction at Blizzard. A team of 11 software developers left Blizzard in 1998 to start their own company, citing a lack of creative freedom as their reason for leaving. The seceding designers also hinted at problems with Blizzard's parent. These sentiments were echoed a few years later when the founders of Blizzard North left the company. Yet despite some apparent chafing in its role as a small cog in a big conglomerate, Blizzard continued to turn out best-selling products which became increasingly profitable.

In late 1998, Blizzard's parent Cendant announced that it was selling its software division, comprising Knowledge Adventure, Blizzard, Davidson & Associates, and Sierra Online, to a French company called Havas SA for $800 million. Cendant explained the sale by saying it wanted to shed its noncore businesses. Havas was a division of the French conglomerate Vivendi S.A., and Blizzard soon became a subsidiary of Vivendi grouped into its Vivendi Universal Games division. Vivendi had a leading share in the telecommunications market in France, and also ran Universal Music Group, a global music company comprised of several well-known labels.

MOVING INTO THE MAINSTREAM IN 2000 AND BEYOND

Blizzard was yet again a small part of a large conglomerate with several other principal businesses when it joined Vivendi in 1998. It may, however, have been a good thing to get out from under Cendant, which soon began to unravel under charges of accounting fraud. Cendant's chief financial officer pleaded guilty to several criminal charges in 2000 and testified against his boss, company founder Walter Forbes, and Cendant's vice-chairman E. Kirk Shelton. Trials relating to Cendant were still ongoing in 2005, but the amount of fraud, which apparently originated in CUC International's shopping clubs, was said to reach $14 billion.

KEY DATES

1991:: Company is founded as Silicone & Synapse.
1994:: Name is changed to Blizzard Entertainment; company releases first game title, Warcraft, and is acquired by Davidson & Associates.
1996:: Davidson is acquired by CUC International; Blizzard releases Diablo.
1998:: Blizzard becomes a part of Vivendi Universal Games division.
2000:: Diablo II sells a million copies in its first month.
2004:: Company releases World of Warcraft.

Meanwhile Blizzard continued to do what it did best. The company released a sequel to its 1997 hit Diablo in 2000, called Diablo II. Diablo was so popular that Blizzard needed to do next-to-no marketing in order to promote the sequel, which sold more than a million copies in its first month of sales. This was astonishing, given that the entire computer game market was estimated at 170 million units sold annually. The computer game market had grown tremendously by 2000, with the number of games sold tripling between 1993 and 1999. The market continued double-digit growth in 2000, at a time when other media such as books, movies, and recorded music, showed flat or declining sales. An article about Diablo II in the New York Times in August 2000 compared the game's success to the tremendous selling power of J.K. Rowling's Harry Potter children's book series. While the Potter books were an obvious juggernaut, Diablo II had a comparable though lower-profile following, and revenue was also similar. Diablo II retailed for over $50 in the United States, while the fourth volume of the Potter series, released at almost the same time, sold for less than $30 and was often deeply discounted. Diablo II brought in something in the neighborhood of $50 million in the first month of its release. Then in 2001, Blizzard came out with an expansion set for Diablo II called Diablo II: Lord of Destruction, and this too sold more than a million copies in its first month.

By the early 2000s, massively multiplayer online games had reached new popularity. Blizzard had many competitors, including Verant/Sony Interactive Studios, which put out Everquest, Origin Systems, with Ultima Online, and NCsoft, which dominated South Korea's passionate online gaming market. The games were getting better in terms of graphics and support, and subscribers paid substantially less in user fees in the 2000s than they had in the early 1990s, when an hour of play might cost from $20 to $30. Blizzard's third version of Warcraft, Warcraft III: Reign of Chaos, came out in 2002, and according to company documents, it was the "fastest selling PC game ever." Blizzard released an expansion, Warcraft III: The Frozen Throne, in 2003.

Blizzard had revenue of approximately $750 million in 2002, which represented more than 10 percent of parent Vivendi's total revenue. Warcraft III: The Frozen Throne alone made up 25 percent of Vivendi's games unit's revenue. Yet despite the evident success of the subsidiary, Vivendi announced that it wanted to shed its entire games unit, along with its Universal movie studio, Universal Music, and Universal theme parks, in order to raise cash to pay off debts. Friction between Blizzard and Vivendi caused four top game developers to leave Blizzard in 2003. Vivendi had hoped for $2 billion for its games division, and then reportedly was considering a lower price of $800 million. Uncertainty about the sale evidently made things difficult at Blizzard, and more key designers left the company over the next two years, including Blizzard cofounder Allen Adham.

In 2004, Blizzard released its most successful game by far, World of Warcraft. The game broke all previous sales records for a PC-based computer game. It promptly collected 1.5 million subscribers in North America, and then took off across Europe and Asia. It sold more than 280,000 copies on the first day it was available in Europe. Though only games with an Asian flavor were said to do well in China, World of Warcraft became one of the top games in that country as soon as it was released there, and Chinese players eventually outnumbered North Americans. World of Warcraft was indeed something of a category-killer, vastly outselling its competitors. The Korean company NCsoft had subscriber bases of some 1.8 million players for its top two games, but World of Warcraft had reached 5 million subscribers by mid-2005. Competitors could not equal World of Warcraft even if they could reproduce the polished graphics and exciting storylines. According to the New York Times in September 2005, a Sony multiplayer online game based on the hit movie series The Matrix had to axe six of its virtual worlds, leaving only three for its 50,000 subscribers, because "users were having a hard time finding one another in the game's vast digital ghost town."

Since players paid a monthly subscription fee and spent hours online, gamers were unlikely to pay for more than perhaps two games at once. So World of Warcraft effectively dominated the online gaming world, where at peak times roughly 250,000 people might be simultaneously playing it. Blizzard was a bit unprepared for the enthusiastic response to World of Warcraft. One Blizzard principal detailed to the New York Times in February 2005 how he had left a little early for a World of Warcraft promotion event that the company expected would draw maybe 2,500 people. More than twice that many people showed up, and the Blizzard executive was barely able to make it through the crowd to the store where the game was being sold.

Users apparently loved the new game for its many complex worlds. Because people played against other people online instead of against computer-created characters, World of Warcraft took on a social dimension often thought missing from single-player computer games. The game's virtual world also began to leak in odd ways into the real world. Players could earn virtual gold in the game, but Blizzard experienced terrific problems when some players turned thief and stole World of Warcraft money, then sold it for real money on eBay. Blizzard closed the accounts of over 1,000 players in 2005, suspecting them of being "gold farmers." Players also sometimes paid other players to operate their characters for them, because they didn't want to wade through the early levels of the game. In late 2005, some World of Warcraft characters became infected with a fantasy disease called Corrupted Blood, which then spread throughout several areas of the game like a real-world medical epidemic. This virtual plague attracted the interest of genuine epidemiologists, who were interested in the social aspects of the disease's spread. With millions of players, World of Warcraft found a mainstream status other online games had not reached. By the end of 2005, Blizzard was reportedly at work on a new version of Starcraft, and there was no mention of Vivendi's plan to sell the company.