Call of Duty: Modern Warfare 2 has already racked up $550 million in its first five days, but that's just the start for Activision Blizzard. Downloadable content has become an increasingly important way for publishers to lengthen a game's "legs" while generating significant additional revenue. This is especially true for the Call of Duty games.
Broadpoint AmTech analyst Ben Schachter believes DLC will be key to Modern Warfare 2 maintaining its launch price tag and he sees a huge opportunity for Activision to generate up to $140 million just from map packs and other downloadable content.
"Call of Duty downloadable content (DLC) can be a solid contributor to ATVI's 2010 EPS. As with the last two CoD titles, the game itself should maintain its $60 launch price until the next iteration (due in large part to the value of its online gameplay), but ATVI will also benefit significantly from the high-margin DLC potential enabled by the packaged product's success," he said. "We estimate that ATVI will generate at least $100mil-$140mil in gross revenue from Call of Duty DLC in 2010. After paying the platform holders an estimated 30%, this should generate roughly $59-$85mil in EBIT and contribute $0.04-$0.05 to EPS."
Schachter explained his estimate as follows: "For 2008's Call of Duty: World at War, ATVI released three separate DLC map packs in 2009, one in March, June and August. Each map pack included 3-4 new maps and was sold via Xbox Live or the PlayStation Network for $9.99 at launch. ATVI recently reported that it had sold 7.5mil map packs for World at War in CY'09 through November 5. We estimate that the attach rate for each release ranged from 15% to 25%, and likely saw some percentage drop off between the first and third releases (though many users likely purchased more than one of the map packs and in some cases all three).
"Overall, that means that ATVI sold ~.625 map packs per unit of World at War, or $6.25 in Map Pack/DLC per installed game unit. Using this ratio as a benchmark and assuming Modern Warfare 2 unit sell-through of approximately 14mil-16mil at the time of the map pack releases, we estimate that Modern Warfare 2 DLC could generate approximately $100mil-$140mil in gross revenue, $59mil-$85mil in EBIT, and $0.03-$0.05 in net profits per share."
Ultimately Schachter thinks Activision will introduce more content and at higher prices than previous DLC. "Though the company has not announced anything, we would not be surprised to see the content expand significantly beyond simple map packs to include new missions, modes of play, and in-game items (who wouldn't pay for a night-time desert assault mission, a 2x2 capture the flag mode, or a very, very sharp bowie knife?) The point is that Call of Duty's fan base will pay for additional content, and we expect ATVI's Infinity Ward to monetize that throughout 2010," he said.
