Game Maker Pulling the Plug on 'Guitar Hero'

Move will result in workforce reduction of 500 people.

The maker of "Guitar Hero" said it is pulling the plug on the once-popular music video-game series.

"After two years of steeply declining sales, we've made the decision to close our 'Guitar Hero' business unit, and discontinue development on our previously playing 'Guitar Hero' title for 2011," Activision Blizzard Inc. President and CEO Robert Kotick said during the company's fourth-quarter 2010 earnings call yesterday. " ... Given the considerable licensing and manufacturing costs associated with this genre, we simply cannot make these games profitably based on current economics and demand."

Kotick said the company also will halt development of its "True Crime: Hong Kong" game.

As a result of the decision to disband Activision Publishing's "Guitar Hero" business unit, the Santa Monica, Calif.-based video-game maker will cut its workforce by approximately 500 people.

Activision Blizzard, which also produces popular games such as "Call of Duty" and "World of Warcraft," is moving toward a digital business model, company executives emphasized yesterday.

"Activision Blizzard will continue to invest its capital and resources in the significant opportunities afforded by online gaming worldwide and will reduce its exposure to low-margin and low-potential businesses," the company said in its 2011 outlook. "In 2011, the company will allocate the majority of its resources and focus toward opportunities that we expect will afford us the greatest competitive advantages and the greatest potential for best-in-class quality, high-margin digital growth and long-term success."

The company said it plans to make "robust investment" in additional "Call of Duty" titles and will focus on developing "a best-in-class digital community surrounding the 'Call of Duty' franchise."

Activision Blizzard reported full-year 2010 net revenue of $4.45 billion, up from $4.28 billion in 2009. The 2010 revenue numbers included more than $1.5 billion from "digital channels," a 20% increase from 2009, according to the company.

"Activision and Blizzard have led the evolution of video game from something that people play for hours by themselves to a connective social experience," Kotick said yesterday. "The depth of interaction enabled by technology today presents a massive opportunity to form lasting relationships with audiences."

While the headcount reduction amounts to 7% of Activision Blizzard's global workforce, CFO and COO Thomas Tippl noted that the company is "making significant investments elsewhere."

"We're ramping our development teams around the 'Call of Duty' initiatives, so after all is said and done at the end of the year, I don't think our headcount will be all that materially different," Tippl said during yesterday's earnings call.

Activision Blizzard is projecting full-year 2011 net revenue to decline to $3.95 billion.

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