Page 27 - 2012 Annual Report

VIVENDI l 2012 l Annual Report 27
GROUP PROFILE – BUSINESSES – LITIGATION – RISK FACTORS 1
1
SECTION 2 - BUSINESSES
ACTIVISION BLIZZARD
2.3.5. Regulatory Environment
Activision Blizzard voluntarily participates in self-regulatory rating systems
established by various video game industry organizations around the
world. In the United States and Canada for example, the group adheres
to the principles adopted by the Entertainment Software Rating Board
(ESRB). It also adheres to other applicable video game ratings systems,
such as the Pan European Game Information (PEGI) rating system, pursuant
to which Activision Blizzard displays the age group for which a particular
product is intended on its product packaging and advertising, respects
applicable advertising guidelines and online privacy principles and
provides a brief description of the product’s content on its packaging. In
addition, Activision Publishing’s console-based games are compatible with
the parental control tools built into game consoles.
Blizzard offers parental controls for parents whose children play World of
Warcraft. The system allows parents, as the account holders, to monitor
and manage their children’s gaming time. By enabling the parental controls
system, parents can choose the days and times during which their children
may play (e.g., weekends exclusively or one or several predetermined
weekdays between certain hours) and the frequency of mandatory breaks
(e.g., every thirty minutes or once an hour). Anyone attempting to log on to
the game outside the authorized times will not be allowed access.
2.3.6. Piracy
Piracy is a serious concern for video game publishers. Through its Anti-
piracy department, Activision Blizzard combats piracy and counterfeiting
on its own and in collaboration with third parties, including other
publishers and trade associations. Activision Blizzard utilizes emerging
business models that embrace the Internet and at the same time use
technology to thwart piracy.
Another international enforcement challenge comes in the form of
unauthorized server systems. Organized international groups circumvent
security measures and reverse engineer software code in order to
facilitate the unauthorized online play of Activision Blizzard titles. Some
infringing servers require the use of pirated software or a “donation”, or
both, in order to play, which is far less than the cost of legitimate software
or monthly subscription rates. Activision Blizzard aggressively defends its
intellectual property rights against infringement, including taking legal
measures when the company deems such measures advisable, as well
as referring offenders to criminal authorities, supporting prosecutions and
providing training for customs and law enforcement officials.
Through Blizzard Entertainment’s World of Warcraft, Activision Blizzard
is the leader in the subscription-based MMORPG category. World of
Warcraft is the only MMORPG that has experienced major success in all
key markets (North America, Europe and Asia). Competitors also publishing
MMORPGs include NCsoft, Trion Worlds, Sony Online Entertainment,
Electronic Arts and Funcom.
Competitors in the console, handheld, mobile and PC games segment
include, among others, Electronic Arts, Bethesda Softworks, Disney,
Konami, Take-Two Interactive and Ubisoft entertainment, as well as
Nintendo, Sony and Microsoft, which publish video games for their own
platforms.
2.3.7. Competition
2.3.8. Research and Development
Capitalized software development costs include:
✱ amounts paid to entitled beneficiaries for the use of their intellectual
property content in order to develop new games (e.g., software
development, graphics and editorial content);
✱ direct costs incurred during the internal development of products; and
✱ the acquisition costs of software developed outside of the company.
Software development costs are capitalized when the technical feasibility
of the software has been established and they are considered recoverable.
These costs are mainly generated by Activision Blizzard as part of the
games development process and are amortized using the estimated
revenue method (i.e., based on the ratio of the current period’s gross
revenues to estimated total gross revenues) for a given product. Non-
capitalized software development costs are immediately recorded as
Research and Development costs.
In 2012, Research and Development expenditure for Activision Blizzard
amounted to €673 million (compared to €653 million in 2011), and
consisted of all internal and external net costs charged against earnings
for the periods reported.