University of the Philippines Visayas – Tacloban College

Division of Management

Activision’s Skylander: The Quest to Bring Toys to Life

Case Study

In partial fulfillment in Management 190 – Strategic Management

Submitted by:

Ira Nicole H. Dacuycuy

Kyrill Jane J. Hermosura
Hannah Joy F. Osorio
Shaira I. Ruiz
Charina Shaine N. Teberio

Submitted to:

Josha Osias-Wong
 Activision’s Skylander: The Quest to Bring Toys to Life

Introduction of the Company

Activision Publishing, Inc. is an American video game publisher. According to Activision’s official
website, the company was the first independent video game software developer and distributor founded
in 19791 by four former Atari developers, David Crane, Larry Kaplan, Alan Miller, and Bob Whitehead. During
their time in Atari, the four developers produced some of Atari’s major hits but the company failed to give
the developers due recognition which led to the developers’ separation from the company.2 Since its
inception, the company has built itself one of the largest portfolios of brands recognized around the world
and is one of the most valuable interactive entertainment companies. In 2016, Activision was the top
publisher in the United States and in 2017, it was one of the largest third-party video game publishers in
the world.3 Today, Activision “is a leading worldwide developer, publisher and distributor of interactive
entertainment and leisure products for various consoles, handheld platforms, and the PC.” 4 With the
company’s large portfolio, the games developed appeal to a wide range of gamers not just in the United
States but in other countries as well.

History, Development and Growth of the Company over time

1979 - After its mishap with Atari, where they refused to acknowledge the efforts that have been made by
the four programmers, namely, Dave Crane, Larry Kaplan, Alan Miller, and Bob Whitehead, they decided to
make their own company where developers will be given the recognition that they deserve, now known as
Activision based in Silicon Valley.

1982 - Activision went public. After seeing their success, numerous gaming companies attempted to
replicate it, flooding the market with low quality games in the process.

1983 - “Great Video Game Crash” had occurred where several third-party game developers who enjoyed
their short term experience in basking in fame had to shut down. Activision’s effective strategy had helped
the company in surviving these times.

1987 - Activision changed its name to “Mediagenic” in its attempt in restructuring the business to represent
its diversity. They started developing business applications and PC gaming with its revenues still falling off.

1990 - Bobby Kotick had saved “Mediagenic” from bankruptcy by acquiring 25% of the company’s stocks.
With his determination in creating his own video game company, when he saw that the company had
emphasis on its designers, he was convinced that the company can still be restored. He also changed its
name back to Activision.

1993 - Activision had raised $40 million with the help of stock offering and finally became financially stable
as it rose again with the success of their new adventure game “Return of the Zork”.

1997 - Kotick had managed to acquire nine studios up until 2003. He even offered seed money to former
Activision employees to develop their own studios. One unique feature of Activision was granting their
developers autonomy and keeping their own name.

1
https://www.activision.com/
2
Dann, Jeremy B., et al. Activision’s Skylanders: The Quest to Bring Toys to Life. Case Study. USC-Marshall/Lloyd
Greif Center for Entrepreneurial Studies. 2008. Print.
3
https://en.wikipedia.org/wiki/Activision
4
https://www.activision.com/
1999 - A Los Angeles-based studio, Neversoft Entertainment had been acquired by Activision which created
one of the most famous skateboarding games in world, “Tony Hawk’s Pro Skater”, and successfully became
a billion-dollar franchise.

2003 - Activision acquired Infinity Ward, the developer of one of the most known war games which is “Call
of Duty” a game based on the World War II. Despite the success of the game even earning $15 million in
its total sales, several parent groups and lawmakers felt that the game encouraged violence among children
who were avid players of it. Since then, Activision avoided adding too much violence in their games, and
added age restrictions for the benefit of all.

2006 - RedOctane was acquired by Activision, the company making its debut to the music gaming industry
with the “Guitar Hero” franchise. With the game, players were allowed to experience the feel of playing
lead, bass, and rhythm guitars by having the option of using guitar-shaped controllers.

2007 - Seeing the popularity of the “World of Warcraft” (an online game created by Vivendi’s development
studio Blizzard Entertainment) in China, the CEO of that time thought that it was an opportunity to spread
Activision’s games in China. Vivendi and Activision signed a merger deal, creating the largest independent
video game company in the whole world.

2008 - “Guitar Hero” was the fastest game to ever reach $1 billion in sales in a year.

2008/09 - The developers of Skylander were already starting to work on the first version of the game.

2011 – Skylander’s Spyro’s Adventure was launched.

2013 - As Vivendi started to struggle with their $17 billion debt, which may affect Activision in the future,
they decided to cut the merger deal with them.

Identification of the Problem

 How to Introduce the New Product

Activision has been the company that introduced the home gaming segment to the public,
they also introduced variety of games and genres that would give them a choice as to what type of
game they want to play. But not everyone will be accepting to the type of games they would want
to release. So the challenge here is to capture the interest of the target market and to encourage
other users into trying out the newly released games.
 Maintain its Market Position
We are at an age where technology is already a part of our daily lives and one cannot deny
that as it progresses, the number of video games are also increasing. The challenge here is to still
stay consistent and maintain the current market position or improve amidst the newly released
games and interactive entertainment.
 How to Sustain the Business
Associated with the rise in technological advancement and interactive entertainment that
has been released so far is the decline in video gaming console. With this thought in mind, there
would come a time that the type of IE that will be released will soon decline, the challenge here is
to release video games or interactive entertainment that would be sustainable and would adapt
through the continuous technological advancement.
 PESTLE Analysis

Political

The criticism from lawmakers and parent groups had led Activision to make their video games more
child-friendly by reducing the violence and specifying the age classification. This shows that political
segments can influence the firm and vice versa.

Economic

Economies of different countries are interconnected as a result of global economy. Specifically, the
health of the nation highly affects the individual firm, industries as well as the economies outside the host
nation. However, toy industry thought to be the most recession proof industry because parents continue
to provide toys for their kids both in good and bad times. In year 2008, toy businesses got its first shock of
recession when the U.S economy experienced an economic crisis, the worst since the Great Depression.
The decline of sales resulted from the recession. Many nations throughout the world are affected by the
U.S. economy.

Socio-cultural

Socio-cultural factor pertains to the attitude and values of the society to a certain product. Society
are susceptible of changes which shapes their culture. For instance, as the society become modernized, it
also changes its culture and preference of the people. Activision’s target market have changed from
children to teenager and back to children due to the changing preferences. This implies that values, attitude
and preference of people are constantly changing overtime, therefore innovations must be employed to
avoid myopia.

Technological

Technologies play a significant role in building an iconic and memorable experience of video gaming
in the younger generation. Activision’s compelling wireless technology RFID (radio frequency identification)
enables to store data in toys when they are placed in the electronic portal. Technological factors can gain
competitive advantage but it can also offers risk and threats to business. Innovation is important not only
for maximizing profit but also to prevent obsolescence in the near future.

Legal

The legal segment includes external or internal laws and policies that affects the competitive
actions of the firm. Activision started its licensing business to effectively market Skylanders. Licensing gives
protection to Activision from imitating its characters and games by competitors. In addition licensing
enables Activision to expand its business through partnerships which provides a multiple customer
touchpoints outside the video game that at the same time bolstered their sales and customer value.
Moreover, it helped build and raise awareness of the brand.

Environmental

Environmental factors are concerned with anything that affects the surrounding environment.
Factors include but not limited to weather, climate, environmental policies, climate change, global changes
etc. Activision’s business includes developing and distributing interactive entertainment and leisure
products, therefore does not harm the environment.

SWOT Analysis

Strengths Weaknesses Opportunities Threats

1. Credit to 1. Outsourced 1. Cheaper Raw 1. Decline in Toy
Designers Employees Materials Sales
2. Broad portfolio 2. Sustainability 2. Long Lifespan
3. Popular to Sell
Products Merchandise
4. Autonomy of
Developers
5. Partnership
with Vivendi
6. Innovative
Product &
Design

STRENGTHS:

Credit to Designers

One of the strengths of Activision is that their designers are given recognition which empowers
them and they become more committed to the company. This results to better outputs and low employee
turnover.

Broad portfolio

The company has a variety of games and have entered the market of different genres which make
their products available for diverse markets.

Popular Products
 The Company has already made a name for itself and their products are well known. They have
already gained the trust and loyalty of customers.

Autonomy of Developers

The autonomy of developers is what sets their company apart from others. The freedom to create
and maintain the developer’s identity unleashes their creative energy which results to innovative products
and competitive advantages.

Partnership with Vivendi

Their partnership with Vivendi paved their way to analyzing the consumers in Asian countries which
resulted to a wide market scope. Activision also acquired a significant number of popular games from their
partnership from Vivendi.

Innovative Product & Design

With the product’s innovative design, the newness and uniqueness of the company’s concepts are able to
keep up with changing trends and attracts their target market.

WEAKNESSES:

Outsourced Employees

The company’s preference for outsourced resources may cause difficulties because the employees
may not have a sense of ownership towards the company which may result to poor or inconsistent
performance.

Sustainability

The change in trends and the tastes of people is constantly changing. The sales for toys have been
declining and toy/videogame companies are having a hard time sustaining their business and thinking of
new ways to continuously penetrate the market.

OPPORTUNITIES:

Cheaper Raw Materials

The Market for technology is evolving, the variety of products available is widening and their prices
are dropping. The availability of these materials (e.g., radio frequency identification) can make Activision’s
products more cost effective. That being the case, Activision’s products will become more affordable for a
wider market scope.

Long Lifespan to Sell Merchandise

As mentioned earlier, the videogame industry has a long lifespan for selling merchandise. On that
account, the company will be gaining profit from merchandise even months after the launch of each
product.

THREATS:

Decline in Toy Sales

Because the sales of toys and kids’ console games have been declining, it comes with the struggle
of the possibility that customers might not prefer buying Activision’s products because of the market’s
preference of more digital products.
 TOWS

Strengths Weaknesses
1. Credit to Designers 1. Outsourced Employees
2. Broad Portfolio 2. Sustainability
Internal 3. Popular Products
4. Autonomy of
Developers
External
5. Partnership with Vivendi
6. Innovative Product &
Design
Opportunities S1S4O2 Developers’ Sense of W1O1 Inbreeding.
1. Cheaper Raw Materials Ownership and Belongingness. W2O2 Intensive Advertising.
2. Long Lifespan to Sell S2O1 Superior Customer Value.
Merchandise S3O2 Product-Lifespan
Sustainability.
S5O1 Efficient Resource Usage.
S6O1 Affordable Prices for
Innovative Products.
Threats S6T1 Maintain Competitive W2T1 Maintain Competitive
1. Decline in Toy Sales Advantage. Advantage.

Industry Analysis

Bargaining Power of Suppliers

For Activision, the bargaining power of suppliers is rather high because, for them, suppliers are
difficult to find. In their case, their suppliers are designers/developers who are most of the time outsourced,
they are either freelancers or employees in other companies that have been given the permission to have
other jobs. Even with the existing contract between the designer and the company, it still important for
them to have their own designers/developers in times of emergencies.

Bargaining Power of Buyers

The bargaining power of buyers for Activision is high yet again, since video games, consoles, and
other things that the company produces are not a necessity in the daily life of their target market
considering that they are for entertainment purposes only.

Threat of Substitution

The Threat of Substitution for Activision is low considering that they have been established for
more than 30 years now and is a globally recognized entertainment company. They have been known to
be the developer of various popular video games in almost any genre, examples of which are Call of Duty,
Guitar Hero and Skylander. Being a pioneer, with the trust of their loyal customers and high quality products
that attracted new customer, it made them earn a good reputation in the video game industry.

Threat of New Entrants

 With Activision’s good reputation in the video gaming industry it would be hard for new upcoming
businesses to compete with them. They have long been an established brand, their years of experience
could outshine anyone in the industry. Even with a lot of new companies emerging, Activision’s customer
based has remained loyal to them, with the trust that every penny that they use to buy their products will
be worth it. Usually, customers who have little to no background when it comes to video games would ask
an avid video gamer for suggestions in what they should choose, and most often that avid video gamer
would answer games that have been developed by Activision.

Competitive Rivalry

Competitive rivalry for Activision is low because as it was mentioned earlier on how it was explained
in the threat of substitution and new entrants, their competitor would most likely hesitate in competing
with them because they are already considered as a veteran in the video game industry. With their high
quality products and loyal customer base, they clearly have strong competitive advantages among others.

Business Strategy Used

Differentiation

Activision creates value by offering a wide variety of high quality games and genres and allowing
their customers to experience an interactive entertainment that adapts to technological advancement.
They are also venturing to greater heights by incorporating their games to new technologies and
innovation.

Corporate Strategy Used

Related Linked Diversification

Activision expands its business into different product lines that are similar to those it currently
offers. The core of the business are the knowledge, skills and ideas of the developers and designers.
Activision share only few resources and activities and to gain competitive advantage, they focus more on
transferring its knowledge and core competencies. Thus, it use related linked corporate-level diversification
strategy.

Conclusion

Despite a couple of downfalls in its first years, Activision was able to keep up with the changing
tastes of their market through effective management. The company now has innovated ways to cater to
the changing demands of the market and they have pioneered in giving their customers a new video game
experience which paved their way to an advantageous market position. However, this doesn’t mean that it
will be easy to maintain that position. This doesn’t change the fact that the technological advancements is
continuously changing consumers’ tastes, behaviors, and preferences. The company must continue to
make efforts to update their products and discover more breakthroughs.