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Blizzard Q2 2009 Transcript 

Michael Morhaime  talks on financial, delay of Starcraft 2, Battle.net 2.0, World of Warcraft in China, Warcraft movie and future release of Blizzard games (Diablo 3).

Thank you, Mike. I would like to briefly discuss Blizzard’s Q2 performance and then give some insight on how the rest of the year is shaping up for us.

Our revenues for the second quarter were stable versus the same quarter last year, so despite the impacts that the strengthening dollar has had on our four markets year over year, we were still able to hold on to our sales position within a struggling global economy. Our non-GAAP operating income was down just under 6% from the second quarter of 2008.

Now I would like to give some perspective on how we were approaching the second half of the year. As most of you know, our focus at Blizzard has been on developing and publishing high quality online games for players around the world. We believe the key to understanding this market is to see that it is more than just a market. It is a community of gamers perhaps more connected to each other than any other community.

Battle.net 2.0 & Starcraft II
Like other Blizzard games, we want Starcraft 2 to be a game that our players enjoy for years, not just a few months. Integral to the Starcraft 2 game play experience is the launch of our next generation Battlenet game service.

Our vision for Battlenet is ambitious. As I have said before, we intend to make Battlenet the premiere online gaming destination. We view the next generation of Battlenet as strategically important to the future of our company. It’s the foundation for all future online games at Blizzard and will be the cornerstone of our community.

In addition to supporting tournaments, rankings, and multi-player game matching for Starcraft 2 and future Blizzard games, the next generation of Battlenet will add social networking features, cross-game communication, unified login and account management, and more. Battlenet will bring together players from across all of our games including World of Warcraft, eventually allowing them to connect, communicate, and share experiences with each other through the service regardless of which Blizzard game.

The new version of Battlenet is being integrated with Starcraft 2 more tightly than in any previous Blizzard game. Over the past few weeks, it has become clear that it will take longer than expected to prepare the new Battlenet for the launch of Starcraft 2. This means, as Bobby mentioned, that we will not be ready to launch Starcraft 2 in 2009. We recognize that we only get one chance to make a first impression. It’s much easier to retain a player that has a great initial experience than to bring them back after a mediocre one.

While we could rush into beta and launch an inferior game and service experience this year, fixing that experience over time, our track record has proven that there is a far greater value for us and for our players in making sure that the experience is great right from the start.

Looking at the monthly NPD charts from this year, you will see that our strategy has been reinforced over and over, with Blizzard games from six, eight, and even 11 years ago regularly appearing in the top 20 in sales. This is a direct result of our commitment to quality and to our players and it explains why it makes sense to spend the time we do polishing our games before we release them.

Starcraft 2 Release
Once we release Starcraft 2 next year, we will move immediately on to the first of two expansions. We will also continue developing and implementing advanced Battlenet features, which I will discuss more on future calls.

Starcraft helped lay the foundation for the professional gaming, or e-sports industry. It is widely played throughout the world but especially in Korea, where it remains the number three online game in the country, more than 10 years after launch. Starcraft 2 is being designed to build on the e-sports elements that made the original Starcraft so popular around the world.

We will also be working to expand the popularity of competitive gaming in the west and other regions. We are already starting to see interest from mainstream media like ESPN who have begun to cover e-sports leagues.

Asia plays a large part in our strategies for Starcraft 2’s growth. In addition to the popularity of Blizzard strategy games in Korea, there is a vast existing player base in China. We plan to establish Battlenet as the platform of choice in China for Starcraft 2 and incentivize players to use legitimate copies instead of pirated versions.

World of Warcraft in China
We are optimistic about China. It is a market with tremendous potential and we are very pleased with our position there. We are the first western gaming company to develop a major presence in China. It will take years of experience for others to match our knowledge of the Chinese marketplace. While our competitors will be working to introduce and establish their brands, we are already in a great position to grow our audience there.

As an example of what I mean, our move of World of Warcraft to Netease will unify all of our player communities in China. Netease already holds the license for Starcraft 2 and Warcraft 3 in the Chinese market. We believe the partnership will allow us to maintain the consistency of quality and service and the operating efficiency that we will need to grow in this enormous market.

Netease has unparalleled distribution to second, third, and fourth tier cities which should help drive growth of our player base dramatically over the coming years.

While we await the green light to relaunch World of Warcraft in China, we are not forgetting our tremendous base of Chinese players. We are currently running a beta test with Netease on the new infrastructure in China that is only open to existing World of Warcraft players. In the past week, more than 4.2 million World of Warcraft accounts have already logged in to play during this period.

We feel that no game currently on the market in China matches the quality and depth of content that World of Warcraft offers. We anticipate that this will be reflected by considerable turnout of new, existing, and returning players when the game relaunches.

Warcraft Movie
There’s one more piece of Warcraft related news I wanted to mention. As you probably know, we have been working with Legendary Pictures, the company behind The Dark Knight, on a movie based on the Warcraft universe. Just last month, we announced that Sam Raimi, director of the Spider-man series, has signed on to direct the Warcraft movie. This means that the movie is in the hands of someone who understands its audience and who has major blockbuster experience, which is great news for us and our players.

BlizzCon 2009
I’ve talked a lot about our player community. You may or my not be aware of how passionate and intense that community can be. A good opportunity to witness the Blizzard gaming community in action will be at our fourth Blizz-con convention, which will take place on August 21st and 22nd in Anaheim. Like our previous shows, this one sold out in minutes, despite the fact that we sold more tickets than ever before, 20,000 this time around.

At Blizz-con, the attendees will play our unreleased games, they will watch world champion gamers compete, they will hear panel discussions by our designers, and also share their thoughts about our games. And for those who weren’t able to buy tickets, we will offer the show live via pay-per-view on DIRECTV and over the Internet. If you are looking for a measure of the force of our gaming community and how it shapes our company, Blizz-con is it. I hope some of you will have the opportunity to attend this year and see for yourself.

Blizzard preparing to launch Starcraft 2

Okay, and with regard to the Battlenet question, we are completely focused right now on supporting the Blizzard titles and especially preparing for the launch of Starcraft 2.

Futher titles release date, Diablo 3?

I would just like to reiterate that we haven’t announced any release dates on any future titles. And I will also reiterate that the move of Starcraft into next year does not impact the schedule and so it would be correct to conclude that you could expect two releases of Blizzard next year but I would not make any conclusion on what those titles are going to be.

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