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Operating Segments and Geographic Region

3 Months Ended

Mar. 31, 2019

Operating Segments and Geographic Region

Currently, we have three reportable segments—Activision, Blizzard, and King. Our operating segments are consistent with the manner in which our operations are reviewed and managed by our Chief Executive Officer, who is our chief operating decision maker (“CODM”). The CODM reviews segment performance exclusive of: the impact of the change in deferred revenues and related cost of revenues with respect to certain of our online-enabled games; share-based compensation expense; amortization of intangible assets as a result of purchase price accounting; fees and other expenses (including legal fees, expenses, and accruals) related to acquisitions, associated integration activities, and financings; certain restructuring and related costs; and certain other non-cash charges. The CODM does not review any information regarding total assets on an operating segment basis, and accordingly, no disclosure is made with respect thereto.

Our operating segments are also consistent with our internal organizational structure, the way we assess operating performance and allocate resources, and the availability of separate financial information. We do not aggregate operating segments.

Information on reportable segment net revenues and operating income for the three months ended March 31, 2019 and 2018, are presented below (amounts in millions):



	Three Months Ended March 31, 2019
	Activision		Blizzard		King		Total
Segment Net Revenues
Net revenues from external customers	$	317	$	339	$	529	$	1,185
Intersegment net revenues (1)	—		5		—		5
Segment net revenues	$	317	$	344	$	529	$	1,190

Segment operating income	$	73	$	55	$	178	$	306


	Three Months Ended March 31, 2018
	Activision		Blizzard		King		Total
Segment Net Revenues
Net revenues from external customers	$	312	$	479	$	534	$	1,325
Intersegment net revenues (1)	—		1		—		1
Segment net revenues	$	312	$	480	$	534	$	1,326

Segment operating income	$	92	$	122	$	191	$	405


(1)	Intersegment revenues reflect licensing and service fees charged between segments.

Reconciliations of total segment net revenues and total segment operating income to consolidated net revenues and consolidated income before income tax expense are presented in the table below (amounts in millions):



	Three Months Ended March 31,
	2019			2018
Reconciliation to consolidated net revenues:
Segment net revenues	$	1,190		$	1,326
Revenues from non-reportable segments (1)	73			59
Net effect from recognition (deferral) of deferred net revenues (2)	567			581
Elimination of intersegment revenues (3)	(5		)	(1		)
Consolidated net revenues	$	1,825		$	1,965

Reconciliation to consolidated income before income tax expense:
Segment operating income	$	306		$	405
Operating income (loss) from non-reportable segments (1)	(3		)	(11		)
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)	441			373
Share-based compensation expense	(63		)	(53		)
Amortization of intangible assets	(54		)	(119		)
Restructuring and related costs (4)	(57		)	—
Consolidated operating income	570			595
Interest and other expense (income), net	3			28
Consolidated income before income tax expense	$	567		$	567


(1)	Includes other income and expenses from operating segments managed outside the reportable segments, including our Studios and Distribution businesses. Also includes unallocated corporate income and expenses.


(2)	Reflects the net effect from recognition (deferral) of deferred net revenues, along with related cost of revenues, on certain of our online-enabled products.


(3)	Intersegment revenues reflect licensing and service fees charged between segments.


(4)	Reflects restructuring initiatives, primarily severance and other restructuring-related costs.

Net revenues by distribution channel, including a reconciliation to each of our reportable segment’s revenues, for the three months ended March 31, 2019 and 2018, were as follows (amounts in millions):



	Three Months Ended March 31, 2019
	Activision			Blizzard			King		Non-reportable segments			Elimination of intersegment revenues (3)			Total
Net revenues by distribution channel:
Digital online channels (1)	$	466		$	406		$	526	$	—		$	(5	)	$	1,393
Retail channels	297			16			—		—			—			313
Other (2)	—			39			—		80			—			119
Total consolidated net revenues	$	763		$	461		$	526	$	80		$	(5	)	$	1,825

Change in deferred revenues:
Digital online channels (1)	$	(217	)	$	(114	)	$	3	$	—		$	—		$	(328	)
Retail channels	(229		)	(4		)	—		—			—			(233		)
Other (2)	—			1			—		(7		)	—			(6		)
Total change in deferred revenues	$	(446	)	$	(117	)	$	3	$	(7	)	$	—		$	(567	)

Segment net revenues:
Digital online channels (1)	$	249		$	292		$	529	$	—		$	(5	)	$	1,065
Retail channels	68			12			—		—			—			80
Other (2)	—			40			—		73			—			113
Total segment net revenues	$	317		$	344		$	529	$	73		$	(5	)	$	1,258



	Three Months Ended March 31, 2018
	Activision			Blizzard			King		Non-reportable segments		Elimination of intersegment revenues (3)			Total
Net revenues by distribution channel:
Digital online channels (1)	$	476		$	455		$	533	$	—	$	(1	)	$	1,463
Retail channels	396			13			—		—		—			409
Other (2)	—			40			—		53		—			93
Total consolidated net revenues	$	872		$	508		$	533	$	53	$	(1	)	$	1,965

Change in deferred revenues:
Digital online channels (1)	$	(232	)	$	(27	)	$	1	$	—	$	—		$	(258	)
Retail channels	(328		)	(2		)	—		—		—			(330		)
Other (2)	—			1			—		6		—			7
Total change in deferred revenues	$	(560	)	$	(28	)	$	1	$	6	$	—		$	(581	)

Segment net revenues:
Digital online channels (1)	$	244		$	428		$	534	$	—	$	(1	)	$	1,205
Retail channels	68			11			—		—		—			79
Other (2)	—			41			—		59		—			100
Total segment net revenues	$	312		$	480		$	534	$	59	$	(1	)	$	1,384


(1)	Net revenues from “Digital online channels” include revenues from digitally-distributed subscriptions, downloadable content, microtransactions, and products, as well as licensing royalties.


(2)	Net revenues from “Other” include revenues from our Studios and Distribution businesses, as well as revenues from MLG and the Overwatch League.


(3)	Intersegment revenues reflect licensing and service fees charged between segments.

Geographic information presented below is based on the location of the paying customer. Net revenues by geographic region, including a reconciliation to each of our reportable segment’s net revenues, for the three months ended March 31, 2019 and 2018, were as follows (amounts in millions):



	Three Months Ended March 31, 2019
	Activision			Blizzard			King		Non-reportable segments			Elimination of intersegment revenues (2)			Total
Net revenues by geographic region:
Americas	$	458		$	207		$	326	$	—		$	(3	)	$	988
EMEA (1)	243			148			144		80			(1		)	614
Asia Pacific	62			106			56		—			(1		)	223
Total consolidated net revenues	$	763		$	461		$	526	$	80		$	(5	)	$	1,825

Change in deferred revenues:
Americas	$	(267	)	$	(54	)	$	3	$	—		$	—		$	(318	)
EMEA (1)	(146		)	(47		)	—		(7		)	—			(200		)
Asia Pacific	(33		)	(16		)	—		—			—			(49		)
Total change in deferred revenues	$	(446	)	$	(117	)	$	3	$	(7	)	$	—		$	(567	)

Segment net revenues:
Americas	$	191		$	153		$	329	$	—		$	(3	)	$	670
EMEA (1)	97			101			144		73			(1		)	414
Asia Pacific	29			90			56		—			(1		)	174
Total segment net revenues	$	317		$	344		$	529	$	73		$	(5	)	$	1,258



	Three Months Ended March 31, 2018
	Activision			Blizzard			King		Non-reportable segments		Elimination of intersegment revenues (2)			Total
Net revenues by geographic region:
Americas	$	510		$	234		$	322	$	—	$	(1	)	$	1,065
EMEA (1)	305			169			160		53		—			687
Asia Pacific	57			105			51		—		—			213
Total consolidated net revenues	$	872		$	508		$	533	$	53	$	(1	)	$	1,965

Change in deferred revenues:
Americas	$	(328	)	$	(6	)	$	1	$	—	$	—		$	(333	)
EMEA (1)	(198		)	(8		)	—		6		—			(200		)
Asia Pacific	(34		)	(14		)	—		—		—			(48		)
Total change in deferred revenues	$	(560	)	$	(28	)	$	1	$	6	$	—		$	(581	)

Segment net revenues:
Americas	$	182		$	228		$	323	$	—	$	(1	)	$	732
EMEA (1)	107			161			160		59		—			487
Asia Pacific	23			91			51		—		—			165
Total segment net revenues	$	312		$	480		$	534	$	59	$	(1	)	$	1,384


(1)	“EMEA” consists of the Europe, Middle East, and Africa geographic regions.


(2)	Intersegment revenues reflect licensing and service fees charged between segments.

The Company’s net revenues in the U.S. were 49% and 47% of consolidated net revenues for the three months ended March 31, 2019 and 2018, respectively. The Company’s net revenues in the U.K. were 10% and 11% of consolidated net revenues for the three months ended March 31, 2019 and 2018, respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for either the three months ended March 31, 2019 or 2018.

Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, for the three months ended March 31, 2019 and 2018, were as follows (amounts in millions):



	Three Months Ended March 31, 2019
	Activision			Blizzard			King		Non-reportable segments			Elimination of intersegment revenues (3)			Total
Net revenues by platform:
Console	$	635		$	42		$	—	$	—		$	—		$	677
PC	124			342			33		—			(5		)	494
Mobile and ancillary (1)	4			38			493		—			—			535
Other (2)	—			39			—		80			—			119
Total consolidated net revenues	$	763		$	461		$	526	$	80		$	(5	)	$	1,825

Change in deferred revenues:
Console	$	(386	)	$	(12	)	$	—	$	—		$	—		$	(398	)
PC	(59		)	(90		)	—		—			—			(149		)
Mobile and ancillary (1)	(1		)	(16		)	3		—			—			(14		)
Other (2)	—			1			—		(7		)	—			(6		)
Total change in deferred revenues	$	(446	)	$	(117	)	$	3	$	(7	)	$	—		$	(567	)

Segment net revenues:
Console	$	249		$	30		$	—	$	—		$	—		$	279
PC	65			252			33		—			(5		)	345
Mobile and ancillary (1)	3			22			496		—			—			521
Other (2)	—			40			—		73			—			113
Total segment net revenues	$	317		$	344		$	529	$	73		$	(5	)	$	1,258



	Three Months Ended March 31, 2018
	Activision			Blizzard			King		Non-reportable segments		Elimination of intersegment revenues (3)			Total
Net revenues by platform:
Console	$	769		$	48		$	—	$	—	$	—		$	817
PC	99			378			43		—		(1		)	519
Mobile and ancillary (1)	4			42			490		—		—			536
Other (2)	—			40			—		53		—			93
Total consolidated net revenues	$	872		$	508		$	533	$	53	$	(1	)	$	1,965

Change in deferred revenues:
Console	$	(491	)	$	(19	)	$	—	$	—	$	—		$	(510	)
PC	(69		)	—			—		—		—			(69		)
Mobile and ancillary (1)	—			(10		)	1		—		—			(9		)
Other (2)	—			1			—		6		—			7
Total change in deferred revenues	$	(560	)	$	(28	)	$	1	$	6	$	—		$	(581	)

Segment net revenues:
Console	$	278		$	29		$	—	$	—	$	—		$	307
PC	30			378			43		—		(1		)	450
Mobile and ancillary (1)	4			32			491		—		—			527
Other (2)	—			41			—		59		—			100
Total segment net revenues	$	312		$	480		$	534	$	59	$	(1	)	$	1,384


(1)	Net revenues from “Mobile and ancillary” include revenues from mobile devices, as well as non-platform specific game-related revenues, such as standalone sales of toys and accessories from our Skylanders^® franchise and other physical merchandise and accessories.


(2)	Net revenues from “Other” include revenues from our Studios and Distribution businesses, as well as revenues from MLG and the Overwatch League.


(3)	Intersegment revenues reflect licensing and service fees charged between segments.

Long-lived assets by geographic region were as follows (amounts in millions):



	At March 31, 2019		At December 31, 2018
Long-lived assets (1) by geographic region:
Americas	$	192	$	203
EMEA	58		62
Asia Pacific	14		17
Total long-lived assets by geographic region	$	264	$	282

(1)

The only long-lived assets that we classify by region are our long-term tangible fixed assets, which consist of property, plant, and equipment assets; all other long-term assets are not allocated by location.