Operating Segments and Geographic Region

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Operating Segments and Geographic Region

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 September 30, 2019 and 2018, are presented below (amounts in millions):

	Three Months Ended September 30, 2019
	Activision		Blizzard		King		Total
Segment Net Revenues
Net revenues from external customers	$	209	$	392	$	500	$	1,101
Intersegment net revenues (1)	—		2		—		2
Segment net revenues	$	209	$	394	$	500	$	1,103
Segment operating income	$	26	$	74	$	194	$	294
	Three Months Ended September 30, 2018
	Activision		Blizzard		King		Total
Segment Net Revenues
Net revenues from external customers	$	397	$	627	$	506	$	1,530
Intersegment net revenues (1)	—		8		—		8
Segment net revenues	$	397	$	635	$	506	$	1,538
Segment operating income	$	112	$	189	$	184	$	485

Information on reportable segment net revenues and operating income for the nine months ended September 30, 2019 and 2018, are presented below (amounts in millions):

	Nine Months Ended September 30, 2019
	Activision		Blizzard		King		Total
Segment Net Revenues
Net revenues from external customers	$	794	$	1,113	$	1,527	$	3,434
Intersegment net revenues (1)	—		9		—		9
Segment net revenues	$	794	$	1,122	$	1,527	$	3,443
Segment operating income	$	153	$	204	$	543	$	900
	Nine Months Ended September 30, 2018
	Activision		Blizzard		King		Total
Segment Net Revenues
Net revenues from external customers	$	1,047	$	1,592	$	1,542	$	4,181
Intersegment net revenues (1)	—		14		—		14
Segment net revenues	$	1,047	$	1,606	$	1,542	$	4,195
Segment operating income	$	288	$	444	$	543	$	1,275

(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 September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Reconciliation to consolidated net revenues:
Segment net revenues	$	1,103		$	1,538		$	3,443		$	4,195
Revenues from non-reportable segments (1)	113			128			245			246
Net effect from recognition (deferral) of deferred net revenues (2)	68			(146		)	824			692
Elimination of intersegment revenues (3)	(2		)	(8		)	(9		)	(14		)
Consolidated net revenues	$	1,282		$	1,512		$	4,503		$	5,119
Reconciliation to consolidated income before income tax expense:
Segment operating income	$	294		$	485		$	900		$	1,275
Operating income (loss) from non-reportable segments (1)	5			7			10			(4		)
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)	53			(89		)	629			468
Share-based compensation expense	(27		)	(55		)	(127		)	(166		)
Amortization of intangible assets	(50		)	(83		)	(151		)	(279		)
Restructuring and related costs (4)	(28		)	—			(108		)	—
Consolidated operating income	247			265			1,153			1,294
Interest and other expense (income), net	(2		)	13			(33		)	67
Loss on extinguishment of debt	—			40			—			40
Consolidated income before income tax expense	$	249		$	212		$	1,186		$	1,187

(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 September 30, 2019 and 2018, were as follows (amounts in millions):

	Three Months Ended September 30, 2019
	Activision			Blizzard			King			Non-reportable segments		Elimination of intersegment revenues (3)			Total
Net revenues by distribution channel:
Digital online channels (1)	$	179		$	335		$	502		$	—	$	(2	)	$	1,014
Retail channels	73			20			—			—		—			93
Other (2)	—			62			—			113		—			175
Total consolidated net revenues	$	252		$	417		$	502		$	113	$	(2	)	$	1,282
Change in deferred revenues:
Digital online channels (1)	$	(16	)	$	(21	)	$	(2	)	$	—	$	—		$	(39	)
Retail channels	(27		)	(2		)	—			—		—			(29		)
Other (2)	—			—			—			—		—			—
Total change in deferred revenues	$	(43	)	$	(23	)	$	(2	)	$	—	$	—		$	(68	)
Segment net revenues:
Digital online channels (1)	$	163		$	314		$	500		$	—	$	(2	)	$	975
Retail channels	46			18			—			—		—			64
Other (2)	—			62			—			113		—			175
Total segment net revenues	$	209		$	394		$	500		$	113	$	(2	)	$	1,214

	Three Months Ended September 30, 2018
	Activision			Blizzard			King		Non-reportable segments		Elimination of intersegment revenues (3)			Total
Net revenues by distribution channel:
Digital online channels (1)	$	299		$	480		$	505	$	—	$	(8	)	$	1,276
Retail channels	53			23			—		—		—			76
Other (2)	—			35			—		125		—			160
Total consolidated net revenues	$	352		$	538		$	505	$	125	$	(8	)	$	1,512
Change in deferred revenues:
Digital online channels (1)	$	57		$	101		$	1	$	—	$	—		$	159
Retail channels	(12		)	(2		)	—		—		—			(14		)
Other (2)	—			(2		)	—		3		—			1
Total change in deferred revenues	$	45		$	97		$	1	$	3	$	—		$	146
Segment net revenues:
Digital online channels (1)	$	356		$	581		$	506	$	—	$	(8	)	$	1,435
Retail channels	41			21			—		—		—			62
Other (2)	—			33			—		128		—			161
Total segment net revenues	$	397		$	635		$	506	$	128	$	(8	)	$	1,658

Net revenues by distribution channel, including a reconciliation to each of our reportable segment’s revenues, for the nine months ended September 30, 2019 and 2018, were as follows (amounts in millions):

	Nine Months Ended September 30, 2019
	Activision			Blizzard			King		Non-reportable segments			Elimination of intersegment revenues (3)			Total
Net revenues by distribution channel:
Digital online channels (1)	$	894		$	1,081		$	1,527	$	—		$	(9	)	$	3,493
Retail channels	548			51			—		—			—			599
Other (2)	—			157			—		254			—			411
Total consolidated net revenues	$	1,442		$	1,289		$	1,527	$	254		$	(9	)	$	4,503
Change in deferred revenues:
Digital online channels (1)	$	(285	)	$	(159	)	$	—	$	—		$	—		$	(444	)
Retail channels	(363		)	(10		)	—		—			—			(373		)
Other (2)	—			2			—		(9		)	—			(7		)
Total change in deferred revenues	$	(648	)	$	(167	)	$	—	$	(9	)	$	—		$	(824	)
Segment net revenues:
Digital online channels (1)	$	609		$	922		$	1,527	$	—		$	(9	)	$	3,049
Retail channels	185			41			—		—			—			226
Other (2)	—			159			—		245			—			404
Total segment net revenues	$	794		$	1,122		$	1,527	$	245		$	(9	)	$	3,679

	Nine Months Ended September 30, 2018
	Activision			Blizzard			King			Non-reportable segments		Elimination of intersegment revenues (3)			Total
Net revenues by distribution channel:
Digital online channels (1)	$	1,110		$	1,355		$	1,547		$	—	$	(14	)	$	3,998
Retail channels	707			57			—			—		—			764
Other (2)	—			124			—			233		—			357
Total consolidated net revenues	$	1,817		$	1,536		$	1,547		$	233	$	(14	)	$	5,119
Change in deferred revenues:
Digital online channels (1)	$	(234	)	$	79		$	(5	)	$	—	$	—		$	(160	)
Retail channels	(536		)	(10		)	—			—		—			(546		)
Other (2)	—			1			—			13		—			14
Total change in deferred revenues	$	(770	)	$	70		$	(5	)	$	13	$	—		$	(692	)
Segment net revenues:
Digital online channels (1)	$	876		$	1,434		$	1,542		$	—	$	(14	)	$	3,838
Retail channels	171			47			—			—		—			218
Other (2)	—			125			—			246		—			371
Total segment net revenues	$	1,047		$	1,606		$	1,542		$	246	$	(14	)	$	4,427

(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 September 30, 2019 and 2018, were as follows (amounts in millions):

	Three Months Ended September 30, 2019
	Activision			Blizzard			King			Non-reportable segments		Elimination of intersegment revenues (2)			Total
Net revenues by geographic region:
Americas	$	141		$	204		$	311		$	—	$	(1	)	$	655
EMEA (1)	79			124			137			113		(1		)	452
Asia Pacific	32			89			54			—		—			175
Total consolidated net revenues	$	252		$	417		$	502		$	113	$	(2	)	$	1,282
Change in deferred revenues:
Americas	$	(20	)	$	(11	)	$	(2	)	$	—	$	—		$	(33	)
EMEA (1)	(16		)	(10		)	—			—		—			(26		)
Asia Pacific	(7		)	(2		)	—			—		—			(9		)
Total change in deferred revenues	$	(43	)	$	(23	)	$	(2	)	$	—	$	—		$	(68	)
Segment net revenues:
Americas	$	121		$	193		$	309		$	—	$	(1	)	$	622
EMEA (1)	63			114			137			113		(1		)	426
Asia Pacific	25			87			54			—		—			166
Total segment net revenues	$	209		$	394		$	500		$	113	$	(2	)	$	1,214

	Three Months Ended September 30, 2018
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (2)			Total
Net revenues by geographic region:
Americas	$	214	$	242	$	309	$	13	$	(4	)	$	774
EMEA (1)	109		172		143		112		(2		)	534
Asia Pacific	29		124		53		—		(2		)	204
Total consolidated net revenues	$	352	$	538	$	505	$	125	$	(8	)	$	1,512
Change in deferred revenues:
Americas	$	33	$	43	$	—	$	—	$	—		$	76
EMEA (1)	8		48		1		3		—			60
Asia Pacific	4		6		—		—		—			10
Total change in deferred revenues	$	45	$	97	$	1	$	3	$	—		$	146
Segment net revenues:
Americas	$	247	$	285	$	309	$	13	$	(4	)	$	850
EMEA (1)	117		220		144		115		(2		)	594
Asia Pacific	33		130		53		—		(2		)	214
Total segment net revenues	$	397	$	635	$	506	$	128	$	(8	)	$	1,658

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 nine months ended September 30, 2019 and 2018, were as follows (amounts in millions):

	Nine Months Ended September 30, 2019
	Activision			Blizzard			King			Non-reportable segments			Elimination of intersegment revenues (2)			Total
Net revenues by geographic region:
Americas	$	852		$	613		$	946		$	—		$	(5	)	$	2,406
EMEA (1)	457			400			417			254			(3		)	1,525
Asia Pacific	133			276			164			—			(1		)	572
Total consolidated net revenues	$	1,442		$	1,289		$	1,527		$	254		$	(9	)	$	4,503
Change in deferred revenues:
Americas	$	(390	)	$	(80	)	$	1		$	—		$	—		$	(469	)
EMEA (1)	(205		)	(71		)	—			(9		)	—			(285		)
Asia Pacific	(53		)	(16		)	(1		)	—			—			(70		)
Total change in deferred revenues	$	(648	)	$	(167	)	$	—		$	(9	)	$	—		$	(824	)
Segment net revenues:
Americas	$	462		$	533		$	947		$	—		$	(5	)	$	1,937
EMEA (1)	252			329			417			245			(3		)	1,240
Asia Pacific	80			260			163			—			(1		)	502
Total segment net revenues	$	794		$	1,122		$	1,527		$	245		$	(9	)	$	3,679

	Nine Months Ended September 30, 2018
	Activision			Blizzard			King			Non-reportable segments		Elimination of intersegment revenues (2)			Total
Net revenues by geographic region:
Americas	$	1,074		$	716		$	945		$	13	$	(8	)	$	2,740
EMEA (1)	613			497			448			220		(4		)	1,774
Asia Pacific	130			323			154			—		(2		)	605
Total consolidated net revenues	$	1,817		$	1,536		$	1,547		$	233	$	(14	)	$	5,119
Change in deferred revenues:
Americas	$	(439	)	$	43		$	(3	)	$	—	$	—		$	(399	)
EMEA (1)	(287		)	34			(2		)	13		—			(242		)
Asia Pacific	(44		)	(7		)	—			—		—			(51		)
Total change in deferred revenues	$	(770	)	$	70		$	(5	)	$	13	$	—		$	(692	)
Segment net revenues:
Americas	$	635		$	759		$	942		$	13	$	(8	)	$	2,341
EMEA (1)	326			531			446			233		(4		)	1,532
Asia Pacific	86			316			154			—		(2		)	554
Total segment net revenues	$	1,047		$	1,606		$	1,542		$	246	$	(14	)	$	4,427

(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 46% of consolidated net revenues for both the three months ended September 30, 2019 and 2018. The Company’s net revenues in the U.K. were 13% of consolidated net revenues for both the three months ended September 30, 2019 and 2018. No other country’s net revenues exceeded 10% of consolidated net revenues for either the three months ended September 30, 2019 or 2018.

The Company’s net revenues in the U.S. were 48% and 47% of consolidated net revenues for the nine months ended September 30, 2019 and 2018, respectively. The Company’s net revenues in the U.K. were 10% and 11% of consolidated net revenues for the nine months ended September 30, 2019 and 2018, respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for either the nine months ended September 30, 2019 or 2018.

Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, for the three months ended September 30, 2019 and 2018, were as follows (amounts in millions):

	Three Months Ended September 30, 2019
	Activision			Blizzard			King			Non-reportable segments		Elimination of intersegment revenues (3)			Total
Net revenues by platform:
Console	$	214		$	27		$	—		$	—	$	—		$	241
PC	29			286			28			—		(2		)	341
Mobile and ancillary (1)	9			42			474			—		—			525
Other (2)	—			62			—			113		—			175
Total consolidated net revenues	$	252		$	417		$	502		$	113	$	(2	)	$	1,282
Change in deferred revenues:
Console	$	(36	)	$	(9	)	$	—		$	—	$	—		$	(45	)
PC	(7		)	(14		)	—			—		—			(21		)
Mobile and ancillary (1)	—			—			(2		)	—		—			(2		)
Other (2)	—			—			—			—		—			—
Total change in deferred revenues	$	(43	)	$	(23	)	$	(2	)	$	—	$	—		$	(68	)
Segment net revenues:
Console	$	178		$	18		$	—		$	—	$	—		$	196
PC	22			272			28			—		(2		)	320
Mobile and ancillary (1)	9			42			472			—		—			523
Other (2)	—			62			—			113		—			175
Total segment net revenues	$	209		$	394		$	500		$	113	$	(2	)	$	1,214

	Three Months Ended September 30, 2018
	Activision		Blizzard			King		Non-reportable segments		Elimination of intersegment revenues (3)			Total
Net revenues by platform:
Console	$	307	$	40		$	—	$	—	$	—		$	347
PC	40		414			36		—		(8		)	482
Mobile and ancillary (1)	5		49			469		—		—			523
Other (2)	—		35			—		125		—			160
Total consolidated net revenues	$	352	$	538		$	505	$	125	$	(8	)	$	1,512
Change in deferred revenues:
Console	$	29	$	(9	)	$	—	$	—	$	—		$	20
PC	16		101			—		—		—			117
Mobile and ancillary (1)	—		7			1		—		—			8
Other (2)	—		(2		)	—		3		—			1
Total change in deferred revenues	$	45	$	97		$	1	$	3	$	—		$	146
Segment net revenues:
Console	$	336	$	31		$	—	$	—	$	—		$	367
PC	56		515			36		—		(8		)	599
Mobile and ancillary (1)	5		56			470		—		—			531
Other (2)	—		33			—		128		—			161
Total segment net revenues	$	397	$	635		$	506	$	128	$	(8	)	$	1,658

Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, for the nine months ended September 30, 2019 and 2018, were as follows (amounts in millions):

	Nine Months Ended September 30, 2019
	Activision			Blizzard			King			Non-reportable segments			Elimination of intersegment revenues (3)			Total
Net revenues by platform:
Console	$	1,222		$	102		$	—		$	—		$	—		$	1,324
PC	204			909			92			—			(9		)	1,196
Mobile and ancillary (1)	16			121			1,435			—			—			1,572
Other (2)	—			157			—			254			—			411
Total consolidated net revenues	$	1,442		$	1,289		$	1,527		$	254		$	(9	)	$	4,503
Change in deferred revenues:
Console	$	(563	)	$	(26	)	$	—		$	—		$	—		$	(589	)
PC	(84		)	(133		)	(1		)	—			—			(218		)
Mobile and ancillary (1)	(1		)	(10		)	1			—			—			(10		)
Other (2)	—			2			—			(9		)	—			(7		)
Total change in deferred revenues	$	(648	)	$	(167	)	$	—		$	(9	)	$	—		$	(824	)
Segment net revenues:
Console	$	659		$	76		$	—		$	—		$	—		$	735
PC	120			776			91			—			(9		)	978
Mobile and ancillary (1)	15			111			1,436			—			—			1,562
Other (2)	—			159			—			245			—			404
Total segment net revenues	$	794		$	1,122		$	1,527		$	245		$	(9	)	$	3,679

	Nine Months Ended September 30, 2018
	Activision			Blizzard			King			Non-reportable segments		Elimination of intersegment revenues (3)			Total
Net revenues by platform:
Console	$	1,597		$	133		$	—		$	—	$	—		$	1,730
PC	208			1,140			118			—		(14		)	1,452
Mobile and ancillary (1)	12			139			1,429			—		—			1,580
Other (2)	—			124			—			233		—			357
Total consolidated net revenues	$	1,817		$	1,536		$	1,547		$	233	$	(14	)	$	5,119
Change in deferred revenues:
Console	$	(695	)	$	(25	)	$	—		$	—	$	—		$	(720	)
PC	(76		)	96			—			—		—			20
Mobile and ancillary (1)	1			(2		)	(5		)	—		—			(6		)
Other (2)	—			1			—			13		—			14
Total change in deferred revenues	$	(770	)	$	70		$	(5	)	$	13	$	—		$	(692	)
Segment net revenues:
Console	$	902		$	108		$	—		$	—	$	—		$	1,010
PC	132			1,236			118			—		(14		)	1,472
Mobile and ancillary (1)	13			137			1,424			—		—			1,574
Other (2)	—			125			—			246		—			371
Total segment net revenues	$	1,047		$	1,606		$	1,542		$	246	$	(14	)	$	4,427

(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 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 September 30, 2019		At December 31, 2018
Long-lived assets (1) by geographic region:
Americas	$	179	$	203
EMEA	58		62
Asia Pacific	12		17
Total long-lived assets by geographic region	$	249	$	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.