Operating Segments and Geographic Regions

3 Months Ended

Mar. 31, 2022

Segment Reporting [Abstract]

Operating Segments and Geographic Regions

9. Operating Segments and Geographic Regions

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 (including liability awards accounted for under ASC 718); 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 are presented below (amounts in millions):

	Three Months Ended March 31, 2022
	Activision		Blizzard		King		Total
Segment Revenues
Net revenues from external customers	$	453	$	265	$	682	$	1,400
Intersegment net revenues (1)	—		9		—		9
Segment net revenues	$	453	$	274	$	682	$	1,409
Segment operating income	$	59	$	53	$	243	$	355
	Three Months Ended March 31, 2021
	Activision		Blizzard		King		Total
Segment Revenues
Net revenues from external customers	$	891	$	458	$	609	$	1,958
Intersegment net revenues (1)	—		25		—		25
Segment net revenues	$	891	$	483	$	609	$	1,983
Segment operating income	$	442	$	208	$	203	$	853

(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,
	2022		2021
Reconciliation to consolidated net revenues:
Segment net revenues	$	1,409	$	1,983
Revenues from non-reportable segments (1)	81		108
Net effect from recognition (deferral) of deferred net revenues (2)	287		209
Elimination of intersegment revenues (3)	(9)		(25)
Consolidated net revenues	$	1,768	$	2,275
Reconciliation to consolidated income before income tax expense:
Segment operating income	$	355	$	853
Operating income (loss) from non-reportable segments (1)	19		(4)
Net effect from recognition (deferral) of deferred net revenues and related cost of revenues (2)	235		132
Share-based compensation expense (4)	(98)		(151)
Amortization of intangible assets	(2)		(5)
Restructuring and related costs	2		(30)
Merger and acquisition-related fees and other expenses (5)	(32)		—
Consolidated operating income	479		795
Interest and other expense (income), net	14		30
Consolidated income before income tax expense	$	465	$	765

(1)Includes other income and expenses outside of our reportable segments, including our Distribution business and 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)Expenses related to share-based compensation, including $15 million for outstanding liability awards accounted for under ASC 718.

(5)Reflects fees and other expenses related to our proposed transaction with Microsoft, primarily legal and advisory fees.

Net revenues by distribution channel, including a reconciliation to each of our reportable segment’s revenues, were as follows (amounts in millions):

	Three Months Ended March 31, 2022
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by distribution channel:
Digital online channels (1)	$	616	$	300	$	682	$	—	$	(9)	$	1,589
Retail channels	83		2		—		—		—		85
Other (2)	11		2		—		81		—		94
Total consolidated net revenues	$	710	$	304	$	682	$	81	$	(9)	$	1,768
Change in deferred revenues:
Digital online channels (1)	$	(192)	$	(30)	$	—	$	—	$	—	$	(222)
Retail channels	(65)		1		—		—		—		(64)
Other (2)	—		(1)		—		—		—		(1)
Total change in deferred revenues	$	(257)	$	(30)	$	—	$	—	$	—	$	(287)
Segment net revenues:
Digital online channels (1)	$	424	$	270	$	682	$	—	$	(9)	$	1,367
Retail channels	18		3		—		—		—		21
Other (2)	11		1		—		81		—		93
Total segment net revenues	$	453	$	274	$	682	$	81	$	(9)	$	1,481

	Three Months Ended March 31, 2021
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by distribution channel:
Digital online channels (1)	$	965	$	461	$	605	$	—	$	(25)	$	2,006
Retail channels	143		6		—		—		—		149
Other (2)	15		3		—		102		—		120
Total consolidated net revenues	$	1,123	$	470	$	605	$	102	$	(25)	$	2,275
Change in deferred revenues:
Digital online channels (1)	$	(162)	$	17	$	4	$	—	$	—	$	(141)
Retail channels	(70)		(4)		—		—		—		(74)
Other (2)	—		—		—		6		—		6
Total change in deferred revenues	$	(232)	$	13	$	4	$	6	$	—	$	(209)
Segment net revenues:
Digital online channels (1)	$	803	$	478	$	609	$	—	$	(25)	$	1,865
Retail channels	73		2		—		—		—		75
Other (2)	15		3		—		108		—		126
Total segment net revenues	$	891	$	483	$	609	$	108	$	(25)	$	2,066

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

(2)Net revenues from “Other” primarily include revenues from our Distribution business, the Overwatch League, and the Call of Duty 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, were as follows (amounts in millions):

	Three Months Ended March 31, 2022
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (2)		Total
Net revenues by geographic region:
Americas	$	460	$	125	$	437	$	—	$	(6)	$	1,016
EMEA (1)	184		94		170		81		(2)		527
Asia Pacific	66		85		75		—		(1)		225
Total consolidated net revenues	$	710	$	304	$	682	$	81	$	(9)	$	1,768
Change in deferred revenues:
Americas	$	(164)	$	(11)	$	1	$	—	$	—	$	(174)
EMEA (1)	(80)		(13)		—		—		—		(93)
Asia Pacific	(13)		(6)		(1)		—		—		(20)
Total change in deferred revenues	$	(257)	$	(30)	$	—	$	—	$	—	$	(287)
Segment net revenues:
Americas	$	296	$	114	$	438	$	—	$	(6)	$	842
EMEA (1)	104		81		170		81		(2)		434
Asia Pacific	53		79		74		—		(1)		205
Total segment net revenues	$	453	$	274	$	682	$	81	$	(9)	$	1,481

	Three Months Ended March 31, 2021
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (2)		Total
Net revenues by geographic region:
Americas	$	725	$	210	$	386	$	—	$	(14)	$	1,307
EMEA (1)	311		167		160		102		(9)		731
Asia Pacific	87		93		59		—		(2)		237
Total consolidated net revenues	$	1,123	$	470	$	605	$	102	$	(25)	$	2,275
Change in deferred revenues:
Americas	$	(131)	$	5	$	5	$	—	$	—	$	(121)
EMEA (1)	(77)		7		(1)		6		—		(65)
Asia Pacific	(24)		1		—		—		—		(23)
Total change in deferred revenues	$	(232)	$	13	$	4	$	6	$	—	$	(209)
Segment net revenues:
Americas	$	594	$	215	$	391	$	—	$	(14)	$	1,186
EMEA (1)	234		174		159		108		(9)		666
Asia Pacific	63		94		59		—		(2)		214
Total segment net revenues	$	891	$	483	$	609	$	108	$	(25)	$	2,066

(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 51% and 50% of consolidated net revenues for the three months ended March 31, 2022 and 2021, respectively. The Company’s net revenues in the United Kingdom (“U.K.”) were 10% and 11% of consolidated net revenues for the three months ended March 31, 2022 and 2021, respectively. No other country’s net revenues exceeded 10% of consolidated net revenues for the three months ended March 31, 2022 or 2021.

Net revenues by platform, including a reconciliation to each of our reportable segment’s net revenues, were as follows (amounts in millions):

	Three Months Ended March 31, 2022
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by platform:
Console	$	460	$	24	$	—	$	—	$	—	$	484
PC	124		251		17		—		(9)		383
Mobile and ancillary (1)	115		27		665		—		—		807
Other (2)	11		2		—		81		—		94
Total consolidated net revenues	$	710	$	304	$	682	$	81	$	(9)	$	1,768
Change in deferred revenues:
Console	$	(216)	$	(5)	$	—	$	—	$	—	$	(221)
PC	(62)		(18)		—		—		—		(80)
Mobile and ancillary (1)	21		(6)		—		—		—		15
Other (2)	—		(1)		—		—		—		(1)
Total change in deferred revenues	$	(257)	$	(30)	$	—	$	—	$	—	$	(287)
Segment net revenues:
Console	$	244	$	19	$	—	$	—	$	—	$	263
PC	62		233		17		—		(9)		303
Mobile and ancillary (1)	136		21		665		—		—		822
Other (2)	11		1		—		81		—		93
Total segment net revenues	$	453	$	274	$	682	$	81	$	(9)	$	1,481

	Three Months Ended March 31, 2021
	Activision		Blizzard		King		Non-reportable segments		Elimination of intersegment revenues (3)		Total
Net revenues by platform:
Console	$	774	$	25	$	—	$	—	$	—	$	799
PC	201		422		24		—		(25)		622
Mobile and ancillary (1)	133		20		581		—		—		734
Other (2)	15		3		—		102		—		120
Total consolidated net revenues	$	1,123	$	470	$	605	$	102	$	(25)	$	2,275
Change in deferred revenues:
Console	$	(167)	$	(6)	$	—	$	—	$	—	$	(173)
PC	(61)		17		(1)		—		—		(45)
Mobile and ancillary (1)	(4)		2		5		—		—		3
Other (2)	—		—		—		6		—		6
Total change in deferred revenues	$	(232)	$	13	$	4	$	6	$	—	$	(209)
Segment net revenues:
Console	$	607	$	19	$	—	$	—	$	—	$	626
PC	140		439		23		—		(25)		577
Mobile and ancillary (1)	129		22		586		—		—		737
Other (2)	15		3		—		108		—		126
Total segment net revenues	$	891	$	483	$	609	$	108	$	(25)	$	2,066

(1)Net revenues from “Mobile and ancillary” primarily include revenues from mobile devices.

(2)Net revenues from “Other” primarily include revenues from our Distribution business, the Overwatch League, and the Call of Duty 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, 2022		At December 31, 2021
Long-lived assets* by geographic region:
Americas	$	266	$	264
EMEA	114		122
Asia Pacific	19		20
Total long-lived assets by geographic region	$	399	$	406

*    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 and lease right-of-use assets. All other long-term assets are not allocated by location.