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Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

Commission File Number 1-15839

ACTIVISION BLIZZARD, INC.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code:(310) 255-2000

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:
None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ý No o

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15 (d) of the Act. Yes o No ý

         Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

         Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o

         Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. oý

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No ý

         The aggregate market value of the registrant's Common Stock held by non-affiliates on June 30, 20142015 (based on the closing sale price as reported on the NASDAQ) was $11,836,863,883.$13,345,675,247.

         The number of shares of the registrant's Common Stock outstanding at February 19, 201522, 2016 was 722,918,352.734,998,115.

         Documents Incorporated by Reference

         Portions of the registrant's definitive Proxy Statement, to be filed with the Securities and Exchange Commission with respect to the 20152016 Annual Meeting of Shareholders which is expected to be held on June 3, 2015,2, 2016, are incorporated by reference into Part III of this Annual Report.

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ACTIVISION BLIZZARD, INC. AND SUBSIDIARIES

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PART I

CAUTIONARY STATEMENT

        This Annual Report on Form 10-K contains, or incorporates by reference, certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements consist of any statement other than a recitation of historical facts and include, but are not limited to: (1) projections of revenues, expenses, income or loss, earnings or loss per share, cash flow or other financial items; (2) statements of our plans and objectives, including those relating to product releases; (3) statements of future financial or operating performance; (4) statements relating to the outcome oracquisition of King Digital Entertainment plc and expected impact of pending or threatened litigation;that transaction, including without limitation, the expected impact on Activision Blizzard's future financial results; and (5) statements of assumptions underlying such statements. Activision Blizzard, Inc. generally uses words such as "outlook," "forecast," "will," "could," "should," "would," "to be," "plan," "plans," "believes," "may," "might," "expects," "intends," "intends as," "anticipates," "estimate," "future," "positioned," "potential," "project," "remain," "scheduled," "set to," "subject to," "upcoming" and other similar expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect management's current expectations, estimates and projections about our business, and are inherently uncertain and difficult to predict. Our actual results could differ materially from expectations stated in forward-looking statements. Some of the risk factors that could cause our actual results to differ from those stated in forward-looking statements can be found in "Risk Factors" included in Part I, Item 1A of this Report. The forward-looking statements contained herein are based upon information available to us as of the date of this Annual Report on Form 10-K and we assume no obligation to update any such forward-looking statements. Although these forward-looking statements are believed to be true when made, they may ultimately prove to be incorrect. These statements are not guarantees of our future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.

        Activision Blizzard Inc.'s names, abbreviations thereof, logos, and product and service designators are all either the registered or unregistered trademarks or trade names of Activision Blizzard. All other product or service names are the property of their respective owners.

Item 1.    BUSINESS

Overview

        Activision Blizzard, Inc. is a worldwide developer and publisher of online, personal computer ("PC"), video game console, handheld, mobile and tablet games. The terms "Activision Blizzard," the "Company," "we," "us," and "our" are used to refer collectively to Activision Blizzard, Inc. and its subsidiaries. We currently offer games that operate on the Microsoft Corporation ("Microsoft") Xbox One ("Xbox One") and Xbox 360 ("Xbox 360"), Nintendo Co. Ltd. ("Nintendo") Wii U ("Wii U") and Wii ("Wii"), and Sony Computer Entertainment Inc. ("Sony") PlayStation 4 ("PS4") and PlayStation 3 ("PS3") console systems (Xbox One, Wii U, and PS4 are collectively referred to as "next-generation"; Xbox 360, Wii, and PS3 are collectively referred to as "prior-generation"); the PC; the Nintendo 3DS, Nintendo Dual Screen and Sony PlayStation Vita handheld game systems; and mobile and tablet devices.

        Activision—Through Activision Publishing, Inc. ("Activision"), we are a leading international developer and publisher of interactive software products and content. Activision develops, markets and sells products through retail channels or digital downloads, which are principally based on our internally developed intellectual properties, as well as some licensed properties. Activision delivers content to a broad range of gamers, ranging from children to adults, and from core gamers to mass-market consumers to "value" buyers seeking budget-priced software, in a variety of geographies. Activision continues to focus its efforts in the areas we believe have the most opportunity for growth and higher profitability, while reducing investments in areas we believe have less profit potential and

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limited growth opportunities. To that end, investments are focused on proven intellectual properties to

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develop deep, high-quality content that offers engaging online gaming experiences. One of Activision's leading franchises is Call of Duty®, which launched in 2003, and has been the best-selling Western interactive franchisesfranchise since its launch, with approximately $11 billion of life-to-date revenues.launch. In 2014,2015, Activision released the latest installment in the franchise,Call of Duty: Advanced WarfareBlack Ops III, which, in the fourth quarter of 2014, according to The NPD Group, GfK Chart-Track, and Activision Blizzard internal estimates, was the #1 best-selling videoconsole game release worldwide and #1 best-selling game on the next-generation PS4 and Xbox One console platforms.globally in 2015. Activision is currently developing, sequelsdistributing, and selling additional digital content to build onfor the continued success of the Call of Duty franchise. Further, in January 2015, we announced the public open beta in Chinaglobal community ofCall of Duty OnlineDuty: Black Ops III, a free-to-play game players, along with content for the other Call of Duty titles, in which players are ableaddition to purchase or rent in-game items.developing future releases and sequels.

        Another leading franchise for Activision is Skylanders®, which launched in 2011 with the release ofSkylanders Spyro's Adventure. Games in the Skylanders franchise combine the use of physical toys with digital interactive experiences to deliver innovative gameplay to our audience. In October 2014,September 2015, we releasedSkylanders Trap TeamSuperChargers, which allows playersintroduced vehicles-to-life—an entirely new way for fans to trap villains fromexperience the game into physical traps.magic of Skylanders.

        While focusing on proven intellectual properties is one of Activision's priorities, we also continue to make strategic investments in developing new intellectual properties that we believe have the potential for long-term growth and success. For example, on September 9, 2014, we releasedDestiny® and on December 9, 2014,15, 2015, we releasedThe Dark BelowTaken King, the firstthird and largest expansion pack fortoDestiny., the game universe created by Bungie under our long-term alliance with them. We also introduced microtransactions withinDestiny is the result of our long-term alliance with Bungie to publish its game universe,in October 2015 and we expect to release additional content forto our global community of Destiny players in 2015.2016.

        Blizzard—Blizzard Entertainment, Inc. ("Blizzard") is a development studioleader in online PC gaming, including the subscription-based massively multi-player online role-playing game ("MMORPG") category in terms of both subscriber base and publisher best known as the creator of the multiple award winningrevenues generated through its World of Warcraft® franchise. Blizzard also develops, markets, and sells role-playing action and strategy games for the PC, console, mobile and tablet platforms, including games in the multiple-award winning Diablo®, Diablo®StarCraft®, StarCraft®, and Hearthstone®: Heroes of Warcraft™ franchises. Blizzard isand Heroes of the leading publisher of online subscription-based games in the massively multiplayer online role-playing game ("MMORPG") category.Storm™ franchises. In addition, Blizzard maintains a proprietary online game-relatedgaming service, Battle.net®, which facilitates the creation of user generateduser-generated content, digital distribution and online social connectivity across all Blizzard games. Blizzard distributes its products and generates revenues worldwide through various means, including: subscriptions; sales of prepaid subscription cards; value-added services such as realm transfers, faction changes, character boosts,in-game purchases and other character customizations within the World of Warcraft gameplay;services; retail sales of physical "boxed" products; online download sales of PC products; purchases and downloads via third-party console, mobile and tablet platforms; and licensing of software to third-party or related party companies that distribute World of Warcraft, Diablo, StarCraft, and Hearthstone: Heroes of WarcraftBlizzard products.

        Blizzard has released five expansion packs to the epic World of Warcraft franchise since 2004, with the newestmost recent release,World of Warcraft: Warlords of Draenor™®, having been released in November 2014. Blizzard also released2014, and the firstnext expansion, pack to the action role-playing gameDiablo IIIWorld of Warcraft: Legion™, onto be released in the PC,Diablo III: Reapersummer of Souls™, in March 2014 and on certain consoles,Diablo III: Reaper of Souls—Ultimate Evil Edition™, in August 2014. In addition, Blizzard released2016. ForHearthstone: Heroes of Warcraft, a free-to-play digital collectible cardin addition to bringing the game on the PC in March 2014, on the iPadto iOS and Android smartphones in April 2014, and on Android tablets in December 2014. In July 2014, Blizzard released2015, three new content releases,CurseBlackrock Mountain™, The Grand Tournament™, andThe League of Naxxramas™Explorers:™, were introduced in 2015 and have continued to drive performance.A Hearthstone Adventure

        andBlizzard continues to invest in December 2014, Blizzard releasedGoblins vs Gnomes™,new opportunities, both by leveraging its internally developed intellectual property, such as the first expansion forHearthstone: Heroesrelease of Warcraft. In January 2015, Blizzard began the closed beta test forHeroes of the Storm™Storm, a free-to-play online team brawler featuring iconic heroes from Blizzard games.

        Revenues associated in 2015, as well as developing new intellectual property with the Callupcoming team-based first person shooter,Overwatch™, which is expected to be released commercially in the spring of Duty, World of Warcraft, and Skylanders franchises combined accounted for 67%, 80%, and 72% of our consolidated net revenues for the years ended December 31, 2014, 2013, and 2012, respectively.2016.

        DistributionOther—We also engage in other business opportunities including:

•

The Activision Blizzard Media Networks ("Media Networks") business, announced in 2015, which builds on our efforts in competitive gaming and the growing eSports industry;

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•

The Activision Blizzard Studios ("Studios") business, announced in 2015, which is devoted to creating original film and television content based on the company's extensive library of iconic and globally-recognized intellectual properties; and



•

The Activision Blizzard Distribution ("Distribution") business, which consists of operations in Europe that provide warehousing, logistical, and sales distribution services to third-party publishers




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of interactive entertainment software, our own publishing operations, and manufacturers of interactive entertainment hardware.

        Revenues associated with the Call of Duty, World of Warcraft, Skylanders, and Destiny franchises combined accounted for 71%, 72%, and 80% of our consolidated net revenues for the years ended December 31, 2015, 2014, and 2013, respectively.

The Business Combination and Share Repurchase

        Activision, Inc. was originally incorporated in California in 1979 and was reincorporated in Delaware in December 1992.

        On July 9,Activision Blizzard is the result of the 2008 a business combination (the "Business("Business Combination") by and among the Company (then known as Activision, Inc.), Sego Merger Corporation, a wholly-owned subsidiary of Activision, Inc., Vivendi S.A. ("Vivendi"), VGAC LLC, a wholly-owned subsidiary of Vivendi, , and Vivendi Games, Inc. ("Vivendi Games"), a wholly-owned subsidiary of VGAC LLC, was consummated.LLC. As a result of the consummation of the Business Combination, Activision, Inc. was renamed Activision Blizzard, Inc. and Vivendi became a majority shareholder of Activision Blizzard. Activision Blizzard is a public company traded on the NASDAQ under the ticker symbol "ATVI."

        On October 11, 2013, we repurchased approximately 429 million shares of our common stock, pursuant to a stock purchase agreement (the "Stock Purchase Agreement") we entered into on July 25, 2013, with Vivendi and ASAC II LP ("ASAC"), an exempted limited partnership established under the laws of the Cayman Islands, acting by its general partner, ASAC II LLC (together with ASAC, the "ASAC Entities").LLC. Pursuant to the terms of the Stock Purchase Agreement, we acquired all of the capital stock of Amber Holding Subsidiary Co., a Delaware corporation and wholly-owned subsidiary of Vivendi ("New VH"), which was the direct owner of approximately 429 million shares of our common stock, for a cash payment of $5.83 billion, or $13.60 per share, before taking into account the benefit to the Company of certain tax attributes of New VH assumed in the transaction (collectively, the "Purchase Transaction"). The repurchased shares were recorded in "Treasury Stock" in our consolidated balance sheet.Refer to Note 11 of the Notes to the Consolidated Financial Statements for information regarding the financing of the Purchase Transaction.

        Immediately following the completion of the Purchase Transaction, ASAC purchased from Vivendi 172 million shares of Activision Blizzardour common stock, pursuant to the Stock Purchase Agreement, for a cash payment of $2.34 billion, or $13.60 per share (the "Private Sale"). Robert A. Kotick, our Chief Executive Officer, and Brian G. Kelly, Chairman of our Board of Directors, are affiliates of ASAC II LLC.

        On May 28, 2014, Vivendi sold approximately 41 million shares, or approximately 50% of its then-current holdings, of our common stock in a registered public offering. Vivendi received proceeds of approximately $850 million from that sale; we did not receive any proceeds. Vivendi currently owns approximately 41 million shares of our common stock.

        As of December 31, 2014,2015, we had 722734 million shares of common stock issued and outstanding. At that date, (i) Vivendi held 41 million shares, or approximately 6% of the outstanding shares of our common stock, (ii) ASAC held 172 million shares, or approximately 24%23% of the outstanding shares of our common stock, and (iii) our other stockholders held approximately 70%71% of the outstanding shares of our common stock.

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        On January 13, 2016, Vivendi sold all of their remaining shares of our common stock. We did not receive any proceeds from the sale.

The King Acquisition

        On November 2, 2015, we and King Digital Entertainment plc, a leading interactive entertainment company for the mobile world incorporated under the laws of Ireland ("King"), entered into a Transaction Agreement (the "Transaction Agreement") under the terms of which we would acquire King (the "King Acquisition") and King would become a wholly-owned subsidiary of the Company. On February 23, 2016 we completed the King Acquisition under the terms of the Transaction Agreement. We transferred $5.9 billion in consideration to the existing King shareholders and share-based award holders.

        The Company made this acquisition because it believes that the addition of King's highly-complementary mobile business will position the Company as a global leader in interactive entertainment across mobile, console and PC platforms, and positions the company for future growth. The combined company has a world-class interactive entertainment portfolio of top-performing franchises.

        As the closing of the King Acquisition occurred subsequent to December 31, 2015, our financial results as of, and for the year ended December 31, 2015, do not contain the results of King.

Our Strategy

        Our objective is to continue to be a worldwide leader in the development, publishing, and distribution of high-quality interactive entertainment software, online content and services that deliver year-round, highly satisfying and engaging entertainment experiences.

        Continue to Improve Profitability.    We continually strive to manage risk and increase our operating efficiency with the goal of increased profitability. We believe the key factors affecting our future profitability will be the success of proven franchises and genres, cost discipline, and our ability to benefit from the continued growth of online and digital revenue opportunities.

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        Create Shareholder Value.    We continue to focus on enhancing shareholder returns through profitable operations and strong cash flows. As a result, we expect to continue to achieve long-term growth and to deliver returns to our shareholders.

        Grow Through Continued Strategic Acquisitions and Alliances.    We intend to continue to evaluate the expansion of our resources, the geographic reach of our products, and our intellectual properties library through acquisitions, strategic relationships, and key licensing transactions. We will also continue to invest in, and build on, existing alliances and relationships. In addition, we will continue to evaluate opportunities to increase our proven development expertise through the acquisition of, or investment in, selected experienced software development firms.

        Focus on Delivery of Digital Content and Online Services.    We continue to shift towards digital delivery of content and to establish and develop direct and long-term relationships with our gamers. We will also continue to support, maintain and enhance the online communities for our games and franchises, such as the World of Warcraft and Call of Duty online communities.franchises. We believe that focusing our efforts on online product innovations, such as additional online content, services and social connectivity, provides lasting value to our global communities of players. In addition, we are expandingcontinue to expand into new business models for the digital delivery of content, including offering free-to-play games with monetization through in-game microtransactions as well asalong with increased in-game microtransactions within our purchased software products. We are also focused on increasing our presence on new digital platforms, such as mobile and tablet devices.

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        Extend the Reach of our Existing Franchises.    We are focused on identifying and investing in business opportunities that extend our existing franchises into adjacent entertainment verticals, deepen audience engagement by celebrating our players, deliver high production values to our communities, and provide greater opportunities for player investment. This includes investments in our Media Networks and Studios businesses. Our Media Networks business acquired Major League Gaming Inc. ("MLG") which provides an immediate expansion of our reach across the rapidly-growing eSports ecosystem by adding proven live streaming capabilities and technologies. Competitive gaming and the spectator opportunities connected to organized gaming competitions could provide opportunities for shareholders and great rewards and recognition for our hundreds of millions of players. Our Studios business is focused on producing an animated Skylanders television series which we expect to release in the fall of 2016 and has begun work on developing a robust cinematic universe based on the Call of Duty franchise.

Competition

        We compete for the leisure time and discretionary spending of consumers with other interactive entertainment companies, as well as with providers of different forms of entertainment, such as motion pictures, television, social networking, online casual entertainment, music and other consumer products.

        The interactive entertainment industry is intensely competitive and new interactive entertainment software products and platforms are regularly introduced. Our competitors vary in size from small companies with limited resources to large corporations who may have greater financial, marketing, and product development resources than we have. Due to their different focuses and allocation of resources, certain of our competitors may spend more money and time on developing and testing products, undertake more extensive marketing campaigns, adopt more aggressive pricing policies, pay higher fees for licenses, and pay more to third-party software developers than we do. In addition, competitors with large product lines and popular titles typically have greater leverage with retailers, distributors, and other customers who may be willing to promote titles with less consumer appeal in return for access to such competitor's most popular titles. We believe that the main competitive factors in the interactive entertainment industry include: product features, game quality, and playability; brand name recognition; compatibility of products with popular platforms; access to distribution channels; online capability and functionality; ease of use; price; marketing support; and quality of customer service.

        We compete primarily with other publishers of PC, online, mobile, and video game console interactive entertainment software. In addition to third-party software competitors, integrated video game console hardware and software companies, such as Microsoft, Nintendo, and Sony, compete directly with us in the development of software titles for their respective platforms. A number of software publishers have developed and commercialized, or are currently developing, online games for use by consumers over the Internet. Further, we compete with publishers of mobile games, who may be narrowly focused on publishing games for mobile and tablet devices. Lastly, with our Skylanders franchise and its toys and accessories, we compete indirectly with companies who sell toys to our target consumers for this franchise. We expect new competitors to continue to emerge in the "toys to life", MMORPG, free-to-play and other microtransaction-based game categories.

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Employees

        At December 31, 2014,2015, we had approximately 6,8007,300 total full-time and part-time employees. At December 31, 2014,2015, approximately 110 of our full-time employees were subject to fixed-term employment agreements with us. These agreements generally commit the employee and the Company to employment terms of between one and five years from the commencement of the agreement. Most

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of our employees who are subject to these agreements are executive officers or key members of the product development, sales, or marketing divisions. These individuals perform services for us as executives, directors, producers, associate producers, computer programmers, game designers, sales directors, or marketing product managers. In our experience, entering into employment agreements with these employees reduces our turnover during the development, production and distribution phases of our entertainment software products and allows us to plan more effectively for future development and marketing activities. Some employees outside of the United States ("U.S.") are also party to employment agreements that do not specify a fixed term.

        The majority of our employees in France, Germany, Spain, and Italy are subject to collective agreements as a part of normal business practices in those countries. In addition, certain employees in France and Germanythose countries are subject to collective bargaining agreements. To date, we have not experienced any labor-related work stoppages.

Intellectual Property

        Like other entertainment companies, our business is significantly dependent on the creation, acquisition, use and protection of intellectual property. Some of this intellectual property is in the form of copyrighted software code, patented technology, and other technology and trade secrets that we use to develop our games and to make them run properly. Other intellectual property is in the form of copyrighted audio-visual elements that consumers can see, hear and interact with when they are playing our games.

        We develop some of our products from wholly-owned intellectual properties that we create within our own studios. We also acquire the rights to include proprietary intellectual property in our products through acquisitions. In addition, we obtain intellectual property through licenses and service agreements. These agreements typically limit our use of the licensed rights in products for specific time periods. In addition, our products that play on game consoles, as well as handheld, mobile and tablet platforms, include technology that is owned by the console or wireless device manufacturer, and is licensed non-exclusively to us for use. We also license technology from providers other than console manufacturers. While we may have renewal rights for some licenses, our business is dependent on our ability to continue to obtain the intellectual property rights from the owners of these rights on reasonable terms and at reasonable rates.

        We actively engage in enforcement and other activities to protect our intellectual property. We typically own the copyright to the software code in our products. Moreover, we own or license the brand or title name trademark under which our products are marketed. We register copyrights, trademarks and patents in the U.S. and in other countries as appropriate.

        We often distribute our PC products using copy protection technology or other technological protection measures to prevent piracy and the use of unauthorized copies of our products. In addition, console manufacturers typically incorporate technological protections and other security measures in their consoles in an effort to prevent the use of unlicensed products. We are actively engaged in enforcement and other activities to protect against unauthorized copying and piracy, including monitoring online channels for distribution of pirated copies, and participating in various enforcement initiatives, education programs and legislative activity around the world.

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Significant Customers

        We had two customers, Sony and Microsoft, who accounted for 12% and 10% of our consolidated net revenues for the year ended December 31, 2015, respectively. We did not have any single customer that accounted for 10% or more of our consolidated net revenues for the years ended December 31, 2014 or 2013. We had one customer, GameStop, thatthree customers, Sony, Microsoft, and Wal-Mart, who accounted for approximately 10%18%, 13%,

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and 11% of consolidated net revenues for the year endedgross receivables at December 31, 2012. We had one customer, Wal-Mart, that accounted for2015, respectively, and 13%, 17%, and 11% and 24% of consolidated gross receivables at December 31, 2014, and 2013, respectively.

OperatingReportable Segments

        We have threetwo reportable operating segments: (i) Activision Publishing, Inc. and its subsidiaries—publishing interactive entertainment software products and downloadable content, and (ii) Blizzard Entertainment, Inc. and its subsidiaries—publishing real-time strategy games, role-playing games and online subscription-based games in the MMORPG category,category. Previously, we reported "Distribution" as a reportable segment. In the current period, this was no longer deemed a separate reportable segment and (iii) Activision Blizzard Distribution—distributing interactive entertainment softwareis included in "Other" along with our recently announced Media Networks and hardware products.Studios businesses.

        See Note 1413 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for certain additional information regarding operating segments.segments and geographical performance.

Activision—Business Overview

Strategy

        Create, Acquire and Maintain Strong Franchises.    Activision focuses on development and publishing activities, principally for products and content that are, or have the potential to become, franchises with sustainable mass consumer appeal and recognition.recognition and year-round engagement. It is our experience that these products and content can then serve as the basis for sequels, prequels and related new products and content that can be released over an extended period of time. We believe that the publishing and distribution of products and content based on proven franchises enhances predictability of revenues and the probability of high unit volume sales and operating profits. Our successful intellectual properties include the Call of Duty and Skylanders franchises, and we intend to continue development of owned franchises in the future. We also have an exclusive 10-yearlong-term alliance with Bungie, athe developer of the successful game franchises, forDestiny, which was released on September 9, 2014. franchise.

        Execute Disciplined Product Selection and Development Processes.    The success of our publishing business depends, in significant part, on our ability to develop high-quality gamescontent that will generate high unit volume sales.significant demand among our global communities. Our publishing units have implemented a formal control process for the selection, development, production and quality assurance of our products.that content. We apply this process, which we refer to as the "Greenlight Process," to all of our products and content, whether they are externally or internally developed. The Greenlight Process includes regular in-depth reviews of each project at important stages of development by a team that includes many of our highest-ranking operating managers and enables coordination among our sales, marketing and development staff at each step in the process.

        We develop our content and products using a combination of our internal development resources and external development resources acting under contract with us. We typically select our external developers based on their track records and expertise in producing products in the same category. One developer will often produce the same game for multiple platforms and will produce sequels to the original game. We believe that selecting and using development resources in this manner allows us to leverage the particular expertise of our internal and external development resources, which we believe enhances the quality of our products and accelerates the timing of releases.

        Focused Content and Product Offerings, Diversity in Platforms and Geographies.    We believe Activision has aligned its product offerings and cost structure to position the business for long-term growth. Through our online-enabled products and content, we believe we are best positioned to take advantage of retail and digital distribution channels that allow us to deliver content to a broad range of gamers, ranging

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from children to adults and from core gamers to mass-market consumers and to "value" buyers seeking budget-priced software, in a variety of geographies. Presently, the majority of products that we develop, publish and distribute operate on the PS4, PS3, Xbox One, Xbox 360, Wii U, and Wii console systems, and the PC.

        In addition, we create and distribute products for emerging and rapidly growing online-enabled platforms, such as Xbox Live and PlayStation Network, among others, where we support in-game integration and bring together online experience and gameplay for our consumers. We typically offer our products for use on multiple platforms to reduce the risks associated with any single platform, spread our costs over a larger installed hardware base, and increase unit sales. We intend to continue to offer both online and packaged software and games with localized content in different geographies.Table of Contents

Products

        In recent years, Activision has been best known for its success in the first-person action category from its internally-developed intellectual property, Call of Duty. The Call of Duty franchise has achieved approximately $11 billion life-to-date revenues and has an active global community of millions of players. Our latest release,Call of Duty: Advanced WarfareBlack Ops III, was released on November 4, 2014,6, 2015, and was the #1 best-selling videoconsole game release worldwide and #1 title on the next-generation PS4 and Xbox One console platforms in 2014,globally for 2015, according to The NPD Group, GfK Chart-Track, and our internal estimates. In January 2015, Activision launched a public open beta in China forCall of Duty Online, a free-to-play game in which players are able to purchase or rent in-game items.

        On October 5, 2014,September 20, 2015, Activision launchedSkylanders Trap TeamSuperChargers, the fourthfifth title in our Skylanders franchise, an internally-developed intellectual property that combines the use of physical toys with video games to deliver innovative gameplay experiences to our audience. Specifically, the games in the Skylanders franchise involve "smart toys" consisting of action figures and accessories and an electronic "portal" which, when used with a figure or accessory, allows a player to store and access information about his or her performance in the game. We sell the toys and accessories both bundled with the software for the titles and on a stand-alone basis.Skylanders Trap TeamSuperChargers continues with the innovative "toys to life" concept by allowing playerswith the new "vehicles to physically "trap" villains in the game. According to The NPD Group, GfK Chart-Track,life" concept which includes online multiplayer and our internal estimates, including toys and accessories, for the third consecutive year, Skylanders was the #1 kids video game franchise of the year in the U.S., and globally and in 2014, Skylanders outsold all action figure lines globally.racing gameplay.

        On September 9, 2014, Activision released Bungie'sDestiny, an online universe of first-person action gameplay which we have called the world's first "shared-world shooter". AccordingOn May 19, 2015, Activision releasedHouse of Wolves, the second expansion to The NPD Group, GfK Chart-Track, and our internal estimates, including toys and accessories, in 2014,Destiny, wasand on September 15, 2015, Activision releasedThe Taken King, the #1 top-selling new video game IPthird and was the #3 top selling new release of the year in North America and Europe combined. The firstlargest expansion pack fortoDestiny, The Dark Below,Destiny. containing all-new maps, missions, gear, weapons and raids, was released on December 9, 2014.

        Activision also develops products spanning other genres, including first-person action, action/adventure, role-playing, simulation and strategy.

Product Development and Support

        Activision develops and produces titles using a model in which a core group of creative, production and technical professionals, in coordination with our marketing, finance and other departments, has responsibility for the entire development and production process, including the supervision and coordination of internal and external resources. This team assembles the necessary creative elements to complete a title using,and release content through, where appropriate, outside programmers, artists, animators, scriptwriters, musicians and songwriters, sound effects and special effects experts, and sound and video studios.

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Activision believes that this model allows us to supplement internal expertise with top-quality external resources on an as-needed basis.

        In addition, Activision oftenperiodically engages independent third-party developers to create productscontent on Activision's behalf. We may either own or have rights to commercially exploit these products. In other circumstances, a third-party developer may retain ownership of the intellectual property and/or technology included in the product, or reserve certain exploitation rights with respect thereto. Activision typically selects these independent third-party developers based on their expertise in developing products in a specific category for specific platforms. Each of our third-party developers is under contract with us, either for a single or multiple titles. From time to time, Activision also acquires the license rights to publish and/or distribute software products that are, or will be, independently created by third-party developers. In such cases, the agreements with these developers typically provide us with exclusive publishing and/or distribution rights for a specific period of time, often for specified platforms and territories. In either case, Activision often has the ability to publish and/or distribute sequels, conversions, enhancements, and add-ons to the product initially being produced by the independent developer and Activision frequently has the right to engage the services of the original developer with regard to further product development.

        In consideration for the services that external third-party developers provide, the developers can sometimes receive a royalty, which is generally based on net sales or operating income of the developed products. Typically, developers also receive an advance, which Activision recoups from the royalties

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otherwise payable to the developers. The advance generally is paid in "milestone" stages. The payment at each stage is tied to the completion and delivery of a detailed performance milestone. Working with external developers allows us to reduce our fixed development costs, share development risks with the third-party developers, take advantage of the third-party developers' expertise in connection with certain categories of products or certain platforms, and gain access to proprietary development technologies.

        In April 2010, Activision entered into a long-term exclusive relationship with Bungie, the developer of game franchises includingHalo, Myth andMarathon, to bring Bungie's next big action game universe,Destiny, to market. UnderDuring the termsterm of the agreement, Activision will havehas exclusive, worldwide rights to publish and distribute all future Bungie games based onDestiny on multiple platforms and devices over a ten-year period from the first release of the franchise. Activision releasedDestiny in September 2014.platforms.

        Activision provides various forms of product support to both our internally and externally developed titles. Activision 'scontent. Activision's central technology and development teams review, assess and provide support to products throughout their milestone development phases. Quality assurance personnel are also involved throughout the development and production of each title published.published content. Activision subjects all such productscontent to extensive testing before release to ensure compatibility with all appropriate hardware systems and configurations and to minimize the number of bugs and other defects found in the products. To support our products after release,content, Activision generally provides 24-hour online access to customer service representatives, as well as live telephone operators who answer the help lines during regular business hours.

Marketing, Sales, and Distribution

        Many of our products contain software that enables customers to "electronically register" with us online, which allows us to connect with our gamers directly. This provides a significant marketing tool for direct advertising with our customers and customization of in-game advertising based on customer preferences and trends. Additionally, Activision's marketing efforts include activities on the Internet (including on Facebook, Twitter, YouTube and other online social networks and websites), public relations, print and broadcast advertising, coordinated in-store and industry promotions (including merchandising and point of purchase displays), participation in cooperative advertising programs, direct response vehicles, and product sampling through demonstration software distributed through the Internet or the digital online services provided by Microsoft, Nintendo, and Sony. From time to time, we also receive marketing

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support from hardware manufacturers, mass appeal consumer products related to a game, and retailers in connection with their own promotional efforts. In addition, many of our products contain software that enables customers to "electronically register" with us online, which then allows us to connect with our gamers directly.

        We believe that our strong proven franchises and genres generate a loyal and devoted customer base that continues to engage with our franchisefranchises and purchase additional content as a result of their dedication to thea franchise and satisfaction from previous productcontent purchases. We therefore market this additional content, including sequels, expansion packs and downloadable content, toward the established customer base as well as to broader audiences. In addition, we believe that we derive benefits for our licensed properties from the marketing and promotional activities undertaken by the underlying intellectual property owners, in addition to our own marketing efforts.

        North American Retail Sales and Distribution.    Our products are available for sale or rental in thousands of retail outlets in North America. Our North American retail customers include, among others, Amazon, Best Buy, GameStop, Target, Toys "R" Us and Wal-Mart.

        In the U.S. and Canada, our products are oftenprimarily sold on a direct basis to mass-market retailers, consumer electronics stores, discount warehouses and game specialty stores, as well to consumers through direct digital purchases. We believe that a direct relationship with retailers results in more effective inventory management, merchandising and communications than would be possible through indirect relationships. We have implemented electronic data interchange linkages with many of our

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retailers to facilitate the placing and shipping of orders. We also sell our products to a limited number of distributors.

        International Retail Sales and Distribution.    Our products are sold internationally on a direct-to-retail basis, through third-party distribution and licensing arrangements, and through our wholly-owned European distribution subsidiaries. We conduct our international publishing activities through offices in Australia, China, France, Germany, Ireland, Italy, the Netherlands, Spain, Sweden, and the United Kingdom ("U.K."), Germany, France, Italy, Spain, Norway, the Netherlands, Sweden, Australia and Ireland.. We often seek to maximize our worldwide revenues and profits by releasing high-quality foreign language releases concurrently with English language releases and by continuing to expand the number of direct selling relationships we maintain with key retailers in major territories.

        Digital Distribution.    Online and digital distribution channels are continuing to grow and comprise a significant part of our business. Most of our products and content are sold in a digital format, which allows consumers to purchase and download the content at their convenience directly to their PC, console system, or handheld, mobile or tablet device. We partner with digital distributors to utilize this growing method of distribution. We also make downloadable content and in-game microtransactions available to our customers to enhance their gaming experience through the digital online services mainly provided by Microsoft and Sony. In addition, we are exploring new business models involving digital distribution, including offering free-to-play games with monetization through in-game microtransactions.

Manufacturing

        Activision prepares a set of master program copies, documentation and packaging materials for our products for each hardware platform on which the product will be released. With respect to products for use on the Microsoft, Nintendo, and Sony systems, our disk duplication, packaging, printing, manufacturing, warehousing, assembly and shipping are performed by third-party subcontractors and Activision-owned distribution facilities.

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        To maintain protection over their hardware technologies, Microsoft, Nintendo, and Sony generally specify or control the manufacturing and assembly of finished products and license their hardware technologies to us. We deliver the master materials to the licensor or its approved replicator, which then manufactures finished goods and delivers them to us for distribution under our label. At the time our product unit orders are filled by the manufacturer, we become responsible for the costs of manufacturing and the applicable per unit royalty on such units, even if the units do not ultimately sell.

Blizzard—Business Overview

Strategy

Maintain and Build upon Our Leadership Position in the Subscription-Based MMORPG Category and PC Online Categories. Currently, Blizzard plans to maintain and build upon our leadership positionoperates five franchises, with a sixth slated for release in the subscription-based MMORPG category by regularly providing new content, game features and online services to further solidify the loyaltyspring of our subscriber base, as well as to expand our global game footprint to new geographies.

        We believe that the PC will remain a vibrant online platform throughout the world. The large global PC installed base and the continuing development of broadband connectivity facilitates online2016. Our games and community experiences while creating access to new potential customers.

        Expand our Intellectual Properties and Franchises into New Game Categories and Platforms.    Blizzard plans to maintain and build upon its intellectual properties and franchises by developing new content and games under new business models, such as free-to-play, and on new platforms, such as console and mobile platforms. By leveraging its existing intellectual properties and franchises and offering new content, game play and platform options, Blizzard expects to continue to expand its Battle.net community and attract new customers.

Products

World of Warcraft, the leading subscription-based MMORPG, was initially launched in November 2004 and today isare available in many countries and regions including Argentina, Australia, Brazil, Canada, Chile, China, Europe (including Russia), Mexico, New Zealand, South Korea, Southeast Asia, the U.S., and the regions of Hong Kong, Macau and Taiwan. AsBlizzard plans to maintain and build upon our leadership position in online gaming by regularly providing new content, game features and online services to further enhance the loyalty of December 31, 2014, over 10 million gamers worldwide were subscribed*our subscriber base, as well as to playexpand our global game footprint to new geographies.

        Blizzard's strategy encompasses a careful and long-held approach to growing its community and deepening its engagement with high-quality content.

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Products

World of Warcraft., the leading subscription-based MMORPG and #1 PC franchise by lifetime revenues, was initially launched in November 2004.World of Warcraft is available in multiple languages and has earned awards and praise from publications around the world. Since the first release ofWorld of Warcraft, Blizzard has launched five expansion packs in all regions in which the game is supported. Those expansion packs areWorld of Warcraft: The Burning Crusade®, which was first available in January 2007,World of Warcraft: Wrath of the Lich King®, which was first available in November 2008, World of Warcraft: Cataclysm®, which was first available in December 2010,World of Warcraft: Mists of Pandaria®, which was first available in September 2012, and the newestmost recent expansion,World of Warcraft: Warlords of Draenor, which was released in November 2014. We expect the next expansion,World of Warcraft: Legion, to be released in the summer of 2016.

        In July 2010, Blizzard launched the real-time strategy PC game,StarCraft II: Wings of Liberty®, simultaneously around the world. The first game in the StarCraft franchise was released in 1998 and was an early leader in global eSports and remains so today. In November 2015, Blizzard released the second expansion pack,StarCraft II: Legacy of the Void™, completing the StarCraft II trilogy.

        In May 2012, Blizzard released the action role-playing gameDiablo III for the PC at retail and through digital distribution channelsdistribution. The first Diablo game was released in Argentina, Australia, Brazil, Canada, Chile, Europe (including Russia), Mexico, New Zealand, South Korea, Southeast Asia, the U.S., and the regions of Hong Kong, Macau, and Taiwan.1996. In September 2013,subsequent years, Blizzard released an expansion pack for the game,Reaper of Souls™, that was also made available on next-generation and prior-generation consoles. In June 2015,Diablo III and its expansion were released for the PS3 and Xbox 360 platforms. Blizzard released the

*

World of Warcraft subscribers include individuals who have paid a subscription fee or have an active prepaid card to playWorld of Warcraft, as well as those who have purchased the game and are within their free month of access. Internet Game Room players who have accessed the game over the last thirty days are also counted as subscribers. The above definition excludes all players under free promotional subscriptions, expired or cancelled subscriptions, and expired prepaid cards. SubscribersPC in licensees' territories are defined along the same rules.

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first expansion pack toDiablo III, on the PC,Diablo III: Reaper of Souls, in March 2014 and on certain consoles,Diablo III: Reaper of Souls—Ultimate Evil Edition, in August 2014.

        In July 2010, Blizzard launched the sequel toStarCraft,StarCraft II: Wings of Liberty®, simultaneously around the world, including Argentina, Australia, Brazil, Chile, Europe (including Russia), Indonesia, Malaysia, New Zealand, North America, the Philippines, Singapore, South Korea, Thailand, and the regions of Hong Kong, Macau and Taiwan. In March 2013, Blizzard released the first expansion pack toStarCraft II, StarCraft II: Heart of the Swarm®.China.

        Blizzard releasedHearthstone: Heroes of Warcraft, a free-to-play digital collectible card game, on the PC in March 2014, and on the iPad and Android tablets later in 2014. In July 2014, Blizzard releasedCurse of Naxxramas:A Hearthstone Adventure. The firstcommercially launchedHearthstone: Heroes of Warcraft, expansion pack,an online collectible card game, in March 2014. Later in 2014, additional content for the game was released, and versions of the game for iOS, Android, and Windows tablet devices became available. In April 2015,Goblins vs Gnomes,Hearthstone: Heroes of Warcraft was released on December 8, 2014.for iOS and Android smartphones. Three new content releases were also introduced in 2015, with the most recent being the game's third adventure pack,The League of Explorers, in November 2015.Hearthstone: Heroes of Warcraft was Blizzard's first free-to play game.

        In June 2015, Blizzard releasedHeroes of the Storm, a new online hero brawler.Heroes of the Storm brings together a diverse cast of iconic characters from Blizzard's realms of science fiction and fantasy, including the Warcraft®, StarCraft, and Diablo universes. The game is free to play, while individual heroes, skins, and other items can be purchased (or earned) in-game.

        Additionally, Blizzard maintains an online gaming service, Battle.net. Battle.net facilitates the creation of user generated content, digital distribution and online social connectivity across all Blizzard games.

        In January 2015, Blizzard started closed beta testing forHeroes of the Storm, a new free-to-play online hero brawler.

Product Development and Support

        As a development studio and the creator and publisher of the World of Warcraft, Diablo, StarCraft, and Hearthstone: Heroes of Warcraft, and Heroes of the Storm franchises, Blizzard focuses on creating well-designed, high-quality games. Product development is handled internally by a strong core group of talented designers, producers, programmers, artists, and sound engineers. To maintain its current subscribersplayer engagement and attract new subscribers,players, Blizzard continues to develop new expansions and patches to upgradeWorld of Warcraft. its games. In addition to its headquarters in Irvine, California, Blizzard maintains offices in or around Austin, Texas; San Francisco, California; Paris, France; Cork, Ireland; Seoul, South Korea; Singapore; Shanghai, China; and Taipei, Taiwan to provide 24/7 game support to players ofWorld of Warcraft and other Blizzard games in their native language, enhance online community management, and tailor marketing initiatives to specific regions.

Marketing, Sales, and Distribution

        Blizzard distributes its products and generates revenues worldwide through various means, including: subscriptions; sales of prepaid subscription cards; value-addedadd-on services and products such as card packs, heroes, realm transfers, faction changes, character level boost, character customizations and skin, and other character customizations withinWorld of Warcraft gameplay;cosmetic and functional items; retail sales of physical "boxed" products; online download sales of PC products; purchases and downloads via third-party console, mobile and tablet platforms; and licensing of software to third-party or related party companies that distribute World of Warcraft,

Diablo, StarCraft, and Hearthstone: Heroes of Warcraft, and Heroes of the Storm products. Many of our services and products are digitally enabled, which allows us to take advantage of these rapidly growing channels and to reinforce Blizzard's long-term relationships with its gamers. In addition, Blizzard operates the online gamegaming service, Battle.net, which attracts millions of active players, making it one of the largest online game-related services in the world. Battle.net powers games in the World of Warcraft, Diablo, StarCraft, and Hearthstone: Heroes of Warcraft franchises, and is expected to power future releases. The service offers players advanced communications features, social networking, player matching and digital content delivery and is designed to allow people to connect regardless of what Blizzard game they are playing.

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Distribution—Other—Business Overview

        WeMedia Networks

        Media Networks is a new division devoted to eSports and builds on our competitive gaming efforts by creating ways to deliver the best-in-class fan experience across games, platforms and geographies with a long-term strategy of monetization through advertising, sponsorships, tournaments, and premium content. On December 22, 2015, we acquired the business of Major League Gaming, Inc. to expand our reach across the rapidly-growing eSports ecosystem by adding proven live streaming capabilities and technologies to the Media Networks division. See Note 23 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for certain additional information regarding the acquisition of MLG.

Studios

        The launch in 2015 of our film and television studios business is an important step in implementing our strategy of expanding the platforms through which we offer our compelling intellectual property to existing fans and new audiences around the world. This includes an animated Skylanders television series which is already in production and expected to be released in the fall of 2016. In the longer term we are working on developing a robust cinematic universe based on the Call of Duty franchise.

Distribution

        Through our Distribution business we distribute interactive entertainment hardware and software products in Europe through our European distribution subsidiaries: Centresoft, in the U.K., and NBG, in Germany. These subsidiaries act as wholesalers in the distribution of products and also provide packaging, logistical and sales services. They provide services to our publishing operations and to various third-party publishers, including Microsoft, Nintendo, and Sony. Centresoft is Sony's preferred distributor of PlayStation products to the independent retail sector of the U.K.

        We entered into the distribution business to obtain distribution capacity in Europe for our own products, while supporting the distribution infrastructure with third-party sales, and to diversify our operations in the European market. Centresoft and our other distribution subsidiaries operate in accordance with strict confidentiality procedures to provide independent services to various third-party publishers.

Additional Financial Information

        See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 1413 of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for certain additional information regarding operating segments and geographic areas. See the Critical Accounting Policies section under Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of our practices with regard to several working capital items, such as rights of returns, and inventory practices. See the Management's Overview of Business Trends under Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for a discussion of the impact of seasonality on our business. See Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" for information regarding product development expense during the past three years.

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Available Information

        Our website located athttp://www.activisionblizzard.com allows access free-of-charge to our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The information found on our website is not a part of, and is not incorporated by reference into, this or any other report that we file with or furnish to the Securities and Exchange Commission ("SEC").

        The public may also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 (information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330). The SEC also maintains a web site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC athttp://www.sec.gov.

Item 1A.    RISK FACTORS

        We wish to caution the reader that the following important risk factors, and those risk factors described elsewhere in this report or in our other filings with the Securities and Exchange Commission, could cause our actual results to differ materially from those stated in forward-lookingforward-looking statements contained in this document and elsewhere. These risks are not presented in order of importance or probability of occurrence. Further, the risks described below are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem immaterial may also impair our business operations. Any of these risks may have a material adverse effect on our business, reputation, financial condition, results of operations, profitability, cash flows, liquidity or liquidity.stock price.

We may not realize the anticipated benefits from the King Acquisition.

        On February 23, 2016, we completed the King Acquisition. The acquisition and integration of the King business exposes us to a number of legal, financial, accounting, tax, managerial, operational and other risks and challenges. Any of these risks or challenges could adversely affect our financial position, profitability and stock price. Such risks and challenges include, but are not limited to, the following:

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King could underperform relative to our expectations and the price that we paid for it.



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King could cause our financial results to differ from our own or the investment community's expectations in any given period, or over the longer-term.



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The tax consequences of the King Acquisition, or the tax treatment of King's operations going forward, could give rise to incremental tax liabilities that are difficult to predict.



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Earnings charges relating to the King Acquisition could adversely impact our operating results in any given period, and the impact may be substantially different from period to period.



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The integration of King could create demands on our management, operational resources and financial and internal control systems that we are unable to effectively handle.



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We could experience difficulty in integrating King's personnel, operations and financial and other systems and retaining key employees.



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By acquiring King we may have assumed unknown liabilities or internal control deficiencies, and the liabilities that we assumed as a result of the King Acquisition may prove greater than anticipated. The liabilities we assumed include those with respect to King's ongoing legal proceedings, including purported securities class action lawsuits relating to King's initial public offering in March 2014, and those with respect to King's tax liabilities in various jurisdictions. Any of these liabilities or deficiencies may increase our expenses, adversely affect our financial position or cause us to fail to meet our public financial reporting obligations.

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•

As a result of the King Acquisition, we have recorded significant goodwill and other definite lived intangible assets on our balance sheet. If we are not able to realize the value of these assets, we may be required to incur charges relating to the impairment of these assets.

We engage in strategic transactions and may encounter difficulties in integrating acquired businesses or otherwise realizing the anticipated benefits of the transactions.

        As part of our business strategy, from time to time, we acquire, make investments in, or enter into strategic alliances and joint ventures with complementary businesses. These transactions may involve significant risks and uncertainties, including: (A) in the case of an acquisition, (i) the difficulty in integrating the acquired business and operations in an efficient and effective manner, (ii) any liabilities assumed as part of the acquisition, and (iii) the potential loss of key employees of the acquired businesses, and, (B) in the case of an investment, alliance or joint venture, (i) our ability to cooperate with our partner, (ii) our partner having economic, business or legal interests or goals that are inconsistent with ours, and (iii) the potential that our partner may be unable to meet its economic or other obligations, which would require us to fulfill those obligations alone. If any such transaction involves an entity outside of the United States, it may also subject us to the risks and uncertainties of international trade, including the risk that our operations outside the United States could be conducted by our employees, contractors, third-party partners, representatives or agents in ways that violate anti-bribery laws. Further, any such transaction may involve the risk that our senior management's attention will be excessively diverted from our other operations, the risk that our industry does not evolve as anticipated and that any intellectual property or personnel skills acquired do not prove to be those needed for our future success, and the risk that our strategic objectives, cost savings or other anticipated benefits are otherwise not achieved.

We depend on a relatively small number of franchises for a significant portion of our revenues and profits.

        A significant portion of our revenues has historically been derived from products based on a relatively small number of popular franchises and these products are responsible for a disproportionately high percentage of our profits. For example, our three largest franchises in 2014—revenues associated with the Call of Duty, World of Warcraft, Skylanders, and Skylanders—Destiny franchises accounted for approximately 67%71% of our net revenues, and a significantly higher percentage of our operating income, for the year.2015. Similarly, King's top two franchises—Candy Crush and Farm Heroes—accounted for a substantial majority of King's revenues in 2015. We expect that a relatively limited number of popular franchises will continue to produce a disproportionately high percentage of our revenues and profits. Due to this dependence on a limited number of franchises, the failure to achieve anticipated results by one or more products based on these franchises could negatively impact our business.

If we do not consistently deliver high-quality titles,high-quality content, or if consumers prefer competing products, our sales could suffer.

        While many new products are regularly introduced in our industry, increasingly only a relatively small number of titlesgames account for a significant portion of net revenues, and an even greater portion of net profit. It is difficult to produce high-quality productscontent and to predict, prior to production and distribution, what productsgames will be well-received, even if they are well-reviewed high-quality titles.and of high-quality. Competitors often develop titlescontent that imitateimitates or competecompetes with our best-selling titles,games, and take sales away from them or reduce our ability to charge the same prices we have historically charged for those titles.our products. Products published by our competitors may take a larger share of consumer spending than anticipated, which could cause our product sales to fall below expectations. Consumers may lose interest in a genre of games we produce. If we do not continue to develop consistently high-qualityhigh- quality and well-received products,games, or if our competitors develop more successful products or offer competitive products at lower prices, our revenues, margins and profitability could decline. The increased importance of downloadable content to our business amplifies these risks, as downloadable content for poorly-received titles games

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typically generates lower-than-expected sales. In addition, our own best-selling products could compete with our other titles,games, reducing sales for those other titles.games. Further, a failure by us to develop a high-quality product, or our development of a product that is otherwise not well-received, could harm our reputation and increase the likelihood that our future products will not be well-received.

We have taken on significant debt, which could adversely affect our business, cash flows, financial condition or results of operations.business.

        Prior to the Purchase Transaction, the Company maintained extremely low levels of debt. In connection with the Purchase Transaction, we entered into a credit agreement (the "Credit Agreement") for a $2.5 billion secured term loan facility (the "Term Loan") and a $250 million secured revolving credit facility (the "Revolver"facility. The credit agreement was amended in connection with the King Acquisition (as amended from time to time, the "Credit Agreement") andto, among other things, provide for an incremental $2.3 billion secured term loan facility. In addition, in connection with the Purchase Transaction, we issued, at par, $1.5 billion of 5.625% unsecured senior notes due September 2021 (the "2021 Notes") and $750 million of 6.125% unsecured senior notes due September 2023 (the "2023 Notes" and, together with the 2021 Notes, the "Notes"). Historically,As of the date hereof, the Company has maintained extremely low levelsapproximately $5.9 billion of debt.long-term debt outstanding. The increased debt burden could have important consequences, including: increasing our vulnerability to general adverse economic and industry conditions; limiting our flexibility in planning for, or reacting to, changes in our business and our industry; requiring the dedication of a substantial portion of any cash flow from operations to the payment of principal of, and interest on, our indebtedness, thereby reducing the availability of such cash flow to fund our operations, growth strategy, working capital, capital expenditures, future business opportunities and other general corporate purposes; exposing us to the risk of increased interest rates with respect to any borrowings that are at variable rates of interest; restricting us from making strategic acquisitions or causing us to make non-strategic divestitures; limiting our ability to obtain additional financing for working capital, capital expenditures, research and development, debt service requirements, acquisitions and general corporate or other purposes; limiting our ability to adjust to

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changing market conditions; and placing us at a competitive disadvantage relative to our competitors who are less highly leveraged. In addition, a significant portion of our cash and investments are held outside the United States, and we may not be able to service our debt without undergoing the costs of repatriating those funds.

The agreements governing our debt contain various covenants that impose restrictions on us that may affect our ability to operate our business.

        Agreements governing our indebtedness, including the indenture governing the Notes and the Credit Agreement, impose operating and financial restrictions on our activities. These restrictions require us to comply with or maintain certain financial tests and ratios. In addition, the indenture and credit agreement limit or prohibit our ability to, among other things:

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incur additional debt and guarantees;



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pay distributions or dividends and repurchase stock;



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make other restricted payments, including without limitation, certain restricted investments;



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create liens;



•

enter into agreements that restrict dividends from subsidiaries;



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engage in transactions with affiliates; and



•

enter into mergers, consolidations or sales of substantially all of our assets.

        In addition, if, in the future, we borrow under the Revolver, we may beare required during certain periods where outstanding revolving loans exceed a certain threshold, to maintain a maximum senior securedtotal net leveragedebt ratio calculated pursuant to a financial maintenance covenant under the Credit Agreement.

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        These restrictions on our ability to operate our business could seriously harm our business by, among other things, limiting our ability to take advantage of financing, merger and acquisition and other corporate opportunities.

        Further, various risks, uncertainties and events beyond our control could affect our ability to comply with these covenants. Failure to comply with any of the covenants in our financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. Such a default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including our obligations under the indenture governing the Notes or the Credit Agreement. In addition, the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions might significantly impair our ability to obtain other financing. We cannot assure you that we will be granted waivers or amendments to these agreements if for any reason we are unable to comply with these agreements or that we will be able to refinance our debt on terms acceptable to us, or at all.

We may not be able to borrow funds under our five-year revolving credit facility if we are not able to meet the conditions to borrowing under that facility.

        We view our Revolverrevolving credit facility as a source of available liquidity. This facility contains various conditions, covenants and representations with which we must be in compliance in order to borrow funds. We have not borrowed under the Revolverrevolving credit facility to date, but if we wish to do so, there can be no assurance that we will be in compliance with these conditions, covenants and representations at such time.

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Our financial performance is partly driven byWe may be unable to effectively manage the successgrowth in scope and complexity of our Call of Duty franchise in the first-person action game category.business.

        Activision Blizzard is a leading global developer, publisher and distributor in terms of revenuesWe have experienced significant growth in the first-person action game category, primarily due to the popularity of Activision's Call of Duty franchise. Revenues from the Call of Duty franchise comprise a significant portionscope and complexity of our consolidated revenues. To remain a leaderbusiness, including through the development of our Media Networks and Studios businesses. Our future success depends, in part, on our ability to manage this expanded business. The growth of our business could create significant challenges for our management, operational, and financial resources, and could increase existing strain on, and divert focus from, our core businesses.

        In addition, the growth of these new businesses may require significant capital expenditures and allocation of valuable management and employee resources. If not managed effectively, this growth could result in the first-person action game category, it is important that we continueover-extension of our operating infrastructure, and our management systems, information technology systems, and internal controls and procedures may not be adequate to develop new gamessupport this growth. Failure to adequately manage our growth in the Callany of Duty franchise that are favorably received by boththese ways may cause damage to our existing consumer base and new consumers. A number of software publishers have developed and commercialized,brand or are currently developing, first-person action games which pose a threat to the popularity of Call of Duty, and we expect new competitors to continue to emerge in the first-person action category. If consumer demand for Call of Duty games declines and we have not introduced new first-person action games or added other sources of revenue, or if consumer preferences trend away from first-person action games, it couldotherwise negatively impact our business.

Our financial performance is partly driven by theour success of our World of Warcraft franchise in the subscription-basedsubscription-based massively multiplayer online role-playingrole-playing game category.category, and we may be negatively impacted if consumer preferences trend away from subscription-based games.

        Blizzard is the leading global developer, publisher and distributor in terms of subscriber base and revenues in the subscription-based MMORPG category, due to the popularity of Blizzard's World of Warcraft franchise. To maintain its leadership position, it is important that Blizzard continues to refresh World of Warcraft in a way that is favorably received by both our existing consumer base and new consumers. A number of software publishers have developed and commercialized, or are currently developing, online games for use by consumers over the Internet which pose a threat to the popularity of World of Warcraft, and we expect new competitors to continue to emerge in the MMORPG and other similar competing categories.

        A substantial portion of our revenues is generated by subscription fees paid by consumers who play World of Warcraft. In connection with the release of the large-scale expansionWorld of Warcraft: Warlords of DraenorWarcraft in November 2014, the number of subscribes reached approximately 10 million at December 31, 2014 as compared to 7.8 million at December 31, 2013. However, we anticipate downward pressure on the number of subscribers in 2015, as we have seen historically in the year following the release of a large scale expansion. A significant decrease in the number of overall subscribers for World of Warcraft could substantially harm our operating results.. If consumer demand forWorld of Warcraft games declines and we do not add other sources of revenue, or if new technologies, play patterns or genres are developed that replace MMORPGs or consumer preferences trend away from subscription-based MMORPGs or new business models that offer MMORPG gameplay for free or at a substantial discount to current MMORPG subscription fees become widely accepted,in favor of free-to-play MMORPGs, it may negatively impact our business.

Sales of titles in certain of our Skylanders franchisefranchises may be affected by the availability of toys and hardware peripherals, increasing our exposure to imbalances between projected and actual demand.

        Titles in our Skylanders franchise involve "smart toys," consisting of action figures and accessories, along with an electronic "portal," which, when used with a figure or accessory, allows a player to store and access information about his or her performance in the game. Similarly, titles in our Guitar Hero

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franchise use guitar-shaped controllers and other hardware peripherals. We sell the action figures and accessories for Skylanders both bundled with the software for the title and on a stand-alone basis. Consumers may not want to buy the related software if they cannot also buy the "smart toys" or accessories. If we underestimate demand or otherwise are unable to produce sufficient quantities of toys or accessories of an acceptable quality or allocate too few toys or accessories to geographic markets where demand exceeds supply, we will forego revenues. This may also create greater opportunities for competitors to develop competitive product offerings. In addition, if we overestimate demand and make too many toys or accessories, or allocate too many toys or accessories to geographic markets where there is

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insufficient demand, we may incur unrecoverable manufacturing costs for unsold units as well as for unsold game software. Similarly, if we overestimate demand for our Guitar Hero games, we may incur unrecoverable manufacturing costs for unsold games. In eitherany case, unsound toy and accessoryhardware manufacturing or allocation decisions may negatively impact our business.

The importance to our business of the "smart toys"toys," accessories and hardware peripherals related to certain of our Skylanders franchise exposesfranchises, expose us to hardware manufacturing and shipping risks, including availability of sufficient third-partythird-party manufacturing capacity and increases in manufacturing and shipping costs.

        The majority of the manufacturers of the "smart toys" involved in our Skylanders franchise and the hardware peripherals used in our Guitar Hero games are third parties located in China. Anything that impacts our ability to import these products or the ability of those manufacturers to produce or otherwise supply us with toyshardware meeting our quality and safety standards or increases the manufacturers' costs of production may adversely impact our ability to supply those toysthat hardware to the market and the prices we must pay for those toys.that hardware. Examples of such impacts include: the utilization of any such manufacturer's capacity by another company, changes in safety, environmental or other regulations applicable to the toyshardware and the manufacturing thereof, natural or manmade disasters that disrupt manufacturing, transportation or communications, labor shortages, civil unrest or issues generally negatively impacting international companies operating in China, increases in the price of petroleum or other raw materials, increases in fuel prices and other shipping costs, and increases in local labor costs in China. Moreover, the failure of those manufacturers to consistently deliver Skylanders action figures andor portals and/or Guitar Hero hardware peripherals meeting the quality and safety standards we require could negatively impact our business.

The increasing importance of free-to-play games to our business exposes us to the risks of that business model, including the dependence on a relatively small number of consumers for a significant portion of revenues and profits from any game

        As a result of the King Acquisition, we will be more dependent on our ability to develop, enhance and monetize free-to-play games. These games are available for download to consumers for free, and only generate revenue if consumers use in-game virtual currency to purchase, for example, entertainment time, game boosters, and access to additional content. A relatively small portion of our player network accounts for a large portion of our revenues from our free-to-play games, such as those in our Candy Crush franchise. If we are unable to continue to offer games that encourage these consumers to purchase our virtual currency and subsequently use it to buy our virtual items, if we fail to offer monetization features that appeal to these consumers, if these consumers do not continue to play our games or to purchase virtual items at the same rate, or if we cannot encourage significant additional consumers to purchase virtual items in our games, it could negatively impact our business. Also, if our platform providers make it more difficult or expensive for players to purchase, or we otherwise fail to sell, our virtual currency, our business may be materially and adversely affected.

Transitions in console platforms could adversely affect the market for interactive entertainment software.

        Nintendo introduced its next-generation console, the Wii U, in 2012, and Sony and Microsoft each launched its next-generation console—the PS4 and Xbox One, respectively—in November 2013. We are developing and publishing games for these next-generation console systems.        When new console platforms are announced or introduced into the market, consumers typically reduce their purchases of game console entertainment software products for prior console platforms in

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anticipation of purchasing a new platform and products for that platform. During these periods, sales of the game console entertainment software products we publish may decline until new platforms achieve wide consumer acceptance. Platform transitions may have a comparable impact on sales of downloadable content, amplifying the impact on our revenues. This decline may not be offset by increased sales of products for the new console platforms. Conversely, actions we take to curtail the reduction of purchases of products for prior console platforms during the transition may harm sales of products we publish for prior-generation platforms. In addition, as console hardware moves through its life cycle, hardware manufacturers typically enact price reductions and decreasing prices may put downward pressure on software prices. During platform transitions, we may simultaneously incur costs both in continuing to develop and market new titles for prior-generation video game platforms, which may not sell at premium prices, and also in developing products for next-generationnext -generation platforms, which may not generate immediate or near-termnear term revenues. As a result, our business and operating results may be more volatile and difficult to predict during platform transitions than during other times.

Our business is highly dependent on the success, timely release and availability of new video game platforms and on the continued availability of, and support for, existing video game platforms, as well as our ability to develop commercially successful products for these platforms.

        We derive a substantial portion of our revenues from the sale of products for play on video game platforms manufactured by third parties, such as Sony's PS4 and PS3, Microsoft's Xbox One and Xbox 360, and Nintendo's Wii U and Wii, and Sony's PS4 and PS3.Wii. For example, sales of products for consoles accounted for 49%51% of our consolidated net revenues in 2014.2015. The success of our business is driven in large part by our ability to accurately predict which platforms will be successful in the marketplace, our ability to

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develop commercially successful products for these platforms, the availability of an adequate supply of these video game platforms and the continued support for these platforms by their manufacturers. We must make product development decisions and commit significant resources well in advance of the anticipated introduction of a new platform.

We must make significant expenditures to develop products for new platforms that may not be successful.

        We must make substantial product development and other investments in a particular platform well in advance of introduction of the platform and may be required to realign our product portfolio and development efforts in response to market changes. Furthermore, development costs for new console platforms are greater than those costs for the then-current console platforms. If increased costs are not offset by higher revenues and other cost efficiencies, our business could be negatively impacted. If the platforms for which we develop new software products or modify existing products do not attain significant market penetration, we may not be able to recover our development costs, which could be significant.

Platform licensors are our competitors and frequently control the manufacturing of, and have broad approval rights over, our console and handheld interactive entertainment products.

        Generally, when we develop interactive entertainment software products for hardware platforms offered by Sony, Microsoft, Nintendo, or Sony,Nintendo, the products are manufactured exclusively by that hardware manufacturer or their approved replicator.

The agreements with these manufacturers include certain provisions, such as approval rights over all software products and related promotional materials and the ability to change the fee they charge for the manufacturing of products, which allow them substantial influence over the cost and the release schedule of such interactive entertainment software products. In addition, because each of the manufacturers is also a publisher of games for its own hardware platforms and manufactures products for all of its other licensees, a manufacturer may give priority to its own products or those of our competitors in the event of insufficient manufacturing capacity. Accordingly, Sony, Microsoft, Nintendo or SonyNintendo could cause unanticipated delays in the release of our products as well as increases to projected development, manufacturing, marketing or distribution costs, any of which could negatively impact our business.

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        In addition, platform licensors control our ability to provide online game capabilities for console platform products and, in large part, establish the financial terms and/or pricing on which these products and services are offered to consumers. Currently, Sony provides online capabilities for the PS4 and PS3, Microsoft provides online capabilities for the Xbox One and Xbox 360, and Nintendo provides online capabilities for the Wii U and Wii, and Sony provides online capabilities for the PS4 and PS3.Wii. In each case, compatibility code and/or the consent of the licensor are required for us to include online capabilities in its console products. The failure or refusal of licensors to approve our products could negatively impact our business.

We must negotiate with platform licensors to agree upon the royalty rates and other fees that must be paid to publish games for their platforms or distribute gamescontent on their networks, and therefore they can have significant influence on our costs.

        We pay a licensing fee to the hardware manufacturer for each copy of a product manufactured for that manufacturer's game platform. The platform license agreements we enter into with those manufacturers specify the fee and/or price that we must pay in order to publish games for that platform. Similarly, the platform licensors control the retail pricing for games and additional content purchased over their networks. The control that platform licensors have over the fee structures and/or pricing for their platforms and online networks could impact the volume of purchases of our products made over their network and our profitability. It is also possible that platform licensors will not renew

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our existing licenses.licenses and/or will decline to distribute our digital content on their networks. Any increase in fee structures and/or pricing, or nonrenewal of licenses, could have a negative impact on our business, particularly for Activision, as the publishing of products for console systems is the largest portion of Activision's business.

        Outside of fee arrangements, our agreement with aany manufacturer typically gives it significant control over other aspects of the distribution of our products and services that we develop for that manufacturer's game platform. If the manufacturer establishes terms that restrict our offerings on its platform, or significantly impact the financial terms on which these products or services are offered to our customers, we may be unable to distribute our products or be forced to do so on a materially worse financial or business terms.

We rely on third-party platforms to distribute our free-to-play games and collect payments. If we are unable to maintain a good relationship with such platform providers, if their terms and conditions, methods of distribution, payment practices or pricing changed to our detriment, or if we violate, or if a platform provider believes that we have violated, the terms and conditions of its platform, our business may be negatively impacted.

        Following the King Acquisition, we expect to derive significant revenues from the distribution of our free-to-play games on third-party platforms such as the Apple App Store, the Google Play Store, and Facebook, and most of the virtual currency we sell is purchased using the payments processing systems of these platform providers. These platforms also serve as significant online distribution platforms for our games. We are subject to their standard terms and conditions for application developers, which govern the promotion, distribution and operation of games and other applications on their platforms. If we violate, or if a platform provider believes that we have violated, its terms and conditions, the particular platform provider may discontinue or limit our access to that platform, which would harm our business. Our business would also be harmed if: their platforms decline in popularity; they modify their current discovery mechanisms, communication channels available to developers, respective terms of service or other policies, including fees; they are required to change how they label free-to-play games or take payment for in-app purchases, or change how the personal information of consumers is made available to developers; or they develop their own competitive offerings.

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If we do not continue to attract and retain skilled personnel, we will be unable to effectively conduct our business.

        One of our most essential assets is our employees and, as such, our success depends to a significant extent on our ability to identify, hire, retain and utilize the abilities of qualified personnel, particularly personnel with the specialized skills needed to create and sell the high-quality, well-received titleswell- received content upon which our business is substantially dependent. The software industry is characterized by a high level of employee mobility and aggressive recruiting among competitors for employees with technical, marketing, sales, engineering, product development, creative and/or management skills. We may have difficulties in attracting and retaining skilled personnel or may incur significant costs in order to do so. If we are unable to attract additional qualified employees or retain and utilize the services of key personnel, it could have a negative impact on our business.

Our reputation with consumers is critical to our success. Negative consumer perceptions about our brands, games, services and/or business practices may damage our business and any costs incurred in addressing consumer concerns may increase our operating expenses.

        Individual consumers form our ultimate customer base, and consumer expectations regarding the quality, performance and integrity of our products and services are high. Consumers may be critical of our brands, games, services and/or business practices for a wide variety of reasons. These negative consumer reactions may not be foreseeable or within our control to manage effectively. Actions we take to address consumer concerns may be costly and, in any case, may not be successful. In addition, negative consumer sentiment about our business practices may result in inquiries or investigations from regulatory agencies and consumer groups, as well as litigation, which, regardless of their outcome, may be damaging to our reputation. Any of these may have a negative impact on our business.

We use open source software in connection with certain of our games and services, which may pose particular risks to our proprietary software, products, and services in a manner that could have a negative impact on our business.

        We use open source software in connection with certain of our games and the services we offer. Some open source software licenses require users who distribute open source software as part of their software to publicly disclose all or part of the source code to such software or make available any derivative works of the open source code on unfavorable terms or at no cost. The terms of various open source licenses have not been interpreted by courts, and there is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our use of the open source software. Were it determined that our use was not in compliance with a particular license, we may be required to release our proprietary source code, pay damages for breach of contract, re-engineer our games, discontinue distribution in the event re-engineering cannot be accomplished on a timely basis, or take other remedial action that may divert resources away from our game development efforts, any of which could harm our business.

If our games and services do not function as consumers expect, it may have a negative impact on our business.

        If our games and services do not function as consumers expect, whether because they fail to function as advertised or otherwise, our sales may suffer. The risk that this may occur is particularly pronounced with respect to our games with online features like World of Warcraft games, Call of Duty games,Destiny andHearthstone: Heroes of Warcraft, because they involve ongoing consumer expectations, which we may not be able to successfully satisfy. Our games with online features are also frequently updated, increasing the risk that a game may contain significant "bugs." Further, these games are reliant on third-party servers and platform providers, increasing the risk that a particular game may be unavailable when consumers attempt to access it or that navigation through a game may be slower than consumers expect. If any of these issues occur, consumers may stop playing the game

and may be less likely to return to the game as often in the future. If our games and services do not function as consumers expect, it may negatively impact our business.

The future success of our business depends on our ability to release popular products in a timely manner.

        The life of any given console, handheld or handheldmobile game product is relatively short and generally involves a relatively high level of sales during the first few months after the product's introduction, followed by a rapid decline in sales. Because revenues associated with an initial product launch generally constitute a high percentage of the total revenues associated with the life of a product, delays in product releases or

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disruptions following the commercial release of one or more new products could have a material adverse effect on our revenues and reputation and could cause our results of operations to be materially different from expectations. It is therefore important for us to continue to develop many high-quality new products that are popularly received and to release those products in a timely manner.manner, as well as to continue to extend the life of existing games by adding features and functionality that will encourage continued engagement with the game. If we are unable to continue to do so, it may negatively impact our business.

If we are unable to sustain traditional pricing levels for our titles,products, our business financial condition, results of operations, profitability, cash flows or liquidity could suffer materially.

        If we are unable to sustain traditional pricing levels for our console or PC titles or the associated downloadable content, whether due to competitive pressure, because retailers elect to price these products at a lower price or otherwise, it could have a negative impact on our business. Further, we make provisions for retail inventory price protection based upon certain assumed lowest prices and if competitive pressures force us to lower our prices below those levels, it could similarly have a negative impact on our business.

If we fail to successfully manage our new product development, or if we fail to anticipate the issues associated with that development, it may negatively impact our business.

        Our business models are evolving and we believe that our growth will depend, in part, upon our ability to successfully develop and sell new types of products, including free-to-play games which are monetized through in-game microtransactions rather than an up-front fee, and to otherwise expand the methods by which we reach our consumers, including via digital distribution. Developing new products and distribution channels requires substantial up-frontup- front expenditures. Further, forecasting our revenues and profitability for these new business models is inherently uncertain and volatile. If such products or distribution channels do not achieve expected acceptance or generate sufficient revenues upon introduction, whether because of competition or otherwise, we may not recover the cost of our investments in developing and marketing those products and distribution channels, or recover the opportunity cost of diverting management and financial resources away from other products or distribution channels. In addition, expanding our business models will add complexity to our business and require us to effectively adapt our business and management processes to address the unique challenges and different requirements of any new areas in which we operate, which we may not be able to do, for lack of institutional expertise or otherwise.

Our industry is subject to rapid technological change, and if we do not adapt to, and appropriately allocate our new resources among, emerging technologies and business models, our business may be negatively impacted.

        Technology changes rapidly in the interactive entertainment industry. We must continually anticipate and adapt our products to emerging technologies, delivery platforms and business models in order to stay competitive. When we choose to incorporate a new technology into a product or to develop a product for a new platform, operating system or media format, we often are required to make a substantial investment prior to the introduction of the product. If we invest in the development of interactive entertainment products incorporating a new technology or for a new platform that does

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not achieve significant commercial success, our revenues from those products likely will be lower than we anticipated and may not cover our development costs. Further, our competitors may adapt to an emerging technology or business model more quickly or effectively than we do, creating products that are technologically superior to ours, more appealing to consumers, or both. If, on the other hand, we elect not to pursue the development of products incorporating a new technology or for new platforms, or otherwise elect not to pursue a new business model, that achieves significant commercial success, it may have adverse consequences. It may take significant time and resources to shift product development resources to that technology, platform or business model, as the case may be, and may be more difficult to compete against existing products incorporating that technology or for that platform

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or against companies using that business model. For example, digital content delivery is increasingly important in our industry, requiring us to develop or acquire the expertise in such delivery method needed to remain competitive. Any failure to successfully adapt to, and appropriately allocate resources among, emerging technologies could negatively impact our business.

The increasing importance of digital sales to our business exposes us to the risks of that business model, including greater competition.

        The proportion of our revenues derived from digital content delivery, as compared to traditional retail sales, continues to increase. The increased importance of digital content delivery in our industry increases our potential competition, as the minimum capital needed to produce and publish a digitally delivered game, particularly a new game for the emerging mobile platform,platforms, may be significantly less than that needed to produce and publish one that is purchased through retail distribution and is played on a game console. Shifting to digital delivery of our products also requires us to dedicate capital to developing and implementing alternative marketing strategies, which we may not do successfully. If any of this occurs, it could have a material adverse effect on our business, financial condition, results of operations, profitability, cash flows or liquidity.business. In addition, a continuing shift to digital delivery could result in a deprioritization of our products by traditional retailers and distributors, giving rise to the same material adverse effects.

The increasing prevalence of free-to-playfree-to-play games exposes us to risks from that business model.

        We expect that the portion of the total revenues of the interactive entertainment industry, and of our revenues, generated by free-to-play entertainment products, which are monetized through in-game microtransactions rather than an up-front fee, will continue to increase.increase, including as a result of the King Acquisition. We may invest in the development of free-to-play interactive entertainment products that do not achieve significant commercial success, in which case our revenues from those products likely will be lower than anticipated and we may not recover our development costs. Even if our free-to-play games are initially well-received, we may not be able to generate or sustain consumer engagement sufficient to generate significant revenues, if any, through in-game microtransactions. Publishing free-to-play games also requires us to dedicate capital to developing and implementing alternative marketing strategies, which we may not do successfully. In addition, a continuing shift to free-to-play games could result in a deprioritization of our products by traditional retailers and distributors. Furthermore, as there are relatively low barriers to entry to developing free-to-play games, we expect new competitors to enter the market and existing competitors to allocate more resources to develop and market competing games.

If we are unable to successfully develop or market owned intellectual property, we may publish fewer successful titlesgames and our revenues may decline.

        Some of our products are based on intellectual property that we have developed internally or acquired from third parties. Consumers have historically preferred titlescontent which areis part of an established franchisesfranchise to titlescontent based on new intellectual property. If a new intellectual property does not gain consumer acceptance, whether because we are unable to successfully create consumer appeal and brand recognition or for other reasons, our business could be negatively impacted. Further, if the popularity of our owned intellectual property declines, we may have to write off the unrecovered

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portion of the underlying intellectual property assets, and revenues and operating income from these intellectual properties may decline quickly, either of which could negatively impact our business.

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Competition within, and to, the interactive entertainment industry is intense, and competitors may succeed in reducing our sales.

        Within the interactive entertainment industry, we compete with other publishers of interactive entertainment software, developed for use on the PC, video game consoles and handheld, mobile and tablet devices or social networking sites, both within the United States and, increasingly, in international jurisdictions. Our competitors include very large corporations with significantly greater financial, marketing and product development resources than we have. For example, integrated video game console hardware and software companies such as Sony, Microsoft Nintendo and Sony,Nintendo, compete directly with us in the development of software titlescontent for their respective platforms. A relatively small number of titlesfranchises account for a significant portion of net revenues, and an even greater portion of net profit, in the interactive entertainment industry, and the availability of significant financial resources is a major competitive factor in the production of high-quality products and in the marketing of products that are ultimately well-received. Our larger competitors may be able to leverage their greater financial, technical, personnel and other resources to finance larger budgets for development and marketing and make higher offers to licensors and developers for commercially desirable properties as well as adopt more aggressive pricing policies to develop more commercially successful products for the PC or video game platformsproducts than we do. In addition, competitors with large product lines and popular titlesgames typically have greater leverage with retailers, distributors and other customers, who may be willing to promote titlesproducts with less consumer appeal in return for access to those competitors' more popular titles.games.

        Increased consumer acceptance and availability of interactive entertainment developed for use by consumers on handheld, mobile and tablet devices or social networking sites or other online games, consumer acceptance and availability of technology which allows users to play games on televisions without consoles, or technological advances in online game software or the Internet could result in a decline in sales of our platform-based software.

        Furthermore, as there are relatively low barriers to entry to developing mobile or online free-to-play or other casual games, we expect new competitors to enter the market and existing competitors to allocate more resources to develop and market competing games and applications. We compete, or will compete, with a vast number of small companies and individuals who are able to create and launch casual games and other content using relatively limited resources and with relatively limited start-up time or expertise. Competition for the attention of consumers on mobile devices is intense, as the number of applications on mobile devices has been increasing dramatically. This increased competition could negatively impact our business.

Additionally, we compete with other forms of entertainment and leisure activities. For example, the overall growth in the use of the Internet and online services such as social networking sites by consumers may pose a competitive threat if consumers and potential consumers spend less of their available time using interactive entertainment software and more of their available time using the Internet, including those online services. Further, it is difficult to predict and prepare for rapid changes in consumer demand that could materially alter public preferences for different forms of entertainment and leisure activities. Failure to adequately identify and adapt to the competitive pressures described herein could negatively impact our business.

The development of high-qualityhigh-quality products requires substantial up-front expenditures, and we may not be able to recover those costs for our future products.

        Consumer preferences for games are usually cyclical and difficult to predict, and even the most successful titles remaincontent remains popular for only limited periods of time, unless refreshed with new content or otherwise enhanced. In order to remain competitive, we must continuously develop new products or

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enhancements to existing products. The amount of lead time and cost involved in the development of high-quality products is increasing, and the longer the lead time involved in developing a product and the greater the allocation of financial resources to such product, the more critical it is that we accurately predict consumer demand for such product. If our future products do not achieve expected consumer acceptance or generate sufficient revenues upon introduction, we may not be able to recover the substantial development and marketing costs associated with those products.

We may overestimate demand for a product, incurring unrecoverable manufacturing costs.

        We pay a licensing fee to the console hardware manufacturer for each physical copy of a product manufactured for that manufacturer's game platform, regardless of whether that product is sold. If we overestimate

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demand and make too many physical "boxed" copies of any title, we will incur unrecoverable manufacturing costs for unsold units.

We are exposed to seasonality in the sale of our products.

        The interactive entertainment industry is highly seasonal, with the highest levels of consumer demand occurring during the year-end holiday buying season in the fourth quarter of the year. As a result, our sales have historically been highest during the second half of the year, particularly for our Activision segment. Receivables and credit risk are likewise higher during the second half of the year, as retailers increase their purchases of our products in anticipation of the holiday season. Delays in development, licensor approvals or manufacturing can affect the timing of the release of products, causing us to miss key selling periods such as the year-end holiday buying season.

If our proprietary online gamegaming service, Battle.net, does not function properly, our business may be negatively impacted.

        If Blizzard's proprietary online gamegaming service, Battle.net, does not function as anticipated, Blizzard's games may be completely unavailable or Blizzard may be prevented from delivering content digitally, which could result in a loss of sales for Blizzard's games. Further, any disruption in Battle.net's services could negatively impact our business.

We depend on servers to operate our games with online features, such as World of Warcraft, Call of Duty, Destiny and Hearthstone: Heroes of Warcraft, as well as Battle.net, our digital service with online features. If we were to lose server functionality, for any reason, our business could suffer.may be negatively impacted.

        Our business relies on the continuous operation of data servers.servers which are owned and operated by third parties. Although we strive to maintain more than sufficient server capacity, and provide for active redundancy in the event of limited hardware failure, any broad-based catastrophic server malfunction, a significant service-disrupting attack or intrusion by hackers that circumvents security measures, a failure of disaster recovery service or the failure of a company on which we are relying for server capacity to provide that capacity for whatever reason would likely interrupt the availability or operation ofWorld of Warcraft orHearthstone: Heroes of Warcraft Blizzard's games, and/or degrade or interrupt the functionality of other games of ours with online features, such as Call of Duty games andDestiny, and could result in the loss of sales for, or in, such games (including subscription-based sales forWorld of Warcraft)Warcraft). This risk is particularly pronounced with respect to the mobile games published by King, which rely on a small number of third-party owned data centers located in Stockholm, Sweden. An extended interruption of service could negatively impact our business.

        We must project our future server needs and make advance purchases of servers or server capacity to accommodate expected business demands. If we underestimate the amount of server capacity our business requires or if our business were to grow more quickly than expected, our consumers may experience service problems, such as slow or interrupted gaming access. Insufficient server capacity may result in decreased sales, a loss

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could negatively impact our consumer base and adverse consequences to our reputation.business. Conversely, if we overestimate the amount of server capacity required by our business, we may incur additional operating costs.

        In addition,If any of the networks operated by third parties on which we sell digital content for our console games or the online third-party platforms on which we distribute our free-to-play games are unavailable for a prolonged period of time, our business could be negatively impacted.

        We rely on the networks operated by third parties, such as Xbox Live and the PlayStation Network and Xbox Live, for the sale and digital delivery of downloadable console-game content. Similarly, we rely on the continued operation of the Apple App Store, the Google Play Store, and Facebook for the sale of virtual currency for our downloadable content.free-to-play games. In the event the efficient operation and functionality of these third-party networks or platforms is interrupted for a prolonged period of time, it could have a negative impact on the timing or level of our sales through digital delivery.business.

We may not accurately predict the amount of Internet bandwidth or computational resources necessary to sustain our online gaming businesses.

        Our online gaming businesses arebusiness is dependent on the availability of sufficient Internet bandwidth and computational resources. If the price of either such resource increases, we may not be able to increase our prices or subscriber levels to compensate for such costs. Because of the importance of our

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online business to our revenues and results of operations, our ability to access adequate bandwidth and online computational resources to support our business is critical.

        To secure access to such resources, we have entered into arrangements with several providers to secure future capacity, some of which involve long-term contracts. If the price of such resourceresources were to decrease, our contractual commitments to pay higher prices could affect our ability to compete with other publishers of interactive software products paying lower prices. Further, because we purchase additional capacity based on anticipated growth, our capacity is sometimes larger than necessary to sustain our existing needs. If our projected online business growth is delayed or does not occur, we will incur larger expenses for such resources than necessary. Conversely, if we underestimate the amount of bandwidth that our online business requires, and our purchased capacity is insufficient to meet demand, our business may be negatively impacted.

We may be involved in legal proceedings that may result in material adverse outcomes.

        From time to time, we may beare involved in claims, suits, government investigations, audits and proceedings arising from the ordinary course of our business, including actions with respect to intellectual property, competition and antitrust matters, privacy matters, tax matters, labor and employment matters, unclaimed property matters, compliance and commercial claims. Such claims, suits, government investigations, audits and proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, such legal proceedings can have an adverse impact on us because of legal costs, diversion of management resources and other factors. In addition, it is possible that a resolution of one or more such proceedings could result in substantial settlements, judgments, fines andor penalties, criminal sanctions, consent decrees or orders preventing us from offering certain features, functionalities, products or services, requiring us to change our development process or other business practices.

Legal proceedings relating to the Purchase Transaction and Private Sale may result in adverse outcomes.

        We are currently subject to various claims in connection with the Purchase Transaction and Private Sale, and in the future may be subject to additional claims related thereto. The currently asserted claims are covered by a proposed settlement, which remains subject to approval by the Delaware Court of Chancery. Such proceedings are inherently uncertain and their results cannot be predicted with certainty. Regardless of the outcome, monitoring and defending against legal actions is time consuming for our management and detracts from our ability to fully focus our internal resources on our business activities. In addition, we may incur substantial legal fees and costs in connection with litigation and, although coverage may be available under relevant insurance policies, coverage could be denied or prove to be insufficient. Under our Amended and Restated Certificate of Incorporation and the indemnification agreements that we have entered into with our officers and directors, the Company may be required in certain circumstances to indemnify and advance expenses to them in connection with their participation in proceedings arising out of their service to us. There can be no assurance that any of these payments will not be material. Although unlikely, a decision adverse to the Company on these actions could also result in the reformation of the Stockholders Agreement (as described in further detail under "Legal Proceedings").

We may be subject to intellectual property claims.

        As the number of interactive entertainment software products increases and the features and content of these products continue to overlap, software developers have increasingly become subject to infringement claims. Further, many of our products are highly realistic and feature materials that are based on real world things or people, which may also be the subject of intellectual property

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infringement claims of others, including right of publicity claims. In addition, our products often utilize complex, cutting-edge technology that may become subject to emerging intellectual property rights of

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others. Although we take steps to avoid knowingly violating the intellectual property rights of others, it is possible that third parties still may claim infringement, particularly since there are an increasing number of companies that focus their efforts exclusively on enforcing their patent rights.

        From time to time, we receive communications from third parties regarding such claims. Existing or future infringement claims against us, whether valid or not, may be time consuming, distracting to management and expensive to defend. Further, intellectual property litigation or claims could force us to do one or more of the following:

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cease selling, incorporating, supporting or using products or services that incorporate the challenged intellectual property;



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obtain a license from the holder of the infringed intellectual property, which if available at all, may not be available on commercially favorable terms;



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redesign the affected interactive entertainment software products, which could result in additional costs, delay introduction and possibly reduce commercial appeal of the affected products; or



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pay damages to the holder of the infringed intellectual property for past infringements.

Issues with Skylandersthe toys, and accessories or hardware peripherals utilized in certain of our games may lead to product liability, personal injury or property damage claims, recalls, replacements of products, or regulatory actions by governmental authorities.

        We may experience issues with Skylanders toys and accessories or Guitar Hero hardware peripherals that may lead to product liability, personal injury or property damage claims, recalls, replacements of products, or regulatory actions by governmental authorities. Any of these activities could result in increased governmental scrutiny, harm to our reputation, reduced demand by consumers for our products, decreased willingness by our customers to purchase or by our partners to provide marketing support for those products, denial or increased cost for insurance coverage, or additional safety and testing requirements. Such results could divert development and management resources and increase legal fees and other costs, and otherwise could negatively impact our business.

Our products may be subject to legal claims.

        In prior years, lawsuits have been filed against numerous interactive entertainment companies, including against Activision Blizzard, by the families of victims of violence, alleging that interactive entertainment products influence the behavior of the perpetrators of such violence. These lawsuits have been dismissed, but similar additional lawsuits may be filed in the future. Although our general liability insurance carrier has agreed to defend lawsuits of this nature with respect to the prior lawsuits, it is uncertain whether insurance carriers would do so in the future, or if such insurance carriers would cover all or any amounts for which we might be liable if such future lawsuits are not decided in our favor. Further, any such lawsuit could result in increased governmental scrutiny, harm to our reputation, reduced demand by consumers for our products, or decreased willingness by our customers to purchase or by our partners to provide marketing support for those products. Such results could divert development and management resources, increase legal fees and other costs and have other negative impacts on our business.

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Our products are subject to the threat of piracy and unauthorized copying, and inadequate intellectual property laws and other protections could prevent us from enforcing or defending our proprietary technologies. We may also face legal risks arising out of user-generateduser-generated content. Further, cheating, through use of unauthorized "cheating" programs and other unauthorized software modifications by users, could lead to reductions in microtransactions in our games.

        We regard our software as proprietary and rely on a variety of methods, including a combination of copyright, patent, trademark and trade secret laws and employee and third-party nondisclosure agreements, to protect our proprietary rights. We own or license various copyrights, patents, trademarks

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and trade secrets. WeThe process of registering and protecting these rights in various jurisdictions is expensive and time-consuming. Further, we are aware that some unauthorized copying occurs, and if a significantly greater amount of unauthorized copying of our software products were to occur, it could negatively impact our business.

        Policing unauthorized sale, distribution and use of our products is difficult, expensive, and time-consuming, and software piracy (including online piracy) is a persistent problem for us. Further, the laws of some countries in which our products are or may be distributed either do not protect our products and intellectual property rights to the same extent as the laws of the United States, or are poorly enforced. Legal protection of our rights may be ineffective in such countries. In addition, though we take steps to make the unauthorized sale, distribution and use of our products more difficult and to otherwise enforce and police our rights, as do the manufacturers of consoles and the operators of other platforms on which many of our games are played, our efforts and the efforts of the console manufacturers and platform operators may not be successful in controlling the piracy of our products in all instances. The proliferation of technologyTechnology designed to circumvent the protection measures used in our products, the availability of broadband access to the Internet, the refusal of Internet service providers to remove infringing content in certain instances, the ability to download pirated copies of games from various Internet sites and peer-to-peer networks, and the widespread proliferation of Internet cafes using pirated copies of our products all have contributed to an expansion in piracy.

        In addition, unrelated third parties have developed, and may continue to develop, "cheating" programs or other unauthorized software tools and modifications that enable consumers to cheat in games, such as those in our Candy Crush franchise, which could negatively impact the volume of microtransactions or purchases of downloadable content. In addition, vulnerabilities in the design of our applications and of the platforms upon which they run could be discovered after their release, which may result in lost revenue opportunities. This may lead to lost revenues from paying consumers or increased cost of developing technological measures to respond to these, either of which could negatively impact our business.

        We also cannot be certain that existing intellectual property laws will provide adequate protection for our products in connection with emerging technologies.

We rely on external developers to develop some of our software products.

        We rely on external software developers to develop some of our software products. Because we depend on these developers, we are subject to the following risks:

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continuing strong demand for top-tier developers' resources, combined with the recognition they receive in connection with their work, may cause developers who worked for us in the past either to work for a competitor in the future or to renegotiate agreements with us on terms less favorable to us;



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limited financial resources and business expertise and inability to retain skilled personnel may force developers out of business prior to completing products or require us to fund additional costs; and

could have an adverse effect on our reported net revenues, net income and earnings per share under accounting principles generally accepted in the United States in any given period.

Certain of our key operating metrics are subject to inherent challenges in measurement, and real or perceived inaccuracies in such metrics may harm our reputation and negatively affect our business.

        We track certain key operating metrics using internal tools, which have certain limitations. In addition, we rely on data received from third parties, including third-party platforms, to track certain performance indicators. We only have a limited ability to verify data from both of these sources.

        Our methodologies for tracking metrics may also change over time, which could result in changes to the metrics we report. If we undercount or overcount performance due to the internal tools we use or issues with the data received from third parties, or if our internal tools contain errors, the data we report may not be accurate or comparable with prior periods. In addition, limitations, changes or errors with respect to how we measure data may affect our understanding of certain details of our business, which could affect our longer term strategies. If our performance metrics are not accurate representations of our financial or operational performance, if we discover material inaccuracies in our metrics, or if we can no longer calculate any of our key performance metrics with a sufficient degree of accuracy and cannot find an adequate replacement for the metric, our business could be negatively impacted.

We may permit our customers to return products and to receive pricing concessions which could negatively impact our business.

        We are exposed to the risk of product returns and price protection with respect to our distributors and retailers. In some cases, return policies allow distributors and retailers to return defective, shelf-worn, damaged and certain other products in accordance with terms granted. Price protection, when granted and applicable, allows these distributors and retailers a credit against amounts owed with respect to merchandise unsold by them. We may permit product returns from, or grant price protection to, our customers under certain conditions. These conditions may include compliance with applicable payment terms, delivery of weekly inventory and sales information and consistent participation in the launches of premium title releases. We may also consider other factors, including the facilitation of slow-moving inventory and other industry factors. When we offer price protection, it may be offered with respect to a particular product to all of our distributors and retailer customers who meet the applicable conditions. Activision also offers a 90-day limited warranty to its consumer end users that Activision products will be free from manufacturing defects. Although we maintain a reserve for returns and price protection, and although we may place limits on product returns and price protection, we

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could be forced to accept substantial product returns and provide substantial price protection to maintain our relationships with retailers and our access to distribution channels. We face similar issues and risks, including exposure to risk of chargebacks, with respect to consumer end users to whom we sell products directly, whether through Battle.net or otherwise.

We may face difficulty obtaining access to the retail shelf space necessary to market and sell our products effectively.

        Retailers typically have a limited amount of shelf space and promotional resources, and there is intense competition among consumer interactive entertainment software products for high-quality retail shelf space and promotional support from retailers. To the extent that the number of products and platforms increase, competition for shelf space may intensify and may require us to increase our marketing expenditures. Those issues are exacerbated to the extent any of our products involve physical goods in addition to software and, as such, require additional shelf space, like the titles in our Skylanders franchise, which include both action figures and accessories, as well as an electronic "portal"., and the title in our Guitar Hero franchise, which includes a "life sized" guitar-shaped controller. Retailers with limited shelf space typically devote the most and highest quality shelf space to those products expected to be best sellers. We cannot be certain that our new products will consistently achieve such "best seller" status. Due to increased competition for limited shelf space, retailers and distributors are in an increasingly better position to negotiate favorable terms of sale, including price discounts, price protection, marketing and display fees and product return policies. Our products constitute a relatively small percentage of most retailers' sales volume. We cannot be certain that retailers will continue to purchase our products or provide those products with adequate levels of shelf space and promotional support on acceptable terms.

If our marketing and advertising efforts fail to resonate with our consumers, our business could be negatively impacted.

        Our products are marketed worldwide through a diverse spectrum of advertising and promotional programs. Our ability to sell our products and services is dependent in part upon the success of these programs. If the marketing for our products and services fails to resonate with our consumers, particularly during the critical holiday season or during other key selling periods, or advertising rates or other media placement costs increase, or if the use of cost-effective cross-promotion within our mobile games to retain consumers becomes less effective, these factors could have a negative impact on our business.

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Increased sales of used interactive entertainment products could lower our sales.

        Certain of our larger customers sell used interactive entertainment products, which are generally priced lower than new interactive entertainment products and do not result in any revenues to the publisher of the games. Sales of used interactive entertainment products could negatively affect our sales of new products.

Our productsgames are subject to ratings, byincluding the rating systems of the Entertainment Software Rating Board in the U.S. and similar agencies in international jurisdictions. Our failure to obtain our target ratings for our products could negatively impact our business.

        The Entertainment Software Rating Board (the "ESRB") is a self-regulatory body based in the United States that provides consumers of interactive entertainment software with ratings information, including information on the content in such software, such as violence, nudity or sexual content contained in software titles.products. The ESRB rating categories are "Early Childhood" (i.e., content is intended for young children), "Everyone" (i.e., content is generally suitable for all ages), "Everyone 10+" (i.e., content is generally suitable for ages 10 and up), "Teen" (i.e., content is generally

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suitable for ages 13 and up), "Mature" (i.e., content is generally suitable for ages 17 and up) and "Adults Only" (i.e., content is suitable for adults ages 18 and up). CertainOur console and PC games are subject to ratings by the ESRB and some of our most significant titles have received a "Mature" rating, inherently limiting the target audience. Certain countries other than the United States have also established content rating systems as prerequisites for product sales in those countries. Certain stores use other ratings systems, such as Apple's App Rating System and Google Play's use of the International Age Rating Coalition (IARC) rating system. In some countries,instances, a company may be required to modify its products to comply with the requirements of the rating systems, which could delay or disrupt the release of any given product, or may prevent its sale altogether in certain territories. Further, if an agency re-rates one of our games for any reason, retailers could refuse to sell it and demand that we accept the return of any unsold or returned copies or consumers could demand a refund for copies purchased. If we are unable to obtain the ratings we have targeted for our products, as a result of changes in a content rating organization's ratings standards or for other reasons, it could have a negative impact on our business.

Additional content-relatedcontent-related policies adopted by retailers could negatively affect sales of our products.

        Retailers may decline to sell interactive entertainment software containing what they judge to be graphic violence or sexually explicit material or other content that they deem inappropriate for their businesses, whether because a product received a certain rating by the ESRB or other content rating system, or otherwise. If retailers decline to sell our products based upon their opinion that they contain objectionable themes, graphic violence or sexually explicit material or other generally objectionable content, we might be required to either: significantly change or discontinuemodify particular titles or series or forfeit the revenue opportunity of selling our productsuch titles with that retailer.

Our business, products, and distribution are subject to increasing regulation of content in key territories. If we do not successfully respond to these regulations, our business financial condition, results of operations, profitability, cash flows or liquidity could be materially adversely affected.

        Legislation is continually being introduced, and litigation and regulatory enforcement actions are taking place, that may affect the way in which we, and other industry participants, may offer content and features, and distribute and advertise our products. For example, privacy laws and regulatory guidance in many countries impose various restrictions on online and mobile advertising, as well as the collection, storage and use of personally identifiable information. We may be required to modify certain of our product development processes or alter our marketing strategies to comply with such regulations, which could be costly or delay the release of our products. In addition, manyMany foreign countries, such as China and Germany, have laws that permit governmental entities to restrict the content and/or advertisingprohibit marketing or distribution of interactive entertainment software or prohibit certain types of content. Further, legislation which attempts to restrict marketing or distribution of such products because of the

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content therein (and similar legislation has been introduced at one time or another at the federal and state levels in the United States. There is on-going riskStates). Further, the growth and development of enhanced regulationelectronic commerce and virtual items and currency may prompt calls for more stringent consumer protection laws that may impose additional burdens on or limitations on operations of interactive entertainment marketing, content or sales. Thesecompanies such as ours conducting business through the Internet and mobile devices. We are also subject to laws and regulations vary by territoryrelated to protection of minors, consumer privacy, advertising, taxation, payments, intellectual property, distribution, and antitrust, among others. Furthermore, existing laws or new laws regarding the marketing of in-app purchases, regulation of currency, banking institutions, unclaimed property, and money laundering may be inconsistent with one another, imposing conflictinginterpreted to cover virtual currency or uncertain restrictions.goods. The adoption and enforcement of legislation which restricts the marketing, content, business model, or sales of our products in countries in which we do business may harm the sales of our products, as the products we are able to offer to our customers and the size of the potential market for our products may be limited. We may be required to modify certain product development processes or products or alter our marketing strategies to comply with such regulations, which could be costly or delay the release of our products. The laws and regulations affecting our products vary by territory and may be inconsistent with one another, imposing conflicting or uncertain restrictions. Failure to comply with any applicable legislation may also result in government-imposed fines or other penalties.penalties, as well as harm to our reputation. Moreover, the increased public dialogue concerning interactive entertainment may have an adverse impact on our reputation and consumers' willingness to purchase our products. The King Acquisition has significantly increased our user population, and may

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subject us to laws and regulations in additional jurisdictions and exacerbate the potential adverse impact on our business.

        Although we have structured and operate our skill tournaments with applicable laws in mind, including any applicable laws relating to gambling, and believe that playing these games does not constitute gambling, our skill tournaments could in the future become subject to gambling-related rules and regulations and expose us to civil and criminal penalties. We also sometimes offer consumers of our online and casual games various types of contests and promotional opportunities. We are subject to laws in a number of jurisdictions concerning the operation and offering of such activities and games, many of which are still evolving and could be interpreted in ways that could harm our business. If these were to occur, we might be required to seek licenses, authorizations, or approvals from relevant regulators, the granting of which may be dependent on us meeting certain capital and other requirements, and we may be subject to additional regulation and oversight, such as reporting to regulators, all of which could significantly increase our operating costs. Changes in current laws or regulations or the imposition of new laws and regulations in the United States, Europe, or elsewhere regarding these activities may lessen the growth of casual game services and impair our business.

The laws and regulations concerning data privacy are continually evolving. Failure to comply with these laws and regulations could harm our business.

        Consumers can play certain of our games online using third-party platforms and networks and on mobile devices. We collect and store significant amounts of information about our consumers of these games—both personally identifying and non-personally identifying information. We are subject to laws from a variety of jurisdictions regarding privacy and the protection of this information. For example, the European Union (the "E.U.") has traditionally taken a broader view than the United States and certain other jurisdictions as to what is considered personal information and has imposed greater obligations under data privacy regulations. The U.S. Children's Online Privacy Protection Act ("COPPA") also regulates the collection, use, and disclosure of personal information from children under 13 years of age. Failure to comply with COPPA may increase our costs, subject us to expensive and distracting government investigations, and result in substantial fines.

        Data privacy protection laws are rapidly changing and likely will continue to do so for the foreseeable future, which could impact our approach to operating and marketing our games. For example, the Court of Justice of the European Union's recent decision to invalidate the E.U.-U.S. Safe Harbor regime that legitimized the transfer of personal data from the E.U. to the U.S. was a material change to laws on data privacy applicable to our business. The European Commission and the U.S. government have recently agreed to a new framework for transatlantic data flows known as the "E.U.-U.S. Privacy Shield," which is intended to replace the Safe Harbor regime, but the details of how this will operate in practice and the compliance implications for our business are not yet clear. The U.S. government, including the Federal Trade Commission and the Department of Commerce, is continuing to review the need for greater regulation over the collection of personal information and information about consumer behavior on the Internet and on mobile devices, and the E.U. has proposed reforms to its existing data protection legal framework. Various government and consumer agencies worldwide have also called for new regulation and changes in industry practices. In addition, in some cases, we are dependent upon our platform providers to solicit, collect and provide us with information regarding our consumers that is necessary for compliance with these various types of regulations.

        Player interaction with our games is subject to our privacy policy, end user license agreements, and terms of service. If we fail to comply with our posted privacy policy, EULAs, or terms of service, or if we fail to comply with existing privacy-related or data protection laws and regulations, it could result in proceedings or litigation against us by governmental authorities or others, which could result in fines or judgments against us, damage our reputation, impact our financial condition and harm our business. If

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regulators, the media, or consumers raise any concerns about our privacy and data protection or consumer protection practices, even if unfounded, this could also result in fines or judgments against us, damage our reputation, negatively impact our financial condition, and damage our business.

We may not be able to maintain our distribution relationships with key vendors and customers.

        Our NBG and CentresoftWe have subsidiaries that distribute interactive entertainment software and hardware products and provide related services in Germany and the United Kingdom, respectively, and via export in other European countries for a variety of entertainment software publishers, many of which are our competitors, and hardware manufacturers. From time to time, these subsidiaries also maintain exclusive relationships to serve certain retail customers. These services are generally performed subject to limited-term arrangements. Although we expect to use reasonable efforts to retain these vendors and retail customer relationships, we may not be successful in this regard. The cancellation or non-renewal of one or more of these arrangements could negatively impact our business.

A substantial portion of World of Warcraft's subscribers pay their subscription fees using credit cards. Credit card or other fraud could have a material adverse effect on our business, reputation, financial condition, results of operations, profitability, cash flows or liquidity.business.

        A substantial portion of the subscription revenues generated byWorld of Warcraft is, as well as revenues generated from other sales through Battle.net, are paid by subscribers using credit cards. At times, there may be attempts to use fraudulently obtained credit card numbers to pay for World of Warcraft upgrades or subscriptions.our products and services. Additionally, the credit card numbers and other sensitive or personally identifiable information ofWorld of Warcraft's subscribers and Battle.net account holders are maintained in a proprietary database that may be subject to malicious intrusion by hackers or otherwise compromised internally or externally. As fraudulent schemes become more sophisticated, it may become more difficult and more costly for us to detect credit card or other fraud and we may be required to incur costs to implement additional security measures to protect subscriber information. An increase in credit card or other fraud could have adverse consequences. In addition, we may be subject to legal claims or legal proceedings, including regulatory investigations and actions, if there is loss, disclosure or misappropriation of or access to our customers' credit card or other sensitive or personally identifiable information.

Data breaches involving the source code for our products or customer, consumer or employee data stored by us, or by a third party operating on our behalf, could negatively impact our business.

        In the course of our day-to-day business, we and third parties operating on our behalf create, store and/or use commercially sensitive information, such as the source code and game assets for our interactive entertainment software products and confidential information with respect to our customers, consumers and employees. A malicious intrusion by hackers or other breach of the systems on which such source code and assets, account information (including personally identifiable information) and other sensitive data is stored could lead to piracy of our software, fraudulent activity, disclosure or misappropriation of, or access to, our customers', consumers' or employees' personally identifiable information or our own sensitive business data. A data intrusion into a server for a game with online features such as World of Warcraft games, Call of Duty games orDestiny, or for Battle.net could also disrupt the operation of such game or platform. If we are subject to data security breaches, or a security-related incident which materially disrupts the availability of our products and services, we may

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have a loss in sales or subscriptions or be forced to pay damages or incur other costs, including from the implementation of additional security measures, or suffer reputational damage. Moreover, even if there were a public perception that our data protection measures are inadequate, whether or not the case, it could result in reputational damage and potential harm to our business relationships.relationships or the public perception of our business model. In addition, we may be subject to legal claims or proceedings in connection with data security breaches, including regulatory investigations and actions.

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We rely on complex information technology systems and networks to operate our business. Any significant system or network disruption could negatively impact our business.

        We rely on the efficient and uninterrupted operation of complex information technology systems and networks, some of which are within Activision Blizzard and some of which are managed and/or hosted by third-party providers. All information technology systems and networks are potentially vulnerable to damage or interruption from a variety of sources, including but not limited to cyber-attacks,cyber- attacks, malicious software, security breach, energy blackouts, natural disasters, terrorism, war and telecommunication failures. We may also face sophisticated attacks, referred to as advanced persistent threats, which are cyber-attacks aimed at compromising our intellectual property and other commercially-sensitive information, such as the source code and game assets for our software or confidential customer or employee information, which remain undetected for prolonged periods of time. Information technology system or network failure or security breach could negatively impact our business continuity, operations and financial results. These risks extend to the networks and e-commerce sites of console platform providers and other partners who sell and host our content online. We may incur additional costs to remedy the damages caused by these disruptions or security breaches.

If our migration to new information technology systems does not occur as planned, our business could be negatively impacted.

        We plan to implement a number of additional significant upgrades in 2015 and beyond to the information technology systems used to operate our core business functions, including the management of our accounting and other financial data. We may experience problems in implementing these upgrades as our employees learn the new system, transfer data from our existing systems to the new systems and operate with the new systems. The transition may not be completed in a timely manner, or at all, requiring us to revert to the currently existing systems. Further, the upgrades may not be implemented properly or otherwise not function as expected. Any difficulties that we encounter in implementing the new systems may disrupt our ability to effectively operate vis-a-vis our employees, vendors, customers, customers and other persons with whom we have commercial relationships. Any such difficulties may also may prevent us from effectively closing a quarterly period and reporting our financial results in a timely manner or have a negative impact in our internal controls over financial reporting. We may incur additional costs to remedy the damages caused by these disruptions. Further, if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected and we may be unable to maintain compliance with the listing requirements of the NASDAQ Global Market. In addition, we currently rely on a number of older legacy information technology systems that are relatively difficult to maintain.

Our results of operations or reputation may be harmed as a result of offensive consumer-createdconsumer-created content.

        We are subject to risks associated with the collaborative online features in our games which allow consumers to post narrative comment,comments, in real time, that isare visible to other players.consumers. From time to time, objectionable and offensive consumer content may be posted to a gaming or other site with online chat features or game forums which allow consumers to post comments. We may be subject to lawsuits, governmental regulation or restrictions, and consumer backlash (including decreased sales and harmed

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reputation), as a result of consumers posting offensive content. We may also be subject to consumer backlash from comments made in response to postings we make on social media sites such as Facebook, YouTube and Twitter.

If one or more of our titles were found to contain objectionable undisclosed content, our business could suffer.may be negatively impacted.

        Throughout the history of the interactive entertainment industry, many interactive software products have been designed to include certainincluded hidden content andand/or hidden gameplay features, that aresome of which have been accessible through the use of in-game codes or other technological means, that are intended to enhance the gameplay experience. In some cases, such undisclosed content or features have been considered to be objectionable. InWhile publishers are required to disclose pertinent hidden content during the ESRB ratings process, in a few cases, publishers have failed to disclose hidden content, and the ESRB has reacted to discoveries of such undisclosed content and features by requiringrequired the recall of the game, changingchanged the rating or associated content descriptors originally assigned to the product, requiringrequired the publisher to change the game or game packaging and/or imposingimposed fines on the publisher. Retailers have on occasion reacted to the discovery of such undisclosed content by removing these games from their shelves, refusing to sell them and demanding that their publishers accept them as product returns. Likewise, some interactive entertainment software consumers have reacted to the revelation of undisclosed content by refusing to purchase such games, demanding refunds for games they have already purchased, refraining from buying other games published by the company whose game contained the objectionable material, and, on at least one occasion, filing a lawsuit against the publisher of the product containing such content.

        We have implemented preventive measures designed to reduce the possibility of objectionable undisclosed content from appearing in the interactive software products we publish. Nonetheless, these preventive measures are subject to human error, circumvention, overriding and reasonable resource constraints. If an interactive software product we publish is found to contain undisclosed content, we could be subject to any of these consequences.

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We may not be able to adequately adjust our cost structure in a timely fashion in response to a sudden decrease in demand.

        In the event of a significant decline in demand for one or more of our products, we may not be able to reduce personnel or make other changes to our cost structure without disrupting our operations or incurring costs. Further, we may not be able to implement such actions in a timely manner, if at all, to offset an immediate shortfall in revenues and profit. Moreover, cost-reduction actions may decrease our employee morale and result in the failure to execute upon our business plan due to the loss of employees or impact our ability to retain or recruit key employees. In addition, any such action may involve the risk that our senior management's attention will be excessively diverted from our other operations.

We engage in strategic transactions and may encounter difficulties in integrating acquired businesses or otherwise realizing the anticipated benefits of the transactions.

        As part of our business strategy, from time to time, we acquire, make investments in, or enter into strategic alliances and joint ventures with complementary businesses. These transactions may involve significant risks and uncertainties, including: (A) in the case of an acquisition, (i) the difficulty in integrating the acquired business and operations in an efficient and effective manner, (ii) any liabilities assumed as part of the acquisition, and (iii) the potential loss of key employees of the acquired businesses, and, (B) in the case of an investment, alliance or joint venture, our ability to cooperate with our partner. If any such transaction involves an entity outside of the United States, it may also subject us to the risks and uncertainties of international trade, including the risk that our operations outside the United States could be conducted by our employees, contractors, third-party partners, representatives or agents in ways that violate anti-bribery laws. Further, any such transaction may involve the risk that our senior management's attention will be excessively diverted from our other

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operations, the risk that our industry does not evolve as anticipated and that any intellectual property or personnel skills acquired do not prove to be those needed for our future success, and the risk that our strategic objectives, cost savings or other anticipated benefits are otherwise not achieved.

Our involvement in joint ventures and other similar arrangements decreases our ability to manage risk.

        We conduct some of our operations through joint ventures in which we share control with our joint venture partners. Although we enter into joint venture and other similar arrangements in order to share risks with our partners, these arrangements may also decrease our ability to manage risk. As with any joint venture or similar arrangement, differences in views among the participants may result in delayed decisions or in failures to agree on major issues. There is the risk that our partners may at any time have economic, business or legal interests or goals that are inconsistent with ours. There is also risk that our partners may be unable to meet their economic or other obligations and we may be required to fulfill those obligations alone. Failure by us, or an entity in which we have a joint venture or similar interest, to adequately manage the risks associated with any joint ventures or similar arrangements could have a negative impact on our business.

        We may seek to enter into additional joint ventures or similar arrangements with other entities. We cannot assure that we will undertake such ventures or, if undertaken, that such ventures will be successful or produce the anticipated benefits.

Provisions in our corporate documents and Delaware state law could delay or prevent a change of control.

        Our Amended and Restated Bylaws contain a provision regulating the ability of shareholders to bring matters for action before annual and special meetings. The regulations on shareholder action could make it more difficult for any person seeking to acquire control of the Company to obtain shareholder approval of actions that would support this effort. In addition, our Third Amended and Restated Certificate of Incorporation authorizes the issuance of so-called "blank check" preferred stock. This ability of our Board of Directors to issue and fix the rights and preferences of preferred stock could effectively dilute the interests of any person seeking control or otherwise make it more difficult to obtain control.

We have a number of large shareholders who may sell a large volume of our stock, which could cause our stock price to decrease.

        We have a number of large shareholders, including ASAC and Vivendi.ASAC. The sale of a substantial number of shares of common stock by ASAC Vivendi or any other large shareholder within a short period of time could cause our stock price to decrease, and make it more difficult for us to raise funds through future offerings of shares of our common stock.

Catastrophic events may disrupt our business.

        Our corporate headquarters and our primary corporate disaster center are located in the Los Angeles, California area and our disaster recovery data center is in Las Vegas, Nevada, each of which is near a major earthquake fault. A major earthquake or other catastrophic event that results in the destruction or disruption of any of our critical business or information technology systems, or otherwise prevents us from conducting our normal business operations, could require significant expenditures to resume operations and have a material adverse effect on our business, financial condition, results of operations, profitability, cash flows or liquidity.business. While we maintain insurance coverage for some of these events, the potential liabilities associated with such events could exceed the insurance coverage we maintain. Further, our system redundancy may be ineffective or inadequate and our disaster recovery planning may not be sufficient for all eventualities. Any such event could also limit the ability of retailers, distributors or our other customers to sell or distribute our products.

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If general economic conditions decline, demand for our products could decline.

        OurPurchases of our products and services involve discretionary spending on the part of consumers. Consumers are generally more willing to make discretionary purchases, including purchases of products and services like ours, during periods in which favorable economic conditions prevail. As a result, our products are sensitive to general economic conditions and economic cycles. A reduction or shift in domestic or international consumer spending could result in an increase in our selling and promotional expenses, in an effort to offset that reduction, and could have a material adverse effect on our business, financial condition, resultsbusiness.

Table of operations, profitability, cash flows or liquidity.Contents

The uncertainty of worldwide economic conditions makes budgeting and forecasting very difficult.

        We are unable to predict worldwide economic conditions, and all of the effects those conditions may have on our business. In particular, the uncertainty of future worldwide economic conditions subjects our forecasts to heightened risks and uncertainties.

Item 1B.    UNRESOLVED STAFF COMMENTS

        None.

Item 2.    PROPERTIES

        Our principal corporate and administrative offices are located at 3100 Ocean Park Boulevard, Santa Monica, California. Other significant leased facilities include: our Blizzard offices located in Irvine, California and our North America distribution warehouse located in Fresno, California.

        The following is a summary of the principal leased offices we maintained as of December 31, 2014:2015:

        In total, we lease 5864 facilities in the following 17 countries: Australia, Brazil, Canada, China, France, Germany, Ireland, Italy, Mexico, the Netherlands, Singapore, South Korea, Spain, Sweden, Taiwan, the United Kingdom, and the United States. We anticipate no difficulty in extending the leases of our facilities or obtaining comparable facilities in suitable locations, as needed, and we consider our facilities to be adequate for our current needs. The only facilities currently owned by the Company are two European warehouses utilized by the Distribution segment, located in Burglengenfeld, Germany and Venlo, the Netherlands.

Item 3.    LEGAL PROCEEDINGS

        We are subject to various legal proceedings and claims. SEC regulations govern disclosure of legal proceedings in periodic reports and Financial Accounting Standards Board Accounting Standards TopicCodification ("ASC") Topic 450 governs the disclosure of loss contingencies and accrual of loss contingencies in respect of litigation and other claims. We record an accrual for a potential loss when it is probable that a loss will occur and the amount of the loss can be reasonably estimated. When the reasonable

        Overall, we do expect that a limited number of popular franchises will continue to produce a disproportionately high percentage of our, and the industry's, revenues and profits in the near future.

Seasonality

        TheWhile our business is transitioning to a year-round engagement model, the interactive entertainment industry isremains highly seasonal. We have historically experienced our highest sales volume in the year-end holiday buying season, which occurs in the fourth quarter. We defer the recognition of a significant amount of our net revenues, related to our software titles containing online functionality that constitutes a more-than-inconsequential separate service deliverable, over an extended period of time (i.e., typically five months to less than a year). As a result, the quarter in which we generate the highest sales volume may be different than the quarter in which we recognize the highest amount of net revenues. Our results can also vary based on a number of factors including, but not limited to, title release date, consumer demand, market conditions and shipment schedules.

Outlook

        Although we believeFor 2016, our strong product lineupresults will include the operations of King, beginning on February 23, 2016, the date the King Acquisition closed. Our earnings under accounting principles generally accepted in 2015 positions us for long-term growth,the United States of America ("GAAP") are expected to be down versus prior-year, as the expected results will be impacted by additional accounting charges associated with the King Acquisition, which include, among other things, integration and acquisition-related costs, the amortization of intangible assets resulting from purchase price accounting adjustments, and the related tax impact from the King Acquisition. The majority of these GAAP accounting charges will not impact the economics or operating cash flows of our business, although they will have a material impact on our 2016 GAAP results.

        For Activision, we expect our results in 2015 to be lower than in 2014, primarily duedeliver multiple map packs to the significant weakening of foreign currencies versus the U.S. dollar and a higher expected tax rate, as well as, to a lesser extent, product slate differences such as a lighter Blizzard slate, investments in infrastructure and scaling of new properties with the free-to-play business model.

        In January 2015, two of our new free-to-play games were released into beta testing. On January 11, 2015, Activision launched a public open beta forCall of Duty OnlineDuty: Black Ops III, availablealong with additional in-game content, during 2016. For the Destiny franchise, Activision expects to deliver a new expansion in China. On January 13, 2015,2016 with the full-game Destiny sequel to come in 2017. Also in the fourth quarter of 2016, Activision plans to release new Call of Duty and Skylanders games. Blizzard began closed beta testing forplans to releaseOverwatch in the spring of 2016, as well asWorld of Warcraft: Legion™ in the summer of 2016. In addition,Hearthstone: Heroes of Warcraft andHeroes of the Storm its upcoming free-to-play online team brawler featuring iconic heroes from Blizzard games. As with other free-to-play games, we expect these titles to build their audiences and increase engagement and monetization gradually over time.

        In addition, Activision plans to follow-up onwill have ongoing content updates throughout the 2014 release ofyear.Destiny with an expansion pack in the second quarter of 2015 and additional content in the second half of 2015. Also, in the fourth quarter of 2015, Activision plans to release a new Call of Duty game from Treyarch, the developer of the highly successfulCall of Duty: Black Ops series, and a new Skylanders game. Blizzard plans to release additional content for Hearthstone: Heroes of Warcraft, as well as release the game on a wider range of mobile devices later in 2015. Lastly, Blizzard expects to begin beta testing in 2015 for bothOverwatch™, a new multi-player game set in an all-new Blizzard game universe, andStarCraft II: Legacy of the Void™, a standalone game experience that concludes the StarCraft II trilogy.

        As a result of the significant weakening of foreign currencies versus the U.S. dollar, the company's 2015 international revenues and earnings are expected to be translated at much lower rates than in