Well, good day, ladies and gentlemen, and welcome to the Activision Blizzard's Q2 2015 Earnings Conference Call. Today's conference is being recorded. .

I will now turn today's call over to Ms. Amrita Ahuja. Please go ahead. .

Good afternoon. And thank you for joining us today for Activision Blizzard's Second Quarter 2015 Conference Call.

Speaking on the call today will be Bobby Kotick, CEO of Activision Blizzard; Thomas Tippl, COO of Activision Blizzard; Dennis Durkin, CFO of Activision Blizzard; Eric Hirshberg, CEO of Activision Publishing; and Mike Morhaime, CEO of Blizzard Entertainment..

I would like to remind everyone that during this call, we will be making statements that are not historical facts. These are forward-looking statements that are based on current expectations and assumptions that are subject to risks and uncertainties.

A number of important factors could cause the company's actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements, including the factors discussed in the Risk Factors sections of our SEC filings, including our 2014 annual report on Form 10-K, which is on file with the SEC, and those indicated on the slide that is showing..

The forward-looking statements in this presentation are based on information available to the company as of the date of this presentation, and while we believe them to be true, they ultimately may prove to be incorrect.

The company undertakes no obligation to release publicly any revisions to any forward-looking statements to reflect events or circumstances after today, August 4, 2015, or to reflect the occurrence of unanticipated events..

I would like to note that certain numbers we will be presenting today will be made on a non-GAAP basis, excluding the impact of the change in deferred net revenues and related cost of sales with respect to certain of our online-enabled games; expenses related to stock-based compensation; the amortization of intangible assets; expenses including legal fees, costs, expenses and accruals related to the purchase transaction and related debt financing; and the associated tax benefits.

Please refer to our earnings release, which is posted on www.activisionblizzard.com for a full GAAP to non-GAAP reconciliation and further explanation. There's also a PowerPoint overview, which you can access with the webcast and which will be posted to the website following the call.

In addition, we will also be posting a financial overview highlighting both GAAP and non-GAAP results and a one page summary sheet..

And now I'd like to introduce our CEO, Bobby Kotick. .

Thanks very much, Amrita, and thank you, all, for joining us this afternoon. Q2 was another strong quarter and we have a lot of momentum going into the back half of this year. Our teams around the world continue to deliver the very best interactive entertainment and our franchises continue to be among the strongest in all of entertainment. .

On today's call, Thomas will discuss the key drivers of our over performance, Dennis will review our financial results in detail, and then Mike and Eric will discuss the positive results in their respective operating units.

Thomas?.

Thanks, Bobby. Our strategic focus on expanding our franchise portfolio with captivating and original new intellectual property, innovating on new platforms and expanding into new geographies is reflected in our results. We outperformed our Q2 targets and last year's results on revenues, digital growth and earnings per share.

These strong results and the excitement for upcoming launches have driven us to raise our full year outlook yet again..

As we are successfully transitioning from a launch to a year-round engagement model, our audience base and the total amount of time people spend with our franchises continue to grow. In the second quarter, our monthly active users grew by 35% year-over-year.

And in a world with so many entertainment choices, from television to movies to social media and beyond, we are grateful that people are choosing to spend more and more of their time with us..

In the second quarter, the amount of time our communities spent playing Activision Blizzard games grew by 25% year-over-year.

In fact, this past quarter, our player communities logged nearly 3.5 billion hours of gameplay with our key franchises Heroes of the Storm, Hearthstone, World of Warcraft, Diablo, StarCraft, Skylanders, Destiny and Call of Duty.

And these numbers do not even include the rapidly increasing amount of time spectators spend watching content based on our games on channels like Twitch and YouTube. .

Our strategic investments in new franchises, platforms and geographies continue to pay off. And along with growing engagement and better monetization, sets the stage for more growth ahead. We are well underway to expanding our franchise portfolio from 5 to over 10, with 4 new intellectual properties already launched and performing well.

In addition, the beloved Guitar Hero franchise will return this fall with product innovation that we couldn't be more excited about. And Overwatch is on the horizon, with the beta this fall..

With an increasing focus on mobile and tablet, Hearthstone's release on iOS and Android smartphones in April multiplayer base has been a key driver for outperformance in Q2 and should benefit us for the foreseeable future. Guitar Hero Live's phone release will also include mobile and tablet at launch.

And we are redoubling our efforts to provide a great mobile experience for our Skylanders franchise in addition to making the full game available on tablets. Finally, we're positioned for growth in new geographies and, in particular, in large and fast-growing China.

We now have 6 franchises in market in China, up from 2 at the start of last year, and we're already seeing strong results, with our teams and partners in China delivering record revenues and MAUs in Q2..

Before I hand it over to Dennis, I want to thank our talented teams who continue to execute very well. Our employees are extraordinarily committed and they create the most engaging entertainment experiences for our players. And it shows in our results, which Dennis is now going to take you through in detail. .

Thanks, Thomas. Good afternoon, everyone. Today, I will review our better than expected Q2 financial results, our outlook for Q3 and our increased outlook for 2015. Unless otherwise indicated, I will be referencing non-GAAP measures, so please refer to our earnings release for full non-GAAP to GAAP reconciliations..

For the quarter, on a GAAP basis, we generated revenues of $1.04 billion, up 8% year-over-year; an operating margin of 32%; and GAAP EPS of $0.29, up $0.08 versus our May guidance. For the quarter, on a non-GAAP basis, we generated revenues of $759 million; an operating margin of 23%, up more than 550 basis points year-over-year; and EPS of $0.13.

We outperformed last year's revenue and EPS by $101 million and $0.07, respectively. At constant FX for Q2, we outperformed last year's revenue by $188 million or 29%, operating income by $116 million or 103% and EPS by $0.13. In addition, we outperformed our May guidance by $109 million on revenue and $0.06 on EPS.

Revenue and EPS outperformance was primarily due to strong growth in recurring revenue from digital content across our broad franchise portfolio. Importantly, total digital revenues grew 27% year-over-year to a Q2 record of $611 million..

Hearthstone, with the launch of their newest adventure, Blackrock Mountain, as well as the release of Hearthstone onto new Android and iOS smartphones; Destiny, with the launch of their second expansion, House of Wolves; Call of Duty, with sales of Season Pass, DLC and microtransactions like Supply Drops for Advanced Warfare; Blizzard's Diablo III, which launched and outperformed in China, helping drive record revenues in the -- in China for the company this quarter; and finally, Blizzard launched Heroes of the Storm globally on June 2..

Note that this quarter was an important inflection point for Blizzard. In spite of World of Warcraft subscriber declines, which were more concentrated in the East and partly affected by the success of Diablo III in China, Blizzard grew its Q2 revenues 29% year-over-year at constant FX.

This performance was driven by the strong performances of Diablo, Hearthstone and Heroes of the Storm, which, in Q2, made up the majority of Blizzard revenues. The franchise diversification inside Blizzard is happening rapidly.

And even more importantly, the aggregate Blizzard community is healthy and growing and, in Q2, reached the highest levels in Blizzard history on the back of strong engagement across the expanded portfolio. And the community will have even more to enjoy with an incredible lineup of new content for these franchises that is yet to come.

You will hear more details from Mike on Blizzard's engagement and pipeline later in the call..

In terms of EBITDA and cash flow, in Q2, we generated strong non-GAAP adjusted EBITDA of $193 million, up $47 million year-over-year; operating cash flow of $135 million and up 27% year-over-year; and free cash flow of $107 million, up 32% year-over-year.

In Q2, we also paid our previously announced $0.20 -- $0.23 per share cash dividend, a 15% increase year-over-year and had no share repurchases in the quarter..

Turning to the balance sheet. As of June 30, we had approximately $4.5 billion in cash and investments, of which approximately $800 million was held domestically. We had total debt of $4.12 billion and net cash of approximately $400 billion -- $400 million..

Turning to FX. Please note, as discussed on our February and May calls, the strong dollar has had and will continue to be a headwind this year as our international revenues are translated at lower rates than last year. In Q2, the year-over-year impact of the strengthening of the dollar was $87 million on revenue and $0.06 on EPS.

Year-to-date, the year-over-year FX impact was $154 million on revenue and $0.11 on EPS..

Legacy of the Void is expected to be released in 2015 and will now be included in our guidance for the full year..

Looking forward to Q3, on a GAAP basis, we expect net revenues of $875 million, product costs of 26% and operating expenses of 59%. We expect GAAP and non-GAAP interest expense of $51 million, a GAAP tax rate of 23%, a GAAP and non-GAAP share count of 748 million and EPS of $0.08.

For Q3, on a non-GAAP basis, we expect revenues of $930 million, product costs of 25% and operating expenses of 55%. We expect a non-GAAP tax rate of approximately 25% and non-GAAP EPS of $0.14. Note that our guidance is at FX spot rates as laid out in the accompanying slides on our IR website. .

Now to our 2015 full year numbers. For 2015, on a GAAP basis, we expect revenues of $4.425 billion, product costs of 24%, operating expenses of 48% and GAAP interest income expense of $202 million. Our GAAP tax rate is expected to be 22%. We expect 750 million fully diluted shares, both for GAAP and non-GAAP.

And GAAP EPS is expected to be $1.06, up $0.08 from our May guidance. .

Legacy of the Void in our full year numbers. At constant FX, we now project year-over-year growth on the top line and bottom line, including record EPS for the year..

In summary, strong engagement and recurring digital monetization trends are driving our financial results so far this year and give us great momentum heading into the back half of the year. Along with these digital trends, our strategic investments in new franchises, platforms and geographies are paying off.

This backdrop sets the stage for growth as we take advantage of the best content pipeline in our history..

Now I will turn the call over to Eric to discuss Activision Publishing. .

Thanks, Dennis. Activision Publishing significantly outperformed last year's result and delivered meaningfully higher digital revenues and operating income for the quarter and the first half of the year. Our Q2 and year-to-date revenues were each up 35% at a constant FX rate.

We also continue to have 2 of the top 5 console franchises year-to-date in Skylanders and Call of Duty, and 3 of the top 5 next-gen games life-to-date, including the #1 slot..

This revenue performance is due to our proven ability to create great games that turn into beloved long-term franchises. In recent years, we have methodically and effectively expanded our portfolio to now include 3 innovative and industry-leading franchises, each of which gamers enjoy playing year-round.

As a result, our monthly active users are up by more than 25% in Q2 year-over-year and each of these franchises contributed significantly to our over performance year-to-date..

Let me share some specifics by franchise, starting with Call of Duty. In Q2, revenue was up by a double-digit percentage year-over-year due to strong sell-through on Advanced Warfare, strong momentum in digital monetization as well as strong sell-through on catalog titles.

I want to highlight Advanced Warfare's strong season of digital content in particular. Season Pass, DLC, microtransactions and average revenue per user have all grown year-over-year. As we said on our last call, we introduced a new digital consumable mechanic called Supply Drops to which players have responded very positively.

We maintained our already high engagement levels, while monetization of that engagement significantly grew. We believe this approach will allow our average revenue per user to continue to grow in future years, driving higher margins as more revenue is delivered digitally..

Black Ops III, the November release from our award-winning studio, Treyarch. In June, we provided the public with hands-on multiplayer E3 for the first time in Call of Duty's history, and the response was overwhelmingly positive.

In fact, since E3, the number of Black Ops II monthly active users has risen to over 11 million players, which is unprecedented in a game that's merely 3 years old, and particularly one that is only available on old generation systems.

We're also attracting new consumers into the Black Ops universe, with catalog sales of both Black Ops I and Black Ops II up significantly in North America for the first half of the year..

Campaign, Multiplayer and Zombies inside one game. Each mode has its own sticky progression system and we will offer a full season of follow-on content to keep players engaged.

We couldn't get more excited for Call of Duty fans to experience Black Ops III Multiplayer and that's why, for anyone who preorders, we're holding our first public beta in years starting in August. We can't wait for fans to play the game and provide feedback to help us make it even better at launch in November.

We're also planning our most robust and expansive season of eSports for Call of Duty ever and we'll have more details on that in the future. .

Onto Call of Duty Online, which is in open beta in China. As I've said before, this game will take -- that it will take time to ramp, and early signs on core player engagement are encouraging. In the last week of July, we launched a significant content and feature update, and Tencent kicked off a marketing campaign to support new player acquisition.

While it's too early to know, initial engagement trends after the update are positive, and we'll have more to share in future quarters..

Turning now to Destiny. In May, we, along with our partners at Bungie, released the highly-acclaimed second expansion pack, House of Wolves. The percentage of Destiny players who have bought both expansion packs is the highest we have ever seen for any Activision Publishing game.

Moreover, engagement of the game's millions of active users actually increased after we released House of Wolves, which is impressive for a game 10 months after its launch. Destiny now has over 20 million registered players, with an average of about 100 hours of gameplay each, showing great momentum as we head into our fall release..

On September 15 comes the largest update to Destiny -- to the Destiny universe yet, a mega-expansion called The Taken King. We revealed The Taken King at E3, highlighting the all-new campaign, subclasses and brand new destination, and gamer reception was incredible.

For those who already own Destiny and both expansion packs, they could buy The Taken King for a suggested retail price of $40.

For those who are new to the Destiny universe, we'll offer the Legendary Edition, which includes the original Destiny game, both expansion packs thus far, and all of the content in The Taken King for a suggested retail price of just $60. This, obviously, provides new players with a great value.

But it's also the right thing to do for our community as it will help us keep as many players as possible playing together in the same universe of content..

We have delivered and will continue to deliver the best games with the biggest innovations. Games are at the heart of what we do, and games are also at the heart of this genre since compelling gameplay is the way to drive toy sales. .

This year's fall release, Skylanders SuperChargers, which we plan to launch on September 20 in North America and September 25 in Europe, will bring both action figures and vehicles to life for the first time, allowing our fans to drive, fly and captain their way across land, air and sea.

This innovation increases the size of the pie, which will now include both action figures, where consumers spend about $2.5 billion each year; and vehicle toys, where consumers spend about $3.3 billion each year in North America and Europe alone.

Our proven ability to create great games in this space is what led to our unprecedented partnership with Nintendo to bring Donkey Kong and Bowser into Skylanders SuperChargers. As we had last year, the full game will be available on tablet, one of the world's fastest-growing gaming platforms.

We're also in development on a new mobile initiative for the Skylanders franchise and look forward to telling you more about it next week..

GH Live, which lets fans rock real crowds with real reactions, making you feel more like a rock star than ever before; and GHTV, which is the world's first playable music video network, with hundreds of songs and a continuous stream of new content to keep our players engaged.

At E3, we gave the media a chance to play GHTV for the first time, and the response could not have been better. Our partners are equally excited and retailers are allocating shelf space to us at multiples to what they are allocating to our competitors.

And we'll have more music and promotional partnerships to announce as we get closer to launch, which we plan for October 20..

The Taken King, Skylanders SuperChargers and Guitar Hero Live. We look forward to sharing more details with you at Gamescom later this week. .

Now I'll turn over the call to Mike to talk about Blizzard. .

Thank you, Eric. Blizzard had another strong quarter in Q2, with multiple releases and more activity on more platforms than in any previous quarter. This new content lead to incredible engagement across our player base.

Monthly active users, the number of players who log in to a game each month in the quarter from across the entire portfolio, is a good indicator of the health of a Blizzard community. In Q2, the average MAU across Blizzard games was up more than 50% year-over-year, achieving its highest level ever.

Moreover, Battle.net ended the quarter at an all-time high for active accounts, again up double-digits percentage-wise year-over-year. These important metrics reflect the strength of our portfolio, with many more people around the world playing more Blizzard games than ever before..

On the World of Warcraft front, in late June, we launched one of our biggest, non-expansion content updates ever, Patch 6.2, Fury of Hellfire. It added a new zone for players to explore, a new raid and much more. This helped stabilize the subscriber base in the last part of the quarter.

We're currently at work on a much-anticipated update for the game that will bring flying to Draenor, add a new player versus player matchmaking feature and more. In addition, we're going to have exciting news at Gamescom this week. We'll be announcing the next expansion for World of Warcraft.

We have been listening closely to our players about their experience with Warlords of Draenor, and we think they'll be really excited when they hear our plans. You can tune in to the announcement through the Battle.net desktop app or the World of Warcraft website..

Hearthstone had a very good quarter, with multiple releases in quick succession. We launched the Blackrock Mountain adventure at the beginning of the quarter, followed by the release of Hearthstone on mobile phones. We also added a popular new game mode called Tavern Brawl, which gives players a different way to play each week.

For example, playing as a legendary monster from the game, complete with a customized deck. As a result of the new platform and all the new content, engagement for Hearthstone, which was already very strong, nearly doubled year-over-year in terms of active players and time spent.

The game continues to perform well in all major regions and remains a top viewed title on Twitch. .

We recently announced our new card expansion, The Grand Tournament. Like our first expansion, Goblins vs Gnomes, The Grand Tournament will add new game mechanics and a ton of new cards that will have an impact on how Hearthstone is played, which ultimately supports longer-term engagement.

The Grand Tournament is due out this month and we're already seeing a lot of excitement about it from the community..

In addition, like other Blizzard games, Hearthstone has developed into a premier fixture in the competitive gaming scene; that includes our formal tournaments as well as community-driven events. A big example of the latter are Fireside Gatherings where members of the community host local Hearthstone get-togethers.

This year alone, the community has already held more than 1,300 Fireside Gatherings globally. Many of these offer participants a chance to secure a spot in the Hearthstone World Championship competition culminating at BlizzCon.

We look forward to seeing which of these players rise up and make a name for themselves and how they fare against the established pro players who have advanced to our official tournament..

Heroes of the Storm also had an exciting quarter, with the team making solid progress in driving engagement. Following the June 2 game launch, the critical reception has been enthusiastic, with many outlets giving Heroes of the Storm high marks for its innovations, accessibility and depth.

We have also seen consistently positive commentary from players, and that's only increased as more try the game. .

One of the strengths of Heroes of the Storm is the fact that it draws on content from all of our franchises, giving our players familiar touch points in the game regardless of their familiarity with the genre.

At the end of June, we started a series of updates that brought popular characters from Diablo such as The Butcher and King Leoric, and a new Diablo-themed battleground, the Battlefield of Eternity, to the game. Players have really enjoyed this event, which we're calling The Eternal Conflict, and it's still going on so there's more to come. .

We plan to continue a rapid cadence of Heroes of the Storm updates for the foreseeable future. This will constantly give players new character and strategy options, which will support the game's long-term appeal. Heroes of the Storm eSports is another avenue for engagement and growth of our audience.

We kicked off the collegiate scene in April with Heroes of the Dorm, a March Madness style tournament, which culminated in a live finals event on ESPN2 and resulted in a lot of excitement across the Blizzard community.

On the professional side, the game has been added to our Road to BlizzCon program and major tournaments are already underway globally. With a total prize pool of $1.2 million in cash and prizes and an opportunity to be crowned world champion at BlizzCon, the stakes are high and the competition has already been amazing..

Q2 was also a very good quarter for Diablo III. We launched the game with a free model in China, while offering 2 premium versions at $32 and $64. Despite the availability of the free option, the premium versions achieved record sell-through in China out of the gate, and it's continuing to perform well there.

The take up of Diablo III in China played a large part in driving Blizzard's record MAU globally, as well as in China specifically, for the quarter. In fact, Blizzard's total revenue in China this quarter reached a record high, driven in large part by the success of Diablo III there as well as Hearthstone and Heroes of the Storm..

I'm pleased to report that Diablo III as a whole has now sold through over 30 million copies globally. Players around the world are looking forward to upcoming -- the upcoming content patch, which will add the Ruins of the Barbarian City of Sescheron for them to explore.

It also adds a powerful item called Kanai's Cube, which provides endless options for transmuting and upgrading their items. Blizzard gamers have always expected an outstanding level of entertainment from our games and constant updates such as this reflects our commitment to that standard..

Moving on StarCraft II. The Legacy of the Void beta test continues to go well and we're excited to get the game into players' hands later this year.

We recently started offering prepurchases and, as part of that, we're providing beta access along with advanced access to a set of campaign missions titled “Whispers of Oblivion” to anyone who prepurchases the game.

We have seen a lot of anticipation for this final chapter of the trilogy and even higher demand at this point in presales compared to Heart of the Swarm. The "Whispers of Oblivion" content, plus the multiplayer changes, have been received very positively.

This is gratifying because we're working hard to deliver a worthy finale to an epic story that's now been over 17 years in the making. .

One of the reasons we feel we can continue to expand our StarCraft II audience is that players no longer need to have the previous entries in the series in order to play Heart of the Swarm or Legacy of the Void.

This provides a great opportunity for players who might have missed one of the chapters in the trilogy to come back and jump right in to the latest content. We're also excited to bring StarCraft II multiplayer into a whole new era, with new play modes and other changes that increase accessibility.

One of the new modes, Archon mode, allows 2 players to team up and share control of an army, making the game even more fun to play with a friend. We have seen a very enthusiastic response to this mode as well as a lot of anticipation about our other new co-op mode, Allied Commanders, which we will be providing more detail about at Gamescom..

Looking back at the amount of content we delivered this quarter and the player response, we're really pleased with the performance and engagement overall. For the second half of the year, we're driving towards the milestones I mentioned in addition to the global beta test for Overwatch.

We're particularly excited to carry the momentum from the first half of the year forward to BlizzCon in November, where we will have more to share with our community.

One of the biggest attractions there will be the culmination of this year's Road to BlizzCon eSports tournament, with the global champions for World of Warcraft, StarCraft II, Hearthstone and Heroes of the Storm being crowned. This will be the most Blizzard eSports competitions ever contained under one roof.

And we're really excited to see which of the world's top players make it to the main event and walk away with the grand prizes..

The global Blizzard community is now as big and as vibrant as it's ever been, and we're thrilled to be able to serve players across a wider range of genres and platforms than ever before. Looking across our entire portfolio and all the upcoming content in our pipeline, it's a great time to be a Blizzard gamer..

Thank you. And I'll turn the call back to Amrita. .

Thanks, Mike. Operator, we'll now take a few questions. .

[Operator Instructions] And we'll hear first from Drew Crum with Stifel. .

Okay.

So on Hearthstone, can you guys discuss the revenue mix you're seeing for the game and what you've observed in terms of monetization on smartphones, and whether or not that's led to any cannibalization against PC revenue?.

So we don't provide per platform breakouts, but the launch on phones and the new content that we've recently released combined have led to a step change in Hearthstone's results. We're very pleased to see substantial growth across the board.

We saw almost double the amount of active players and time spent year-over-year and an increase of more than 50% quarter-over-quarter. Revenue on the new platforms appears to be incremental to PC. .

And we'll now hear from Chris Merwin, Barclays. .

So I just had a question about eSports. I know this has been an area of focus for you most recently with some of the new free-to-play titles like Heroes of the Storm, which, Mike, I think you mentioned in your prepared remarks.

So could you please just talk about how eSports have helped in terms of driving player engagement and maybe what types of opportunities you see there over time?.

Yes, that's a great question. We've said over the last few years that we see competitive gaming as great -- greatest opportunity for the company and, obviously, a great way to celebrate our players.

The franchises like Hearthstone and Heroes of the Storm and Call of Duty and then future franchises like Overwatch are going to be among the most important of all eSports franchises. From our perspective, if you look at just spectating hours on our franchises over the last 12 months, spectator hours have jumped to roughly 1.5 billion hours.

And we expect that we're really in the first inning of eSports opportunities. So this is an area of great focus and attention and investment across the company. And we expect that we'll continue to lead in eSports as we have since the beginning of eSports initiatives. .

And our next question will come from Mike Olson with Piper Jaffray. .

All right. So Activision pioneered the toys-to-life genre, but since then the space has become a bit more crowded with competitors, particularly with bigger brand IP, Disney, Star Wars, Marvel, et cetera, now LEGOs.

Just curious about how you're thinking about Skylanders and how it could compete over the next couple years and beyond to maintain the lead?.

Sure. I understand the question. It's inarguable that the category has become much more crowded since we invented it a few years ago.

But to be fair, we've been being asked some form of this question, how can you hold on to your lead versus competitors that have much better established characters from other mediums since the -- before the launch of the first Disney game. We're now several games past that and we've managed to retain our sizeable lead at every step of the way.

We've already shown, I think, that established characters from other mediums are not the shortcut to leading this category.

We believe we will continue to lead the category because we make the best games in the category, we've consistently delivered the best innovations in the category, and our characters are built for interactive entertainment and our creators have no constraints surrounding what those characters can and can't do in a video game, and we believe that's a key competitive advantage as well.

On the category itself, we think that the toys-to-life genre will continue to grow and, more broadly, that the idea of physical toys that have digital lives is definitely here to stay. Also thus far, we've only brought one form of toys-to-life with action figures.

As I mentioned with SuperChargers, we're bringing vehicles to life as well and vehicle toys are an even bigger category than action figures are, so we're actually expanding the pie and the audience further. So we think the category is going to continue to grow.

And we're confident that we, uniquely, have the right strategy and capabilities to continue to lead it. .

Moving on to Justin Post with Merrill Lynch. .

I'd like to talk a little about World of Warcraft.

Can you talk more about the kind of subscribers by geography? What's going on in the Western markets? Any metrics you can share on players or player hours with that? And I guess, you're going to have a expansion pack, but what's your kind of outlook for that franchise? Can you get expansion packs to kind of not ebb and flow or kind of sustain the subscriber levels at -- going forward?.

So we don't disclose that level of detail on subscriber engagement. But, I mean, as with all of our franchises, we think great content is what draws players in, keeps them engaged and brings them back. That's why we have been continuing to invest in growing the World of Warcraft development team.

We have now more developers working on World of Warcraft than ever before, and that's so we can continue to release high quality content for our community and, hopefully, increase the pace at which we're releasing that. The upcoming expansion announcement, I think is a great example, which we're planning to announce later this week at Gamescom.

Looking back at Warlords of Draenor, we were able to bring back more players than any previous expansion, taking the game back over 10 million subscribers, so we definitely believe that there's potential to reengage lapsed layers with good new content. We also think that the Warcraft movie is a key inflection point. It's coming out next June.

It's a chance to expose the Warcraft franchise's rich lore to new audiences and, hopefully, increase interest in World of Warcraft overall. .

Cowen and Company's Doug Creutz has the next question. .

I was wondering if you could talk a little bit about what you're seeing in terms of preorder interest for Call of Duty?.

Sure. First, I want to reiterate what we've said a couple times now in the past, which is that as the world moves more to digital, obviously, preorders become really just one of the many metrics that we look at to determine momentum.

So with that as a backdrop, I'll tell you that year-to-date, we're, in fact, significantly up on preorders with Black Ops III. And we expect Call of Duty to lead the industry in preorders again. But more important to us than that is the wide range of other metrics that we use to look at.

And from trailer views, to positive sentiment, to social media engagements, to unaided title awareness, to purchase intent, these metrics are all also up year-on-year as well. Also, as I said, we now have over 11 million monthly active users playing Black Ops II, which is unprecedented 3 years past the release date as one of our titles.

And it shows, I think, a lot of momentum, a lot of hunger for -- as we head into the launch of Black Ops III. So we're optimistic. .

And we'll now hear from Brian Pitz with Jefferies. .

For Guitar Hero Live, in terms of sales expectations, is there any perspective you could provide for how we should think about this title? And looking at it from a profitability standpoint, how would you expect the game to compare to the overall corporate margin profile?.

Sure, Brian. As I think you know, we don't provide a specific forecast franchise by franchise, but I'll still try to answer the spirit of your question. We know we have a great game that has meaningful innovations, and everyone who has put their hands on it, including both critics and fans, loves it.

Guitar Hero Live makes you feel more like a rock star than ever before, which is a big marketable innovation. But equally important is Guitar Hero TV, which gives us a real long-term engagement strategy on this franchise for the first time.

We've learned a lot of lessons here from games like Call of Duty and Destiny, which are that fans appreciate a constant stream of new content, the ability to compete with their friends online and for the game to constantly reward them for their engagement. So we've designed GHTV with all that in mind.

So it's really about more than just how many units we sell, it's all about us driving that long-term engagement and you know how powerful that can be for our business when we achieve that. And also, we're expanding the addressable audience by making the game available on mobile.

And we've made a significant investment in both the product development to make sure we have a great game and we're making a significant investment in the marketing to make sure that we have a great launch. So those should be 2 good indicators for you. We believe that this can be a significant contributor to our business in the coming years. .

We're moving on to Eric Handler with MKM Partners. .

So I recognize while still early in the launch, I was hoping you could discuss where you are with the players and, more specifically, the paying players for Heroes of the Storm? Also are there any regions of the world where player engagement is more significant than others? And maybe you could draw any similarities, if possible, to what you saw in the early days of the release of Hearthstone?.

Okay. It's tough to draw any meaningful comparison to Hearthstone just because the pricing model and gameplay are so different. I think I would say that looking at the game's reception and performance globally, we're very happy with the reaction and reception around the world.

We did just launch the game in June, so you're right, it is still very early. I think if you look at other games in the genre, they all had more gradual growth of their player base, so that is what we would expect to see with Heroes of the Storm. We think that in this genre, eSports is a big driver.

And we've already started with our major eSports initiatives underway with our Road to BlizzCon, and so we would expect that eSports will continue to be a driver for us in terms of engagement and growth of the game. So right out the gate, we're very pleased with the positive reception from players and press.

We're going to continue evolving the game, adding content on a frequent cadence. And we think we're well on the way towards Heroes becoming another key pillar in the portfolio. .

And ladies and gentlemen, we have time for one additional question from Colin Sebastian with Robert Baird. .

Eric, on Destiny, you mentioned engagement being very high with the game and preorders for the expansion seem to be quite strong as well.

Can you help us by putting into perspective how large this expansion could be relative to a typical game's expansion pack, and if you could compare the amount of content that comes with The Taken King versus other packs?.

Sure, Colin. It's hard to compare to other games' expansion packs because Destiny is such an unusual game. But the short answer is, compared to our own past expansion packs, it's significantly bigger than the other expansion packs we've had, but still smaller than an entirely new game. We're calling it a mega-expansion for a reason.

But that's just The Taken King. And I want to emphasize that equally significant to our plans for Q4 are -- is the Legendary Edition, which includes the original game, both the expansion packs thus far and The Taken King, and it's just $60. So this probably represents the most gameplay you can get for $60 anywhere in the industry this holiday.

And we're doing that very deliberately because -- both because we want to bring in new fans and it's a great value for them, but it's also the right thing to do for the community because it's a shared world game and we want to keep the largest number of players possible playing together with the same content.

So both strategies are equally important to our launch this Q4. .

Okay. And then, maybe just a quick follow-up. Obviously, a nice bead on the digital revenue side.

Can you talk a little bit more about trends in the digital side of the business? And how we should expect that to track over the remainder of the year?.

Sure, thanks, Colin. Yes, obviously, digital was a great -- we had great momentum on digital in the first half of the year. And we expect -- obviously, we look forward for the first time that more than 50% of the company sales will come through digital channels this year, which is an important milestone.

And obviously, with a great digital growth of 27% in Q2, we're well on our way to achieving that. There's a couple of buckets in terms of that, that are really important. The first is, obviously, full game downloads, where on the Blizzard side of the business, we already see most of the majority of that volume being digital.

Now we're starting to see on the console side more of our AAA share moving digitally. We've seen high teens in the past, and that can sometimes spike in weeks depending upon how deep a title is in its catalog lifespan. So that's growing very, very nicely and we expect that to continue to grow this holiday.

But another important area for us, in that you really see reflected in our results so far this year is digital add-on content sales. So think of that as content and services that we sell to our players once they're already playing one of our games.

And these are things like advanced Supply Drops or map packs in Call of Duty, or card packs in -- or Arena Tokens in Hearthstone, or paid character boosts in World of Warcraft's -- in World of Warcraft. And our teams are getting more and more creative about finding ways to use these tools to drive further engagement.

And this is actually the largest and fastest-growing segment of our digital business, which had sales in this area growing at over 56% year-over-year or 73% at constant currency, so very, very strong momentum there.

And we think that these add-on content sales are super important because they provide not only opportunities for ARPU expansion and nice margins, but can expand and deepen gameplay and engagement with our player base. So overall, strong trends and momentum for this in -- heading into the back half of the year. .

Turn it back to the speakers for closing or additional remarks. .

Thank you very much, everyone, for joining the call. .

Thank you. .

And again, ladies and gentlemen, that does conclude our conference for today. We thank you, all, for your participation..