Amrita Ahuja - Activision Blizzard, Inc. Robert A. Kotick - Activision Blizzard, Inc. Thomas Tippl - Activision Blizzard, Inc. Dennis M. Durkin - Activision Blizzard, Inc. Eric Hirshberg - Activision Blizzard, Inc. Michael Morhaime - Activision Blizzard, Inc. Riccardo Zacconi - King Digital Entertainment Plc

Timothy L. O'Shea - Jefferies LLC Drew Crum - Stifel, Nicolaus & Co., Inc. Mike J. Olson - Piper Jaffray & Co. Brian Nowak - Morgan Stanley & Co. LLC Doug Creutz - Cowen and Company, LLC Christopher Merwin - Barclays Capital, Inc. Eric J. Sheridan - UBS Securities LLC Colin Alan Sebastian - Robert W. Baird & Co., Inc. Eric O. Handler - MKM Partners LLC

Good day, and welcome to the Activision Blizzard's Q4 2016 Earnings Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Amrita Ahuja, Senior Vice President of Investor Relations. Please go ahead. Amrita Ahuja - Activision Blizzard, Inc.: Good afternoon. And thank you for joining us today for Activision Blizzard's fourth quarter 2016 conference call. With us are Bobby Kotick, CEO; Thomas Tippl, COO; Dennis Durkin, CFO. And for Q&A, Mike Morhaime, CEO of Blizzard; Eric Hirshberg, CEO of Activision; and Riccardo Zacconi, CEO of King will also join us. I would like to remind everyone that during this call, we will be making statements that are not historical facts. 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. 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 section of our SEC filings, including our 2015 Annual Report on Form 10-K, which is on file with the SEC, and those indicated on the slide that is showing. The company undertakes no obligation to release publicly any revisions to any forward looking statements to reflect events or circumstances after today, February 9, 2017. We will present both GAAP and non-GAAP financial measures during the call. However, as discussed on our July 29 conference call, due to updated compliance and disclosure interpretations issued by the SEC staff on May 2016, we are no longer able to present non-GAAP financial measures excluding the impact of (1:46). On this call and in the future, we will continue to provide non-GAAP financial measures, which exclude the impact of expenses related to stock-based compensation, the amortization of, intangible assets, expenses including legal fees, costs, expenses and accruals related to acquisitions, including the acquisition of King Digital Entertainment, expenses related to debt financings and refinancings, restructuring charges and the associated tax benefits. These non-GAAP measures are not intended to be considered in isolation from, as a substitute for, or superior to our GAAP results. We encourage investors to consider all measures before making an investment decision. Please refer to our earnings release which is posted on www.activisionblizzard.com for a full GAAP to non-GAAP reconciliation and further explanation with respect to our non-GAAP measures. There's also a PowerPoint overview, which you can access through webcast and which will be posted to the website following the call. In addition, we will be posting a financial overview highlighting both GAAP and non-GAAP results in a one-page summary. And now, I'd like to introduce our CEO, Bobby Kotick. Robert A. Kotick - Activision Blizzard, Inc.: Thank you, Amrita, and thank you all for joining us today. Our performance in 2016 further strengthened our position as the world's leading stand-alone interactive entertainment company. We achieved record results in 2016, delivering all-time high revenues of $6.6 billion, and record non-GAAP EPS of $2.18, up 42% and 68% respectively over last year. We also delivered record non-GAAP operating margins of 35%. We over-performed our plan for the quarter delivering record revenues of $2 billion and record non-GAAP earnings per share of $0.65, up 49%, and 160% respectively over last year. We also delivered our strongest annual operating cash flow in history at $2.2 billion, up 71% over last year. Our success continues to be driven by our two greatest assets: our incredibly talented people, and the devoted community of gamers we serve. We have roughly 450 million players in 196 countries, and they spent over 40 billion hours playing our games in 2016, and they watched a record 3 billion hours as spectators of our games. We continued to see opportunities to expand audiences, deepen engagement and increased player investment. In fact, prioritization of opportunity remains our greatest challenge. But we remain vigilant in ensuring that the right resources are connected with the right priorities. We had number of important successes in 2016 that we'd like to acknowledge. Blizzard's new franchise, Overwatch, has captured the imaginations of players all over the world, and we've only scratched the surface. The truly extraordinary Overwatch team launched the most successful new intellectual property in our company's history. We now have over 25 million registered players and engagement has continued to grow. The King team was very focused on continuously releasing fresh content with new levels and features as well as increasing live operations efforts with events and competitions. As a result, mobile bookings for the Candy Crush franchise grew in 2016. King also made meaningful progress with its advertising initiatives. Last year's advertising tests had two primary goals: to design and build an outstanding ad platform that would actually enhance our users' in-game experience, and to deliver significant value to advertisers. We're encouraged with the early results. In most tests, our users play more game rounds, spend more time in the game, and have a self reported better game experience with advertising. Additionally, our platform delivers meaningful value to advertisers. We've partnered with some of the world's top advertisers, including Nestle, Fox Entertainment and Visa, and our viewability, verifiability and completion metrics are all encouraging. Ads are perceived as more unique and interesting when shown on King inventory, and viewers are more likely to take action after seeing an ad in King games. The King team will continue to build on their efforts this year, and we believe advertising has the potential to be a growth driver in the years to come. We also nurtured emerging growth opportunities outside of our games, including e-sports, television and film, and consumer products, and we enhanced the organizations that will support these initiatives. These new opportunities are consistent with and organic to our company's missions, and they have the potential to become important standalone businesses in pursuit of our goal to become the leading 21st century entertainment company. We accelerated our e-sports efforts with the integration of Major League Gaming, the formation of the Call of Duty World League, and the announcement of the Overwatch League. Our ambition is to create nothing less than the e-sports equivalent of the world's established major professional leagues. To this end, in 2017, we plan to start the process of selling teams and commercializing media rights for the Overwatch League. We look forward to welcoming team owners with the expertise, skills and investment required to build the professional league together. We plan to invest in these long-term growth pillars further in 2017 and expect them to have even greater impact in 2018 and beyond. I couldn't be more excited about our prospects for the future, and our team's dedication and enthusiasm reinforces my confidence that we will continue to achieve our ambitious plans. Thomas and Dennis will now share with you the results of our record quarter and our record year. Thomas Tippl - Activision Blizzard, Inc.: Thank you, Bobby. Due to our portfolio strength and digital momentum, we far exceeded our plans in 2016. We surpassed our initial revenue guidance by $0.5 billion and our initial non-GAAP EPS guidance by more than $0.40. And we also outperformed expectations for the holiday quarter. In driving our record-setting year, and as we look ahead, we remain focused on our three strategic pillars: first, expanding our audiences; second, deepening engagement; and third, providing opportunities for more player investment. Let's start with audience reach, which was 447 million monthly active users this quarter. Blizzard had record Q4 MAUs of 41 million. And for the year, Blizzard had its highest annual MAUs ever, up 37% from 2015, and up 87% since 2014. This is a remarkable achievement, demonstrating the strength of the Blizzard portfolio and capabilities. Overwatch, released in May, set the record for the strongest launch year financial performance of any game in Blizzard's 26-year history. The game is critically acclaimed, receiving 55 game of the year awards and reached 25 million registered players faster than any franchise in Blizzard history, beating Diablo III's launch year unit sales record set in 2012, which for a new IP is an extraordinary accomplishment. In Q4, MAUs rose to a new franchise high, as existing players stayed engaged and new players joined the fun. Showcasing its continued global appeal, Overwatch has players all over the world, including great success in Korea and China. It's always difficult for Western companies to succeed there, and Overwatch's popularity is testament to Blizzard's unique ability to create globally appealing games. World of Warcraft's Legion expansion, which launched in late August, continues to reenergize the community. For the year, MAUs were up 10%, and for the quarter, MAUs were up over 20% versus year ago. Hearthstone players enjoyed a tremendous amount of new content in 2016, with one adventure and two expansions including Mean Streets of Gadgetzan in the fourth quarter. For the year, Hearthstone had record MAUs, up over 20% year-over-year, and for the quarter, MAUs were also up versus year ago. Activision had Q4 MAUs of 51 million. On a full-year basis, Activision had its highest annual MAUs ever, up 3% from 2015, and up 23% since 2014. Black Ops III's digital season led to record MAUs for Call of Duty in the year, and Destiny showed steady engagement in its third year. Call of Duty was the number one franchise in North America for the eighth year in a row, and the number one console franchise globally, a mantle we've held for seven of the last eight years. Activision's November release, Call of Duty: Infinite Warfare is a high quality, innovative game that paired with Modern Warfare Remastered offers a tremendous amount of value and gameplay variety. However, sales underperformed our expectations, and it's clear that for a portion of our audience, the space setting just didn't resonate. We had a passionate experienced studio deeply committed to this direction, and despite the risks we saw, we believe it is important to consider the passions of our game teams in deciding what content to create. While it wasn't the success we planned, it allows us to protect a core tenets of our culture that Bobby discussed, empowering our talented teams to have the chance to pursue opportunities that they are passionate about. Providing an environment that recognizes passion is a critical component of our success, and the process to learn from our mistakes is what makes our company special, and it's why the most talented people in our industry are attracted to our company. In 2017, Activision will take Call of Duty back to its roots, and traditional combat will once again take center stage. This is what our dedicated community of Call of Duty players and Sledgehammer Games, who has been developing this year's title, are the most excited about. The Call of Duty community remains strong, and Call of Duty is the most successful video game franchise of the last 20 years. Overall franchise MAUs were stable in Q4 as players engaged on multiple titles. Life to date, on current gen consoles, Call of Duty alone has three of the top ten games. This demonstrates the value of year round engagement and live operations on both new releases and our highly engaging prior releases. Activision also released Skylanders Imaginators during the fourth quarter, an innovative new game that allows players to create and play their very own Skylanders. The game has delighted kids around the world, and has grown the franchise to become the 11th biggest console franchise of all time with more than 300 million toys sold. Based on this franchise strength, our film and TV division launched its first initiative, Skylanders Academy on Netflix in October, which has been very well received. The second season will be delivered later this year, and Netflix has already ordered a third season. In 2017, rather than releasing a new console title, we will be supporting the award-winning Skylanders Imaginators with multiple adventure packs, new characters and new in-game content. We are also excited to bring Skylanders Imaginators to Nintendo Switch as a launch title next month, and we have a new Skylanders mobile game in development. Now turning to our second strategic pillar, deepening engagement. Our compelling games, deep gameplay and consistent follow-on content drove not only large communities, but also strong engagement with over 10 billion hours of playtime in Q4. Our 43 billion hours of engagement in 2016 was on par with Netflix and 1.5 times Snapchat. And importantly, we own our content. Blizzard's Q4 playtime sets a new record, breaking the previous record set in Q3. During the fourth quarter, Overwatch had its second and third seasonal events, Halloween Terror and Winter Wonderland, showcasing the successful year round event-based approach to content. Each successive event drove new engagement records, including the most recent Lunar New Year event. And Overwatch has more exciting content coming. Blizzard's increased investment in World of Warcraft development resources is paying off through a more regular content cadence for players, with two patches released since Legion launched. This has resulted in higher engagement for the franchise, with an increase in total playtime for the quarter surpassing Legion's launch quarter, and all non-launch quarters in the last four years. More content is coming later this year, as the full Legion story unfolds. King's player base continues to be highly engaged with time spent of 34 minutes per daily active user, an increase over last year, and last quarter. This was due in part to our increased focus on live operation efforts. King also released a new franchise sequel at the start of this year, Bubble Witch Saga 3, which is off to a great start. Playing our games is just one way our players engage with our franchises. We recently announced our new Consumer Products division, headed by Tim Kilpin, a veteran of Mattel and Disney. Elevating our nascent consumer products business to a more strategic level is a great opportunity to provide our communities with more high-quality products and collectibles based on our own intellectual properties. Our audiences also connect with our franchises by viewing our games. In fact, Activision Blizzard accounted for five of the top ten most viewed games on Twitch in 2016. E-sports has become not only a catalyst for increased reach and engagement, but also a stand-alone opportunity. Our Major League Gaming division hit a number of milestones this year, including hosting tournaments for Call of Duty, Overwatch, and World of Warcraft, launching the enhanced viewing experience, integrating the MLG.tv player into Call of Duty, growing video viewers on social platforms like Facebook and Instagram by 50%, and increasing twice player engagement by over 60% year-over-year. Activision's launch of the Call of Duty World League sparked strong growth for Call of Duty e-sports. Activision doubled the 2016 prize pool to over $3.5 million across 16 hosted events. Millions of fans were drawn to the action with the 2016 season delivering 120 million video views, and more than twice the time spent viewing compared to last year's season. We look forward to plenty more action in the months to come. Last year, Blizzard held its tenth BlizzCon and celebrated its 25th anniversary. BlizzCon again sold out in minutes and drew a large global audience with over 25,000 in-person attendees, and 10 million people from around the world tuning in. Blizzard also sold a record number of DIRECTV pay-per-view tickets to fans wanting the full BlizzCon virtual experience. Blizzard announced the formation of the Overwatch League at BlizzCon. For fans, it will offer city-based teams around the world competing in annual seasons, with standardized schedules creating a consistent experience to build passion and allegiance. For team owners, guaranteed slots and clear rights will enable stability and transparency that they can invest in. For players, contracts, including benefits and a combine for player selection will open up the sort of career opportunities associated with traditional sports. The Overwatch League is being designed to bring a new era to e-sports with an epic entertainment experience for everyone involved. Blizzard feels it has the community passion in place and the required structure established to commence the process of selling teams and media rights for the Overwatch League later this year. We'll have more exciting news to share in the months ahead. In January, Blizzard kicked off its Heroes Global Championship and announced its upcoming third annual collegiate e-sports competition, Heroes of the Dorm, which will be streamed exclusively via Facebook Live, ensuring broader global accessibility to e-sports audiences. Turning next to the third pillar of our strategy, providing opportunities for more player investments. In-game purchases were yet again close to $1 billion in the quarter, and a record $3.8 billion for the year, more than double last year's $1.7 billion. Even without the benefit of the addition of King to our portfolio, the company's in-game purchases would have grown 33% this year. World of Warcraft content and continued strength in Overwatch seasonal events delivered Blizzard's record levels of in-game revenues in the quarter and for the full year. Activision's record in-game revenues for 2016 were driven by a record-setting Call of Duty Black Ops III in-game content season where for the first time, add-on revenues were greater than DLC and Season Pass combined even with record Season Pass participation. Over the past several years, Activision has methodically and creatively evolved the Call of Duty business model, and this performance illustrates the impact those strategies have had in a relatively short period of time. It also showcases the virtuous cycle created when engaging content leads to more player investment. And this year is the first time we have three player communities at scale concurrently in Infinite Warfare, Modern Warfare Remastered, and Black Ops III, and we will be supporting each of them with new content throughout the year. Destiny continues to have a large and committed audience, which is eager for new content and adventures. Activision along with their partners at Bungie plan to answer the call with the release of a full Destiny sequel later this year, designed to thrill our existing loyal fan base and bring many new players into the fold. We plan to support the release of the sequel, with a great content plan post launch, setting the stage for growth with this year's sequel and the content season that will follow. King continues to perform from a player investment perspective despite lower MAUs. Bookings per paying user has increased six quarters in a row to its highest level ever. Importantly, we saw stability in the Candy Crush franchise throughout the year, with fourth quarter and full-year mobile gross bookings increasing year-over-year for the franchise. We have also invested in a mobile incubation pipeline with multiple games for a number of our core franchises across the company. We will rely on our own talented teams and partners, and leverage King's mobile expertise. Some of these games has reached the prototype phase and we believe could drive growth in future years. We'll have more to share on our expanding mobile efforts down the road. So in summary, despite many opportunities for improvement, 2016 was by far our best year ever from what we've accomplished and for the groundwork we laid to realize the significant growth opportunities that lie ahead. Dennis will now review the numbers in more detail. Dennis M. Durkin - Activision Blizzard, Inc.: Great. Thanks, Thomas. Q4 was another great quarter, capping off a record setting year. For the full year for the first time, we had over $1.5 billion in revenues on three different interactive platforms: console, PC, and mobile. Nearly $1 billion in Asia Pacific revenues and more digital revenues for the year than our prior record for total company revenues, all of which helped contribute to record non-GAAP operating margin of 35%, year-over-year EPS growth of 68%, and nearly $2.2 billion of operating cash flow, up 71% year-over-year. These results highlight the powerful combination of owned IP, a direct and increasingly digital customer connection and global scale. We're obviously very encouraged by this and believe we're only in the early innings of realizing this multi-year opportunity. Looking back, I'd like to first start with our segment results. As a reminder, our segment results unlike our consolidated results are still presented excluding the impact of deferrals as they always have been. Blizzard had its strongest financial performance in history including record revenue up more than 50% versus last year, a record $1 billion in segment operating income for the year, up 81% versus last year, and record Q4 revenue up 46% versus last year. This historic performance underscores the significant progress Blizzard has made towards transforming into a multi-franchise, multi-platform and multi-geography company. In 2016, Blizzard had more than 60% of its revenues from non-World of Warcraft franchises, 20% of its revenues from non-PC platforms and more than 25% of its revenues in APAC. Activision's Q4 had strong catalog and digital performance from Call of Duty Black Ops III, which offset new release underperformance. Activision delivered record Q4 and full-year in-game revenues and the strong digital performance helped drive a record full-year segment operating margin of 35%. In 2016, King contributed more than the originally planned 30% accretion to our overall results. They continued to have two of the top ten grossing games in the U.S. for the 13th quarter in a row, and importantly, the Candy Crush franchise showed continued stability with an increase in mobile bookings year-over-year. Now let's turn to our consolidated results. Unless otherwise indicated, I will be referencing non-GAAP as redefined figures which include the impact of deferrals. If you would like to calculate metrics as we used to report them, you would add the impact of deferrals to our non-GAAP as redefined figures. Please refer to our earnings release for full GAAP to non-GAAP reconciliations. For the quarter, we generated record Q4 GAAP revenues of $2.01 billion, $158 million above our November guidance, and $661 million or 49% above Q4 last year. The net effect of deferred revenue was $438 million for the quarter. We generated GAAP EPS of $0.33. We generated an all-quarter record non-GAAP EPS of $0.65, $0.25 above guidance. The impact of deferrals on non-GAAP EPS was $0.27. The over-performance in the quarter versus guidance was driven primarily by Overwatch and World of Warcraft as well as favorable adjustments to our tax rate versus guidance. In Q4, you saw the power of our diverse portfolio and year-round engagement model, where even with lower Call of Duty Frontline sales, we were able to deliver growth and record results. Turning to the full year, we generated record GAAP revenues of $6.61 billion, up 42% year-over-year, an operating margin of 21% and EPS of $1.28. The impact of deferred revenue was negative $9 million for the year. On a non-GAAP basis, we generated record EPS of $2.18, up 68% year-over-year. The impact of deferrals on non-GAAP EPS was $0.02 in 2016. The digital transition continues to be a nice tailwind for our business, and digital revenues in Q4 were an all quarter record $1.5 billion, double last year's figure. For the year, we delivered record digital revenues of $4.9 billion, up 94% versus last year. The primary driver for our digital momentum is the continued growth of in-game content. As Thomas mentioned, in-game purchases were close to $1 billion for the quarter, and a record $3.8 billion for the year, more than double the $1.7 billion we had last year. We believe we still are in the early days of this important vector in our business with more opportunity ahead. In terms of cash flow, our strong business performance has led to record cash flow generation. For the year, we delivered a record $2.2 billion of operating cash flow, up 71% year-over-year. For the quarter, we generated operating cash flow of $859 million. From a balance sheet perspective, we had a number of positive developments in 2016. The durability of our underlying business has driven continued credit rating improvement. During the year, S&P upgraded us to investment grade, and Moody's, who had upgraded us in 2015 concurrent with the King deal announcement, moved us up another notch. In August, we restructured our term loans, which allowed us to realize interest rate savings and in September, we issued new five-year and ten-year notes which replaced our prior 2021 notes at a more cost-effective rate. So, a very busy year on the capital structure front. Regarding liquidity, we finished the year with approximately $3.3 billion in cash and investments on the balance sheet, with almost $1.4 billion held domestically. Our strong balance sheet and cash flow have allowed us to return significant capital to our various stakeholders. Since 2010, we have repurchased $7.8 billion of our shares and paid out over $1.3 billion in dividends. In addition, since 2013, of the $7.1 billion of gross debt we have borrowed to fund the Vivendi buyback and the King transaction, we've already repaid $2.1 billion as of the end of 2016. Continuing on this trend, our board has once again approved a balanced approach to capital allocation for 2017, increasing our dividend by 15% to $0.30 per share payable in May, authorizing debt pay down of $500 million this year, of which we've already paid down $139 million in February, and authorizing a $1 billion stock repurchase over the next two years. Now, let's turn and look forward to our outlook for 2017. In 2017 as expected, we have a lighter slate of full-game releases. Given fewer major launches this year, we expect to build on our strong momentum on year-round engagement and in-game player investment across our portfolio. A few other things to call out. While strategically important, emerging new revenue streams like team sales for the Overwatch league and the associated media rights are not embedded in our current guidance. In addition, as we have said previously, we expect advertising to begin to contribute in 2017 and have a more substantial impact in 2018 and beyond. In terms of segments, we expect a more evenly-weighted contribution from Activision, Blizzard, and King in 2017 than in 2016. We expect Blizzard to have a lower 2017 performance given a lighter release slate. However, Blizzard has lots of exciting plans for live ops and additional in-game content for every franchise, including Overwatch, Hearthstone and World of Warcraft. For Activision, we expect to have lower performance in the first half of the year, given a smaller Call of Duty digital season compared with the record performance of Black Ops III in the first half of 2016. That said, we do expect a larger back half of the year as we release the Destiny sequel and a new Call of Duty title. We are enthusiastic about this year's Call of Duty release going back to its roots, and as such we are guiding it up in Q4 versus last year's Q4 performance. In addition, as Thomas mentioned, the Skylanders franchise will not have a full game console release this year, but we will continue to engage the community and drive player investment through new toys and digital content. For King, we expect to be modestly up year-over-year, mainly driven by a full-year contribution from the business, the introduction of advertising, and ongoing live ops across the portfolio. Turning to the numbers, on a GAAP basis for 2017, we expect revenues of $6 billion, including GAAP deferrals of $300 million, with product costs of 22% and operating expenses of 64%. Our GAAP interest expense is expected to be $156 million and our GAAP tax rate is expected to be 21%. We expect 765 million fully diluted shares, both for GAAP and non-GAAP, and GAAP EPS is expected to be $0.72. Our GAAP numbers include a $0.03 net of taxes GAAP-only restructuring charge, which is related to our continued transition to digital. For 2017 on a non-GAAP basis, we expect product costs of 22% and operating expenses of 47%. We expect non-GAAP interest expense of $149 million. We expect a return to the historical tax rate of 24% as 2016's tax rate was lower due to discrete items and stronger international mix due to Blizzard's over-performance. We expect non-GAAP EPS of $1.70, including a GAAP deferral of $0.15. Please note that we expect more of a deferral impact in Q4 2017 than we had in Q4 2016 due to the larger expected launches of Destiny and Call of Duty in the second half of the year, part of which will be deferred into 2018. Also just to remind everyone, if you would like to calculate non-GAAP metrics as we used to report them, you would add the impact of deferrals, or $0.15, to our non-GAAP as redefined EPS of $1.70 to get to our full-year 2017 number. Now let's turn to our Q1 outlook. On a GAAP basis for Q1, we expect revenues of $1.55 billion including GAAP deferrals of negative $500 million, product costs of 21%, and operating expenses of 60%. Our GAAP interest expense is expected to be $43 million, and our GAAP tax rate is expected to be 21%. We expect 760 million fully diluted shares, both for GAAP and non-GAAP, and GAAP EPS is expected to be $0.25. For Q1 on a non-GAAP basis, we expect product costs of 21% and operating expenses of 43%. We expect non-GAAP interest expense of $39 million, a tax rate of 24%, and non-GAAP EPS of $0.51, including a GAAP deferral of negative $0.33. So in summary, 2016's strong performance highlights the tremendous opportunity and potential we have in front of us. The combination of leading owned IP, and franchises, a direct digital connection to our consumers, best-in-class content creation capabilities, and geographic platform and business model diversity provides an incredibly powerful engine for sustained financial performance. So while in 2017, as expected, we will have a lighter release slate, our strong business platform, combined with promising emerging opportunities like e-sports, advertising, and consumer products provides us with a compelling opportunity for growth in 2018 and beyond. Now, I welcome our business leaders, Eric, Mike, and Riccardo as they join us for the Q&A portion of the call. Operator?

Thank you. And we'll take our first question from Tim O'Shea with Jefferies. Please go ahead. Timothy L. O'Shea - Jefferies LLC: Yes, hi. Thank you for taking my question. So looking at Call of Duty, I'm curious what the plan is for content this year, and whether for the Q4 release you intend to tweak anything based on the reaction to last year's version of the game. Thank you. Eric Hirshberg - Activision Blizzard, Inc.: Hey, Tim. Thanks. It's Eric. So the first thing I'll say is just that I think the most important thing is remember, the Call of Duty ecosystem is strong, and we continue to see very strong MAUs, and that this is the first time we'll have three active games with three different player communities at scale with Infinite Warfare, Modern Warfare Remastered, and Black Ops III. And the plan is we're going to be driving engagement for all of those titles with great content throughout the year. As far as the second part of your question, as I've said many times before, with any longstanding franchise like Call of Duty, there's a balancing act we need to strike between staying true to the things that people love about the franchise and also the need to never become complacent and to keep pushing for innovations to keep the franchise fresh and vital. I would argue, over a period of many years now, we've managed that balance on Call of Duty better than just about any longstanding franchise in any medium. Last year I don't think we got that balance right. Infinite Warfare had a ton of great gameplay innovations that many of our fans appreciated and loved, but it also had a setting that didn't appeal to all of our fans. The good news is, is that I'm excited to say that in 2017 we think we have this balance in perfect harmony with a game that our teams are incredibly passionate about, with a lot of great innovations, but that also has the traditional combat that we know our fans are going to love. The game is being made by Sledgehammer, as Thomas mentioned. They're a proven team that's passionate about this title. We green-lit it over two years ago now, and they've been hard at work at it ever since, and we can't wait to unveil it to the world soon. And without discussing too much about what else we've got in the Call of Duty pipeline, I can also tell you that we're confident our fans are going to love those games as well, and we've never be more excited either creatively or commercially about our three-year Call of Duty slate. Timothy L. O'Shea - Jefferies LLC: Great. Thanks, Eric, and congrats on the quarter. Eric Hirshberg - Activision Blizzard, Inc.: Thank you. Robert A. Kotick - Activision Blizzard, Inc.: Thank you.

And we'll take our next question from Drew Crum with Stifel. Drew Crum - Stifel, Nicolaus & Co., Inc.: Okay, thanks. Good afternoon, everyone. So for Overwatch, would you be willing to provide any additional detail on plans for content in 2017 and beyond? You made reference to live ops, but any additional detail there? And as far as the Overwatch League, any additional color on what you have in store for that? Thanks. Michael Morhaime - Activision Blizzard, Inc.: Sure. Thanks for the question. This is Mike. First, we're very pleased with the launch of Overwatch and the player response to the content. We've entered 2017 with strong momentum. The game passed the 25-million-player mark last month. And each seasonal event that we run has set a record for engagement. Our plan is to continue evolving Overwatch with new hero and map content, new game modes, and additional events. We've seen very strong engagement in digital sales from these efforts last year. Looking into the future, we also see opportunities in areas like linear media and consumer product. We think that this will help deepen connections with the franchise and also expose Overwatch to new audiences. In addition, we want to create new ways for players to engage with the franchise through the Overwatch League. Esports is growing, but the ecosystem isn't always easy to navigate for players, viewers, or teams. So with the Overwatch League, we're working very hard to address those challenges. Our focus is on creating stability and participation for teams and owners, and accessibility of the content for fans. We'll have global city-based teams with a standardized annual schedule, creating professional, high quality content and guaranteed league slots for the teams. This is all built on a game that's easy to understand, with short matches, and great action. The core experience is very fun to watch, and there's already a sizable audience for it around the world. Based on this, we think that we'll see significant new business and engagement opportunities. We're going to start identifying team owners soon. That's our next step. And we're looking forward to holding our first combine and kicking off the League later this year. So with all of that said, we're very excited about Overwatch's future. Drew Crum - Stifel, Nicolaus & Co., Inc.: Great. Thanks, Mike. Michael Morhaime - Activision Blizzard, Inc.: Yeah.

And we'll take our next question from Mike Olson with Piper Jaffray. Mike J. Olson - Piper Jaffray & Co.: Hey, good afternoon. For King advertising, can you fill in some detail on the testing so far and when we should expect that you get to a full rollout across the games and the player base? Thanks. Riccardo Zacconi - King Digital Entertainment Plc: Hi, Mike. Here's Riccardo. Mike J. Olson - Piper Jaffray & Co.: Sure. Riccardo Zacconi - King Digital Entertainment Plc: So, first of all, we have a large user base, but more importantly, it's a very engaged user base. You've heard earlier Thomas saying that we have more than half an hour of gameplay per player per day, and we think this is an attractive opportunity, a very attractive opportunity for advertisers. It's a very engaged user base. So at the last earnings call I said that we are very careful and protective of the user experience, and so we've been testing and we are testing several ad formats. We've been testing with very high quality consumer brands like Nestle or Fox in our key games. We've been testing in Candy and we've been testing in Candy Crush Soda Saga. And we are testing integrated ad formats, which are integrated in the gameplay and are supportive of the gameplay. And so far, the results have been very positive. They've been positive both for the players, with an increase in gameplay and an increase in ad spend, and they've been positive for advertisers. So we have seen completion rates, which are above industry benchmarks, and we define completion rates as when the player really starts a video ad and finishes the video ad. And further on, we have engaged third parties through third-party research to analyze the impact on players, and the result was that our ads stand out more when they are presented and shown on our platform, on our games than when they are shown on other platforms. So we are very pleased with the results so far. So we are continuing on our plan, and the plan for this year is, first of all, to continue to invest in building the technical infrastructure, and to continue building out the team. Secondly, we will continue to test various ad formats, and as we do so, we will also ramp up the inventory. So our expectation for this year is to have a positive contribution to the bottom line, and we expect to scale the impact on the bottom line in 2018. Mike J. Olson - Piper Jaffray & Co.: Thank you.

And we'll take our next question from Brian Nowak with Morgan Stanley. Brian Nowak - Morgan Stanley & Co. LLC: Thanks for taking my question. Appreciate all the color on the digital revenue strength. I guess I'd be curious to hear about where you finished on full game download mix for consoles for the year and what are you expecting for 2017? Thanks. Dennis M. Durkin - Activision Blizzard, Inc.: Yeah, hey, Brian. Thanks. It's Dennis. Yeah, digital tailwinds have obviously been a huge and important factor across all of our businesses, and thankfully we have the diversity of being across multiple platforms. So having huge success on mobile, which is almost all digital, on PC which has over time become almost all digital, and then the last real holdout is really on console where full game download mix is still the minority of player purchases. In general, it varies based on title and region and audience type. So for a game in big and mass market as Call of Duty, you see a slightly lower percentage mix of digital just because it is so mass market. But it's now in the low to mid 20s, and that's up from zero three or four years ago. But in games like Destiny and Overwatch, we see in the mid 30s. And that trend is continuing every year where we see 5-plus percentage points of mix moving every year in terms of overall business mix. So it should be a nice tailwind for us and for others in the industry over the next few years as well. Thanks. Brian Nowak - Morgan Stanley & Co. LLC: Great, thanks.

And we'll take our next question from Doug Creutz with Cowen. Doug Creutz - Cowen and Company, LLC: Hey, thanks. I think you got 300,000 Redditers to breathe a huge sigh of relief when you confirmed Destiny 2 for this year. Could you give any indication whether you expect that in Q3 or Q4? And then could you talk about what you and Bungie learned from Destiny 1 that's informing the design process for Destiny 2 and your plans for post-launch content? Thanks. Eric Hirshberg - Activision Blizzard, Inc.: Hey, Doug, it's Eric. Yeah, I think the best thing we can say about Destiny is that the development is going great, and it is indeed on track for release this fall. As for the particulars, we've got a big reveal planned. I'm going to let the game do most of the talking, but I'll give you some broad strokes. I think that our team and our great partners at Bungie are doing a very nice job on two fronts. One is if you're one of the millions of players who really invested in Destiny 1 and have put a lot of hours and passion into that game, you're going to love this game, and there's a lot more of what you love here. For anyone who either hasn't yet tried Destiny or hasn't played it in a while, we think we've made a game with the sequel that's going to have a lot for them to love, too. The cornerstone of that is a great cinematic story. That's been a real focus with a great cast of memorable, relatable characters, coupled with some very nice ways to make the game more accessible to a casual player, without losing anything that our core players love. We've made it more accessible to someone who just wants to have a great more casual first-person action experience. We're also going to introduce Destiny to a number of new people by going to some international markets that we haven't been in before. So I'm going to leave the rest for the reveal, but we're very excited about the game, and it'll be coming this fall. Doug Creutz - Cowen and Company, LLC: As am I. Thanks.

And we'll take our next question from Chris Merwin with Barclays. Christopher Merwin - Barclays Capital, Inc.: Okay, thank you. I just have one for Riccardo. If you don't mind just updating us on the game pipeline for King. I think you said in the past that you're mostly focused on developing King IP for the time being, but at some point does it make sense to take one of your established IPs from Blizzard or Activision Publishing and create a mobile version of that game that the King team can develop? Thanks. Riccardo Zacconi - King Digital Entertainment Plc: Hi, Chris. Here's Riccardo. So over the past year, we have taken a much more focused approach on what content we develop and release. So this is in line with our goal to continuously raise the bar on innovation. Innovation is a major word for us. It is a major focus point. So talking about the King team, first and foremost we're focusing on the existing King franchises. So we have proven last year that our focus on live games, creating new content in the forms of live ops and new features has paid off, and pays off, and we've seen this in the growth of the Candy Crush franchise year-on-year on mobile. So we are continuing to invest in live games. Secondly, we are working on sister titles and sequels for our existing successful King franchises. We have launched recently, in mid-January, we have launched Bubble Witch 3, and we are extremely pleased not only with the quality of the game, but also with the response from the players and the acceptance from the players. And we are looking forward to scaling further this game in the year. We are also working on titles with much higher level of innovation for the long-term growth of the franchise, and we believe innovation is key for the long-term success. We're also working for the future on additional IPs in new genres with franchise potential, and here it's great to be part of the Activision Blizzard family, and we are very excited about the opportunities coming from working together on bringing established Activision Blizzard IP to mobile. And we're currently working on this, and the work is at prototype stage. We're also working with the Activision Blizzard team on marketing existing Activision Blizzard mobile IP on mobile devices, and that's where we can leverage the experience we have made on mobile, and the technique and infrastructure. So in summary, our resources are more focused than ever, on the long-term growth of our business. Christopher Merwin - Barclays Capital, Inc.: Okay. Thank you.

And next we have Eric Sheridan with UBS. Eric J. Sheridan - UBS Securities LLC: Thank you for taking the question. We saw the announcement of the consumer products division. We've certainly seen other companies like Disney turn large IP libraries into big consumer product businesses. Why now in terms of the consumer product launch? How should we think about that opportunity? And what should we be watching for over the next couple of years as that business rolls out? Thank you. Robert A. Kotick - Activision Blizzard, Inc.: Great question, Eric. It's Bobby. I think Disney is a great example. They've figured out probably better than any entertainment company how to turn consumer products into a multi-billion dollar business, but also to increase the touch points for their franchises around the world. And so we've elevated consumer products to a new strategic pillar for the company. We hired Tim Kilpin who is a veteran of both Disney and Mattel, and we think that consumer products can accelerate growth by leveraging our IP and creating new ways for people to connect with our franchises, especially as we're launching our e-sports leagues. If you think about consumer products as they relate to the NFL or the NBA, these are billions of dollars of revenues for the leagues, and we think they'll be great opportunities for league and team merchandise. That'll be important components of what we do in the consumer products business. Generally, we think creating more consumer touch points in a low capital investment, high-return way, adds tremendous value to the franchises. So we think this is a great opportunity for the company, and we're really looking forward to expanding what we do in consumer products with Tim Kilpin. Eric J. Sheridan - UBS Securities LLC: Great. Thank you.

We'll take our next question from Colin Sebastian with Robert W. Baird. Colin Alan Sebastian - Robert W. Baird & Co., Inc.: Great, thanks. And this is a follow up question for Mike. I was hoping you could tell us a little bit more about the Blizzard pipeline as well, both in terms of full new releases and online expansions. And then any sense for the linearity of release timing would be helpful as well. Thanks. Dennis M. Durkin - Activision Blizzard, Inc.: Hi, Colin, thanks for the question. Well, last year was a really epic and important year for us, in addition to celebrating our 25th anniversary, we posted record results and have more people playing Blizzard games than ever before. We're very grateful for the passion and support of our players, and our commitment to delivering awesome content to them has never been stronger. So with that in mind, we've put in a significant effort into being able to support the type of longer-term engagement that Blizzard games have always delivered, but doing so now across more games on more platforms and in more regions. So we've really had to scale up our organizational capabilities to do that. This year, we'll have compelling new content across all of our franchises, as well as continuing to expand beyond the games with things like comics, animated shorts and more. In addition, we're always thinking about new game ideas, and we have several in the prototype phase, but not able to talk about those right now. As I mentioned before the Overwatch League also represents new business and engagement opportunities for us this year and beyond, and that's going to be a big focus for us as well. Colin Alan Sebastian - Robert W. Baird & Co., Inc.: Great. Thanks.

We have time for one more question. We will now hear from Eric Handler with MKM Partners. Eric O. Handler - MKM Partners LLC: Yes. Thanks for taking my question. Bobby, question for you. With League of Legends recently signing a $50 million year streaming deal with BAMTech, I'm curious, how do you perceive the value for your e-sports properties? Robert A. Kotick - Activision Blizzard, Inc.: Great question, Eric. I actually think it was a very important milestone for e-sports. It's a large-scale broadcast commitment, and I think it really demonstrates how valuable our content can be as spectator content. I think when we look at what the opportunity is for professionally-produced content, and as Mike pointed out, city-based competition around the world, which there really isn't an analog to, we think that if you look at where advertisers want to spend their capital, where sponsors want to spend their capital, it is very difficult to reach 18 to 35-year-old males today, and this programming is incredibly compelling. People are watching it largely as user generated content today. But we think the professionally produced content will have tremendous value, and we think this is going to be a big area of opportunity, again, to strengthen our franchises, but probably most importantly to really celebrate our players. Because if you think about the player investment that our players make, the time, the commitment, there's a great opportunity for us to showcase and celebrate our professional players, and we think there's going to be larger audiences and large numbers of advertisers willing to support those efforts. Eric O. Handler - MKM Partners LLC: Thanks, Bobby. Dennis M. Durkin - Activision Blizzard, Inc.: All right. Thank you everyone for joining us today and we'll look forward to talking to you again in early May.

And that concludes today's presentation. We thank you all for your participation. And you may now disconnect.