The past two weeks have seen Capcom, Nintendo, Microsoft, Namco Bandai, Tecmo Koei, Sony, Square Enix, Konami, and Electronic Arts all report holiday-quarter earnings. Today, it was Activision Blizzard's turn to report its financial results from the October-December period, during which it released the fastest-selling game to date, the billion-dollar-grossing Call of Duty: Modern Warfare 2.

　　According to Activision's latest report, the rhythm-game genre is no longer minting cash.

　　With such a humongous blockbuster on Activision Blizzard's books, the layman would expect it to post a massive profit. It didn't. Thanks to the intricacies of Wall Street accounting, the company managed to both beat analysts' expectations and lose a sizable amount of money during the same quarter.

　　According to generally accepted accounting practices (GAAP), Activision reported quarterly revenues of $1.56 billion and a loss of $286 million ($0.23 per share), nearly four times the shortfall of $72 million ($0.05 per share) it reported during the year prior. The reason? The company took a "$0.19 per share reduction in the valuation of intangible assets reflecting the impact of a weaker market on the casual and music genres."

　　In layman's terms, that means the rapidly slowing rhythm-game market has made Activision's heavy investment in the Guitar Hero franchise and its various offshoots (Band Hero, DJ Hero) less valuable, allowing the company to write down the assets related to it. In a related move, Activision announced it would release only two rhythm games--one Guitar Hero game and DJ Hero 2--in the latter half of 2010.

　　However, excluding the rhythm-game charge, the company had revenues of $2.5 billion for the October-December quarter, for adjusted per-share earnings of $0.49. More importantly for Activision Blizzard shareholders, the company announced that it would pay out an annual dividend of $0.15 per share on April 20 and that it's spending $1 billion to buy back stock, making existing shares more valuable.

　　It's these latter numbers that Wall Street has seized upon, as a survey of Thomson Reuters analysts had only expected $0.43 earnings per share. As a result, the company's stock was up in after-hours trading and had risen over 7 percent ($0.72) to $10.82 as of press time.

　　For the 2009 calendar year--which is also the company's 2009 fiscal year--Activision Blizzard's GAAP net revenues were $4.28 billion, for $0.09 earnings per share and $113 million in profit. Excluding charges such as the music-genre write-down, the company's non-GAAP net revenues were $4.78 billion, for $0.69 earnings per share--more than enough to pay for the $0.15 per share dividend.

　　With the financial nitty-gritty out of the way, Activision Blizzard talked up its 2009 accomplishments, citing research firms the NPD Group (US) and Gfk Charttrack (EU). It said despite the music-genre write-down, Guitar Hero was one of the top four franchises in the US and Europe for the calendar year. Despite weak-to-middling US sales, the company reiterated that DJ Hero was the "highest grossing new intellectual property" in the two territories, thanks to its premium price tag ($120 in the US).

　　For the current quarter ending March 31, Activision Blizzard is expecting GAAP net revenue of $1.1 billion, with $0.20 earnings per share. Using non-GAAP accounting, it will actually make less--$525 million, with $0.02 earnings per share. For all of 2010, the company expects GAAP net revenues of $4.2 billion with $0.47 earnings per share, and non-GAAP net revenues of $4.4 billion with $0.70 earnings per share.

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