Play Nice: The Rise, Fall, and Future Of Blizzard Entertainment

by Jason Schreier

Chu was getting calls from an ex-Blizzard employee named Jay Ong, now head of gaming at the comic book giant Marvel, who said that if Chu left Blizzard and started a new company, he could work on a Marvel video game. Chu went to Ben Brode, who was now the director of Hearthstone and who had also grown frustrated with the changes at Blizzard, to gauge his interest in a partnership. Brode was an easy sell, both because he would follow Chu anywhere and because he had missed spending his days developing games rather than sitting in meetings. “I’d lost touch with the product,” Brode said. “The idea that I could get back into making games was really exciting for me.” As the two of them began talking about what leaving Blizzard might look like, they decided to coin a code phrase for their secret mission. That way, if someone popped into a room and asked what they were talking about, they had an easy explanation. “The code word,” said Brode, “was ‘Dungeon Run monetization.’” In the spring of 2018, Chu and Brode quit Blizzard.

The company had seen significant departures in the past—Chris Metzen had resigned shortly after the release of Overwatch, citing burnout—but this one felt different. More existential. Rumors were starting to swirl about Kotick’s plan...

It was now clear to everyone at Blizzard that the company was changing in big ways. New hires were warned: It’s not like it was before

Chu and Brode would go on to start a video game studio called Second Dinner, where they used that Marvel license to create another hit card game: Marvel Snap. Suddenly, Brode found himself having to worry about lingo like the CPI (cost per install) and LTV (lifetime value) attached to each player. “At Blizzard, we just never thought about those things,” he said.

plans for Activision to become more like Disney, with a string of complementary business models including in-game advertising that he declared would lead them to an ambitious 15 percent compound annual growth rate (CAGR) in the near future. Esports, too, would be one of the pillars of Kotick’s lofty strategy. He brought in former ESPN CEO Steve Bornstein to launch a new esports division for the whole company and announced that Activision planned to buy the organization Major League Gaming for $46 million “to create the ESPN of esports.” The Morhaimes weren’t thrilled that Kotick had suddenly pivoted from questioning their small investments into esports to making his own huge ones.

In the NFL, the organization and its commissioner existed to help teams make money, while in the Overwatch League, the organization and its commissioner existed to help Activision Blizzard make money.

Overwatch team found itself stretched thin. Kotick and his circle proposed the same solution they’d been pushing on World of Warcraft for years: hire more people. They should create a second development team to work on the sequel, Kotick said—just like Call of Duty. Failing that, they should double or even triple the size of their team so they could handle these demands and live up to player expectations. Kaplan and Ray Gresko, who was now Overwatch’s executive producer, believed that expanding too much would ruin the culture, which was one of the main reasons they had been able to develop Overwatch so efficiently. Kaplan would personally onboard staff and liked to know every single person on his team. By 2018, they had crossed 150 people, but they refused to grow to the scale Kotick wanted, saying they didn’t want to repeat the mistakes they’d made on previous projects like Titan. Plus, they argued, it would destroy morale if half of the team got to incubate cool new stuff while the other half had to stay behind and update the first game.

Blizzard’s bosses were initially excited to work with Tippl’s successor, Coddy Johnson, who had struck them as cordial and reasonable a few years earlier, when he had been Kotick’s chief of staff. But in April 2018, Johnson put together an off-site conference for leaders across all three of Activision Blizzard’s divisions: Activision Publishing, Blizzard, and King. The theme was unification: streamlining operations into “One ABK” rather than maintaining three autonomous entities. Kotick and his team were spelling out what had been apparent to Morhaime for years: He didn’t want Blizzard to be independent anymore.

After the offsite, Morhaime wrote a lengthy email to Kotick, shared with several other executives, declaring that Blizzard had reached a tipping point. “I believe that preserving Blizzard’s culture and magic is a necessity for preserving Activision Blizzard’s advantage of having an organization that can attract and retain the best creative talent in the world and that can consistently produce the highest quality games and experiences,” he wrote. “With the new direction that ABK is having, as well as its increased involvement in the operations of Blizzard… it has been increasingly hard for me to provide Blizzard leadership and staff confidence that Blizzard has a stable future as a values-driven organization, where both Blizzard culture and brand identity can be protected. “We need to get clarity and stability around the boundaries between Activision Blizzard and Blizzard,” he added. By the summer of 2018, even ground-level Blizzard employees were accepting a reality that had long been shielded from them: Activision was all over the company.

Public relations people had to coordinate with their counterparts in Santa Monica before sending out statements or conducting interviews.4 Marketing, legal, HR, and many other departments began dual-reporting to executives at both Blizzard and Activision Blizzard, causing widespread frustration and confusion.

“It was liberating in a way because it lets the team focus on making the best product they can possibly build,” said Tim Morten, the production director for StarCraft II. But refusing to think about, say, the cost of a cinematic would ultimately hurt a game’s long-term viability, Morten believed. “I think getting development teams closer to the economics was healthy,” he said.

Activision was focused on shareholders and devoted to process, while Blizzard was dedicated to players and allergic to timelines. “It felt like one person was speaking Greek, one was speaking English,” said one Activision executive.

From Kotick’s perspective, Blizzard wasn’t as successful as Morhaime and his team believed they were. Each new World of Warcraft expansion still took two years, and there were no other big releases to fill the gaps. Blizzard’s profits were falling—from $1 billion in 2016 to $719 million in 2017 to $685 million in 2018—and with no big products imminent, they were primed to plummet even more.

November 2018, as I was preparing to first break the news that Activision Blizzard was taking a larger role in Blizzard’s operations, I reached out to Blizzard’s PR people for comment, got one answer, and was then contacted by Activision Blizzard’s PR people with a conflicting response. “Look,” I told them. “What I’m writing about is literally happening in front of me right now.”

But in 2013, when Titan failed and Kotick wrested control of the company from Vivendi, their relationship began to fall apart. Morhaime wanted to preserve Blizzard’s autonomy, while Kotick wanted to integrate the organization into the Activision Blizzard umbrella. In 2018, Blizzard generated less profit than King or Activision Publishing yet employed more people, in part because its leaders believed that they needed to maintain internal support teams to preserve their culture and keep players happy. Kotick wanted to streamline those teams and reorganize the company into divisions based on franchises—Warcraft, Diablo, Overwatch, and so on—each devoted to releasing content on a predictable schedule.

Isn't predictability the great Satan here?

“At Blizzard, people put Blizzard and gamers first because there is no financial incentive to stay on or leave any given project,” he’d written to Kotick in the email. The downside of this approach, in Activision’s view, was that developers could coast on indefinite timelines, collecting profit-sharing checks without releasing any games.

People around Morhaime worried that his fights with Activision were taking a hefty toll. In 2017, he’d even submitted a resignation letter, although Kotick had convinced him to walk it back and those close to him encouraged him to stay. As the public face and cofounder of Blizzard, he was the only one with enough power and clout to keep Activision’s pressure away from his teams.

But in the spring of 2018, after the One ABK offsite, Morhaime began to realize that he had lost the war, and he started to quietly talk to other Blizzard executives about a succession plan as he geared up to leave the company he had run for two decades. On October 3, 2018, Morhaime announced that he was stepping down from Blizzard after twenty-seven years.

But those who worked closely with him knew why he’d left: He was tired of battling with Kotick. “He looked like a second-term president,” said one executive.

Blizzard staff were devastated by the news. Morhaime was the rare video game CEO who was worshiped by people who worked under him.

Critics would point out that he was too trusting and that he had either ignored or been oblivious to the behavior of some problematic Blizzard veterans whose misdeeds would come to light later. Morhaime’s inner circle included a few people with less savory reputations—people to whom he was loyal because they had been in the trenches with him for decades. “He’s the most inclusive, open, tolerant person I know,” said one senior woman at Blizzard. “But for reasons that are quite complicated, he was surrounded by bros.”

Morhaime’s successor was J. Allen Brack, the company veteran who had cut his teeth in the 1990s at the legendary game studio Origin Systems, then worked on the online game Star Wars Galaxies before joining Blizzard in 2006. He worked his way up the ranks to production director and then executive producer on World of Warcraft, making him the top developer on the company’s most important game. Some colleagues saw him as cold or cliquish, but he was well-respected within the company and widely perceived as someone who would stand up for Blizzard’s culture. Yet questions lingered about how much power he would have compared to his predecessor.

Sharp-eyed observers noticed that the announcement came with a title downgrade—while Morhaime had been CEO and president, Brack was just president. The press materials announcing Brack’s appointment also noted that Allen Adham and longtime producer Ray Gresko (back from his rage-quit-turned-sabbatical) were joining Blizzard’s executive team. Left unacknowledged was that Blizzard no longer had its own CEO.

The end of the ceremony, which would feature the next Diablo game, was a much bigger dilemma—one that many Blizzard employees had been debating for months. Back in 2016, after Hades was canceled, a small team of designers had started work on a project code-named Fenris that would later be called Diablo IV. While Hades had been experimental, this was planned as a proper sequel, with the same camera angle and combat style as previous games. It had now been six years since Diablo III, and fans were eager to hear about the next entry in the long-running series. For all of Diablo III’s faults, it had still sold 30 million copies. But Blizzard also had another Diablo game to show off. The company had partnered with NetEase, its distributor and publisher in China, to develop a mobile game called Diablo Immortal

Some members of Blizzard’s PR and marketing teams feared that the news might be poorly received, and warned their bosses that fans looking for the next Diablo game might not react well to the announcement of a game for phones. Mobile gaming remained as lucrative as ever, but many video game enthusiasts, including fans who were flying out to Anaheim, derided phone games for repetitive gameplay and exploitative microtransactions. To mitigate any potential rage, several Blizzard staffers proposed that they couple the Diablo Immortal announcement with a teaser for Diablo IV. That way, the messaging would be clear: yes, they were making a phone game, but they were also making a proper sequel. But Diablo IV was still years away and the new director, Luis Barriga, was against the idea.

The BlizzCon team put together a series of contingency plans, such as a video where Adham, now executive producer for both Diablo games, told fans that Diablo IV was on the way, but instead they put up a blog post on Blizzard’s website, aiming to obliquely convey to fans what was going on. “We currently have multiple teams working on different Diablo projects and we can’t wait to tell you all about them… when the time is right,” they wrote. “We know what many of you are hoping for, and we can only say that ‘good things come to those who wait,’ but evil things often take longer.” The blog post also teased that “we do intend to share some Diablo-related news with you at the show,” which sent fan speculation into overdrive. Blizzard had intended to tamp down the hype, but if anything, this messaging had the opposite effect.

During a panel presentation later, one fan asked if Diablo Immortal would be playable on computers as well. “We don’t have any plans at the moment to do PC,” Cheng said.2 When the crowd booed in response, he jokingly retorted: “Do you guys not have phones?” The clip hit the internet by storm, symbolizing what fans saw as Blizzard’s distaste for their core customers. Later, another fan went viral after asking if the game’s announcement was a delayed April Fool’s joke.

The widespread outrage represented video game culture at its worst—fans of the medium expressing anger at individual game developers for the truly unforgivable sin of announcing a game for phones. Cheng, who had been working on Diablo since the Blizzard North days and who was beloved by teammates for his design skills and genial demeanor, became an internet meme and the perceived face of Blizzard’s greed, much to the horror of his colleagues.

If you're serious about this Jason, then fuck you.

But the Diablo Immortal snafu was also the beginning of what would become a much bigger problem for Blizzard—a fan base that was starting to turn on the company. The outside world wasn’t aware of Armin Zerza or Activision’s growing level of influence on Blizzard’s operations, but to the loudest players, mobile games often represented industry greed due to their rampant microtransactions.

Was it really "a fan base that was starting to turn on the company"? Or a company that gradually abandoned it's fan base in favor of chasing predictable profits and shareholder value? Pick one Jason.

Unlike its free-to-play peers, Heroes of the Storm avoided using virtual currency. When players went to the in-game store, they’d see the prices listed in dollars (or their local equivalent) rather than jewels, gems, or casino chips. To Blizzard veterans like executive producer Chris Sigaty, being clear and direct about their prices rather than obfuscating the real costs was an obvious part of taking a player-first approach to game design. But when business-minded people looked at the Heroes of the Storm shop, they were stupefied. Virtual money was a standard component of free-to-play games, both because it increased spending and because it allowed the developers to offer in-game promotions and new account bonuses.

Heroes of the Storm remained an important pillar of esports, where Blizzard supported a collegiate league called Heroes of the Dorm (televised on ESPN) and a high-stakes tournament known as the Heroes Global Championship. At BlizzCon 2018, professional Heroes of the Storm players battled over a $1 million prize pool and were told that Blizzard planned to support the program for at least another year. A trailer teasing new Heroes of the Storm content for 2019 included “HGC” as part of a large montage of upcoming features, and behind the scenes, Sigaty and the rest of the leadership team had developed an esports plan for the coming year that was approved by J. Allen Brack, Ray Gresko, and Armin Zerza. But now the entire Activision Blizzard organization was gearing up for significant cost cutting, and the Heroes 2.0 update hadn’t been as lucrative as they’d hoped. In the middle of the night on December 13, 2018, Blizzard put up a blog post declaring that the company had “made the difficult decision to shift some developers from Heroes of the Storm to other teams.” The struggling MOBA would still receive new content updates, Blizzard said, but “the cadence will change” as the company pivoted to “long-term stability.” Many members of the team wound up getting jobs elsewhere within Blizzard, while others were laid off. Supporting esports for another year would require them to cut even more jobs at Blizzard, so Brack and his team decided to reverse course on their previous plans,...

Like other announcers and players, he was disappointed to learn that he was losing his livelihood on Twitter. Later, they received emails from Blizzard offering severance payments, but the damage had been done. Years earlier, Blizzard had started its own esports division in part to thwart behavior like this, which had been common among grassroots organizations and tournaments, and now, they were part of the problem they had been trying to solve.

Greg Black, a designer on StarCraft II, recalled Morhaime sending out an email with some thoughts after holiday break one year. “We looked it up: The dude had played hours of StarCraft II on the ladder,” Black said. “You have to wonder how many people in his position who run these big Fortune 500 game companies are spending their weekends playing the nerdiest, most hardcore game in their slate for hours.”

Activision Blizzard had grown from a market cap of around $12 billion in 2012 to more than $45 billion in 2018, while the entire company’s operating income (profit) had leaped from $1.7 billion in 2012 to $2.4 billion in 2018. Kotick’s compensation had swelled to $30.8 million, or about 319 times more than the median employee salary at Activision Blizzard, according to SEC filings. He was mostly paid in stock, but the disparity was still striking.