Watch Out For This Video Game Metric Trick

Watch Out For This Video Game Metric Trick

Activision Blizzard recently touted over $1 billion in first-day sales for Call of Duty: Ghosts. The game was expected to perform well as the latest member of a well-performing series of warfare shooters. However, Activision wanted its launch numbers to look better than Take-Two Interactive's record-breaking Grand Theft Auto V. That's why Activision got a bit tricky with its metrics.

Here's how to recognize when a game company is pulling a metric switcheroo -- and why.

Source: Activision-Blizzard.

Sell-in vs. sell-through
Call of Duty: Ghosts was touted as selling $1 billion in its first day. Activision announced the figure in a press release with an informative first sentence:

Activision Publishing, Inc., a wholly owned subsidiary of Activision Blizzard, announced today that the company sold more than $1 billion of Call of Duty: Ghosts into retail stores worldwide as of day one.

Note the words "sold ... into retail stores." That's another way of saying that the $1 billion is in sell-in sales. That's an important distinction.

Companies can classify video game sales using either sell-in or sell-through. Sell-in refers to when retailers agree to buy the game and stock it for customers to potentially buy. Sell-through refers to when the game has actually been sold to a customer. The latter tends to be the more accurate metric, since retailers can have the option to return unsold products under sell-in.

So Activision listed Call of Duty: Ghosts sales using the sell-in metric, while saying it was too early to produce any sell-through numbers. However, last year's first-day sales announcement for Call of Duty: Black Ops II was listed as $500 million in estimated sell-through sales.

Why the change?
Call of Duty: Ghosts probably has respectable sell-through numbers. However, sell-in is always higher. It's also a competitive environment right now thanks to the record-breaking launch of Take-Two's Grand Theft Auto V, which included more than $800 million in first day sell-through sales.

Grand Theft Auto V was released in mid-September. By early October it had broken six Guinness World Records, including the record for the entertainment product with the highest revenue generated in 24 hours and the record for the fastest product to gross $1 billion.

So expect to see more sell-through and sell-in switches as more potential blockbusters release. Coming in lower than Grand Theft Auto isn't a sign of failure, because that's proven to be an immensely popular title. However, competing companies will still frame their performance in the most favorable light.

Foolish final thoughts
Activision wasn't pulling a shady move by using sell-in instead of sell-through. Companies frequently use the metrics that will make the business -- or product -- look the best at a glance. However, it is important to pay attention to which metric is being used when making comparisons.

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Fool contributor Brandy Betz has no position in any stocks mentioned. The Motley Fool recommends Activision Blizzard and Take-Two Interactive. The Motley Fool owns shares of Activision Blizzard. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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