Five reasons Microsoft is making Activision Blizzard its biggest deal

[reporter2]

Microsoft to buy Activision Blizzard in $92 billion gaming deal

Activision Blizzard is the US' biggest gaming publishers, known for titles like Call of Duty and World of Warcraft. PHOTO: REUTERS

Jan 18, 2022

SEATTLE (BLOOMBERG)- Microsoft said it's buying Activision Blizzard in a US$68.7 billion ($92.7 billion) deal, uniting two of the biggest forces in video games.

In its largest purchase ever, Microsoft will pay US$95 a share in cash for one of the US' biggest gaming publishers, known for titles like Call of Duty and World of Warcraft but which is also grappling with a cultural upheaval over its treatment of women.

Activision chief executive Bobby Kotick will continue to serve in that role, Microsoft said. Once the deal closes, the Activision Blizzard business will report to Mr Phil Spencer, who heads Microsoft Gaming.

Adding Activision's stable of popular titles will help Microsoft expand its own offerings for the Xbox console and better compete with rival Sony's PlayStation. Activision has a long history with the Xbox. The publisher's largest franchise, Call of Duty, became successful largely due to Microsoft's innovative online platform Xbox Live, which allows players to connect for multiplayer matches.

Most of Activision's games are published on Xbox consoles. "This acquisition will accelerate the growth in Microsoft's gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse," Microsoft said in a statement Tuesday.

One of the industry's most legendary publishers, Activision has been mired in controversy for months amid several lawsuits over allegations of gender discrimination and harassment.

Mr Kotick, who has led the company for three decades, has been under pressure from employees to resign. The scandal has taken a toll on a company already struggling to adapt to the end of a pandemic-fueled video game boom.

In November, Activision delayed two of its most anticipated games and gave a sales forecast for the fourth quarter that fell short of Wall Street's expectations, sending the shares plunging.

[reporter2]

Five reasons Microsoft is making Activision Blizzard its biggest deal

Jan 19, 2022

BLOOMBERG [SEATTLE] Microsoft is buying Activision Blizzard in a US$68.7 billion all-cash acquisition, uniting 2 of the biggest forces in video games. It's the software maker's biggest deal ever, almost 3 times as large as the 2016 purchase of LinkedIn. Here are 5 key reasons why it happened.

Size: The transaction, if it can get regulatory approval, will create the world's No 3 global gaming company, catapulting Microsoft to just behind China's Tencent Holdings, the publisher of League of Legends, and game console rival Sony, maker of the PlayStation.

Activision couldn't compete in the new world of gaming on its own, chief executive officer Bobby Kotick said in an interview. "You look at companies like Facebook and Google and Amazon and Apple, and especially companies like Tencent - they're enormous and we realised that we needed a partner in order to be able to realise the dreams and aspirations we have," he said.

As for Microsoft, "together our ambition is to bring the joy and unity of gaming to everyone on the planet," Microsoft CEO Satya Nadella told investors on Tuesday.

Mobile: It's the fastest-growing segment of gaming. Activision owns mobile-gaming studio King, maker of Candy Crush, one of the most popular mobile games of all time. Microsoft has next-to-no presence in mobile gaming.

"We all know that the No 1 gaming device on the planet today is mobile phones," Phil Spencer, the Xbox chief who on Tuesday (Jan 18) was named CEO of Microsoft Gaming, said in an interview. For similar motivations, see Take-Two Interactive Software's deal to buy mobile game maker Zynga for US$11 billion, announced earlier this month.

Bypass App store fees: Nadella wants his gaming empire to be big enough that gamers will come to it directly, bypassing Apple's App Store. Microsoft has been at war with Apple, and Alphabet's Google, over the fees the app stores charge for games.

"Today, we face strong global competition from companies that generate more revenue from game distribution than we do from our share of games sales and subscriptions," Nadella said on a call with investors. "We need more innovation and investment in content creation and fewer constraints on distribution."

Or, as Spencer said when talking about mobile-phone gaming, "Distribution on those devices are controlled by 2 people, 2 big companies." So Microsoft wants its own "unfettered" ability to distribute games and content, Spencer said.

Metaverse: Gaming is one of Microsoft's 2 big metaverse plays (the other is Office and conference software). Nadella and Spencer already view the communities of gamers that have grown up around titles like Minecraft and Halo as similar to the metaverse concept.

The acquisition will offer even more massive and devoted game communities to create their own metaverses. "When we think about our vision for what our metaverse can be, we believe there won't be a single centralised metaverse and there shouldn't be," Nadella said. "We need to support many metaverse platforms, as well as a robust ecosystem of content, commerce and applications."

The Three C's: Nadella's corporate strategy has been coalescing around cloud, content and creators. Microsoft wants to get as much of Activision's past and future content onto its cloud gaming service, Xbox Game Pass, which has been bolstering the software maker's sales with a steady stream of subscription revenue.

The deal also lets Microsoft tap into a pool of players creating their own gaming content and worlds. After adding Minecraft, LinkedIn and GitHub, Nadella has been shopping for a big asset that would give him another large community of creators.

He failed to land social video service TikTok, and talks with Pinterest and Discord similarly went nowhere. Activision is the latest try, and this time he looks to have succeeded.

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