In a buyout that dwarfs others, Microsoft announced plans today to purchase digital game development company Activision Blizzard in an all-cash deal worth $68.7 billion.
If the acquisition goes through, it would significantly add to Microsoft’s already sizeable video game operation, which includes “Minecraft” and “Doom.” Activision’s stable of popular video games includes “Call of Duty,” “World of Warcraft,” and “Candy Crush” — all of which are already available through Microsoft’s Xbox console business.
The deal would give Microsoft a solid foothold in the emerging metaverse industry, which blends the traditional online world with that of the virtual through augmented reality headsets.
“In the end, the line between the enterprise and consumer metaverses was always going to be fuzzy, and you can’t focus on just one,” said Thomas Bittman, a vice president and distinguished analyst with Gartner Research. “Microsoft is now going big on both.”
The acquisition would be Microsoft’s largest, and the biggest buyout of any gaming company, dwarfing the $12.7 billion acquisition of Zynga by Take-Two Interactive earlier this month. It’s more than double Microsoft’s next largest acquisition — its $26 billion purchase of LinkedIn in 2016.
Microsoft said purchasing Activision will make it the world’s third-largest gaming company by revenue, behind China’s Tencent Holdings Ltd. and Japan’s Sony Group Corp.
Lewis Ward, a research director with IDC whose coverage areas include the global video game and augmented and virtual reality (AR/VR) markets, said the deal raises concerns about too much consolidation and market concentration in the gaming space.
Microsoft’s gaming strategy has expanded significantly in the past few years with the acquisition of Zenimax Media (Bethesda Software) in September 2020, and the launch of Xbox Game Pass and Xbox Cloud Gaming. “While Microsoft’s focus in both the enterprise and gaming has been more on building the platform, in gaming they are shifting in a big way into delivering the content,” Bittman said.
Microsoft CEO Satya Nadella said the Activision Blizzard business will report to Phil Spencer, CEO, Microsoft Gaming.
“We believe we have an incredible opportunity to bring the joy and community of gaming to everyone on the planet, and we will invest and innovate to create the best content, community, and cloud for gamers,” Nadella said in a statement. “We want to make it easier for people to connect and play great games wherever, whenever, and however they want.”
In the consumer and gaming metaverse, Meta Platforms (formerly Facebook) is now Microsoft’s primary competition.
About 100 Microsoft employees recently left the company’s mixed reality Hololens project; many of the defectors reportedly joined Meta. It’s concerning, Bittman said, because it’s indicative that “at least some of Microsoft’s employees lost faith in their VR strategy — and that needs to change.”
“I don’t read this as a metaverse play at all,” IDC’s Ward said. “I don’t think of Activision-Blizzard as a leader in that emerging space.”
The deal, Ward said, is more about Activision-Blizzard believing it’s in a weakened position and creating a “way out” for Activision CEO Kotick and his company.
Activision has been under scrutiny by multiple government agencies after California regulators filed a lawsuit against the company in July for sexual harassment and gender pay disparity. In the lawsuit, the California Department of Fair Employment and Housing alleged Activision discriminated against female employees “despite women doing substantially similar work, assigned women to lower-level jobs and promoted them at slower rates than men, and fired or forced women to quit at higher frequencies than men.”
In November, more than 800 of Activision’s nearly 10,000 employees signed a petition calling for the resignation of CEO Bobby Kotick. Employees have also staged walk-outs in response to a Wall Street Journal investigation that claimed Kotick had been aware of the sexual harassment and discrimination practices for years.
In its announcement today, Microsoft said Kotick will retain his position after the acquisition is completed. But the Wall Street Journal, citing sources, reported that Kotick would actually step down once the deal is complete.
Bittman said he expects Microsoft to allow Activision to retain “the good parts” of its culture, and Microsoft’s backing will only help accelerate Activision games. Conversely, Microsoft won’t tolerate sexual harassment, “so that’s a good thing” for Activision employees, Bittman said.
“Obviously, Activision-Blizzard has gone through a rough patch since last summer and I can understand why,” Ward said. “From Microsoft’s perspective, it’s a good time to make such an offer.”
Activision-Blizzard has grown into one of the marquee indie, cross-platform game development and publishing companies, Ward said. “So, if it the deal does pass regulatory muster, it will still be a blow to the idea of indie studios and, potentially, to the idea of cross-platform game publishing.”
Copyright © 2022 IDG Communications, Inc.
