Microsoft smashed gaming industry record with the purchase of Activision Blizzard

January 25, 2022
6 minutes read

Microsoft is looking to carve out a larger piece of the metaverse through its acquisition of Activision Blizzard’s legendary IP. Brands and individual gamers alike will be looking to get a piece of Xbox Game Pass because the gold standard gaming service is about to go platinum.

Why have money if you don’t spend it on fun things?

On January 10, 2022, Take-Two Interactive (video game publisher; known for Grand Theft Auto) announced it had entered an agreement to buy Zynga (online and mobile game developer; known for Farmville) for $12.7 billion, the largest sum paid for an acquisition of a video game company, to which Microsoft apparently said “hold my beer.”  

Barely a week later, on January 18, Microsoft announced its plans to buy Activision Blizzard (video game publisher; known for Call of Duty, World of Warcraft, and Candy Crush) for $68.7 billion in an all-cash transaction (to put that into perspective, Disney paid roughly $4 billion each for Star Wars and Marvel). Activision’s legal troubles in 2021, likely worked in Microsoft’s favor to secure the $95 per share deal, as Activision Blizzard’s stock price reportedly fell by more than 25% over the past six months. However, Activision-Blizzard-King today is not the same company as when each were at their pre-merger peaks. Call of Duty 4: Modern Warfare was released 15 years ago and World of Warcraft released 18 years ago. Even before the July 2021 lawsuit, the company’s once prolific flood publishing output has slowed to a trickle. Activision’s dwindling recent output and the massive value in its vaulted properties means Microsoft is buying the rights to some of gaming’s all-time greatest memories when they’re ripe for picking. However, many of the high-profile talents that made those memorable game titles are long gone.

Not a sinking ship, but no stranger to storm clouds   

In November 2021, then head of Xbox and now newly promoted CEO of Microsoft Gaming, Phil Spencer, sent an internal email to Microsoft staff that he was “disturbed” by the activity at Activision Blizzard, and that there was a reconsidering of the two companies’ relationships. This was followed by a press statement in early January that he was uninterested in “virtue shaming” Activision, but wouldn’t comment on how any partnership at the time had been amended, stating: 

“The thing that we continue to focus on is to try to grow. And whether that’s us sharing, again, the experiences that we have with other partners, if we can help them on their own journey or on the things that happen in our own teams.”

It’s likely those statements were made with this acquisition in mind, reflecting how Microsoft would soon be dealing directly with Activision Blizzard’s history, and providing a hint to how Spencer plans to change the narrative. Even before the recent gender discrimination scandal that exploded in summer 2021, Activision Blizzard employees were shocked and outraged the year prior over the massive pay gaps within the company. If current CEO, Bobby Kotick is remembered for anything, it won’t be for any positive impact he’s had on the gaming industry, it will be for making Activision’s shareholders an obscene amount of money. Above all else, he pushed the company to make products that returned the greatest profit, and he was handsomely rewarded for it as one of the highest-paid CEOs in the US. While the deal unfolds, there will be a period of business as usual for the employees who haven’t been striking and unionizing, before the end of Bobby Kotick’s tenure as CEO sometime in late 2023. To be blunt, Activision Blizzard employees are likely celebrating this acquisition news.

Xbox in a position to challenge PlayStation’s dominant status but has a brand image problem

Of course, this deal will make Game Pass much more enticing for gamers. Microsoft will own more than 30 individual game studios, with some of the largest franchise names in the industry, and now 3rd in total revenue behind Tencent and Sony. The latter of which is going to have to work even harder to offer a competing future-looking cloud gaming service, as console sales are largely determined by their exclusive software offerings. Other fledgling services such as Google Stadia and Amazon Luna could be left in the dust. 

Another upside for Microsoft and Xbox gamers is that Xbox will focus on pushing gaming franchises further than they could on their own. Many popular franchises that have fallen by the wayside in recent years may get a chance to live again. Xbox just released Age of Empires 4, a sequel to a 2005 niche strategy game. A very similar future could be in store for several neglected franchises like StarCraft

However, Xbox already has a somewhat tarnished reputation among gamers. Merging with a now-notorious company like Activision will mean that Xbox will need to redouble its efforts to confront toxic behavior in the workplace and in-game to improve its brand image. 

“Which of the following console brands best represents each of the following features?”
Source: Mintel Reports US, Console Gaming: Spotlight on the Next Generation, 2021

Nintendo once famously laughed at a Microsoft deal; no one’s laughing now

In terms of how big a deal this is for gaming, the only acquisition that could have been bigger is if one of the big three console manufacturers were being bought. As the original third-party publisher, Activision can trace its lineage back to their split from Atari and their games have graced every system. For many gamers, it didn’t matter what console they bought, they could count on playing the latest Call of Duty. In 2023, that’s all about to change. Microsoft will continue to honor any publishing deals that bring games to PlayStation, but as we’ve seen with the Bethesda acquisition, that’s just for now and the games that have been announced. Sony will have to find a way to continue competing with Xbox’s software lineup, or take Nintendo’s path and find a different niche. The point is that this is big enough that, almost the entire gaming industry will need to take notice. Beyond gaming, the deal further demonstrates Microsoft’s ambition to lead Big Tech’s race to create metaverse, as noted by Microsoft’s CEO, Satya Nadella: 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.”

The deal still has to be reviewed and approved, and make it through Activision’s existing issues. Is there a chance this could be ruled a monopoly on the gaming industry? No, it’s a metaverse, the future apparently, and completely different.

Brian Benway
Brian Benway

Brian Benway is a US Gaming and Entertainment Research Analyst at Mintel.

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