Microsoft buys video game maker Activision Blizzard for $68.7 billion

In a takeover that eclipses others, Microsoft plans announced today to buy a digital game development company ActivisionBlizzard in an all-cash deal worth $68.7 billion.

If the acquisition goes through, it would add significantly to Microsoft’s already sizable video game business, 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 footing in the emerging Metaverse industry, which blends the traditional online world with the virtual one thanks to augmented reality headsets.

“Ultimately, the line between enterprise and consumer metaverses was always going to be blurred, and you can’t focus on just one,” said Thomas Bittman, vice president and distinguished analyst at Gartner Research. “Microsoft is now going big on both.”

The acquisition would be Microsoft’s largest and biggest buyout of any game company, eclipsing the Acquisition of Zynga for $12.7 billion by Take-Two Interactive earlier this month. That’s more than double Microsoft’s next biggest acquisition – its $26 billion purchase of LinkedIn in 2016.

Microsoft said the purchase of Activision would make it the world’s third-largest games company by revenue, behind Tencent Holdings Ltd. in China and Sony Group Corp. in Japan.

Lewis Ward, research director at IDC whose coverage areas include global gaming 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 recent 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 has focused on both business and gaming on building the platform, in gaming they are shifting significantly to content delivery,” Bittman said.

Microsoft CEO Satya Nadella says the Activision Blizzard business will report to Phil Spencer, CEO of 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, the best community and the best cloud for gamers,” Nadella said in a statement. “We want to make it easier for people to connect and play great games where, when and how they want.”

In the consumer and gaming metaverse, Meta Platforms (formerly Facebook) is now Microsoft’s biggest competitor.

About 100 Microsoft employees recently left the company’s mixed reality project Hololens; many defectors are said to have joined Meta. This is concerning, Bittman said, because it indicates that “at least some of Microsoft’s employees have lost faith in their virtual reality strategy – and that needs to change.”

“I don’t read this as a metaverse game at all,” said IDC’s Ward. “I don’t see Activision-Blizzard as a leader in this emerging space.”

The deal, Ward said, is more about Activision-Blizzard who believe it is in a weakened position and creates a “way out” for Activision CEO Kotick and his company.

Activision has come under intense scrutiny from multiple government agencies after California regulators have filed a lawsuit against the company in July for sexual harassment and gender wage disparity. In the lawsuit, the California Department of Fair Employment and Housing alleged that Activision discriminated against female employees “despite women doing substantially similar work, assigned women to lower level 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 approximately 10,000 employees signed a petition calling for the resignation of CEO Bobby Kotick. Employees have also staged walkouts in response to a Wall Street Journal survey which claimed that Kotick had been aware of sexual harassment and discrimination practices for years.

In today’s announcement, Microsoft said Kotick will retain his position after the acquisition closes. But the Wall Street Journal, citing sources, reported that Kotick would walk away once the deal is done.

Bittman said he expects Microsoft to allow Activision to retain “the good parts” of its culture, and Microsoft’s support will only accelerate Activision games. Conversely, Microsoft will not tolerate sexual harassment, “so it’s a good thing” for Activision employees, Bittman said.

“Obviously Activision-Blizzard has been going through a tough time since last summer and I can understand why,” Ward said. “From Microsoft’s perspective, this is the right time to make such an offer.”

Activision-Blizzard has become one of the leading independent cross-platform game development and publishing companies, Ward said. “So if the deal passes regulation, it will still be a blow to the idea of ​​independent studios and, potentially, to the idea of ​​cross-platform game publishing.”

Copyright © 2022 IDG Communications, Inc.

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