The announced acquisition of video game developer Activision Blizzard is a wake-up call for the competition. Beneficiary Microsoft expects the billion-euro deal to boost growth. However, the merger will not go smoothly.
Almost 69 billion US dollars – Microsoft has never invested so much money in growth. With the acquisition of video game developer Activision Blizzard, the hardware and software giant wants nothing less than to write history and focus fully on the future. The group hopes for metaversum, exclusivity and greater competitiveness in the booming gaming industry. It is the challenge to the competition from Japan and China. But the deal isn’t done yet. Competition authorities are already reporting the first concerns. And there is still a drop of bitterness in the deal: Because Microsoft is bringing a simmering scandal into the house with Activision Blizzard.
Nevertheless, one thing is certain: the pandemic has finally catapulted gaming out of its niche. one study according to two-thirds of adults and three-quarters of children under the age of 18 in the United States play video games weekly. So it’s no wonder that Microsoft wants to grow in this area. “This purchase will accelerate the growth of Microsoft’s mobile, PC, console and cloud gaming business,” one said statements. CEO Satya Nadella speaks of the “most dynamic and exciting category of entertainment across all platforms”.
Next exit: Metaverse
Sentences follow that still seem intangible, but are already driving the entire tech industry. The purchase will provide “building blocks for the metaverse,” Nadella said. What is meant is a space in which the virtual and physical worlds merge. It goes without saying that video games play a key role here: Access is relatively easy and the necessary technology already exists in the form of virtual reality glasses. Whoever has their hat on in the gaming industry will be able to have a say in the metaverse. Exactly for this reason Meta – once Facebook – also invests in the development of its own games.
For Microsoft, the acquisition would mean a huge step forward in the gaming industry. Whether PC, console or smartphone – with Activision Blizzard, Microsoft would suddenly be on an equal footing with Sony and Tencent, the previous market leaders. This is mainly due to the franchises or game titles that Activision Blizzard has in its portfolio: “Call of Duty”, “World of Warcraft”, “Diablo” or the mobile game “Candy Crush” are all real cash cows in the video game sector. Fans of this game series remain loyal to the regular new releases of these titles – even with setbacks in development or little progress.
More exclusivity in the battle of franchises
If the deal goes through, Microsoft would have the opportunity to bind players to its own platforms such as the Xbox and its Game Pass. A power imbalance in favor of Sony had developed in this area in recent years. This can be seen, for example, in the two payment models of the tech giants.
Around 25 million subscribers the Xbox Game Pass (approx. 12.99 euros) has more than 40 million users pay monthly for Sony’s Playstation Plus (8.99 euros). Even if it is more expensive, the Xbox offer is basically more diverse and therefore better value for money. Players have hundreds of game titles freely available there, while Sony only offers three to four titles a month. However, Microsoft has slept through the race for exclusive content in recent years.
Superhero adaptations like “Marvel’s Spider-Man”, apocalyptic dramas like “The Last of Us” or action-adventures like “Uncharted” were blockbusters as exclusive titles on the Playstation for Sony, which sold wonderfully in console bundles. In the past, the Japanese developer’s frequency in the triple-A range – i.e. games with a particularly large development budget – was significantly higher than that of Microsoft.
However, it is probably not to be expected that shooters like “Call of Duty” can only be played on Xbox and PC. Xbox boss Phil Spencer had already announced that they were trying to make games available to as many gamers as possible. That only sounds logical, since “Call of Duty” or “World of Warcraft” flushes millions into the coffers, mainly through in-game sales. With Activision Blizzard, however, Microsoft would now incorporate a group with which large exclusive titles in the triple-A area can be better implemented in the future. At least in theory.
Dealing with scandals
Bobby Kotick has himself numerous mergers with Activision Blizzard under his belt – however, his company has always been on the buyer’s side before.
(Photo: imago images/ZUMA Wire)
Because Activision Blizzard has been writing rather negative headlines for months. Last summer, the game developer was rocked by allegations of discrimination and harassment against female employees. There was talk of a toxic working environment. In July, the state of California then sued the company. Several senior executives at Activision Blizzard were fired, but boss Bobby Kotick stayed on. 2000 of the 10,000 Activision employees petitioned for his resignation – because he is said to have known about what was happening in the company, but did nothing.
Announcing the deal with Microsoft, Kotick is said to have “New York Times” have spoken of the fact that both companies have similar values and corporate cultures. Microsoft’s gaming CEO Spencer subsequently pledged his support to advance the reform of the corporate culture. And that will happen with Kotick for the time being The NYT relies on insiders.
The Blizzard division also does not currently have a good standing. With rather moderate extensions to “World of Warcraft” and development delays in “Diablo 4” and “Overwatch 2”, the American game developer fell out of favor with gamers.
FTC modernizes merger guidelines
Despite Activision Blizzard’s rather moderate reputation at the moment, the approaching takeover is already leaving its mark on competitor Sony. On the day of the announcement, the papers of the Japanese tech group plummeted and dropped by up to 13 percent in Tokyo – a loss of billions for Sony.
But Microsoft shouldn’t let itself be celebrated too early for the coup. No sooner were the merger plans known than US authorities spoke up. Just a few hours later announced the Federal Trade Commission (FTC).that it would now start modernizing its merger policies for large companies, particularly in the digital space. Although Microsoft plans were not mentioned, this could still have an impact on the deal.
Both the FTC and the EU have been less sympathetic to the idea of big-tech acquisitions of late, fearing further market consolidation could lead to monopolies. It is therefore important whether the merger with Activision Blizzard is part of the entertainment division. In the entertainment industry, mergers of this magnitude, such as the recent takeover of Fox by Disney, are viewed less critically. However, since Microsoft has positioned this deal as an important building block in the metaverse, it is not unreasonable that there is resistance from the competition watchdogs.