The announcement of the acquisition of the Activision Blizzard group by Microsoft for 68.7 billion was a tidal wave in the world of video games. If for the moment, the immediate impacts are rather financial, the repercussions of this purchase should manifest themselves on the entire video game sector in the years to come. Discover our analysis of this operation which, at first glance, seems to be an idyllic deal between two industry and tech giants.
Microsoft buys Activision Blizzard for 68.7 billion dollars, what are the details of this deal?
As is often the case in the world of acquisitions, the details of the operation will probably never be known. However, Microsoft will soon have to present the main lines of this maneuver, with in particular the economic levers used but above all, the first “political” decisions.
Thus, we already know that this acquisition will take a little time since the procedure will be finalized within two years. Among the important points, the departure of Bobby Kotick now seems certain since a source has confirmed to Bloomberg (in English) the departure of the CEO of Activision Blizzard when the acquisition is complete. The latter will therefore be present during the transition period which begins today but should act under the supervision of Phil Spencer, the head of Microsoft’s gaming division: Microsoft Gaming.
Beyond this very important aspect for Activision Blizzard’s image, few elements have been made public by the two entities.
Note that if for many, this deal seems to have already been done and that many analysts, fans and detractors are already making plans for release dates, games and Activision Blizzard projects, it is important to note that the acquisition is still at the beginning of its process. Although the country of Uncle Sam is known for its very free capitalism, in fact, the regulator, the competition authority and the stock market policeman will take the time to analyze at length the ins and outs of this agreement. .
It’s a safe bet that the two groups will be forced to revise their copy a little on the way, even if it means having to sell activities to meet the requirements of the regulator. Worse, it is not uncommon to see industry or tech giants miss acquisition operations of this kind, even after having made an offer well above the valuation of the targeted asset. Indeed, the American competition authority but potentially, Chinese and European will have to give its agreement to complete this operation. These authorities can sometimes block the way of giants, as was the case with the failure of the takeover of NXP by Qualcomm (a 44 billion dollar deal), the two groups having been blocked in particular by the Chinese competition authority. .
Why Microsoft decides to buy ATVI?
While people generally wonder what the funds and liquidities of large groups are used for, few of them really analyze the interest of mergers and acquisitions by stock market giants. Thus, for Microsoft, the reasons for the takeover of the Activision Blizzard group (ATVI on the stock exchange) are multiple.
First, Microsoft has been looking for years to expand its catalog of games through the acquisition of studios. If the takeover of Bethesda on September 21, 2020 had already been a big blow, this strategy of acquiring studios is not new for the American giant. However, few studios have a catalog as varied, profitable and important as Activision Blizzard. Some of the franchises acquired are among the most renowned in the sector with Call of Duty, World of Warcraft, Candy Crush Saga and Diablo.
These additions should make it possible, in time, to add extremely popular titles to the subscription systems offered by Microsoft but also to its Xbox Series catalog. While the American giant is in open war against Sony but also many other studios offering paid offers (including EA and Ubisoft), this acquisition could allow it to become very clearly the market leader in subscription content.
But the choice of Activision Blizzard is not only explained by the presence of large franchises, since Ubisoft and EA (for example) also offer extremely iconic and profitable licenses. The ATVI group is also placed in an extremely specific situation following the cases linked to the legal action by the State of California. Indeed, following the publication of this litigation, the company lost nearly half of its market capitalization, despite very solid financial results. In addition, this affair tarnished the reputation of the group and weakened the position of the leaders of the company, in particular its CEO Bobby Kotick. While part of public opinion but also employees of the group have asked for his departure following the case of harassment and discrimination within the group, this offer by Microsoft seems to be the perfect way out for the head of ‘business…
Thus, Microsoft has chosen its target perfectly: a unique studio, with very popular franchises, a company in crisis of image and identity but which continues to function well economically and financially.
What could be the impacts of this takeover of Activision Blizzard by Microsoft?
First we will discuss the simplest elements. The first is that Microsoft would immediately become the third largest player in the video game sector in terms of turnover. The giant thus sees itself arriving at the top of the pyramid in an extremely competitive environment.
Then, a shock wave will be felt throughout the sector since Microsoft’s direct competitors will seek to react. Thus, it would not be surprising if this period of consolidation of activities (the takeover of small studios by large studios) intensifies during the months to come. This situation explains the particularly impressive rise in the share price of certain studios, including Ubisoft (+15% in three hours following Microsoft’s announcement): the market is already turning to the French studio, asking whether it is next on the list of purchases.
On the side of Microsoft
But the impacts will be especially visible on the side of Microsoft and Activision Blizzard. For the buyer, this acquisition should allow him to pause in this desire for expansion, for economic but also legal reasons. As mentioned above, the American competition authority (but also European and Chinese, to name a few) should spend a lot of time analyzing the repercussions of this takeover. It is rather rare (and tricky) to see a group continue to absorb large companies during this process, which sometimes tends to cancel sales or even push for divestitures…
In addition, Microsoft should also review its copy vis-à-vis its catalog of games: by buying ATVI, the group now has one of the biggest Battle Royales with Warzone but also leaders in the MMORPG market (World of Warcraft) or even mobile games with King (the third major ATVI entity, notably responsible for Candy Crush Saga). If it seems unlikely that projects already well developed will be canceled, it seems logical that the new group wishes to limit the titles live competition.
In addition, Microsoft will now be able to continue its reconquest of PC gaming, a vision begun a few years ago and marked by the return of legendary franchises such as Flight Simulator and Age of Empires IV.
Finally, we can expect to see changes to the group’s subscription game offer (the Xbox Game Pass) with the arrival of titles from Activision Blizzard. If a merger with Battle.net seems remote, the group could enjoy exclusivity (even temporary) on the next titles on its Xbox Series console.
For Activision Blizzard
But it is especially on the side of Activision Blizzard that things should move the most in the years to come. Indeed, the presence of Microsoft will allow a first sweep internally (the departure of Bobby Kotick will undoubtedly be a strong signal) but also the opportunity to restore the image of the group.
In addition, it’s a safe bet that if Microsoft hopes that this purchase will be profitable, the American company will also want to revive the internal dynamics of the various studios. It is therefore hoped that the franchises in development can benefit from more time and resources before their release. If for Diablo IV and Overwatch 2, this acquisition should not have very significant impacts, Blizzard is also working on two new unannounced franchises. Here, a change in leadership could have many repercussions, both positive and negative…
As such, some are already talking about an axis more oriented towards console gaming, but this vision seems very limited and dated to us. As mentioned above, Microsoft seems to be one of the few players to jointly develop the PC and console activities. While EA and other major studios shun investments on PC (take the example of the absence of next-gen on PC for FIFA 22), Microsoft has offered simultaneous releases of titles on PC and Xbox Series (like the last Halo Infinite), proof of a willingness to invest on both platforms. However, this takeover should end the ties between Activision and Sony, the Japanese console had enjoyed temporary exclusivity on titles including Call of Duty for years.
Finally, with regard to King, the mobile games division is the most profitable entity of the ATVI group but could also be subject to negotiations by the various competition authorities. If Microsoft wants to keep this studio, it would not be surprising to see offers to buy this part of the cake appear from competitors…
If for the moment, the details on this takeover of Activision Blizzard by Microsoft are not known, it is already possible to glimpse the possibilities and the impacts on the whole sector of this extraordinary deal. However, the road will be long before the total end of the acquisition and the process should take several years before really seeing the emergence of a new video game giant.