21st January 2022
POV: Microsoft Buys Activision Blizzard
Background:
Microsoft announced this week that it plans to buy Activision Blizzard, the publisher of the popular Call of Duty and World of Warcraft games franchises. The deal is valued at $68.7bn and will make Microsoft the third biggest gaming company behind Tencent and Sony once it closes.
Details and Implications:
The deal is likely to face tough regulatory scrutiny in the US, but if it goes through it will be Microsoft’s largest ever acquisition and its biggest push into gaming so far. Microsoft expects the deal to close in 2023.
Microsoft has been acquiring game studios in recent years to boost its Xbox Game Pass subscription service, which now has 25 million subscribers and gives members access to all of its first-party games for no extra charge, on the day of their release. It acquired Bethseda nearly a year ago and the company also bought Mojang, the maker of Minecraft, in 2014.
Microsoft plans to add many of Activision’s games to its Xbox Game Pass once the deal closes. It is also expected that Microsoft will keep making some of Activision’s games for PlayStation consoles. Microsoft’s CEO of gaming, Phil Spencer said: “Activision Blizzard games are enjoyed on a variety of platforms and we plan to continue to support those communities moving forward”.
The move to buy Activision also signifies Microsoft’s vision for the ‘metaverse’ - virtual online worlds where people can work, play and socialise. Microsoft Chief Executive Satya Nadella said that gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms. He added: “when we think about our vision for what a metaverse can be, we believe there won’t be a single, centralized metaverse and there shouldn’t be. We need to support many metaverse platforms, as well as a robust ecosystem of content, commerce and applications. In gaming, we see the metaverse as a collection of communities and individual identities anchored in strong content franchises, accessible on every device.”
Whilst in-game advertising revenue is a small proportion of revenues generated by video games it is growing and brands are buying video ads in mobile games like Candy Crush (owned by Activision) and developing branded virtual worlds inside user-generated platforms like Roblox.
Microsoft’s latest acquisition gives it access to more gamers and broadens its stable of gaming IP, with extensions into mobile and could offer interesting ways for brands and advertisers to reach this growing and lucrative audience in future. It also positions Microsoft better for the future of the metaverse.
Summary:
This is a huge advancement of Microsoft’s gaming and metaverse strategy and puts it in a strong position to compete with Meta and others, assuming the deal closes with no issues.