Microsoft to buy video game maker Activision Blizzard for $68.7B

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Microsoft today revealed intentions to acquire digital game production business Activision Blizzard in an all-cash transaction valued at $68.7 billion, a deal that eclipses any other previously reported.

If the deal is completed, it would dramatically increase the size of Microsoft’s already substantial video gaming division, which includes popular titles such as “Minecraft” and “Doom.” “Call of Duty,” “World of Warcraft,” and “Candy Crush” are among the prominent video games produced by Activision, all of which are already accessible via Microsoft’s Xbox system company.

By signing the agreement, Microsoft would have a firm footing in the developing metaverse business, which combines the conventional internet world with the virtual world via augmented reality goggles.

According to Thomas Bittman, a vice president, and senior analyst at Gartner Research, “the border between the enterprise and consumer metaverses was always going to be hazy, and you can’t focus on just one,” said Bittman. “Microsoft is currently putting a significant amount of effort on both.”

The purchase would be the largest ever for Microsoft and the largest ever for a gaming firm, dwarfing Take-Two Interactive’s $12.7 billion acquisition of Zynga earlier this month. In 2016, Microsoft acquired LinkedIn for $26 billion, more than double the amount spent on its next-largest acquisition.

Microsoft said that its acquisition of Activision would elevate it to the world’s third-largest gaming firm in terms of revenue, after China’s Tencent Holdings Ltd. and Japan’s Sony Group Corp.

IDC research director Lewis Ward, whose areas of expertise include the global video game and augmented and virtual reality (AR/VR) sectors, said the purchase raises worries about excessive consolidation and market concentration in the gaming industry.

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Xbox Game Pass and Xbox Cloud Gaming are two new features added to Microsoft’s gaming strategy in recent years, with the purchase of Zenimax Media (Bethesda Software) in September 2020 and the debut of Xbox Game Pass and Xbox Cloud Gaming. Microsoft’s emphasis has traditionally been on platform development in both the workplace and gaming. Still, Bittman believes the company is moving its focus to content delivery effectively in the gaming industry.

Satya Nadella, the CEO of Microsoft, has said that the Activision Blizzard company would report to Phil Spencer, the CEO of Microsoft Gaming.

The company’s CEO, Satya Nadella, said in a statement that “we think we have a unique potential to deliver the pleasure and community of gaming to everyone in the world.” “We will invest and develop to build the best content, community, and cloud for gamers.” Our goal is to make it simpler for people to interact and enjoy excellent games anywhere, whenever, and whatever they want.

As Microsoft’s principal competitor in the consumer and gaming metaverses, Meta Platforms (previously Facebook) has emerged as the company to watch.

The Hololens mixed reality project at Microsoft has lost over 100 staff, with many joining Meta. Microsoft has not commented on the departures. The fact that “at least some of Microsoft’s workers have lost trust in their VR plan” is troubling, according to Bittman, and something has to be done to remedy this situation.

According to Ward of the IDC, “I don’t interpret this as a metaverse play at all.” “I don’t consider Activision-Blizzard to be a leader in that burgeoning market,” says the analyst.

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As for why Activision-Blizzard agreed to the agreement, Ward said it was more about Activision-Blizzard feeling it was in a vulnerable position and wanted to provide a “way out” for Activision CEO Bobby Kotick and his firm.

Activision has been under investigation by several government authorities since California regulators launched a complaint against the business in July, alleging sexual harassment and wage disparities between men and women. It was claimed in the lawsuit that Activision discriminated against female employees “even though women performed substantially similar work,” assigned female employees to lower-level positions and promoted them at a slower rate than male employees, and fired or forced women to quit at a higher rate than male employees.

Activision’s roughly 10,000 workers signed a petition in November demanding CEO Bobby Kotick’s resignation. The petition garnered over 800 signatures. A Wall Street Journal investigation revealed that Kotick had been aware of the company’s sexual harassment and discrimination policies for years, prompting employees to conduct walk-outs in reaction to the revelations.

Following the completion of the transaction, Microsoft said that Kotick would keep his job, according to the company’s release. However, according to the Wall Street Journal, which cited anonymous sources, Kotick will step down after the acquisition is completed.

Bittman believes that Microsoft will enable Activision to keep “the positive components” of its culture and that Microsoft’s support will only expedite the development of Activision games. On the other hand, Activision workers will not be subjected to sexual harassment at Microsoft, which Bittman believes is a “positive thing.”

“It’s clear that Activision-Blizzard has been going through a hard patch since last summer, and I can see why,” Ward said. “From Microsoft’s standpoint, it is an excellent moment to make such an offer.”

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According to Ward, Activision Blizzard has evolved into one of the most prominent independent, cross-platform game development and publishing organizations. “Thus, even if the transaction passes the regulatory test, it will be a blow to the concept of independent studios and, perhaps, to the concept of cross-platform game publishing.”

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