Microsoft stunned the gaming industry when it announced Tuesday it’s buying game publisher Activision Blizzard for $68.7 billion in a deal that would make it a larger video-game company than Nintendo.
The maker of the Xbox gaming system said acquiring the owner of Candy Crush, Call of Duty, Overwatch and Diablo would be good for gamers and advance its ambitions for the metaverse — a vision for creating immersive virtual worlds for work and play.
But what does the deal mean for the millions who play video games on consoles or their phones? And will it actually happen despite increased government scrutiny over giant mergers?
GOOD FOR GAMERS?
“For the average person who is playing Candy Crush or anything else, there will probably be no changes at all,” said Rishi Jaluria, a gaming industry analyst with the firm RBC.
But Jaluria and other industry watchers said it could be good for game development, especially if Microsoft can rescue Activision from its reputation for abandoning favorite game franchises while focusing on a few choice properties.
Microsoft’s “target is anyone and everybody who plays video games, and they want to bring that to a wider audience,” Forrester analyst Will McKeon-White said.
McKeon-White said the “most egregious” example of a popular franchise that Activision left by the wayside is StarCraft, which it last updated in 2015. Others include Guitar Hero, the Tony Hawk skateboarding games and MechWarrior, which McKeon-White said “basically wasn’t touched for two decades.”
Yet the prospect of a console-maker like Microsoft controlling so much game content poses concerns about whether the company might restrict Activision games from competitors.
Microsoft expects to bring as many Activision games as it can to its Xbox subscription service Game Pass, “with some presumably becoming Microsoft exclusives,” Wedbush analyst Michael Pachter wrote.
But Wedbush said antitrust regulators might not let Microsoft keep games off Sony’s competing PlayStation game console.
Pachter said Activision presents a model for Microsoft on how to evolve its classic console franchises. Activision adapted Call of Duty into successful mobile and free games, and he expects the company to help Microsoft do the same with its own games, such as Halo.
IS THIS ABOUT THE METAVERSE?
Microsoft says so. And there are some ways Activision could help the tech giant compete with rivals like Meta, which renamed itself from Facebook to signal its new focus on leading its billions of social media users into the metaverse.
Metaverse enthusiasts describe the concept as a new and more immersive version of the internet. But it will require a lot of people to want to spend more time in virtual worlds.
Microsoft’s metaverse ambitions have focused on work tools such as its Teams video chat applications.
But online multiplayer games such as Call of Duty and World of Warcraft have huge followings devoted to interacting with each other virtually.
“That’s where Activision really helps,” Jaluria said. “Millions of people play Call of Duty online. The community element helps drive adoption.”
WILL IT ACTUALLY HAPPEN?
Regulators and rivals could turn up the pressure to block the deal.
Meta, Google, Amazon and Apple all have attracted scrutiny from U.S. and European antitrust regulators. The Biden administration has moved to strengthen enforcement against anticompetitive mergers.
And the Activision deal is so big — potentially the priciest tech acquisition to date — that Microsoft will be putting itself into the regulatory spotlight.
“I think it should get a hard look, and it probably will get a hard look,” said Diana Moss, president of the American Antitrust Institute.
Regulators could ask about Microsoft making games exclusive to its own systems and about whether the company would harness user data gained in the acquisition to aid its other businesses.
If the deal fails, Microsoft will owe Activision a “breakup fee” of up to $3 billion. That should motivate Microsoft to make concessions to antitrust regulators to get it done, said John Freeman, vice president at CFRA Research.
WHAT ABOUT ACTIVISION’S WORKPLACE ISSUES?
Activision has attracted unwanted attention from workforce discrimination regulators, the Securities and Exchange Commission and its own shareholders over accusations it has a toxic workplace. California’s civil rights agency also sued the Santa Monica-based company in July, citing a “frat boy” culture that became a “breeding ground for harassment and discrimination against women.”
Activision’s legal problems dragged down its stock price and might have made it easier for Microsoft to make a takeover bid.
Microsoft CEO Satya Nadella said in a call with investors “the culture of our organization is my No. 1 priority” and that ”it’s critical for Activision Blizzard to drive forward” on commitments made last year to improve workplace culture.
Activision hasn’t said whether Bobby Kotick, its CEO since 1991, will stay on with Microsoft.
