Why Microsoft acquired Activision Blizzard, PC-era game dominator?

Activision Blizzard

This is a big deal, both in the technology industry and in the capital market, investors should be well aware of it.

For a basic introduction to Microsoft, I suggest you refer to my other blog article “How Microsoft makes money? Where is the future?

The deal

Microsoft (ticker: MSFT) announced that it will buy the PC-era game dominator Activevision Blizzard (ticker: ATVI) for $68.7 billion in cash, which represents a 45% premium over Activision Blizzard’s stock price the day before. Activevision Blizzard stock soar 25% right after this annoucement.

The acquisition is the biggest acquisition in technology industry, let alone in game industry, and also the Microsoft’s biggest-ever merger, surpassing the $19.7 billion it paid last year for voice recognition software maker Nuance Communications. More than the largest merger in Microsoft’s history, the US$26.2 billion paid for the acquisition of LinkedIn in 2016.

The impact to game industry

Microsoft will become the third largest game maker in the world after Tencent (ticker: TCEHT) and Sony (ticker: SONY) in one fell swoop; changing the world’s game industry landscape.

Sony lost $20 billion of its market value in the two days after the deal was announced, sending its shares plummeting nearly 13 percent. Tencent’s stock price also fell sharply by nearly 5% on the first day, but it was not as bad as Sony. This is mainly because Sony has subscription services for game consoles and platforms. After game console companies acquire game developers, they usually change the games to platform-exclusive only.

Sony currently leads Microsoft in exclusive games, but as Microsoft acquires major titles such as Activision Blizzard’s Call of Duty franchise, those games could be pulled from Sony’s PlayStation platform, leaving Sony facing the crisis of losing PlayStation users.

Activision Blizzard’s business performance

Twenty years ago, Activision Blizzard was synonymous with computer gaming. However, in the past decade or so, Activision Blizzard has been severely hit by the raising of games, mobile phones, SaaS, and subscription systems, and the company’s active user has been declining, Activision Blizzard lost half of its active users in four years (around 20 millions active users lost).

Another game overlord in the PC era, Electronic Arts (ticker: EA) is not much better, it can be said to be a pair of falling brothers and sisters. In 2020, Activision Blizzard’s revenue will be close to $8.1 billion, and its net profit will be around $2.2 billion.

Why is Activision Blizzard willing to sell?

Activision Blizzard CEO Bobby Kotick explained that the deal is to gain greater market competitiveness. Because Activision Blizzard is currently facing Amazon (ticker: AMZN), Apple (ticker: AAPL), Alphabet (ticker: GOOGL and GOOG), Meta (ticker: META), Netflix (ticker: NFLX), Sony (ticker: SONY) , Tencent (ticker: TCEHY), NetEase (ticker: NTSE) and other industry players compete, in order to have sufficient market competitiveness, so the acquisition by Microsoft was facilitated.

Meta misses Activision Blizzard

Activision Blizzard’s CEO revealed that he was also considering merging with Meta or Electronic Arts before Microsoft made a move. It’s fine for Electronic Arts to take care of itself, but Meta didn’t make a move, which I personally think is a major misstep in Meta’s competitive strategy. The reasons are as follows:

  • Meta has also been developing games, but it’s all social game and casual games that haven’t been very successful. In 2020, Microsoft also publicly abandoned its own e-sports live broadcast platform Mixer (because it couldn’t compete with Amazon’s Twitch), sent users of its own Mixer to Facebook, and issued a press release asking users to move to Facebook’s eSport streaming.
  • Moreover, since 2016, Facebook has cooperated with Activision Blizzard to attack the live broadcast market of e-sports. The two sides are very familiar with each other.
  • On top of that, Zuckerberg announced last year that the company was going to undergo a makeover, a full shift to the Metaverse, and the company changed its name as well. And while game is a ready-made and must-have platform for the Metaverse, Meta actually misses the cooked duck; I really don’t know what he’s thinking.
  • Meta has a mountain pile of cash on the balance sheet, and its finances are healthier than Microsoft; although there is not as much cash as Microsoft, it is no problem to buy Activision Blizzard with all cash. Meta’s long-term debt ratio is zero, the only one among all large companies.

What happened to Activision Blizzard lately?

Activision Blizzard has experienced great internal turmoil in recent years, most of its veterans have been driven out, the product has not been updated for one year, and three CEOs have been replaced in two years. Among large listed companies, only Intel (ticker: INTC) can maintain this disgraceful record as it does, Intel has changed three CEOs in the past three years.

Seriously, I think Microsoft is really taking advantage of the situation, because Activision Blizzard has been making headlines in the financial media for the past year because of its internal employees disclosed the sexism and sexual harassment have been serious within the company for a long time, and they are part of the company culture. The complaints of sexual harassment alone involved nearly 700 employees.

In the past six months, 37 employees have been fired because of this incident, and 44 employees have been punished to varying degrees. The California government has also sued Activision Blizzard over the incident, and the SEC is also investigating. The CEO took countless actions to save it, but the situation did not seem to improve, and the media still did not let him go. He finally told the media bluntly that if the problem could not be solved, he would resign.

After the incident, Activision Blizzard’s stock price has fallen by more than 30%.

What does Microsoft get from the deal?

In my personal opinion, Microsoft’s acquisition of Activision Blizzard has great benefits. Here’s what Microsoft gets right away:

  • Activision Blizzard’s big four famous games World of Warcraft, Call of Duty, Candy Crush, Doom. In 2020, the game title “Call of Duty” alone accounted for 55% of the company’s operating profit.
  • Games are the first mass software to adopt a subscription system, which will greatly contribute to Microsoft’s recurring revenues.
  • Increase the countermeasures against Nintendo (ticker: NTDOY), Sony, and Steam (unlisted) three game console manufacturers; because Microsoft has acquired many famous games in one go.
  • Increases access to the arsenal of the metaverse. In my previouse post “What is the metaverse? Are there any related companies” I mentioned, the game industry has ready-made tickets to enter the metaverse, not to mention that Microsoft bought the game dominator of the personal computer era Activision Blizzard, which is simply a treasure.
  • Obtaining the IP of countless well-known games under Activision Blizzard. It can generate countless games, animations, movies, texts, software, and physical products in the future; creating unlimited revenue possibilities.


The only thing that could break the deal is whether the U.S. government will block the deal. Coincidentally, on the same day that Microsoft announced the deal (01/18/2022), the DOJ and the Federal Trade Commission (FTC) announced with great fanfare that they will strictly review mergers and acquisitions in the corporate world, and will tighten the rules in the future.

It is well known that after President Biden took office, he appointed Lina Khan, an antitrust expert who has always been unfriendly to companies, to become the youngest chairwoman of the FTC in the United States. Amazon also indignantly asked her to avoid the antitrust case against Amazon (ticker: AMZN). The political and financial circles are all looking to see if she will take this as a sacrifice.

But Microsoft is really a special case among the five major technology companies, because the antitrust case in 2000 has allowed it to accumulate a lot of experience in dealing with antitrust agencies, and the company’s long-term vice president stationed in Washington has accumulated more than 20 years of personal and political parties.

This asset surpasses those of the other four tech companies; and Microsoft has repeatedly told these antitrust officials and members of Congress that all of the company’s mergers and business practices will be in line with the current and future direction of antitrust legislation. This is also the main reason why no one has come up to object to this record-breaking case that should have aroused opposition from U.S. congressmen.

In addition to the United States, Microsoft also needs the strict scrutiny of antitrust agencies in various countries; because both are leaders in their respective fields. And Microsoft’s own game empire is already huge (Microsoft’s game revenue ranks among the top five in the world), and then merged into this big factory with many famous games and IPs (today’s Activision Blizzard is composed of Activision, Blizzard and King, these game companies, formed after two mergers), wouldn’t that violate the competition rules?

Another new birth of a new gaming empire

Investors less familiar with the gaming industry may have a hard time grasping the importance of the deal, as it makes Microsoft’s plans to create another major source of revenue in addition to Windows, Office and Azure. It is getting closer and closer to success — that is, a new gaming empire has been quietly born.

In addition to its early self-developed “Empire of the Century”, Microsoft acquired the well-known Mojang game company as early as 2014 and bought the game “Minecraft” for elementary school students. Acquired ZeniMax Media for $7.5 billion in 2020, which owns Bethesda Game Studios, id Software, Arkane Studios, Machine Games, and Tango Gameworks; the group has famouse game title of Doom, Quake, Dishonored, Wolfstein, The Evil Within.

In addition to its own XBox, which is already the three major game console manufacturers, in order to compete with Apple and Alphabet’s mobile app stores’ restraint on cloud games. Microsoft has already launched XBox Game Pass, a platform for cloud game subscriptions, and has achieved 25 million paying users in the first full year in 2021, an astonishing 39% annual growth. And the number of monthly active users of Xbox Live has reached 100 million people, both of which are staggering; it means that Microsoft is quietly building an empire of games.

Activision Blizzard
credit: wikimedia

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