Spending tens of billions of dollars to take over Activision Blizzard Is Microsoft "dizzy" or far-sighted?

Reporter Li Haoyue

On January 18, 2022, microsoft's "big news" of acquiring game giant Activision Blizzard for $68.7 billion in cash quickly fermented. The acquisition premium of about 45%, the largest acquisition in the history of the game, will also make Microsoft the world's third-highest-grossing game company, after Tencent and Sony.

As of Tuesday's close, Microsoft shares fell 2.43% to $302.65 per share; Activision Blizzard shares closed up 25.88% at $82.31 per share.

"In fact, Activision Blizzard is not only looking for acquisitions from Microsoft. At present, Activision Blizzard's eagerness for 'marriage' is much higher than Microsoft's mood of 'asking for marriage'. Zhang Yi, CEO and chief analyst of Ai Media Consulting Group, told the Securities Daily reporter, "The decline in Microsoft's stock price also confirms that investors in the secondary market are full of concerns about acquiring this company." ”

It is difficult to save itself from the fall of the kingship

Microsoft "captured" the original intention of nearly 400 million players

Activision Blizzard is a game giant formed through multiple acquisitions and mergers. It was only after the acquisition of digital entertainment company King in 2016 that Activision Blizzard, which now consists of Activision Publishing, Blizzard Entertainment and King, was formed.

The subsidiary known to Chinese players is actually Blizzard Entertainment, whose 2004 "World of Warcraft" is recognized as the best MMORPG (Massively Multiplayer Online Role-Playing Game) game in the field of gaming, which not only makes Blizzard Entertainment a household name, but even boosts the listing of the ninth city of Chinese agency companies on the NASDAQ.

Activision Blizzard's fiscal 2021 semi-annual report shows that Activision Publishing, Blizzard Entertainment and King contributed $1.68 billion, $870 million and $1.24 billion, respectively. Compared with 2020, Activision and King's revenue have increased, and Blizzard Entertainment has declined, and in 2020 and 2021, it is the lowest revenue of its subsidiaries.

Activision Blizzard's overall active users also did not grow. In the first three quarters of 2020, there were 390 million active players. By the first three quarters of 2021, the number of active players remained at 390 million.

Liao Xuhua, a senior analyst in the analysys interactive entertainment industry, told the Securities Daily reporter: "Activision's new work Call of Duty: Pioneer has collapsed in word of mouth, and the reputation of the next work is also worrying, and Blizzard's sequel has also postponed this situation." ”

Zhang Yi also said: "It is difficult for any single game company to maintain at a high point for a long time, not to mention that many of Activision Blizzard's explosive lifespan has entered the final stage, and the company's obstacles mainly lie in the traffic dilemma." Unlike companies like Tencent, he has a natural traffic advantage and can use its own platforms WeChat and QQ to achieve low-cost traffic growth. ”

The problem of Activision Blizzard executives leaving has not been resolved from 2018 to 2021. In July 2021, the long-standing backlog of gender discrimination and sexual harassment within the company was exposed, once again accelerating the departure boom of Activision Blizzard executives. From project director to corporate vice president and legal counsel, they all left one after another.

These disputes even affect the progress of new games. The new game Diablo: Immortal, originally scheduled for 2021, will be postponed until 2022.

While Activision Blizzard was busy dealing with sex scandals, the stock price of Roblox, the "first stock in the meta-universe", rose 40% on November 9 last year, once surpassing Activision Blizzard to take the position of the number one game company in the United States by market capitalization.

Activision Blizzard CEO Bobby Kotick said he felt overwhelmed against powerful competitors such as Tencent, NetEase, Facebook, Sony and others. In order to fight competitors, this deal with Microsoft is necessary.

Zhang Yi believes that "Microsoft's traffic advantage is what Activision Blizzard has always been scarce. ”

Microsoft hit the console game market

Pressure on Sony's side?

Rescue Activision Blizzard in the water, is it a good business for Microsoft? After the acquisition, on January 18, Phil Spencer, president of Microsoft Xbox, said that Microsoft's game subscription service GamePass (which includes the host platform and PC side) has more than 25 million users.

Since Microsoft launched its first game console in 2001, it has been competing with Sony and Nintendo in the console market for more than two decades. After 2017, Nintendo firmly occupied more than 90% of the console market in Japan with the Switch. According to VGChartz, a data and statistics agency, the sales volume of various host platforms around the world will reach 47 million consoles in 2020, accounting for 59.7% of the Nintendo Switch; Sony PS5 accounted for 9.8%, and Microsoft XboxSeriesX/S accounted for 5.3%. In this case, Microsoft's fierce rival in the console market has always been Sony.

Exclusive games on the platform often affect console sales. For example, switch sales soared in 2020 with "Fitness for Adventure" and "Collection! Animal Friends association is related to the "Animal Forest Friends Association", and the exclusive game is basically from the first-party studio (the console platform's own game studio).

After Microsoft's acquisition of Activision Blizzard, its first-party studios have increased from 23 to 32. In November last year, Sony announced 16 first-party studios.

"We will add as many Activision Blizzards to the XboxGamePass and PCGamePass as much as possible," Phil Spencer said. ”

Liao Xuhua said, "More studios, IP and Call of Duty, which has a huge influence in the European and American markets, will bring great pressure to Sony. ”

On January 19, Sony Group's stock price fell to 13 percent in Tokyo stocks, its biggest drop since September 2014.

"This acquisition has considerations in the gaming space, as well as Microsoft's consideration of the risks and challenges in the next decade." Zhang Yi said that although Microsoft's market value has risen steadily for many years, the company has also dominated the world with operating systems such as Windows. However, after Huawei's Hongmeng debut in 2021, it may also have an impact on Microsoft's market in the future. "Microsoft needs a channel through which traffic continues to monetize, and that's gaming."

Zhang Yi believes that the "metacosm" will not be Microsoft's main purpose. "It can be seen from the decline in stock price after its acquisition of Activision Blizzard that the capital market does not buy it, and the 'metacosmity' itself is a false concept that has been hyped up by capital."

The acquisition will also affect the focus of the market in the future. "The competition between Sony and Microsoft will definitely become more and more intense, and may even cause a wave of acquisitions of game developers." Liao Xuhua said.

Zhang Yi believes that how to use existing traffic products to find better monetization channels will be the focus of future game fields, and will also be the focus of mergers and acquisitions in Internet-related fields. "For domestic enterprises, there is also reference significance. Because of the traffic cost problem faced by Activision Blizzard, it is applicable to many domestic game companies. In the future, there may be a large number of independent game companies that will become the target of mergers and acquisitions of traffic companies. ”