Microsoft's $68.7 billion, can the scandal-ridden Blizzard complete its self-redemption?

21st Century Business Herald reporter Cai Shuyue Wu Liyang intern Zhu Huiyi reported in Shanghai

"Life always blooms in the darkest places."

This is the classic line of the game character Alex Tassa in World of Warcraft, and now, this word is predicted by its creator, the Blizzard company that created a series of classic games such as Diablo, World of Warcraft, and StarCraft, and was once hailed as "Blizzard's production, it must be a boutique".

At 9 p.m. on January 18, when the game industry and players were still discussing how Blizzard, which had experienced a series of workplace scandals and personnel changes, and the important products that had jumped tickets one after another, would end up, Microsoft issued a statement saying that it would acquire Activision Blizzard in full cash at a price of $95 per share, including Activision Blizzard's net cash, with a transaction value of up to $68.7 billion.

It is worth mentioning that this will be the largest acquisition by Microsoft to date, followed by the acquisition of LinkedIn in 2016 for $26.2 billion. After the acquisition is completed, Microsoft will surpass Nintendo to become the world's third-largest game company after Tencent and Sony.

In response to the acquisition, Activision Blizzard CEO Bobby Kotick said on its official website that "this is an incredible day" and pointed out that the transaction is expected to close in Microsoft's fiscal year 2023, until which Activision Blizzard will continue to operate independently.

However, personnel issues such as the sexual harassment scandal and gender inequality have not been properly resolved within Blizzard for a long time, and there are high doubts within the company about Bobby Kotick's management ability.

In the context of multiple complexities, what is the business logic behind Microsoft's resolute investment in the acquisition of Activision Blizzard? After being acquired, can Activision Blizzard get out of the haze of poor internal management within the company and regain the original intention of boutique game development? All this may be left to the market and time to answer.

Multiple considerations behind 68.7 billion

In the early morning of October 27, 2021, Blizzard China announced the suspension of planning for the BlizzCon online carnival to be held in early 2022. In previous years, Blizzard Entertainment has used this event to announce new games or expansion packs that are planned to launch this year. At that time, the suspension of this activity caused panic among players and the secondary market, and rumors of "Blizzard is going downhill" were rampant.

Blizzard's turnaround also came unexpectedly. On the evening of January 18, Microsoft took out a price of $95 per share and a total acquisition of $68.7 billion to acquire Activision Blizzard, and as soon as it was announced, it immediately detonated the entire capital market. As of the close of U.S. stocks on Jan. 18, Activision Blizzard shares were up more than 25 percent, rising more than 32 percent intraday to close at $82.31 per share.

It was not only investors and spectators who were shocked by this news, but even activision Blizzard's internal employees received an internal email after the announcement that night. A number of people in the game industry told 21 reporters that they were not surprised by Microsoft's acquisition, but were shocked by the speed, amount and confidentiality of the news. "The $68.7 billion purchase price is a staggering number... Generally speaking, for such a large amount of acquisition projects, the two sides must mediate in price. Some industry analysts said. Xbox CEO Phil Spencer revealed in an interview with the media that the two companies will start acquisition negotiations from the end of 2021.

According to information provided in the financial data website Macrotrends, Microsoft has about $130 billion in cash reserves in 2021 as of June 2021. This means that the amount of the acquisition of Activision Blizzard is equivalent to half of Microsoft's cash reserves.

And what makes Microsoft so happy to come up with nearly $70 billion to acquire Activision Blizzard?

Microsoft Chairman and CEO Satya Nadella and Activision Blizzard CEO Bobby Kotick both spoke about the acquisition as a future direction. "Microsoft acquired Activision Blizzard to combine games, new technologies, communities and business models to advance the metaverse." Satya Nadella said on a Microsoft, Activision Blizzard merger call.

In fact, there are not a few twisting strategies adopted by domestic and foreign game manufacturers to operate the concept of the meta-universe. For example, Facebook (now known as Meta) acquired United 2 Games, the developer of the game creation platform Crayta, in June 2021, although the latter is only a small game studio and cannot be compared to the size of Activision Blizzard, but its internal acquisition logic is similar in the metacosmity strategy. "Rome wasn't built in a day, and so was the metacosm. Even if a technology giant like Microsoft comes to do the metaverse, it will first link Blizzard, who has experience in building a worldview, to design the key fulcrum of the bottom layer. A senior industry insider told 21 reporters.

Activision Blizzard's IP is also a highlight of the acquisition. Xbox CEO Phil Spencer mentioned that with Microsoft's acquisition of Activision Blizzard, popular game IPs including Call of Duty, World of Warcraft, and Diablo will be pocketed by Microsoft. At the same time, Microsoft also said that Activision Blizzard's games will also be added to the XBox Game Pass in the future, which means that the game ecology of the XBox platform will be further enriched.

Cloud games and mobile games are also the focus of Microsoft's layout. Satya Nadella pointed out in the merger call that the Activision Blizzard King team can increase the competitiveness of Microsoft games in the field of mobile games, and Activision Blizzard's high-quality IP portfolio can also enrich the product matrix of Microsoft Cloud Games.

In addition, some insiders commented in an interview with 21 reporters that Microsoft's acquisition of Activision Blizzard accurately grasped the opportunity to copy the bottom from the perspective of capital operation, and also further improved its right to speak in the game track.

Blizzard's legacy of history

However, the acquired Activision Blizzard is not able to sit back and relax, and there are still many historical problems within the company that need to be solved urgently.

On July 20, 2021, Activision Blizzard was sued by the California Department of Fair Employment and Housing (DFEH) in los Angeles Superior Court for long-standing sexual harassment and gender discrimination within the company. The DFEH allegations against Blizzard alleges that Blizzard has only 20 percent of its total workforce, and that gender discrimination and its derivative problems are widespread, such as the company's top management has always been held by white men, and the promotion and reward mechanisms for male and female employees are quite different.

On July 28 of the same year, dissatisfied with management's response to the lawsuit, hundreds of Blizzard employees rallied outside the California company's headquarters to protest the company's handling of allegations of sexual harassment and discrimination. Some employees who participated in the rally told the media that the personnel conflicts within Blizzard have a long history, and problems such as poor cultural atmosphere and deliberately lowering employees' salaries have existed for a long time.

With this employee rally as the trigger, Activision Blizzard made a wide range of personnel changes. In August 2021, Blizzard President Allen Brack left the company to be co-led by Jen Oneal and Mike Ybarra. At the same time, Jesse Meschuk, senior vice president of global human resources at Blizzard, also announced his departure. On October 19, Activision Blizzard fired 20 employees on charges of sexual harassment after an internal investigation, and another 20 faced disciplinary action, including veteran staff such as diablo 4's chief designer, producer, and World of Warcraft designer.

Ironically, just three months later, Jen Oneal, one of the co-leaders, announced his departure on November 2, 2021, due to dissatisfaction with his salary being lower than that of another co-leader, Mike Ybarra. After her departure, dissatisfaction within the company over CEO Bobby Kotick's management abilities reached a climax. On November 17, 2021, Blizzard once again erupted in mass protests, with nearly 1,000 Activision Blizzard employees signing petitions demanding the dismissal of Bobby Kotick.

In addition to responding to regulatory allegations and placating employees through measures such as emergency personnel changes, Bobby Kotick said Activision Blizzard has partnered with the U.S. Equal Employment Opportunity Commission, the National Labor Relations Commission and the California Department of Fair Employment and Housing to "improve its workplace policies and procedures and ensure compliance."

Wave after wave of unevenness rises again. In addition to the DFEH lawsuit, Blizzard also faces lawsuits from other regulators. On September 10, 2021, the Communications Workers' Association (CWA) filed a formal complaint with the National Labor Relations Board of the United States, saying that Activision Blizzard intimidated and harassed employees who tried to speak up. The complaint said that Activision Blizzard had caused harm to employees by threatening, punishing, monitoring, etc.

On January 17, 2022, the day before the acquisition, Activision Blizzard had fired or fired 30 employees and disciplined about 40 employees since July 2021, according to media reports.

The "platform + content" idea reshapes the industry ecology

Combined with the previous internal and external troubles, this acquisition by Microsoft is undoubtedly a carbon in the snow for Activision Blizzard.

Since California regulators raised allegations of gender equality in the workplace against Activision Blizzard in July 2021, Microsoft used the issue to pressure Activision Blizzard to "re-evaluate the relationship between each other", a statement that seems particularly meaningful today.

Some insiders analyzed to 21 reporters that in view of the importance that Microsoft shareholders attach to the problem of sexual harassment in the workplace, Microsoft is bound to begin to solve its internal management problems after officially completing the acquisition of Activision Blizzard, which will be directly beneficial to the overall benign development of Activision Blizzard. "Blizzard's top brass may face another major blood change."

Independent game analyst Zhang Shule pointed out that Microsoft's acquisition of Activision Blizzard on the one hand can make up for its shortcomings in high-quality IP content and game research and development experience, in turn, for Blizzard, in addition to providing sufficient R & D funds, Microsoft can also help Blizzard catch up with the gap opened by other game manufacturers in recent years by other game manufacturers through its technology game accumulation, channel advantages in the PC windows system and host XBOX platform and the community user base of XGP subscription services.

Activision Blizzard shares rose sharply after Microsoft's formal publicity acquisition plan, Microsoft shares closed down 2.43% at $302.65, and its rival Sony in game consoles closed down more than 7%.

But with the exception of Sony, the stock prices of several large game companies have risen rapidly driven by Blizzard, with Ubisoft rising more than 8%, EA rising more than 2%, Cap Empty up more than 4%, Take-Two up about 1%... After Microsoft "took over" Activision Blizzard with a premium of more than 40%, the valuation of the entire game track was pushed up across the board.

After Microsoft's acquisition of Activision Blizzard, it will become the world's third-highest-paid game company after Tencent and Sony, and it is not difficult to observe the game business layout of the two, in addition to having gold-absorbing products such as King of Glory and PUBG mobile games, it also relies on WeChat and QQ to hold the channel advantage of the world's largest game market Chinese mainland; and Sony in addition to perennial pressure on Microsoft in the host confrontation, it also has well-known IP such as "God of War" and "Mysterious Sea".

Epic Games, which is known as the highest valuation unlisted game company at present, not only has the game "Fortnite", which currently has the second most popular online number in the world (the first is "League of Legends" under Tencent's wholly-owned subsidiary Fist Games), but also has the Epic Game Mall, a stand-alone game publishing platform second only to Steam, and is one of the most used development platforms for current game developers - Unreal Engine developers. The combination of platform and content has made Epic Games' valuation like a rocket, climbing from $17 billion to $45 billion in less than two years.

A number of industry insiders said in an interview with reporters that with the diversification of the way and types of game content are accessible to players, the competition in the game industry is no longer limited to competition within the fixed platform, but has begun to shift to the mobile terminal, host, PC and even the future-oriented meta-universe and other channels of the comprehensive user competition. In this context, high-quality content providers will become the key to opening the traffic entrance, which is also one of the fundamental reasons why the market re-evaluates the value of content and strives to lay out the content "moat".

Of course, content providers also need to ensure that their own production capacity is useful, in the context of the game is generally considered to be the most important practice scenario of the next generation of Internet form cloud universe, Wutong leads the phoenix, and the good bird chooses the wood to become a true portrayal of the platform and the manufacturer in both directions. "Originally, Blizzard mainly focused on the PC-side platform, and the Windows system is also accompanied by a companion, and both need to maintain their advantages in the new generation of Internet rotation." Zhang Shule said.

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