Text | Zinc scale, author | Yang Yuliang, Editor | Li Xiaolin
In the early morning of January 18, the headline of the mobile phone Push news was Microsoft's "big acquisition of the century" of Activision Blizzard.
Microsoft announced that it will acquire Activision Blizzard, the publisher of game development and interactive entertainment content, for a staggering $68.7 billion in transactions. The transaction is expected to close in fiscal year 2023. After the acquisition, Microsoft will become the third largest global game company by revenue after Tencent and Sony.
According to the Wall Street Journal, Microsoft said in its announcement that Bobby Kotick, a longtime CEO of Activision Blizzard, will stay on after the deal closes and report to Phil Spencer, CEO of Microsoft Games and head of Xbox.
But according to people familiar with the matter, the two companies have actually reached a consensus that After the transaction is completed, Kotic will leave.
Kotic's going and staying, can't sway Blizzard's paper strength?
In fact, Kotic's departure is not empty.
Last July, the California Department of Fair Employment and Housing filed a lawsuit against Activision Blizzard, accusing the company of a culture of sexual harassment and pay discrimination. Since then, employees have held protests, launched social media campaigns, and called for executives to resign. This left the company in disarray.
Activision Blizzard, Kotick and the Board of Directors are under intense pressure from shareholders, business partners and others. Kotic himself has been accused of misconduct and is being investigated by the U.S. Securities and Exchange Commission (SEC). Nearly a thousand employees signed petitions asking him to resign.
Jessica Gonzalez, a former Blizzard employee and leader of ABetterABK, bluntly rebuked Kotic in her resignation letter from Blizzard's internal Slack: "Your inaction and refusal to take responsibility are expelling good talent and the product will suffer until you are removed as CEO." "It may seem harsh, but you have years to revise the culture and see where the company is at the moment."
Activision Blizzard continues to refute the allegations and has partnered with the U.S. Equal Employment Opportunity Commission. The Equal Employment Opportunity Commission reached a $18 million settlement into a two-year investigation into sexual harassment allegations. The settlement is on appeal. On the eve of the acquisition, Activision Blizzard also made it clear that it had fired or fired more than three dozen employees since July and had disciplined another 40 employees. Kotic admits that the company has taken a number of steps, including a zero-tolerance harassment policy and an end to mandatory arbitration of harassment and discrimination claims. This will make the company a welcoming and inclusive workplace.
Although Activision Blizzard is in the eye of the storm, this does not seem to have much impact on its revenue. According to the Q3 financial report of fiscal 2021, Activision Blizzard's single-quarter net revenue reached $2.07 billion and net profit was $639 million, an increase of about 6% year-on-year. But Activision Blizzard's earnings outlook for the fourth quarter and full year fell short of expectations, causing its stock price to plunge 37 percent from its all-time high last year.
According to the data released in the Q3 financial report, Activision Blizzard has about 400 million active users, of which KING has the highest proportion, with a total of 255 million, Activision ranks second with 119 million, while Blizzard has only 26 million. The recent decline in active users mainly came from the King department and The Activision division, totaling 18 million, an improvement from the 27 million decline in the previous quarter, but it is still not negligible.
The reason why the decline in users still maintains profit margins is due to the profitability of Activision Blizzard's games. Among them, KING's users are mainly from "Candy Legend", although it is a mobile phone consumer fun, but the ability to make money is amazing. The Q3 earnings report shows that it has brought in a net income of $652 million by virtue of its number of users, which is higher than Activision's $641 million and Blizzard's $478 million.
Of course, if you consider the added value of IP, Activision, the Call of Duty series has a total sales volume of up to 400 million, and has a strong fan base around the world. Blizzard has a deep heritage of StarCraft, World of Warcraft, Hearthstone, Diablo and Overwatch. Among them, "StarCraft" is not only the best AI testing tool at present, but also frequently goes out of the circle, affecting cars, mobile phones and even traditional manufacturing fields and bringing considerable benefits.
As a result, Activision Blizzard can be valued at $68.7 billion, and its paper strength cannot be underestimated.
Call of Duty
Nadella, who was optimistic about the metaversm earlier than Zuckerberg, finally made a big gamble
The game, of course, is one of the motivations for Microsoft's sky-high acquisition of Activision Blizzard. Since Microsoft CEO Satya Nadella took office in 2014, Microsoft has consolidated advantages such as the Azure cloud computing platform and the Outlook franchise to become a hegemon in commercial computing and a rising gaming giant.
Previously, Microsoft had been looking for ways to use its huge cash reserve of more than $130 billion to expand consumer business. In 2016, Microsoft paid $26 billion for its acquisition of LinkedIn. Last year, Microsoft spent $16 billion to acquire artificial intelligence company Nuance Communications. However, the $68.7 billion acquisition of Activision Blizzard shows that Microsoft has redoubled its emphasis on the development of the game industry.
In 2014, Microsoft acquired Mojang Studios, the maker of Minecraft, the originator of the sandbox, for $2.5 billion. In late 2020, Microsoft announced its $7.5 billion acquisition of ZeniMax Media, the parent company of Bethesda Game Studios, to pocket Edler Reels, Doomsday, and Dust Settled. At the time, the acquisition brought the total number of Xbox game studios to 23.
Microsoft's gaming strategy is primarily through Xbox Game Pass (XGP) subscription services. The business is billed monthly, giving players access to the game catalog. Nadella likened it to "Netflix for games." In the official report of the acquisition, Microsoft revealed that the number of users of the business has exceeded 25 million.
Currently, Activision Blizzard has nearly 400 million active players and $3 billion worth of franchise games in 190 countries every month, such as Warcraft, Diablo, Overwatch, Call of Duty, Candy Legends, and more. If it were introduced into the Game Pass, Microsoft would create the most engaging and diverse matrix of game content in the industry.
Spencer said, "After the deal closes, we will offer as many Activision Blizzard games as possible in the Xbox Game Pass and PC Game Pass as well as new games." Activision Blizzard's game library could give Microsoft's Xbox platform an edge over Sony's PlayStation. In addition, Microsoft will also develop 30 games internally, hoping to show its strength in the future.
From a strategic point of view, the acquisition of Activision Blizzard has allowed Microsoft to add wings to the game layout. It not only solves the 3Cs, namely Cloud, Content, creators, but also clarifies the direction of development, and more importantly, makes it more forward-looking in building metaversms.
In fact, Nadella was the first CEO of a major tech company to publicly acknowledge the value of Metavalse, months before Zuckerberg. Today, metaverse exploration is still dominated by games, but tech giants hope it can expand to other groups of people, replacing many traditional online social networking activities. "Games are the most dynamic and exciting entertainment category of all platforms today and will play a key role in metaverse platform development," Nadella said. ”
In an interview with CNBC's Becky Quick's "Squawk on the Street," Kotick said he realized Microsoft had the resources to help Activision Blizzard build cutting-edge technologies for metaverses in the fierce competition of the future. As a result, the deal was struck. Spencer said that whatever the metaverse will ultimately be, "games will be at the forefront of the mainstream." ”
David Wagner, equity analyst and portfolio manager at Aptus Capital Advisors, said: "This is a major deal for consumers, and more importantly, Microsoft's acquisition of Activision Blizzard does open an arms race in the metacosmity. ”
Nadella said, "We believe there won't be a single, centralized metaversmic node, and there shouldn't be." We need to support many metaversal platforms, and a robust ecosystem of content, commerce, and applications that go with them. In the game, we see the metaverse as a collection of communities and individual identities that are based on strong content franchises that are accessible on every device. Combining great entertainment with new technologies, communities and business models is the purpose of this transaction. ”
The starting point is a win-win situation, but the end point is to report for the group to keep warm
In early 2022, GTA maker Take Two Interactive's EBITDA valuation of Zynga's cash and stock transactions was 16 times, a record for $12.7 billion. However, just a week later, that record was broken by Microsoft, which valued Activision Blizzard at $68.7 billion at 18 times earnings before interest, taxes, depreciation and amortization.
This is not only the largest acquisition Microsoft has ever made, but it will be the largest all-cash acquisition on record. Microsoft's all-cash acquisition with Activision Blizzard surpassed the $63.9 billion acquisition of U.S. biotech company Monsanto by German BayGn in 2016 and the $52 billion acquisition of American Anheuser-Busch by Belgian brewer InBev in 2008, according to Refinitiv data.
So, Microsoft and Activision Blizzard, who needs this acquisition more?
Axios, a U.S. political news site, wrote that mergers and acquisitions have been accompanied by corporate culture upheavals that Activision Blizzard needs, the company has been accused of failing to address incidents of sexual assault, harassment and discrimination, and Microsoft's gaming division has built a positive reputation through its work on accessibility and promoting inclusive gaming environments.
In this sense, the starting point of this deal is a win-win. But at the same time, it is also a bit of a group of warm meanings.
First of all, Microsoft, has been in the game industry for a long time, and Xbox wants to compete with Nintendo and Sony, but it seems difficult to take the lead. To this end, Microsoft has gradually shifted its strategy from consolidating smart hardware to cloud gaming and even metaversics. When rival Facebook acquired Oculus's ability to design and manufacture VR devices and content, it became natural to gamble on Meta;
When Tencent acquired Riot Games, it maximized the value of League of Legends and directly opened a new era of Tencent interactive entertainment. It's not hard to see why Microsoft is so eager to bring Activision Blizzard to its command at a sky-high price. By buying, buying, buying, and buying, Microsoft has become a top game company step by step.
It acquires game companies and development teams to improve R&D and strengthen the game lineup, such as Bungie's Halo.
It relies on cost-effective hardware and after-sales service to please players: the first generation of Xbox lost money to make money and broke the ice in the market: the second generation Xbox360 suffered from the "three reds" crisis and paid $1 billion to make up the pot; the third generation of Xbox One pushed home entertainment to be dissatisfied, immediately turned to the content priority strategy, and spared no effort to save user reputation.
Through this transaction, Microsoft wants to limit the subsequent versions of Activision Blizzard's classic and original game brands to Microsoft platforms such as Xbox and PC, so as to establish Microsoft's dominance in the game field. This race is complete.
As for Activision Blizzard, it is arguably the most bureaucratic company in the gaming world. Veteran players feel that they are eating old books and constantly depleting fan enthusiasm. In the year of the epidemic, Blizzard canceled the carnival, and at the TGA awards ceremony of the "Oscar of the Game Industry", "Overwatch" failed to win the best esports game, and Blizzard did not receive any grains.
Games are a creative industry that requires constant innovation and breakthroughs. But Blizzard under the control of capital is becoming more and more mediocre, not seeking merit, but seeking no fault, wanting to launch some upgraded and optimized versions, thinking about how to make money comfortably, conservatively and safely, players of course do not buy it.
At the same time, the loss of personnel has also caused Activision Blizzard to decline day by day. At present, the three veteran founders of Blizzard Entertainment have all left their jobs. In April 2021, Overwatch director Jeff Kaplan left, and in June, Alex Afrasiabi, former creative director of World of Warcraft, left in the name of sexual harassment.
Activision Blizzard is understood to have fired or fired more than 30 employees and imposed penalties on about 40 others since July 2021. Q3 financial reports show that due to sexual harassment and other personnel turmoil, "Overwatch 2" and "Diablo 4" may jump tickets to 2023.
For Activision Blizzard, this acquisition undoubtedly gave him a chance to be reborn. Previously, Activision Blizzard's stock price plunged nearly 46% from a high of $104 per share to $56 due to the deep sexism and sexual harassment scandals. At the time of lacklusterity, when encountering a receiver like Microsoft, Activision Blizzard's embrace is also reasonable.
If the acquisition plan is successfully implemented, and after the acquisition, Microsoft does not carry out a large-scale split and reorganization of Activision Blizzard's organizational structure, then Microsoft's game development department will have more than 30 studios, and the content scope will cover all mainstream games on the market, not only enriching its own game content camp, but also enhancing its game publishing and e-sports production capabilities.
According to Newzoo, Microsoft's gaming market share will be 6.5% in 2020, and if you add Activision Blizzard, its share will reach 10.7%. As a result, the transaction helps Microsoft in the long war for player attention and wallets, beating rival Sony by offering top games, ahead of powerful new competitors such as Amazon and Google.
Kotic said competition is accelerating, communities need to connect, and success requires huge resources. Tech giants around the world have their own ambitions about games and metaversities. Established and emerging competitors are targeting opportunities in a virtual world full of professionally produced content, user-generated content, and rich social relationships. ”
Spencer believes that Microsoft and the Xbox team are uniquely positioned in terms of technical capabilities, financial capabilities, creative visions, and game records to deliver a truly global interactive entertainment ecosystem. "With this transaction, Activision Blizzard brings to Microsoft Games one of the most exciting collections of content franchises, creative teams and fan bases that are ubiquitous in global entertainment in any form of media."
Data analytics firm NeWooCt estimates that the global gaming market revenue is $180.3 billion in 2021 and is expected to grow to $218.8 billion by 2024.
"The number of gamers worldwide will grow from the current 3 billion to 4.5 billion by 2030." Nadella said that Microsoft will join hands with Activision Blizzard to join hands in content, community, cloud games, culture and other aspects to promote the integration of the digital and physical worlds and the development of the metaverse in the future.