Microsoft's acquisition of Activision Blizzard: The Battle for Dominance of the Future Metacosm

In January, when Microsoft announced its $68.7 billion acquisition of video game giant Activision Blizzard, there were reportedly some inexplicable changes in the technology and gaming industries. Microsoft CEO Satya Nadella said the acquisition of Activision Blizzard was to advance Microsoft's metaversal strategy, but Activision Blizzard is best known for traditional games such as Call of Duty, World of Warcraft and Candy Crush Saga, rather than virtual reality, augmented reality and other metaverse-related technologies.

On closer inspection, however, Microsoft is currently more likely to become a leader in the metaverse and gaming space. Bernstein analyst Mark Moerdler said: "Microsoft is in a very good position in the metaverse space. But I don't think the acquisition is driven purely by the metacosmity strategy, and Microsoft is still seeking depth and breadth in the gaming industry in a broader way. ”

Modler had expected that Microsoft might buy some of the smaller game studios, but ultimately decided to "make a big acquisition, not a bunch of small ones." The acquisition of Activision Blizzard is Microsoft's largest acquisition since Nadella took office.

The deal also requires approval from the company's shareholders, as well as regulatory authorities in the United States and other countries and territories. The transaction is not expected to close until June 2023.

Microsoft deliberately highlighted the concept of metacosm in the news of the acquisition. In fact, between now and the completion of the deal, Microsoft is discussing a "two-track model." In an email sent to Microsoft's roughly 181,000 employees about the acquisition, Nadella said: "Games have been a key to Microsoft since its inception. Today, gaming is the largest and fastest growing form of entertainment. With the convergence of the digital and real worlds, games will play a key role in the development of metaverse platforms. ”

There is no doubt that gaming is an attractive and profitable industry. According to market research firm Newzoo, the global gaming market revenue will be $180.3 billion in 2021 and will grow further to $218.8 billion by 2024. eMarketer estimates that 2.96 billion people worldwide played digital games last year, whether through consoles, computers or mobile devices. This figure will reach 3.09 billion people by 2022, accounting for about 1/3 of the earth's population.

Activision Blizzard and metaversics

Microsoft first ventured into the video game industry in 2001, when the company released the Xbox console. So far, Xbox has launched four generations, with sales up 14 percent in Microsoft's fiscal third quarter. Microsoft's games division, led by Phil Spencer, consists of 23 game design and software studios, as well as hundreds of games. The monthly Game Pass subscription service launched by the division has attracted more than 25 million users, while nearly 10 million people use Microsoft's Xbox cloud gaming service.

Although Activision Blizzard is not considered a major player in the metaverse industry, work is still underway on defining what the metacosm is, and Activision Blizzard's game offerings are a good illustration of how the company will participate in the metaverse. In 2004, Blizzard released World of Warcraft. Blizzard was an independent game studio until 2008, when it merged with Activision.

Mike Sepso, CEO of Esports infrastructure platform Vindex, served as an executive at Activision and Blizzard after the merger. Regarding World of Warcraft, he said: "This is a virtual world, where your virtual people can walk with friends, build tribes, and fight together. ”

Cyprus also pointed to several other games that incorporate elements of the metaverse, including Robles, Fortnite, Second Life, and Microsoft's Minecraft. On these platforms, players can teleport between a multitude of games, build virtual social spaces, even attend concerts, and purchase virtual items to enhance the experience. Most of these games need to be equipped with virtual reality headsets and game consoles. This is good for Microsoft, which already offers hardware products like HoloLens and Xbox.

The virtual worlds in these games may not yet fall short of the levels predicted by proponents of the metaverse. In their view, users in the metaverse can use mixed reality technology to meet, see a doctor, take a vacation, and engage in various business activities in an immersive way. Microsoft is already well positioned with software, cloud computing, gaming and virtualization technologies, and the addition of Activision Blizzard's gaming capabilities will further enhance Microsoft's prospects in this regard.

A week before the deal was announced, Spencer said in an interview: "I fully believe that the metacosm is an extension of the gaming business. "Microsoft game developers, for example, are envisioning virtual work environments, using their experience in video games to push people to come together online and collaborate to accomplish tasks.

In any case, the metaverse will be popularized by Generation Z and their next generation. They grew up entirely in the digital world and are especially familiar with games. According to a recent study of Gen Z gamers by RazorFish and Vice Media Group, they spend twice as much time with friends in the metaverse as in real life. More than half said they wanted to experience how to make money in the metaverse. 33% want a career development experience. Over the next 5 years, 20% of their entertainment and leisure budget will be dedicated to in-game shopping.

Correction in technology stocks

Although U.S. technology stocks are experiencing a correction, Microsoft remains one of the strongest performing tech companies after the release of its fiscal third quarter earnings. Strong demand for Microsoft's cloud computing services and software capabilities is where the company's strength lies, and these two are also core components of the metacosmity and gaming businesses.

Activision Blizzard's first-quarter results were flat, mainly due to weak demand for the latest generation of Call of Duty. However, new investor Warren Buffett said at a recent Berkshire Hathaway shareholder meeting that he has been increasing his stake in Activision Blizzard. It's an M&A arbitrage approach because he believes Microsoft's acquisition of Activision Blizzard will be successfully completed. Currently, Berkshire Hathaway holds about 9.5 percent of Activision Blizzard' stake.

With stock prices in the tech industry falling, Activision Blizzard's share price is now 20% lower than the $95 per share offer microsoft gave.

Moffett Nathanson analyst Clay Griffin said call of Duty sales figures were lower than expected to favor Activision Blizzard's fundamental story. If the deal fails and Activision Blizzard is forced to remain independent, the price of the company's stock could fall to more than $60. However, he also believes that such a situation is unlikely to happen.

Buffett said: "Sometimes, I see opportunities for trading arbitrage and go to execution. Sometimes, it seems that the opportunity is in our favor, but in the end we will lose money at that company and lose a considerable amount of money. It depends on what happens after a failed transaction. ”

Microsoft and Activision Blizzard declined to comment.

Dominance of the future

In the meantime, the fate of Activision Blizzard's current CEO, Bobby Kotick, is uncertain. In response to Activision Blizzard's response to gender discrimination and sexual harassment, the U.S. Securities and Exchange Commission (SEC) and the U.S. Department of Justice launched two independent investigations last year, and Kodic was part of the investigation. In November last year, media reported that Kodic had handled sexual harassment reports inappropriately.

Prior to the deal's announcement, this aspect of Activision Blizzard's concern also caught Spencer's attention. In November, as more and more news grew, Spencer told employees he was "deeply disturbed and troubled" by the horrific events and practices of Activision Blizzard, and that Microsoft was "evaluating all aspects of its relationship with Activision Blizzard and making positive adjustments," according to media reports.

But in fact, around the same time, Spencer and Microsoft management began discussing an acquisition deal with Activision.

In January, Spencer said on an analyst conference call after the deal was announced: "When the deal is completed, Microsoft will be the third-largest gaming company in the world in terms of revenue, behind Tencent and Sony." He also said in his official blog on the same day: "Until then, Activision Blizzard and Microsoft Games will continue to operate independently." After the transaction is completed, Activision Blizzard's business will be reported to me. ”

Modler said: "In most acquisitions, senior management leaves. In this deal, this scenario is more likely. ”

Activision Blizzard has a huge library of games, with nearly 400 million monthly active players, and many people are already spending money in the virtual world. Therefore, there is no doubt about the logic of the acquisition, and no one will doubt Spencer's ambitions.

Cyprus said: "This deal solves several problems for Microsoft. First, this will add a significant premium game and player base to the Game Pass business in the short term. And in the long run, these games can be extended to the metaverse. On the question of who will dominate the metaverse, this would put Microsoft in an enviable position. ”

Source: Sina Technology