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Activision Blizzard | Game for a big bet

Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard's games characters in this illustration taken January 18, 2022. REUTERS/Dado Ruvic/Illustration

Microsoft logo is seen on a smartphone placed on displayed Activision Blizzard's games characters in this illustration taken January 18, 2022. REUTERS/Dado Ruvic/Illustration

In the late 1970s, four programmers David Crane, Larry Kaplan, Alan Miller and Bob Whitehead bid goodbye to Atari, a pioneer in home video consoles, disappointed that they weren’t getting paid enough despite being responsible for bringing in a lot of money for the company. They started a new venture, which they initially called Computer Arts but whose name was changed pretty soon to Activision. The latest avatar of this company, Activision Blizzard, is what Microsoft agreed to buy last week in an all-cash deal for nearly $69 billion.

This is not just the biggest deal in the gaming industry but also the biggest acquisition by Microsoft till date, being more than one-and-half times what it paid to buy professional network LinkedIn in 2016. The Microsoft announcement came just days after Take-Two Interactive, the publisher of Grand Theft Auto , announced that it would acquire Zynga, the name behind ‘FarmVille,’ for $12.7 billion.

The journey from Computer Arts to Activision Blizzard over the decades has involved the acquisition of many studios and, more importantly in 2008, the merger with Vivendi Games that gave the company its current name. Over these years, the company has come to own some of the most prominent titles in the gaming realm, from ‘Pitfall!’ in its initial years to ‘Call of Duty’, and from ‘World of Warcraft’ to ‘Candy Crush’. It has nearly 400 million monthly active players, with ‘Call of Duty’ itself accounting for about a fourth of it.

The deal has come at a time when Activision was struggling with the weight of allegations of sexual harassment at the workplace. Its business had, however, grown to over $8 billion in revenues during the first year of the pandemic.

Under pressure

“The deal comes at a time of weakness for Activision,” said a Reuters story, which noted that its shares have fallen more than a third since hitting a record high last year. The Wall Street Journal had reported that Activision’s CEO Bobby Kotick knew about the allegations but didn’t tell the board. There was pressure on the company. And that’s when Microsoft rushed in, according to another Wall Street Journal report. “The tech giant was ready to take a gamble.”

For a tech behemoth that is almost always identified with product categories such as Windows and its Azure cloud computing offerings, it needs to be emphasised that the company is also a major player in gaming. Its gaming division clocked revenues of over $15 billion last year, mostly flowing from its Xbox business and gaming subscription service.

Speaking with his colleague and CEO of Microsoft Gaming Phil Spencer, Chairman and CEO Satya Nadella said last year: “Gaming has been key to Microsoft from our earliest days. Our oldest currently supported franchise is in fact our game Microsoft Flight Simulator, which we released three years before the first version of Windows.” Just a year-and-a-half ago, it bought ZeniMax Media, which owns franchises such as The Elder Scrolls and Fallout, for $7.5 billion. And prior to that, it snapped up ‘Minecraft’-maker Mojang Studios.

The acquisition of Activision Blizzard, which is expected to take over a year to complete, will put Microsoft at No. 3 behind Tencent and Sony in the video gaming market. Mr. Nadella, in a conference call after the deal, said: “Gaming is the largest and fastest-growing category in entertainment. The last two years in particular have shown how critical games are to helping people maintain a sense of community and belonging, even when they’re apart. Today, 3 billion consumers around the world play games, and we expect this number will reach 4.5 billion by 2030 as new generations turn to gaming for entertainment, community and a sense of achievement.”

The deal gives Microsoft a lot of content, a bigger mobile play, as also a much more clout in its console wars with Sony. At the same time, this also lends itself to the evolution of the gaming experience, as Microsoft likes to put it, from being device-centric to being player-centric. Building metaverses, virtual reality spaces, for gaming communities could be another goal.

Research projects a bullish phase for gaming coming up, with advanced network connectivity and 5G being the likely drivers. The global gaming industry, valued at $173.7 billion in 2021, is likely to grow to $314 billion by 2027, according to market research firm Mordor Intelligence. How Activision, under its new owners, deals with the allegations that has haunted it since last year, and whether Microsoft can get past any regulatory concerns will be questions that are key to this mega deal’s future.


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Printable version | May 26, 2022 6:39:50 pm | https://www.thehindu.com/news/international/activision-blizzard-game-for-a-big-bet/article38310010.ece