With Microsoft’s Activision deal, a future world is at stake

A crowd waits for a video presentation at the Activision booth during the Electronic Entertainment Expo, known as E3, in Los Angeles, California.

Jonathan Alcorn | Reuters

In January, Microsoft announced an agreement to buy Activision Blizzard, a leading publisher of the video game, for $ 68.7 billion. Microsoft CEO Satya Nadella says his biggest gain comes as an improvement on the company’s growing metaverse strategy, even though Activision is best known for hit games like Call of Duty, World of Warcraft and Candy Crush, but not the mix of AR / VR and other tech that underpins the nascent metaverse.

On closer examination, however, Microsoft may now be in a better position to be a leader in the metaverse and gaming consoles. “But I didn’t think of that [acquisition] for pure metaverse reader. They are also looking for bigger ways to get depth and breadth into the game.

Moerdler saw that Microsoft could buy small game studios, but in the end “decided it was best to make a big one. [purchase] against many small children, ”he said.

The proposed deal still needs U.S. and international shareholder and regulator approval, which is expected to push for closure in June 2023.

Microsoft pushed the metaverse messaging concept to claim it, and by the time the deal closed, Microsoft was talking about a two-track model. “Gaming has been key to Microsoft since we started as a company,” Nadella said in an email to nearly 181,000 employees about the acquisition. “It’s the largest and fastest growing form of entertainment today, and as the digital and physical worlds come together, it plays an important role in the development of metaverse platforms.”

There is no doubt that gambling is an attractive and lucrative industry. The global gambling market will generate $ 180.3 billion by 2021, according to market research firm Newzoo, which predicts gambling revenue to reach $ 218.8 billion by 2024. eMarketer estimates that 2, 96 billion people worldwide play digital games last year via console, computer. or mobile devices, and that number will reach 3.09 billion by 2022, or about one-third of the planet’s population.

Activision Blizzard and the Metaverse

Microsoft first launched video games in 2001 with the release of the Xbox console, now in its fourth generation and whose sales jumped 14% in the third quarter. Today, the Microsoft Gaming division, led by CEO Phil Spencer, includes 23 game and software design studios and hundreds of games. The division’s Game Pass subscription service has more than 25 million customers, while nearly 10 million people stream games on the Xbox Cloud Gaming service.

While Activision isn’t considered a player in the metaverse – which remains a work in progress with a variety of meanings – one of its video games offers a good example of how it works. Blizzard released World of Warcraft in 2004, when it was the game studio that later merged with Activision in 2008.

“It’s a virtual world [your avatar] can walk with friends, see a tribe and simultaneously attack. This is the metaverse, ”said Mike Sepso, a former executive at the merged entity who is now CEO of Vindex, a sports infrastructure platform.

Sepso points to several other games with metaverse elements, such as Roblox, Fortnite, Second Life and Microsoft’s Minecraft. On these platforms, players can teleport between millions of games, create virtual social spaces, and even attend concerts, all while purchasing virtual items to promote. the experience. Most of these types of games require VR headsets and consoles, which Microsoft favors, along with HoloLens and Xbox hardware.

The virtual worlds of these games may not fulfill the predictions of the developers of the metaverse, where users are immersed through the mixed reality of business meetings, doctor visits, vacations, and all sorts. in e-commerce. This is where Microsoft’s software, cloud computing, games and virtual technologies set the company up well. And the addition of Activision’s gaming capabilities only enhances its prospects.

“I saw [the metaverse] as an extension of what the game does, ”Spencer told Kara Swisher of The New York Times on her Sway podcast about a week before the deal was announced. For example, he said, Microsoft game developers envision virtual workspaces and some of them. the things they learn in video games about people coming together to work together to complete tasks.

Although – and whenever – the metaverse happens, it will reside primarily in Gen Z and beyond, which will grow exclusively in the digital world, especially 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 they do in real life. More than half said they wanted to experience making money in the metaverse; 33% want to experience building a career there; and 20% of their entertainment/entertainment budgets will be set aside for in-game purchases over the next five years.

Tech correction stocks

While the tech sector has experienced a correction, Microsoft remains one of the strongest players after third -quarter earnings and strong demand for cloud services and software capabilities – two. key component of the metaverse business and games – contributes to the strength of its operations.

Activision reported a lack of results in the first quarter, which was hit by declining demand for the latest Call of Duty games, but the most prominent new investor, Berkshire’s Warren Buffett Hathaway, raising his company’s stake, a game … merger arbitration, he told Berkshire Hathaway shareholders at the recent annual meeting, betting that Microsoft’s proposed acquisition of the video game company would be implemented.

Berkshire now owns about 9.5% of the shares in Activision.

With the technology crash, Activision’s stock price fell 20% below Microsoft’s bid of $ 95 per share.

MoffettNathanson analyst Clay Griffin said the weaker-than-expected Call of Duty numbers are not good for the basic story behind Activision. If the deal breaks down and Activision goes it alone, the stock is likely to be valued anywhere in the mid-$ 60s, but Griffin didn’t expect that to happen.

“One time, I’ll see an arbitration agreement and I’ll do it,” Buffett said. “Once upon a time it seemed like the possibilities were in our favor, but we could really lose money with this company, a lot of money, depending on what happens if the deal explodes.”

“We don’t know what the Department of Justice will do, we don’t know what the EU will do, we don’t know what the 30 other jurisdictions will do. Something is known we think Microsoft has the money, ”Buffett added.

Microsoft and Activision declined to comment.

Property of the future of virtual gaming

Meanwhile, the fate of current Activision CEO Bobby Kotick is uncertain. It is part of two separate federal investigations launched last year, by the Securities and Exchange Commission and the Department of Justice, into the company’s handling of allegations of sexual misconduct and discrimination in the workplace of employees. In November, The Wall Street Journal reported that Kotick had erred in handling allegations of sexual misconduct.

The issue caught Spencer’s attention before the deal was announced. In November, as headlines were rising, Bloomberg reported that he told employees that he was “upset and deeply disturbed by the horrific events and actions” of Activision Blizzard and that Microsoft was “evaluating everything. aspect of our relationship with Activision Blizzard and is making ongoing proactive changes. ”accordingly.

In fact, almost at the same time Spencer and senior Microsoft officials began discussing a deal with Activision.

“When it [Activision] after the transaction, Microsoft Gaming will be the third largest gaming company in the world by revenue, behind Tencent and Sony, ”Spencer said during a post-announcement webcast with analysts in January. “Hangtod [then]Activision Blizzard and Microsoft Gaming will continue to operate independently, ”he wrote in a blog post that day. “Once the deal is finalized, the Activision Blizzard business will report to me.”

“In most acquisitions, senior management leaves,” Moerdler said. “In this case, it’s more likely.”

Given not only Activision’s vast cache of proprietary gaming IP, but also nearly 400 million monthly active players, most of them are already spending money on virtual worlds, and there aren’t many heads -trying to claim, or the ambitions that Spencer would do. manage.

“This deal resolves some issues for Microsoft,” Sepso said. “First, it adds a lot of IP and playerbase to their Game Pass service in the short term. In the longer term, this IP can be expanded into this primordial metaverse. It puts them in an attractive position as to who will manage property of the metaverse.

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