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Why has Microsoft bought Activision Blizzard?

A leader in enterprise software, a player in cloud computing technology, and now one of the world’s largest video game publishers; Microsoft on Tuesday announced a landmark deal by announcing the acquisition of North American publisher Activision Blizzard for $68.7 billion.
Activision Blizzard, responsible for titles such as Call of Duty or World of Warcraft, is one of the heavyweights in the entertainment industry that generates the most revenue in the world: video games. Through the acquisition, Microsoft is not simply seeking to obtain a direct economic return from the sale of its most popular titles, but rather to enhance its ambitions at a key time of transition for the industry.

Almost seventy times more valuable than Instagram

The figure may seem exorbitant: almost 70,000 million dollars for a video game publisher. Seventy times more than what Facebook paid for Instagram or Amazon for Twitch. But there is an explanation: Microsoft had a bulky box of more than 130,000 million dollars to expand its business, Activision Blizzard generates more than 8,000 million revenues a year and video games are becoming a more lucrative business inside and outside the industry of entertainment.
Plus, it comes at a perfect time. Virtual reality, augmented reality, metaverse… all these new emerging businesses have video games and the fusion of the digital with the real world as a common link. “Video games are the most dynamic and exciting entertainment industry category of all, and will play a key role in the development of the metaverse,” said Satya Nadella, president and CEO of Microsoft.
However, a multinational does not make such a large investment without knowing the return it will get from it in the short and long term; A startup has not been bought in case the flute sounds, a dominant business is consolidated. What is the main Microsoft business under Nadella? Subscriptions, both for businesses and consumers. Office suites, business software, or server rentals are tied to some form of subscription, providing a steady stream of income. And the entertainment industry is just as suitable for it: Netflix with series and movies or Spotify with music. Why not do the same with video games, which is an even more lucrative industry?
Making a good video game is more difficult than making a good TV show. That is why Microsoft has made strategic investments such as the purchase of Minecraft or the acquisition of Bethesda. Now, with Activision Blizzard, it’s taking over top-tier franchises like Overwatch, Diablo and Candy Crush.
Game Pass will be one of Microsoft’s main businesses
Microsoft’s business is not to have good exclusive games to sell many consoles. This is the business of the past decade, now the plan is to sell video games as a service that reaches all platforms, with the maximum number of titles possible through a subscription fee. In order to be able to progressively increase the amount of this and increase its income and expand its business, Microsoft needs to increase the value of its intellectual property. It is what Netflix has done, it can increase the price every year because each time its value increases for its subscribers as it monopolizes more catalog and produces more original series and movies.
Unlike the investment made in Bethesda, which was more purely focused on human talent and its rich array of intellectual properties, the acquisition of Activision Blizzard allows Microsoft more ways to enter and profit from the mobile market. The studio has been moving its franchises from consoles to smartphones for months and runs the popular King studio, which has created hits like Candy Crush. Add this fact to Microsoft’s interest in uniting the Xbox division and its cloud computing platform and we can see how the pieces of the puzzle fit together: play where you want, when you want and what you want.
The possibility of Call of Duty becoming an exclusive franchise for PC and Xbox is almost non-existent if we look at Nadella’s strategy. The benefit could be notable in the short term, but in the long run it is much more interesting to attract subscribers to its Xbox Game Pass service than to sell hardware exclusively.
This service allows you to download and play any game in the catalog at no additional cost. It is a video game Netflix, and its growth has skyrocketed to 25 million subscribers, as Microsoft announced on Tuesday. A year ago, Game Pass had 18 million, which represents a growth of 38% year on year. After the acquisition of Bethesda, highly popular titles such as Fallout or Dishonored were included in the catalog.
Microsoft has been improving the catalog and its availability thanks to Xbox Game Streaming. A web version launched on iOS and PC last summer and for consoles in November.

A mutually beneficial agreement

For both Microsoft and Activision Blizzard the acquisition has come at the perfect time. The studio has been facing accusations for months that top executives are ignoring sexual harassment and discrimination within their offices. Its stock valuation plummeted last summer when the California State Department of Housing and Employment sued in Los Angeles Superior Court for allowing and fostering a disrespectful culture towards women. It details how executives allegedly harassed women and rape jokes are allowed among employees.
In addition, the company’s latest releases have either failed to excite consumers and critics or have suffered countless delays such as Diablo and the second installment of Overwatch, which show signs that something is not working very well within the studio. Several directors in key areas have left their posts in recent years.
Blizzard, founder of electronic sports and creator of titles such as World of Warcraft whose impact has transcended the industry, has spent several years without presenting a title that convinces players. It is a company with large intellectual properties that did not get the desired return.
Under Microsoft’s tutelage, a broader restructuring could unfold within the studio, or directly revamp the company’s plans, goals and ambitions.

In the course of this decade, if the metaverse, which companies sell so hard, succeeds, Microsoft will be in a privileged position. If the metaverse is the expansion of the Internet from seeing content to feeling it, it will have a lot to do with video games. And that’s where you need strong intellectual properties—such as those offered by Bethesda and Activision Blizzard—and distribution technology tools like Xbox and its cloud computing technologies.
For its part, Facebook tries to sell a metaverse of online shopping and work meetings through 3D avatars, but currently virtual reality kits are bought for and to play video games that offer a unique experience.
When Microsoft says that the acquisition “will play a key role in the development of the metaverse,” what they mean is that for them, the metaverse is primarily video games. And it is the most appropriate and attractive approach to attract consumers: it is easier to sell a player the idea of living unique investment experiences than to sell someone the benefits of presenting a powerpoint to their boss within the metaverse.

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