The gaming industry has increased its popularity over the last years generating breath-taking revenues. In 2021, the gaming industry has generated $180.3 billion in revenue, and it is expected to generate more than $260 billion by 2025.It is safe to say that gaming is here to stay and large companies, such as Microsoft, are getting in the loop and trying to increase their involvement in the gaming market.
One of the most noticeable increases in the gaming industry has been the number of users that play on their smartphone or tablet, a phenomenon that has spread across the globe in recent years. Some reasons behind the explosion of mobile games are convenience (when time is scarce and people need an “escape” from real life, a mobile game could well be the needed solution); cost (Sony and Xbox main games cost around 60$, while mobile games cost an average of 3$); they are easy to use (in contrast to complex mechanics in many computer and console games); etc.
Therefore, Microsoft is looking to increase its stake in this segment, which justifies, in part, the attempt to acquire Blizzard.
Microsoft: The Xbox Approach and new products
Since 2001 Microsoft took a big leap into the gaming industry by launching its first gaming console, the Xbox, with over 24 million units sold. As of today, we are currently on the fourth Xbox generation, with the Xbox Series S and Xbox Series X.
Microsoft did not stop with the launch of its first console. It includes a diverse portfolio of products such as games, accessories, and even online subscriptions, with the most important ones being Xbox Live and Xbox Game Pass.
The need to retain and attract new customers has created the necessity of constantly developing new products which could also result in acquiring the most famous and premiered video games publishers.
Activision Blizzard Acquisition:
On January 18th 2022, Microsoft declared its intent to acquire Activision Blizzard Inc. in an all cash transaction valued at $68.7 billion which would include every subsidiary and gaming franchise from Activision, Blizzard and King Studio, such as Warcraft, El Diablo, Overwatch and the most famous franchise of Activision, Call of Duty.
With this acquisition, certain obstacles began to appear. Firstly, SOC Investment Group has urged fellow Activision Blizzard stockholders to vote against Microsoft’s offer, as they believe it fails to properly value the company’s future earnings potential. Then, the Federal Trade Commission started investigating this takeover to determine if it does violate Antitrust Laws. Lina Khan, the FTC chair, said that this investigation is going to focus on consumer data, and the potential impact on the labor market, but FTC is also looking if this takeover could bring a potential impact on a competitive metaverse.
If in 2023 the deal is closed, as expected, some of the industry biggest franchises like Call of Duty, Warcraft, Overwatch, and others, will be exclusive property of Xbox. But, at the same time, Brad Smith, Microsoft president, announced that this acquisition would not stop future Activision Blizzard games from being in Xbox competitors consoles, like PlayStation, and that it wanted to bring more franchises to other consoles, such as Call of Duty to the Nintendo Switch.
According to Activision Blizzard´s shareholders, they have accepted Microsoft’s offer of 95$ per share. However, there is still some skepticism because, as referred formerly, the FTC does not seem too keen to accept this merger.
When it comes to the Microsoft Xbox main competitors, most of us would think something like Sony and Nintendo consoles, but that is not the perspective of Phil Spencer, Microsoft’s CEO. He sees Amazon and Google as the main competition, as he noticed that a company like Amazon has a vision for the future of gaming similar to Microsoft, so he is not interested in being in a future format war with Nintendo and Sony, while Amazon is trying to get gaming to the entire world.
After the announcement of Activision Blizzard acquisition by Microsoft, this perspective was intensified, as big tech companies are taking their services to all platforms so they can reach as many consumers as possible, and the gaming sector has not been left out, since companies like Facebook, Google and Amazon have shown their interest in this sector for quite some time.
Looking at numbers, if Microsoft owned Activision Blizzard in Q3 2021, its games revenues would be greater than Sony’s. In this quarter, Sony had a revenue of around 4.3 billion dollars, being the second biggest company in the sector, while Microsoft was only the 4th biggest with a revenue of 2.9 billion dollars. If we add Activision Blizzard’s revenue of 1.8 billion dollars, Microsoft’s total revenue would be of 4.8 billion dollars, surpassing Sony, being only behind Tencent, the company that presents the most value in revenues.
In Phil Spencer’s point of view, this deal goes far beyond gaining an extra revenue system, claiming that are many other ways that Activision Blizzard can help Microsoft accomplish its goals. For example, as Microsoft is expanding its brand and content to other platforms, Activision Blizzard would help bringing new teams that are specialized in multiplatform development; King would bring mobile expertise needed so that Microsoft could be able to increase its dominance in that platform; an increase in subscribers could be achieved by adding game pass advantages in games such as World of Warcraft and Call of Duty.
What should be expected from this merger:
Safe to say Microsoft is more than determined to acquire Blizzard and is willing to pay an abnormous amount of money to do so, although the merger should only be finalized by the 30th of June 2023, as a thorough investigation by the FTC will be needed concluding that this merger will not compromise the consumers.
In conclusion, the metaverse has an even more promising future with endless possibilities, with Microsoft looking to take its spot as a leader of this industry.