On January 18th, Microsoft agreed to acquire Activision Blizzard in a deal valued at $68.7 billion. If Microsoft completes the deal, it will move from the fourth to the third largest video game company, trailing Sony and Tencent. This acquisition, expected to be completed by July 2023, would be Microsoft’s and the video game industry’s largest deal – ever. The move continues a string of other video game studio acquisitions by Microsoft in recent years, most notably the purchase of ZeniMax Media for $7.5 billion and Mojang for $2.5 billion. The Activision purchase stands out, though, due to the transaction’s cost and the impact it could potentially have on both Microsoft and the industry.
Microsoft’s proposed acquisition of Activision synergizes well with its video game division’s current focus: Game Pass. The subscription service lets its subscribers access an extensive catalog of games for $14.99 a month, and one of the key drivers in the growth of Game Pass has been the breadth and variety of its catalog. Recognizing this, Microsoft has constantly looked to expand that list, and the service currently offers its 25 million subscribers over 1,000 titles to play. Microsoft believes that adding Activision’s many popular game series like “Call of Duty” and “Overwatch” will further bolster that catalog.
Microsoft also views this purchase as a way to move into the “metaverse.” During Microsoft’s media call announcing the acquisition, Microsoft CEO Satya Nadella emphasized the importance of the metaverse in Microsoft’s plans for their video game division. Satya said, “we believe there won’t be a single centralized metaverse…we need to support many metaverse platforms.” The acquisition of Activision could be a useful part of this plan. Activision’s game “World of Warcraft” already has some metaverse traits like making avatars and interacting with other players in a virtual environment. How exactly this will manifest is unclear, as the metaverse is still in its infancy, but Microsoft thinks there is something worth investing billions here.
Despite the advantages of this acquisition for Microsoft, it comes with two substantial challenges: antitrust concerns and reforming one of the most maligned work cultures in the industry. On the same day that Microsoft and Activision announced the deal, the Justice Department and Federal Trade Commission announced a review on how they approve mergers and acquisitions. This announcement comes as lawmakers and regulators have promised to try and curtail the power of the tech giants. The vertical merger of Microsoft and Activision will surely catch the eye of regulators, who have thus far declined to comment.
While it is still unclear how this regulatory battle will unfold, it seems likely that they will approve the deal. The transaction cost may attract attention, but it is not enough to find the acquisition anticompetitive. And, crucially, the purchase would still see Microsoft behind competitors Sony and Tencent. Microsoft can argue that this deal will allow them to better compete with these rivals. Furthermore, Microsoft’s CEO of Gaming, Phil Spencer, tweeted the company’s intention to keep the popular franchise “Call of Duty” on Sony’s PlayStation. This is a smart move to help prevent concerns about title exclusivity, a common feature of the video game industry that has anti-competitive effects. While regulatory approval is a concern, it’s unlikely that the greatest challenge facing this acquisition will be antitrust claims; the greatest challenge is far more likely to come from rehabilitating Activision’s corporate culture.
Microsoft will be acquiring a company that is still reeling from a litany of sexual harassment and gender-pay disparity allegations. Reports state that Activision executives, including CEO Bobby Kotick, ignored claims of sexual harassment and discrimination allegedly committed by members of the managerial staff. Claims that crimes as significant as rape were hidden from Directors have led to subpoenas by the SEC to investigate further. These allegations have weighed heavily on the company’s stock, which dropped 27% as the investigations escalated. While the impact of these scandals likely provided the opportunity for Microsoft to target Activision, whether or not Microsoft remedies these problems will be a substantial factor in the acquisition’s success or failure.
While it will be a challenge, Microsoft seems to have the leadership culture to help fix Activision’s cultural problems. Current Microsoft CEO Satya Nadella is credited with changing Microsoft’s combative culture into a collaborative and inclusive environment. Furthermore, responding to complaints by Activision employees seeking more female representation in leadership, Microsoft made it a point to showcase that half of their video game division’s senior leadership positions are led by women during the deal’s announcement.
Whether Microsoft can reform the cultural problem at Activision will be of massive importance. While the future is very much uncertain, Microsoft’s latest move has the potential to impact the video game industry forever.