What Microsoft’s Acquisition Of Activision Blizzard Means For The Future

As everyone not living under a rock knows by now, Microsoft announced that it would buy Activision Blizzard last week. The $70 billion acquisition is making waves across several industries, but mostly in tech and gaming. Evidently, no one will truly understand the full impact of this momentous deal for a while. Nevertheless, industry experts across the world have been pontificating about the details of the deal since last week. Of course, this does nothing to help those not in the know understand the singular importance of this moment. Therefore, some clarity is necessary to navigate this endless sea of information.

Activision Blizzard In Hot Water

There was no way for Microsoft to attempt this acquisition without raising any questions about Activision Blizzard’s workplace environment. On July 20th, the California Department of Fair Employment and Housing sued the company for civil rights violations. The catastrophic public relations response from CEO Bobby Kotick and Chief Compliance Officer Frances F. Townsend did little to reassure employees and investors alike. Naturally, the ATVI stock price halved from a high of over 100$ in February 2021 to around 50$ by December.

Activision Blizzard - World Of Warcraft
Image credit – Activision Blizzard

Following the breaking news, content creators and journalists shared their longtime grievances with the company. As World of Warcraft veteran, Kyle Zastre, wrote for The Game Crater in August, “Blizzard needs to clean up its act and not only learn from its mistakes but ensure that nothing like this can ever happen again. Activision Blizzard is one of the biggest game developers out there, and they have a responsibility to set the standard for fostering a safe and healthy workplace.” This is understandably a sentiment shared by many other prominent people in the WoW community and beyond.

Acquisition Or Rescue Operation?

Unsurprisingly, the announcement of the Microsoft acquisition sent the ATVI stock right back into the $80 vicinity with investors optimistic about the news. As part of the deal, Microsoft CEO Satya Nadella emphasised “the lived experience of our employees and [creating] an environment that allows us to constantly drive everyday improvement in our culture.”

While the flowery language about the workplace environment put many at ease, the statements do spur some speculation about the intentions of both camps. Historically, Microsoft is a very belligerent firm. Reportedly, a partner of Bill Gates even once said that “a partnership with Microsoft is like a Nazi non-aggression pact. It just means you’re next.” When looking to penetrate a market, whether software, hardware or gaming, the plan was simple for Microsoft: throw as much money at it as possible. 

Considering this track record, Activision CEO Bobby Kotick had previously ignored advances from Microsoft, but became a huge proponent of the deal after the scandal. Microsoft’s Gaming and Xbox division CEO Phil Spencer already knew Kotick since many Activision games including Call of Duty and World of Warcraft appear on the Xbox console. Activision was in a tough spot after the scandal with employees pushing for major change and management hesitant to oust Kotick.

Image credit – Activision Blizzard

Through this deal, Microsoft has managed to expand their operations, offer Kotick a way to save face and promise to bring the management changes Activision employees demanded since July. Jefferies analyst Brent Thill likened the deal to a fruitful rescue operation: “Microsoft just threw not a lifeboat, but they pulled up in a megayacht, and everyone got on, ‘Let’s go!’ ” An eye-popping $70 billion yacht to be sure, but mere pocket change for Microsoft.

Following the precepts of game theory, every party seems to come out of this deal with a win. But of course, there are repercussions felt beyond the acquisition itself.

Monopoly, Go To Jail And Don’t Collect $70 Billion

It goes without saying that acquisitions of this size don’t happen overnight. This massive one is expected to only be fully completed by 2023. In that time, there are logistics to take care of such as transferring assets and making personnel changes. However, legal experts agree that the regulatory burden is by far the biggest challenge this deal will face.

In recent years, issues with “Big Tech” and corporate consolidation have made their way to the top of the agenda in the United States Congress. Mergers and acquisitions in industries such as health insurance, airlines, social media and now video gaming always raise concerns about antitrust violations. Antitrust regulations are monitored and enforced in the US by the Federal Trade Commission. They intend to promote competition and prevent monopolies.

In 2020, the FTC filed antitrust actions against Facebook following their acquisition of Instagram. The FTC also took action to halt Nvidia’s $40 billion takeover of ARM. In 1998, Microsoft itself faced an antitrust lawsuit filed by the FTC. The company was initially ordered to break up, but that order was overturned on appeal. Since then, Microsoft remained relatively unscathed from antitrust regulators in contrast to other tech giants like Apple or Google.

Activision Blizzard - Microsoft & Activision Deal Announcement
Image credit – Microsoft

To the average person, Activision-Blizzard and Microsoft are both industry titans, but in reality, they’re more akin to David and Goliath.  Acquiring Activision Blizzard will absolutely turn Microsoft into a game industry giant, but it’s unlikely to trigger antitrust action because it’s a “vertical” transaction. That is to say, a larger company purchasing a smaller one that performs an essentially different function. Activision Blizzard, with revenues in excess of $8 billion in 2020, is certainly a major video game publisher. However, Microsoft, which posted more than $143 billion in revenues over the same period is one of the world’s largest tech multinationals and a major player in software, hardware, consumer electronics and more.

In a substack piece, Harvard University antitrust expert, Matt Stoller, also explained that “Microsoft’s purchase of Activision would not normally raise much of a fuss in antitrust circles, because there are still competitors in the game publishing market.” Indeed, even with this acquisition, Microsoft would only be the third-largest player in the videogame industry behind Sony and Tencent.

Moreover, the gaming industry is fundamentally different from other industries that usually face antitrust scrutiny such as the banking industry. In the gaming industry, indie studios are the innovators. Meanwhile, larger companies tend to recycle their historically successful IP and struggle to provide new features. Blizzard itself still relies on the likes of World of Warcraft, Starcraft and Diablo. In the meantime, gamers have moved on to titles like Final Fantasy XIV, DOTA 2 and League of Legends. Perhaps this acquisition is exactly what Activision Blizzard needs to start pushing the envelope again.

What About Sony?

Speaking of competitors, what does gaming’s largest player, Sony, have to say about this acquisition? The biggest concern for Sony here is whether previously multi-platform or PlayStation exclusive games like Call of Duty will become Xbox exclusives. Investors shared their worries following the news of the deal with Sony’s market capitalization plummeting $20 billion. Sony quickly released a statement to the Wall Street Journal saying, “We expect that Microsoft will abide by contractual agreements and continue to ensure Activision games are multiplatform.”

Microsoft has expressed its intent to keep the status quo. However, Phil Spencer’s statements on the matter could mean any number of outcomes. For example, some COD titles could remain on Playstation with others becoming Xbox exclusives. Or, COD could become an entirely Xbox exclusive, which would be a big blow to Sony.

Image credit – Sony

However, it may be somewhat foolish for Microsoft to have exclusives on its platforms. Not only would it sour consumers, but it would also be less profitable for the company to do so. Microsoft has also demonstrated many times that it does not wish to restrict play exclusively on its own platforms, notably through mobile gaming/streaming on Xbox and the Game Pass on PC.

On Sony’s end, the acquisition is perhaps even a timely wake-up call. Microsoft has been shopping around the gaming industry for a while now. The tech giant now has over 30 studios under its umbrella, including the likes of Mojang Studios (Minecraft) and Bethesda (Fallout, DOOM and Elder Scrolls). While Microsoft kept gaining ground in the gaming market, Sony has remained mostly stagnant.

The Great Tech Shuffle

Almost everyone in the media keeps harping on about the metaverse and what this deal portends for a virtual world, but truth be told, there are more elementary topics at play.

For one, the hotly anticipated Steam Deck promises to bring PC gaming to handheld devices. While Steam is technically a competitor for the Microsoft Store, the acquisition offers an opportunity for the tech giant as well. Steam has a massive library of games, but notably, many Activision Blizzard games are not available on the service. As Valve said, it would be possible for players to replace the Linux-based SteamOS operating system with Windows to install Battle.net and play World of Warcraft. But if Microsoft chose to bring more Activision Blizzard games to Steam, it would make the Steam Deck’s library even larger. However, Microsoft’s move may inevitably also come at the expense of Linux.

Image credit – Valve

Another major concern in the tech front is privacy rights. Microsoft is now expanding gaming across consoles, PC, cloud, mobile and even the metaverse. These also become new avenues for collecting and using consumer data. Different gaming platforms collect different types of data. For example, mobile gaming apps collect data related to phone usage behaviour, including location tracking. Microsoft expanding its metaverse-related virtual and augmented reality game offerings is synonymous with increased collection of biometric data, potentially well beyond what it gathered with the Xbox Kinect. 

The acquisition of Activision Blizzard will also mean a lot more user data for Microsoft. The privacy risks related to data collection compound when a company can collect vast amounts of data from different sources on the same individual. When data collection is that broad, it becomes easier for that data to fall into the wrong hands and lead to privacy-breaching malicious activity.

What About Gamers?

That’s enough said about the developers; what about the gamers?

There is a lot for gamers to like about this deal. When Microsoft finally absorbed Bethesda last year, the Game Pass added over a dozen games and pulled in over 7 million new players into the gaming subscription service. That success showcases that there is a demand for such a service. With Activision Blizzard’s 400 million monthly active players and several big franchises under its banner, their addition to the Game Pass is a boon for gamers.

Not only does this make the Game Pass more attractive than ever, but it also makes gaming a much cheaper hobby. Instead of paying $70 for a game, consumers can play hundreds of titles for a mere dollar for the first three months and $10 for every subsequent month. The affordability democratises gaming and unlocks an entirely new player base in the lower-income strata.

Of course, not everyone sees it that way and many, including several gaming journalists, have decried the deal. In response, Windows Central’s Jez Corden took to Twitter to call out detractors of the deal, explicitly attacking gaming journalists apprehensive about the acquisition.

Of course, not everyone was as entrenched. Nicholas Pop, a WoW veteran from Concordia University’s Department of Computer Science and Software Engineering told The Game Crater: “I’m kind of happy to know that World of Warcraft might have a chance to come back to what it was. I’m hoping they end the subscription model, but it’s all in the hands of Microsoft. Blizzard is in a really bad spot right now and if Microsoft doesn’t step up, it could hurt them.”

What’s Next?

Nobody knows.

But that doesn’t stop journalists from fantasising about Microsoft’s next moves. Trusted Reviews even floated the idea of a platform-agnostic future where the Xbox Game Pass is available on the PS5.

For years, Microsoft has tried penetrating the Japanese market to no avail, a market that is dominated by Nintendo. Naturally, NintendoLife speculated about Microsoft perhaps purchasing Nintendo next. It would certainly be interesting to see them try. After all, the last time Microsoft tried to buy Nintendo in the 1990s, they were literally laughed out of the room.

Aside from what is already known and plausible outcomes, speculation about the far future permeates the discourse around the deal. Regardless of individual theories, Microsoft is making a bid for its own future and perhaps, the future of the entire gaming industry.