Jonathan Alcorn | Reuters
In January, Microsoft announced an agreement to purchase Activision Blizzard, a leading video game publisher, for $ 68.7 billion. Microsoft CEO Satya Nadella described his biggest acquisition as a boost to the company’s growing metaverse strategy, despite Activision being best known for hit games like Call of Duty, World of Warcraft, and Candy Crush, but not the AR combination. VR and other technology underlying the fledgling metaverse.
However, upon closer inspection, Microsoft may now be in a better position to become a leader in both metaverse and gaming. “Microsoft is very well placed for the metaverse,” Bernstein analyst Mark Moerdler recently told CNBC. “But I don’t think it is [acquisition] he was purely a metaverse drive. They also looked for bigger ways to increase the depth and width of games. ”
Moerdler predicted Microsoft might buy smaller game studios, but ultimately “decided it was better to do one big one [purchase] compared to many small ones, ”he said.
The proposed deal still requires approval from shareholders and U.S. and international regulators, which is expected to postpone closure until June 2023.
Microsoft has used the metaverse concept in its acquisition announcements, and from now until the expected closing of the deal, Microsoft is talking in terms of a two-way model. “Games have been key to Microsoft from the very beginning of our business,” Nadella said in an email to some 181,000 employees about the acquisition. “Today it is the largest and fastest growing form of entertainment, and as the digital and physical worlds converge, it will play a key role in the development of the Metaverse platforms.”
There is no doubt that games are an attractive, lucrative sector. According to research company Newzoo, which forecasts that by 2024 gaming revenues will increase to USD 218.8 billion, the global gaming market generated USD 180.3 billion in 2021. eMarketer estimated that 2.96 billion people worldwide played digital games in the last year, be it via console, computer or mobile phone. devices and that this number will reach 3.09 billion in 2022 – about a third of the planet’s population.
Activision Blizzard and metaverse
Microsoft first became interested in video games in 2001 with the release of the Xbox console, now the fourth generation and with a 14% increase in sales in the third quarter. Today, Microsoft Gaming, led by CEO Phil Spencer, includes 23 game and software design studios and hundreds of games. The affiliate’s Game Pass subscription service has over 25 million customers and nearly 10 million people are streaming games on Xbox Cloud Gaming.
While Activision is not considered a player in the metawiverse – which remains pending with different definitions – one of its video games provides a good example of how it works. Blizzard released World of Warcraft in 2004, which was the game studio that later merged with Activision in 2008.
“It’s a virtual world [your avatar] they could walk with their friends, build a tribe, and go on raids together. This is the metawers, ”said Mike Sepso, former director of the combined entity that is now CEO of Vindex, an esports infrastructure platform.
Sepso points to a few other games that include metaverse elements like Roblox, Fortnite, Second Life, and Microsoft’s Minecraft. On these platforms, players can teleport between millions of games, build virtual social spaces, and even attend concerts – all by purchasing virtual stuff to enhance the experience. Most of these types of games require headsets and VR consoles, which favors Microsoft, with its HoloLens and Xbox hardware.
The virtual worlds in these games may not match those predicted by Metaverse advocates, where users are immersed in mixed reality during business meetings, doctor visits, vacations, and all kinds of e-commerce. This is where Microsoft’s software, cloud computing, games and virtual technologies position the company well. And the addition of Activision’s gaming capabilities only improves its perspective.
“I definitely can see [the metaverse] as an extension to what the games are doing, ”Kara Swisher told The New York Times in her Sway podcast about a week before the deal was announced. For example, Microsoft game developers envision virtual workspaces and the things they learn in video games about people who come together to work together to get things done.
However – and whenever – the metaverse materializes, it is mainly inhabited by Generation Z and subsequent generations who grew up exclusively in the digital world, especially in games. According to a recent survey of Gen Z players by Razorfish and Vice Media Group, they spend twice as much time meeting friends in metaverse than in real life. More than half said they would like to experience earning money in metaverse; 33% would like to experience career building there; and 20% of their entertainment / leisure budgets will be allocated to in-game purchases over the next five years.
Tech stocks under revision
While the tech sector is experiencing a correction, Microsoft remains one of its strongest players after third-quarter earnings, and the heavy demand for cloud services and software capabilities – both the core elements of the metaverse and the gaming industry – is driving its operational power.
Activision reported a weak first-quarter performance, hurt by lower demand for the latest Call of Duty games, but its most notable new investor, Berkshire Hathaway’s Warren Buffett, is increasing its firm’s stake, which is a merger arbitration game, Berkshire Hathaway told shareholders at a recent annual meeting the meeting, assuming that the acquisition of a video game company proposed by Microsoft will be finalized.
Berkshire currently owns approximately 9.5% of Activision shares.
As technology evolved, Activision’s share price fell as much as 20% below Microsoft’s $ 95 per share offering.
Clay Griffin, an analyst at MoffettNathanson, said the weaker-than-expected numbers in Call of Duty are bad for the fundamental story behind Activision. If the deal broke down and Activision were forced to act on its own, the stock would likely be priced sometime in the mid-1960s – but Griffin doesn’t expect that to happen.
“Every now and then I see an arbitration agreement and I do,” said Buffett. “Sometimes it looks like the odds are in our favor, but we can absolutely lose money on this company, pretty large sums of money, depending on what happens if the deal breaks out.”
“We don’t know what the Justice Department will do, we don’t know what the EU will do, we don’t know what 30 other jurisdictions will do. We only know Microsoft has the money, ”Buffett added.
Microsoft and Activision declined to comment.
Ownership of the virtual future of games
Meanwhile, the fate of Activision’s current CEO, Bobby Kotek, is uncertain. He is involved in two separate federal investigations launched last year by the Securities and Exchange Commission and the Department of Justice about how the company dealt with employee allegations of sexual misconduct and discrimination in the workplace. In November, The Wall Street Journal reported that Kotick had mishandled allegations of sexual misconduct.
The issue caught Spencer’s attention prior to the announcement of the deal. Last November, as headlines grew, Bloomberg announced that it told employees it was “concerned and deeply concerned about the horrific events and activities” at Activision Blizzard and that Microsoft was “reviewing all aspects of our relationship with Activision Blizzard and making proactive corrections on an ongoing basis.” Consequently.
In fact, it was around the same time Spencer and top Microsoft officials began discussing the deal with Activision.
“When is it [Activision] Following the close of the deal, Microsoft Gaming will be number 3 in the world in terms of revenue by revenue, behind Tencent and Sony, “Spencer said in a January webcast with analysts. [then]Activision Blizzard and Microsoft Gaming will continue to operate independently, ”he wrote on the blog that day. “Once the deal is finalized, Activision Blizzard will report to me.”
“In most acquisitions, senior management is leaving,” said Moerdler. “In this case it is more likely.”
Given not only Activision’s massive amount of proprietary intellectual property, but also nearly 400 million monthly active players, many of whom are already spending money in virtual worlds, and the acquisition is not nearly as terrible as Spencer’s ambitions. oversee.
“This deal solves several of Microsoft’s problems,” Sepso said. “First, it adds a lot of great intellectual property and gamer base to their Game Pass service in the short term. In the long run, these BIs can be extended to this primal meta-world. This puts them in an enviable position when it comes to metavers. “