Why did Activision Blizzard agree to do a deal with Microsoft?

As the biggest third-party publisher in the world, why exactly did Activision Blizzard agree to sell? To fend off increased competition, apparently.

Speaking to GamesBeat, Activision Blizzard CEO Bobby Kotick said: “As you look at the increased competition between Tencent, and NetEase, and Sony, and now you have Google and Amazon, and Apple, and Facebook, and Microsoft and Netflix. We were looking at it over the course of the next couple of years, and starting to realize that we need thousands of people to be able to execute against our production plans.

“We need them in disciplines like AI and machine learning, or in data analytics, or in purpose-built cloud and cybersecurity — and that we just don’t have. And that competition for that talent is expensive, and really hard to come by.”

Surprisingly, Kotick blamed the company’s recent fall in share prices due to the delays of Overwatch 2 and Diablo 4, along with Call of Duty underperforming, rather than the ongoing sexual harassment investigation Activision Blizzard is facing.

“I think what affected the stock price more than that is pushing out Overwatch and Diablo. And then I think people started to see that this year’s Call of Duty wasn’t performing as well,” Kotick tells GamesBeat. 

“So I think certainly the [California Department of Fair Employment and Housing] filing and the Wall Street Journal article contributed to that, but stocks go up and down for a variety of reasons. I think our view was that at $95 a share with all cash, that’s a really great deal for our shareholders. And so that was an easy and independent judgment. It’s a great deal.”

Will Call of Duty become an Xbox exclusive?

There’s no doubt we’ll hear this question asked more than a few times now that Microsoft has agreed to buy Activision Blizzard, but the reality is that any exclusivity deals, particularly on something like Call of Duty, won’t transpire soon.

Speaking to Bloomberg, Xbox Gaming CEO Phil Spencer said: “I’ll just say to players out there who are playing Activision Blizzard games on Sony’s platform: It’s not our intent to pull communities away from that platform and we remained committed to that.”

Spencer’s comment mirrors a previous statement he made in a press release announcing the acquisition. There, he said: “Activision Blizzard games are enjoyed on a variety of platforms and we plan to continue to support those communities moving forward.”

Microsoft’s acquisition of Bethesda in 2020 provides a touchstone by which to assess the potential exclusivity of its newly-acquired titles. Although it had initially shied away from announcing upcoming games would not find their way to PlayStation, it’s since confirmed that some future releases would be exclusive to Xbox and PC. The much-anticipated Starfield, The Elder Scrolls 6, and Redfall are among them.

When will Microsoft’s takeover happen?

Activision will continue to operate independently until Microsoft’s acquisition is complete, but when can we expect the deal to close? According to the takeover terms, Microsoft hopes to wrap things up in the fiscal year 2023, which falls between July 2022 and June 2023.

Once that happens, Activision Blizzard will officially become part of the Xbox team, and this could be when we start seeing its catalog of titles come to Xbox Game Pass. 

The calm before the storm

After today’s electrifying news of Microsoft’s potential acquisition and its repercussions for both companies and the video game industry at large, the news has started to slow down for the evening. 

Of course, it’s worth noting that this deal could face severe scrutiny here in the United States as TechRadar’s US Editor-in-Chief Lance Ulanoff points out.

“Since Microsoft is both a gaming studio owner and console manufacturer, the acquisition of Blizzard could be considered both horizontal and vertical … They’ll be looking at the definition of market concentration as a measure of competitive effects. Are they overweighting the existence of direct competition (think Microsoft vs. Sony) when considering the direct impact of, say, a $67.8 billion market consolidating deal?”

The TL;DR is that this deal, while potentially great on paper for some gamers, might violate some anti-monopoly laws. However, we’ll be waiting a while for the results of that investigation to come out.

More news coming later this week?

Is more big-time gaming news heading our way later this week? Gary Whitta, writer of Rogue One: A Star Wars Story and the upcoming Forspoken game on PS5, says that there’s some even bigger news in a cryptic tweet this afternoon. 

It’s hard to say what could be bigger than Microsoft acquiring one of the largest third-party publishers on the planet – but if anyone would know something, Whitta would.

Are these franchises going to be Xbox exclusive?

So what franchises does Microsoft gain in the Activision Blizzard takeover? Our own Patrick Dane tackled that question in a post today, and says that we can expect Call of Duty, Candy Crush, Warcraft, Overwatch, Hearthstone, Diablo, Guitar Hero, StarCraft, Tony Hawk’s Pro Skater, Crash Bandicoot, Spyro the Dragon, and Skylanders to all fall under Microsoft’s possession should the deal be approved.

The future of Xbox Game Pass is now

The thought of seeing Call of Duty hit Xbox Game Pass in the future is certainly exciting, but that doesn’t mean Microsoft’s subscription service isn’t already stocked full of awesome games to play.

The next wave of Xbox Game Pass titles includes Rainbow Six Extraction, Death’s Door, Hitman Trilogy, Danganronpa: Trigger Happy Havoc Anniversary Edition, Windjammers 2, and more – all hitting the service this month.

Now, imagine a month where loads of Activision Blizzard games drop onto Xbox Game Pass? As of today, that’s no longer just a figment of your imagination as it could happen in the near future. 

Will Bobby Kotick remain at Activision Blizzard if the takeover goes through?

Activision’s CEO Bobby Kotick has declined to say whether he will remain as CEO of Activision Blizzard if Microsoft’s acquisition goes through. Instead, Kotick said he will be available “as needed” according to NY Times’ Karen Weise.

In Microsoft’s official announcement, Spencer writes: “Once the deal is complete, the Activision Blizzard business will report to me as CEO, Microsoft Gaming”, which could imply that Kotick’s role will change if he does stay on. 

Activision Blizzard buyout would be Microsoft’s biggest yet

If you were wondering how Microsoft’s pending acquisition of Activision Blizzard stacks up compared to the other companies it’s purchased over the years, the short answer is that it dwarfs them all. And by some margin.

Phil Spencer statement

Microsoft Gaming CEO Phil Spencer shared the following email with employees (thanks, The Verge), outlining his new role and praising the company’s gaming efforts.

Welcome back from the holidays. To start, I’d like to thank everyone for all of the hard work and dedication that have built this business and this community. Obviously, today’s agreement to acquire Activision Blizzard is incredibly exciting. In fact it’s a milestone for our company, our business and our industry. I and the entire Gaming Leadership Team are deeply enthusiastic about this opportunity. We also announced this morning that we have surpassed 25 million Game Pass subscribers across console, cloud and PC, a great achievement for all of Team Xbox.

As players and partners, we all know how talented and dedicated the teams and studios are across Activision Blizzard. The legendary games and franchises across that company have delighted millions of people for decades. Coming together, we can accelerate our mission to extend the joy and community of gaming to everyone. We have the capability and opportunity to build simply the best, most engaging, most fun entertainment ecosystem anywhere.

Microsoft is committed to our journey for inclusion in every aspect of gaming, among both employees and players. We deeply value individual studio cultures. We also believe that creative success and autonomy go hand-in-hand with treating every person with dignity and respect. We hold all teams, and all leaders, to this commitment. We’re looking forward to extending our culture of proactive inclusion to the great teams across Activision Blizzard.

We expect this acquisition to close in FY23, pending regulatory approvals. Once the acquisition is completed, the Activision Blizzard business will report to me. In the meantime, we know you will have a lot of questions. The Gaming Leadership Team and I look forward to answering as many as we can at our next Monthly Gaming Update on Jan. 26. You can submit your questions now anonymously, or post them on our Team Xbox Yammer. Please also refresh on our corporate social media guidelines.

As Satya mentioned, I am now CEO, Microsoft Gaming. This change is a reflection of the incredible work each of you are doing to create the best entertainment ecosystem anywhere. As a leadership team, we know how much exciting but difficult work we have ahead of us, so it’s crucial that we operate as a single, unified team. To that end, I’m excited to announce effective today that Jerret West, CMO of Gaming, and his marketing team will move from Chris Capossela’s organization to report directly to me. Jerret will continue to be a member of Chris’ leadership team and leverage critical parts of Microsoft’s marketing muscle including Communications, Media, and Consumer Sales.

We will have a webcast for investors and media at 6 a.m. PT to discuss the Activision Blizzard transaction and our plans as Microsoft Gaming. Please join if you can.

Phil

It’s also worth noting that Activision Blizzard’s cultural woes  and malpractice complaints are not just historical, nor  confined to the real of the litigious – there is an active strike happening among the company’s workforce as this latest acquistion news is breaking:

Team TRG weighs in on a ‘cultural monopoly’

The news has sparked some fascinating discussions among our newly-minted TechRdar Gaming (TRG) team, too. Here are their quick-fire thought on the deal.

Callum Bains, News Writer:

“Microsoft’s potential acquisition of Activision Blizzard is huge, but big doesn’t necessarily mean better. According to Microsoft, Bobby Kotick – who’s faced scathing allegations over the past year, and calls to resign for his part in presiding over sexual misconduct and cultural problems at Activision – will remain in place, answering to Xbox boss Phil Spencer. Alongside such persistent problems, the acquisition also represents the further monopolization of the gaming industry. With some of the world’s biggest games studios now held under one roof, answering to the same commercial interests, players, as much as developers, should be worried about what this deal means for the creative direction of the industry. Games aren’t just entertainment, they’re a business. And now a single business has control of a startling proportion of the industry’s output.”

Patrick Dane, Guides Editor:

“This feels like the biggest paradigm shift potentially ever in the medium. It’s hard to overstate how enormous this is, and will likely shape the entire industry for years, probably decades. In the more immediate future though, questions about the culture at Activision Blizzard and Kotick’s involvement with the company are important to answer. The identity of Activision Blizzard will need to change following recent horrific allegations about the workplace culture at the company. At the same time, it’s harder to think of a move that could achieve something so overarching as a takeover like this.

“There will also likely be sobering conversations to be had about the power Microsoft has just gained over the entire medium, and the potential for an enormous cultural monopoly.”

Adam Vjestica, Senior Gaming Writer:

“This is extremely exciting news for Xbox gamers everywhere, especially those who subscribe to Xbox Game Pass. I expect Microsoft will employ the same strategy that we’ve seen after it acquired Bethesda and Mojang Studios and keep the status quo in the short term, with an eye on more exclusivity in the years to come. 

“Any existing contracts that Activision Blizzard may have with PlayStation will be honored, as we saw with Deathloop from Bethesda, and games that make sense as a multiplatform release – like Call of Duty – will continue to be available on other platforms.

“However, the exciting part for Xbox fans is that one day Microsoft could release the likes of Call of Duty straight into Xbox Game Pass, which would be a huge incentive for millions of people to subscribe and continue paying for the service every year. Throw in the likes of Overwatch 2, a new Crash Bandicoot title, and Diablo 4, and it’s clear that Microsoft’s massive investment is one that it believes will convert more people to enter the Xbox ecosystem and subscribe to Xbox Game Pass.”

Microsoft’s mobile gaming division blooms

Lots of attention here will naturally go on Microsoft’s acquisition of big, AAA franchise titles like World of Warcraft, Overwatch, Call of Duty and the like. But there’s another side to this story too – Activision Blizzard is also the home of mobile game developers King, the team behind Candy Crush.

You may think of Candy Crush as a quaint tile-matching time killer, but it alone has a playerbase of 250 million per month (as recorded in November 2021, at least). With 2,000 employees at King, Activision Blizzard itself spent $5.9 billion on the company back in 2015, as our mobile editor James Peckham points out:

Add to that Call of Duty Mobile, the upcoming Diablo Immortal, Hearthstone and other smaller titles included in the mobile side of the deal, and Microsoft will see its mobile gaming division balloon with the acquisition, too.

Xbox could end up with 32 first-party studios 

The lineup of first-party studios that would fall under Microsoft’s banner now is gigantic:

If Microsoft’s acquisition of Activision Blizzard is successful, the likes of Blizzard Entertainment, Infinity Ward, Treyarch, Sledgehammer Games, Toys for Bob and King will all be classed as Xbox first-party studios, meaning Microsoft will have 32 studios creating games in total. 

And remember that little company called Nintendo? You may have heard of it – it’s got that Mario guy and the green fairy dude. As our own Daryl Baxter points out, its valuation is looking like an absolute bargain in comparison to the Activision Blizzard deal:

A comparison to previous purchases

This isn’t the first time Microsoft has moved to purchase games studios in an effort to shore up its own first-party catalogue. Back in September of 2020 it announced its (now completed) intent to purchase Bethesda Softworks, home of The Elder Scrolls, Doom, Fallout, Prey and Dishonored franchises among others.

At the time the $7.5 billion deal seemed a real fortune. But it’s absolutely dwarfed by the scale of the $68.7 billion Activision Blizzard deal. It’s a very different purchase of course – Bethesda offered prestige titles, released at a much slower cadence than the popular annualized franchises, mobile titles, and esports potential that the Activision Blizzard deal could offer.

As video game critic Alex Donaldson points out, Microsoft’s first-party stable is now bursting with beloved gaming franchises. It’s come a long way in a few short years:

Activision Blizzard games coming to Xbox Game Pass 

Microsoft is planning to add as many franchises across Activision Blizzard to Xbox Game Pass as possible. 

In a blog post on Xbox Wire, Spencer said: “Upon close, we will offer as many Activision Blizzard games as we can within Xbox Game Pass and PC Game Pass, both new titles and games from Activision Blizzard’s incredible catalog.” 

The company has also revealed that it has now surpassed 25 million Xbox Game Pass subscribers.

Spencer said that this acquisition will let Microsoft accelerate its plans for cloud gaming, and stressed that the existing communities of Activision Blizzard titles will continue to be supported moving forward.

Regulators have their work cut out

It’s worth noting that this isn’t a done deal – Microsoft may have the audacious amounts of cash needed to pull this off, but it will have to face the scrutiny of regulators and anti-competition evaluators before the purchase can be finalized.

As TechRadar’s interim EIC Lance Ulanoff points out:

However, with the key competition being Chinese (Tencent) and Japanese (Sony), perhaps the FTC will look more kindly upon the strengthening of two US technology institutions.

Kotick’s potential windfall

Should Activision Blizzard CEO Bobby Kotick be removed from his position, he’d make a huge amount of money, as per contractual terms relating to ‘Potential Payments upon Termination or Change of Control’.

As AXIOS journalist Stephen Totilo highlights, it could be close to a $293 million payout – a figure still in play with the Microsoft purchase on the table:

Microsoft’s Gaming Leadership Team

Microsoft has posted to its newswire, sharing how its Gaming Leadership Team looks in the wake of the new acquisition news. It’s interesting that, in the wake of the sexual misconduct allegations that have dogged Activision Blizzard in recent times, Bobby Kotick, CEO and figurehead for Activision Blizzard, is nowhere to be seen. Sure, there are many steps to take before any takeover or merger can be finalized, but it’s interesting that there appears to be no role for the beleaguered CEO, who many in the gaming community believe should step down from his role.

Bobby Kotick statement

Activision Blizzard CEO Bobby Kotick has shared the following email with employees:

Team,

Today is an incredibly exciting day. As we continue our journey to connect and engage the world through epic entertainment, we will eventually do so as part of Microsoft. I am certain that our incredible talent and extraordinary games combined with our shared commitment to the very best workplace will enable us to grow in an increasingly more competitive race for leadership as gaming through the metaverse evolves.

How we got here and where we’re going

When you reflect on what we’ve built together, we have so much to be proud of. For the last 31 years, we’ve continuously shaped gaming through our commitment to deliver joy, fun, and the thrill of accomplishment.

We’ve transformed games into social experiences and enabled players to find purpose and meaning through the most engaging form of entertainment – our games. By doing so, we’ve created and entertained communities of hundreds of millions of players.

Connecting these communities together is the next step. Facebook, Google, Tencent, NetEase, Amazon, Apple, Sony, Disney – and many more – have ambitions for their own gaming and metaverse initiatives. Established and emerging competitors see opportunity for virtual worlds filled with professionally produced content, user generated content and rich social connections.

Our talent and our games are important components of the construction of a rich metaverse. We have always attracted the very best game makers and built the very best games, seizing opportunity with passion, inspiration, focus, and determination.

A partnership to define the future

As investments in cloud computing, AI and machine learning, data analytics, and user interface and experience capabilities are becoming more competitive, we believe this partnership will better enable our ambitions.

In considering possible partners, all roads ultimately lead to Microsoft. Like us, they have been making games for a long time. Microsoft has already distributed games to hundreds of millions of the world’s computers and computing devices and has technologies and innovation that will support the next generation of games.

Microsoft also will support our journey to further strengthen our culture. Satya Nadella, Microsoft’s CEO, has been a passionate advocate for caring as the currency of leadership. Inspiring people through empathy is a powerful motivator, and one we embrace as we renew our resolve – and in the work we are now doing – to set a new standard for a welcoming and inclusive workplace culture.

Importantly, Microsoft wants you – your talent, your creativity, and your dedication to each other. Activision Blizzard’s success throughout the years can be directly attributed to each of you. Microsoft recognizes the commitment to excellence and creative independence that sets us apart, and we anticipate minimal changes for our workforce following the close of the transaction. Microsoft’s diverse operations will give us access to valuable expertise, technology, and tools and provide even greater opportunities for learning and development.

No organization’s culture, including ours, is without need for improvement, and thanks to your input, we are making strides in improving ours. My commitment is to continue evolving our culture so that come closing, Microsoft is acquiring an exemplary workplace.

What’s next

Transactions like these can take a long time to complete. Until we receive all the necessary regulatory approvals and other customary closing conditions are satisfied, which we expect to be sometime in Microsoft’s fiscal 2023 year ending June 30, 2023, we will continue to operate completely autonomously. I will continue as our CEO with the same passion and enthusiasm I had when I began this amazing journey in 1991.

Of course, this announcement will give rise to so many questions. We will host numerous forums and events to make certain we address your concerns.

I am incredibly proud of this company, you, and the work we have done together. Now it’s on to our next chapter and the endless possibilities this transaction represents for us. I couldn’t be more appreciative of your efforts, focus, and the dedication to connecting the world through joy and fun.

With gratitude,

Bobby

Xbox boss Phil Spencer is, unsurprisingly, excited about the announcement.

What does it mean for PS5?

Our senior gaming writer, Adam Vjestica says;

“One thing is for certain, even in these early stages of the deal: Xbox Game Pass will be home to more Activision Blizzard games in the future, with many likely to launch straight into the subscription service.

“That means the next Call of Duty could potentially be free to Xbox Game Pass subscribers, while PS5 owners will have to pay $70 /  £70. It could also jeopardize any future exclusivity deals Sony had in terms of content, which has been the case for Call of Duty since PlayStation 4’s release in 2013.”

Microsoft confirmed it agreed to acquire Activision Blizzard for $68.7 billion on Tuesday 18 January 2022 at around 8.30am ET.

It’s massive news, not only in the amount Microsoft is paying, but also the big-name titles it’s acquiring.