In January this year, when Microsoft announced its acquisition of video game giant Activision Blizzard for $68.7 billion, there were some puzzling changes in the technology and game industry. Satya NADELLA, chief executive of Microsoft, said that the acquisition of Activision Blizzard was to promote Microsoft's metauniverse strategy. However, Activision Blizzard is best known for traditional games such as call of duty, world of Warcraft and candy crush legend, rather than virtual reality, augmented reality and other technologies related to metauniverse.
However, it seems that Microsoft is more likely to become a leader in metauniverse and games. Bernstein analyst mark moerdler said: "Microsoft is in a very favorable position in the meta universe field. But I don't think this acquisition is purely driven by the meta universe strategy. Microsoft is still seeking depth and breadth in the game industry in a broader way."
Modler had expected that Microsoft might acquire some smaller game studios, but finally decided to "make a big acquisition, not a bunch of small acquisitions". The acquisition of Activision Blizzard is Microsoft's largest acquisition since NADELLA took office.
The transaction also requires the approval of the company's shareholders and regulatory authorities in the United States and other countries and regions. The transaction is not expected to be completed until June 2023.
Microsoft intends to highlight the concept of metauniverse in the news of acquisition. In fact, from now to the completion of the transaction, Microsoft is discussing the "dual track model". In an email sent to about 181000 Microsoft employees about the acquisition, NADELLA said: "games have been the key to Microsoft since the founding of Microsoft. Today, games are the largest and fastest-growing form of entertainment. With the integration of the digital world and the real world, games will play a key role in the development of the meta universe platform."
There is no doubt that games are an attractive and profitable industry. According to the data of market research company newzoo, the revenue of the global game market was $180.3 billion in 2021, and will further increase to $218.8 billion by 2024. Emarketer estimates that 2.96 billion people around the world played digital games last year, whether through mainframes, computers or mobile devices. This figure will reach 3.09 billion people by 2022, accounting for about 1 / 3 of the earth's population.
Activision Blizzard and the universe
Microsoft first set foot in the video game industry in 2001, when the company released Xbox Game console. So far, Xbox has launched four generations, and sales rose 14% in Microsoft's third quarter. Microsoft's game division, headed by Phil Spencer, consists of 23 game design and software studios and hundreds of games. The monthly game pass service launched by the Department has attracted more than 25 million users, and nearly 10 million people use Microsoft's Xbox cloud game service.
Although Activision Blizzard is not considered a major player in the metauniverse industry, the definition of what metauniverse is is still in progress, and Activision Blizzard's game products can also well illustrate how the company will participate in metauniverse. In 2004, Blizzard released world of Warcraft. At that time, blizzard was still an independent game studio and did not merge with Activision until 2008.
Mike sepso, CEO of vindex, an E-sports infrastructure platform, served as an executive of the company after the merger of Activision and blizzard. On world of Warcraft, he said: "this is a virtual world. Your virtual human can walk with friends, establish tribes and fight together."
Sepso also pointed out several other games with meta cosmic elements, including Robles, fortress night, second life and Microsoft's my world. On these platforms, players can transfer between many games, establish virtual social spaces, even attend concerts, and purchase virtual items to enhance the experience. Most of these games need to be equipped with virtual reality head display and game console. This is good for Microsoft because the company has provided hololens And Xbox.
The virtual worlds in these games may not reach the level predicted by metacosmic supporters. In their view, users in the meta universe can hold meetings, see doctors, take holidays and engage in various business activities in an immersive way through hybrid reality technology. Microsoft has been in a favorable position with software, cloud computing, games and virtual technology, and the addition of Activision Blizzard game capabilities will further enhance Microsoft's prospects in this regard.
"I fully believe that metauniverse is an extension of the game business," Spencer said in an interview a week before the deal was announced For example, Microsoft's game developers are imagining a virtual working environment, using their experience in the field of video games to promote people to gather online and cooperate to complete tasks.
However, in any case, the meta universe will be popularized by the "Z generation" and their next generation. They grew up completely in the digital world, especially familiar with games. According to a recent study of generation Z gamers by Razorfish and vice media group, they spend twice as much time with their friends in metauniverse as in real life. More than half said they wanted to experience how to make money in the metauniverse. 33% want a career development experience. Over the next five years, 20% of their entertainment and leisure budget will be dedicated to in-game shopping.
Correction of technology stocks
Although U.S. technology stocks are experiencing a correction, Microsoft is still one of the strongest technology companies after the release of the third quarter results. The company's strength lies in the strong market demand for Microsoft's cloud computing services and software capabilities, which are also the core components of metauniverse and game business.
Activision Blizzard's performance in the first quarter was flat, mainly due to the weak market demand for the latest generation of "call of duty". However, Warren Buffett, a new investor, said at the recent Berkshire Hathaway shareholders' meeting that he had been increasing his stake in Activision Blizzard. This is a practice of M & A arbitrage, because he believes that Microsoft's acquisition of Activision Blizzard will be successfully completed. At present, Berkshire Hathaway holds about 9.5% of Activision Blizzard.
With the decline of the share price in the technology industry, the share price of Activision Blizzard is 20% lower than Microsoft's offer of $95 per share.
Clay Griffin, an analyst at Moffett Nathanson, said that the sales data of call of duty were lower than expected, which was not conducive to the fundamental story of Activision Blizzard. If the deal fails and Activision Blizzard is forced to remain independent, the price of the company's shares may fall to more than $60. However, he also believes that such a situation is unlikely to happen.
"Sometimes, I see the opportunity of trading arbitrage and execute it. Sometimes, it seems that the opportunity is good for us, but in the end, we will lose money in that company and lose a considerable amount of money. It depends on what happens after the transaction fails," Buffett said
Microsoft and Activision Blizzard declined to comment.
Future dominance
During this period, the fate of Bobby Kotick, the current CEO of Activision Blizzard, is uncertain. In response to Activision Blizzard's practices in dealing with gender discrimination and sexual harassment, the securities and Exchange Commission (SEC) and the U.S. Department of justice launched two independent investigations last year, and CODIC became part of the investigation. Last November, media reported that CODIC handled sexual harassment reports improperly.
Before the deal was announced, this aspect of Activision Blizzard also attracted Spencer's attention. According to media reports, in November last year, with more and more relevant news, Spencer told employees that he was "deeply disturbed and troubled" by the terrible events and practices of Activision Blizzard. At the same time, Microsoft "is evaluating all aspects of its relationship with Activision Blizzard and making positive adjustments".
But in fact, at about the same time, Spencer and Microsoft Management began to discuss the acquisition deal with Activision.
"When the deal is completed, Microsoft will become the world's third-largest game company in terms of revenue, second only to Tencent and Sony," Spencer said in a conference call with analysts after the deal was announced in January "Before that, Activision Blizzard and Microsoft games will continue to operate independently. After the transaction is completed, Activision Blizzard's business will be reported to me," he said in his official blog on the same day
"In most acquisitions, senior management leaves. This is more likely in this deal," modler said
Activision Blizzard has a huge game library, with nearly 400 million monthly active players, and many people have spent money in the virtual world. Therefore, the outside world has no doubt about the logic of the acquisition, and no one will doubt Spencer's ambition.
"This deal solves several problems for Microsoft. First, it will add a large number of high-quality games and player base to the game pass business in the short term. In the long run, these games can be extended to the metauniverse. It will put Microsoft in an enviable position on the issue of who will dominate the metauniverse," sepso said