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Before the pandemic, gaming was a huge, fast-growing business. Lockdowns made the game more appealing to both hardened players who had more time on their hands and bored newcomers. Newzoo, a company that evaluates things, thinks that revenue will rise by 23% in 2020, to about $180 billion. Apple, Netflix, and Amazon are some of the big tech companies that have been paying attention to that development. All of them have tried to get into the market in the last few years.
Microsoft has been in business for 20 years. If you play games on its Xbox console, it makes $15bn a year from them. It has been acquiring many gaming companies since Satya Nadella took over as CEO in 2014. Since then, it has bought a lot of gaming companies. As long as regulators don’t stop it, this deal would make it even more important. They’re watching big tech with a very close eye. When the plan is implemented in 2023, Microsoft will become the third-largest video game company in terms of revenue. Only Tencent, a Chinese company, and Sony, Microsoft’s longtime rival in consoles, will be bigger.
There is always a risk when you buy a lot of things. This is how Microsoft’s paper looks. Activision Blizzard’s share value fell about 40% between February and the announcement of the deal, because it was caught up in a sexual-harassment case. In 2015, there were 530 million people playing games every month. This year, there will be only 390 million people playing games every month. Pessimists might say that the company is overpriced. Optimists, who think the company will make $8 billion a year and make a profit margin of about 30%, might say that it’s cheap.
Most importantly, Activision Blizzard has a lot of content. In video games, as in all media, content is important, says Piers Harding-Rolls of Ampere Evaluation, another research firm. Video games are becoming more and more reliant on “franchises,” which are well-known settings or brands that can be used over and over again in new games. This is similar to the movie business, where even bad “Star Wars” movies make money. Activision Blizzard, which makes games like “Name of Obligation,” “Sweet Crush,” and “Warcraft” has a lot of popular games, like “Name of Obligation,” “Sweet Crush,” and “Warcraft.”
Microsoft may be able to reach more people outside of consoles with this deal, says Julianne Harty of Newzoo. Around 245 million people play King games on their phones or tablets every month. Most of them play “Sweet Crush.” It is usually a protest against Sony, which saw its share value fall by 10% after the news broke. If Microsoft owns the rights to “Name of Obligation,” it can decide whether or not the games can be played on Sony’s Play Station machine. Microsoft bought ZeniMax Media, a gaming company, for $7.5 billihonor2020. It said it would honour the terms of ZeniMax’s current publishing agreements with Sony, but that Sony’s access to ZeniMax’s new games would be decided “on a case-by-case basis.”
It also fits into Microsoft’s long-term goal of becoming the dominant player in a gaming market that it thinks has a lot of room to grow. Mr. Nadella, of course, gushed about the virtual-reality “metaverse.” The company is putting together content and promoting the “Recreation Move” subscription service, which gives console and PC players access to a rotating library of games for $10 a month. The games usually cost $40 to $60 each. Adding Activision Blizzard’s catalog to the service could make it more appealing.
Microsoft wants to use its Azure cloud-computing arm to do for video games what Netflix did for movies and TV shows. Game streaming was added to Recreation Move in 2020. It lets you stream high-end games from the web to your phone, TV, or computer. You can also download games to your phone, tablet, or computer. Working on a game’s code in the cloud means that you don’t need to own a powerful, expensive console or PC. Knowing-how is hard. Microsoft, on the other hand, hopes that as it gets older, more people will start playing, especially in middle-income countries where phones are common but consoles aren’t. Tho Sony, Amazon, and Nvidia all offer similar services, none of them seems to be as well-placed as Microsoft. The world’s second-largest cloud service, Amazon, is run by the software company. It has a lot of content and has a lot of experience with games.
As a result of Microsoft’s big bet, rivals might think they, too, need to get content while they can. A lot of mergers were already taking place in the gaming industry. Last year, five deals worth more than $1 billion were signed, and this year there were even more. Zynga is a company that makes games for mobile phones. Take-Two Interactive, which makes games, paid $13 billion for Zynga on January 10. Sony may be feeling weak after Microsoft made a deal with the company. Amazon, Apple, or Netflix might decide that now is the time to show that they care about business. There doesn’t seem to be any other way.
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