Microsoft buying Candy Crush maker for $69 bn; here are 5 takeaways

Global technology giant Microsoft Corp on Tuesday announced a plan to buy US-based interactive gaming firm Activision Blizzard for $68.7 billion in cash. Activision is the producer of wildly popular video games such as Candy Crush, Call of Duty, Warcraft and Diablo.

Adding the company to its stable is expected to help Microsoft make giant leaps in the critical technologies of today — gaming, virtual and augmented reality, and metaverse.

Here are five takeaways from the deal.

Giant leap into gaming and metaverse

“With three billion people actively playing games today, and fuelled by a new generation steeped in the joys of interactive entertainment, gaming is now the largest and fastest-growing form of entertainment,” said Microsoft in a statement. “This acquisition will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse.”

Also read: LIC — All you need to know about the mother of all IPOs

The Activision acquisition is the largest ever deal in the gaming sphere, and lands Microsoft in the third spot in the segment, right after China’s Tencent and Japan’s Sony.

For long identified as an organisation focused on enterprise software with a parallel presence in hardware, the new buy emphasises that Microsoft is now keen on the burgeoning gaming sector, where virtual reality (VR) and augmented reality (AR) play an increasingly key role.

What the deal means for rivals

Just as Facebook relaunched itself as a metaverse-focused organisation, even changing its name to ‘Meta’, Microsoft is blazing into the field with an entity that is well entrenched in it. (Metaverse is defined as a virtual reality platform where users can interact and play games with one another.) Microsoft already makes Xbox gaming consoles. Its Activision acquisition indicates its belief that gaming is becoming a more serious business, with people wanting to play them interactively, with AR and VR.

So significant is the deal  that Sony shares slid 9.5% on Wednesday morning in the Tokyo Stock Exchange. This was mostly attributed to investor concerns over rising competition for Sony in its key market.

The deal also represents Microsoft’s keenness to bypass the fees that it has to pay Apple’s App Store and Google’s Play Store. The company wants to be big enough for consumers to download its app directly from the company, rather than via app stores.

The ‘lure’ of Activision

Microsoft is a cash-rich organisation, and could well have indigenously developed products that Activision offers. Messaging app Discord and short-video platform TikTok are among acquisitions it considered and dropped.

Yet, it chose to buy Activision because it represented an ‘easy’ deal, said corporate observers. There have been mounting workplace harassment complaints against the gaming firm. Last July, California’s Department of Fair Employment and Housing filed a suit against the firm over allegations of misconduct, sexual harassment and discrimination. This may have given Microsoft an edge while finalising the deal, said experts.

Activision had steadfastly not allowed its staff to unionise. Now, its employees are reportedly looking forward to Microsoft allowing them to do so. There have been calls for the removal of Activision CEO Bobby Kotick. Under the existing terms of the deal, Kotick will continue in his role until the purchase closes.

Regulatory concerns could crop up

Microsoft’s legal wrangle in the 1990s — due to unfair trade practice charges over its Internet Explorer browser — is well documented. However, since then, the company has largely kept off the radar of the Federal Trade Commission (FTC).

The Activision deal might raise FTC concerns, say experts. Both the buyer and the target have a sizeable presence in the gaming sector. Their union would impact consumers as well as other players in the industry.

The combination of Activision’s gaming products with Microsoft’s consoles and other hardware could present a ‘package’ that the FTC may object to. Apart from the US, regulators in the EU and China also need to clear the deal, which may take even longer. The deal is expected to close in fiscal 2023, said Microsoft.

Issues with Call of Duty

Gaming experts say Call of Duty, Activision’s most important franchise, might have issues that could eventually impact Microsoft. For one thing, Activision is substantially dependent on Call of Duty — in 2020, the franchise contributed around 50% of the company’s operating profit. Yet, it has been having pervasive technical issues such as glitches, crashes and bugs.

Also, Call of Duty is suspected to be losing market share to rivals. Similarly, World of Warcraft, Activision’s second-most popular franchise, has seen waning gamer interest, according to reports. A growth in this trend would significantly erode Activision’s value.