Even for Microsoft , which has a market value of more than €2 billion, investing €69 billion is a lot of money. On February 18, the firm said it would pay that sum, in cash, for Activision Blizzard, a video game developer. It is by far the largest acquisition in the history of the video game industry and the largest ever by Microsoft, more than twice the size of its 2016 purchase of LinkedIn, a professional social network that people often use to search for job. The corporate move, which caught industry watchers by surprise and boosted Activision Blizzard’s stock price by 25%, represents a big bet on the future of entertainment.
The video game industry is booming
Gaming was a big, fast-growing business even before the pandemic. The restrictions reinforced its appeal, both to experienced players with more time on their hands and to newcomers who were bored. Various analytics firms estimate that revenue grew 23% in 2020, to almost €180 billion. That growth has attracted the attention of other tech titans, including Apple, Netflix and Amazon, who have not hesitated to dive into the market in recent years.
For Microsoft it is nothing new
Microsoft has been in business for two decades. He earns 15,000 million euros a year from games, mainly thanks to his Xbox console. It has made a series of gaming acquisitions since 2014, when Satya Nadella, its CEO, took over the reins of the industry. Assuming it’s not blocked by regulators, who are watching Big Tech very suspiciously, this deal would cement its position in the industry. Once completed in 2023, it will make Microsoft the third-biggest video game company by revenue, behind only Tencent, a Chinese giant, and Sony, Microsoft’s arch-rival in game consoles.
Big acquisitions are always risky. Like most companies, Microsoft has a spotty track record . Activision Blizzard’s stock price fell about 40% from a peak in late February. The number of players has dropped from 530 million a month in 2015 to 390 million today, and some recent games have received various criticisms. Pessimists might argue that the company is overvalued. The most optimistic, seeing annual revenues of €8bn and net profit margins of around 30%, might counter that risk is cheap.
The most important thing is that Activision Blizzard has a lot of content, and in video games, as in all media, content is king. Much like the movie business, where Star Wars movies, even bad ones, are moneymakers, video games increasingly rely on “franchises,” settings or popular brands that can be squeezed for regular installments.
