Nadella wants Activision sales more than metaverse
Why is Microsoft doing this?
For Microsoft, gaming is a fairly small part of the overall business. In the past fiscal year, gaming revenue increased 33 per cent to just over $15bn, driven by growth in Xbox content and sales of hardware. That was less than 9 per cent of total revenue. But as Microsoft says, gaming is the fastest-growing sector in entertainment. Activision brings PC, mobile and console games, covering all bases. And yes, OK, there’s the vast potential business of the metaverse. Though, of course, that does not yet exist.
Is Microsoft paying too much?
Activision is not running at peak performance. Monthly users are down from 530m in 2015. Titles due this year have been delayed. Accusations of a toxic workplace have hammered the stock price.
However, the company still has some of the world’s most popular games and boasts a 40 per cent operating profit margin. Plus, the share price decline means Microsoft has secured a discount. It is buying Activision shares for $95 a piece. That may be a 45 per cent premium on Friday’s closing price but it is almost a tenth below last year’s record high.
Will regulators let the deal go ahead?
Lawmakers and regulators are on the lookout for monopolies in the tech industry. Microsoft has already made some large gaming acquisitions, buying ZeniMax Media in 2020 and Minecraft maker Mojang in 2014. Buying Activision will make it the third-biggest video game publisher in the world, behind Sony and Tencent. But it will not be the largest. We will have a long wait to find out if this will placate regulators. The deal is expected to close some time in Microsoft’s 2023 fiscal year, which ends in 18 months.
How will Activision be run?
Microsoft has a habit of allowing the big companies it buys to operate independently. See LinkedIn, acquired in 2016 for $26bn. Being left alone would be popular with some gaming creators. But the company’s workplace problems demand change.
A lawsuit filed last summer accused Activision of ignoring complaints by female employees of harassment and discrimination. Critics say the management led by chief executive Bobby Kotick should have acted decisively.
This is a difficult subject for Microsoft. Last year, shareholders backed a protest vote demanding the company reveal more about its own handling of sexual harassment claims. If the deal goes ahead, expect Kotick to step aside. Note that his carefully worded statement did not say he would be chief executive after the acquisition. A clean-up operation would then begin.