Activision Blizzard

Activision Blizzard deal proves cash, not creativity, is king

Microsoft’s proposed deal points to deeper consolidation in more than just gaming platforms, says Jason Walsh
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26 January 2022

Personally, I am a metaverse sceptic. I don’t think people want to go to virtual meetings any more than they want to sit on Zoom calls all day, and I certainly think that socialising in a non-space will be, at best, a niche activity. One area where it likely will have a role, though, is in games, where virtual and augmented reality have already proved significantly more successful than some of the more fanciful plans for things that don’t exist.

Certainly, sales of Oculus VR headsets over Christmas suggest people are interested in exploring unknown worlds, and adding wider network capability to this is less a leap of faith than an obvious next step. Indeed, Microsoft itself says its recently announced plan to pony up $70 billion to buy developer Activision Blizzard will help create the “building blocks for the metaverse”.

Still, I have my doubts. Microsoft will certainly be happy to develop in and for our brave new virtual world, but in reality the Activision deal seems a good deal simpler: expanding market share.

 

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Investors are also unsure: Activision’s share price shot up on news of the buyout – but not to $95, which is the price Microsoft will eventually pay for each share. Instead, it is hovering at around $80, indicating investors fear the US government will block the sale on monopoly grounds (and creating a nice 18% arbitrage opportunity for any traders willing to bet the deal will be green-lit).

Whether or not the government intervenes remains to be seen, but there is a good chance the deal will be allowed to pass: the Microsoft of today is not seen as the monopolist of the 1990s, and faces stiff competition from the likes of Google, Apple and others.

Besides, while it is possible the authorities will block the deal, as yet there is little sign of it. Regardless of how lucrative gaming is, recently stalled deals – such as Nvidia’s proposed buyout of Arm and Lockheed Martin’s proposed purchase of Aerojet Rocketdyne – have been in significantly more strategically sensitive areas. Moreover, as a game company, the merger will still leave Microsoft behind Tencent and Sony in revenue terms.

One thing is for sure, though: Sony will be worried. The Japanese company is not only in competition with Microsoft, it is also one of its customers – and not just for office software. In 2019, Sony and Microsoft announced a strategic partnership to deploy online services, including game streaming, on top of Microsoft’s Azure cloud platform.

True, it could have gone to Amazon Web Services, Google Cloud, IBM Cloud, or any number of other platforms. It could even have built its own. Doing this, however, would require a major development effort as these clouds all run on Linux. Using Azure for PS Now, however, keeps developers happy as it means working with familiar Windows-based tools, even if it is ‘only’ the backend. Besides, Google surely fancies itself a player in the future of gaming and Amazon has proved it sees itself as a part of the future of, well, everything.

Most of all, though, the deal makes all of the breathless talk about the metaverse as domain of hitherto unimagined creativity seem faintly comical.

Benjamin Glover, originally from Ireland but now working abroad for a US-based game developer, says the buyout will likely be seen as a boon for consumers, but that it will be a net negative, at least for smaller developers. The problem, he says, is that expansion by acquisition may lower the cost of doing business but it brings nothing new to the table.

“Major publishers and console owners like Microsoft aren’t [really] developing games, they’re acquiring major studios, presumably to add that lucrative catalogue to their Game Pass,” he said.

“Nothing new or interesting is being created here by this acquisition; there’s no grand reveal that this will lead to new and exciting properties or technologies for developers or consumers to get excited about, it’s just further consolidation of capital and labour”.

And there’s the rub: Microsoft acquiring Activision Blizzard, then, rather than heralding anything transformative, is really just business as usual in an industry already given to an excess of conservatism.

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