Microsoft moves further into the gaming market with Activision Blizzard purchase

Microsoft announced plans this week to buy game developer and publisher Activision-Blizzard, known for games like World of Warcraft and Overwatch, for an all-cash deal worth almost $69 billion.

Both companies are big players in the gaming market — Microsoft makes the Xbox — meaning the massive deal is likely to attract scrutiny from antitrust regulators, even as Activision Blizzard continues to face allegations of sexual harassment and discrimination.

Marketplace’s Kimberly Adams spoke with Dina Bass, Seattle bureau chief and technology reporter for Bloomberg News, to get a sense of Microsoft’s strategy. The following is an edited transcript of our conversation.

Dina Bass: The transaction, if it can get regulatory approval, would catapult Microsoft to the position of world’s No. 3 global gaming company behind Tencent and Sony, which is Microsoft’s key video game console rival. So that’s one very important reason. Another one is mobile gaming. Activision Blizzard owns King, which makes Candy Crush, one of the most popular mobile games of all time. Microsoft, on the other hand, despite being in gaming for about three decades, has next to no presence in mobile gaming. And I spoke to Phil Spencer, who heads up Microsoft’s Xbox division and was promoted to be CEO of Microsoft gaming, and he said to me, “We all know that the No. 1 gaming device on the planet today is mobile phones.”

Kimberly Adams: Microsoft owns Xbox, so does this acquisition change whether Sony PlayStation users might be able to start playing Blizzard games?

Bass: Yet to be determined. I heard today from a source that Microsoft is going to want to continue having content in games for Sony PlayStation, but that they will, of course, look at some exclusives for Xbox in order to have this sort of deal advantage their platform. However, if we can take a past as potential precedent, Microsoft has already acquired the storied video game company Bethesda and its parent company, ZeniMax Media. They’re publisher of games like The Elder Scrolls, Doom and Fallout. That was done because Bethesda had those deals with Sony beforehand, and Microsoft has said they will continue supporting some Bethesda games on Sony. But they are also now starting to release Bethesda games which will be Xbox exclusives. The challenge for Microsoft is they’re paying a lot of money for this deal. If they don’t continue to put very popular games like Call of Duty, for example, out for Sony PlayStation, automatically you slash a significant amount of the value of the deal because a decent chunk of Activision’s revenue comes from Sony PlayStation games. So that’s a balance that they will have to strike: How do they privilege Xbox, bring people to Xbox who maybe hadn’t been Xbox gamers before, by having these exclusive games but at the same time continue to make a lot of money selling Sony PlayStation games?

Adams: How closely do you think antitrust regulators are going to be scrutinizing this potential deal, specifically given that Microsoft and Activision Blizzard sort of sit in these unique spaces in the gaming industry?

Bass: Look, any deal of this size is going to get a significant look. What is this going to mean for competition? Is it going to disadvantage anyone? Is it going to disadvantage players? Another interesting regulatory battle that comes to play is the issue of the iOS App Store. Microsoft has been very vocally unhappy with Apple, and to some extent also with Google, because of the tax that they take on games that are sold through the App Store. And Microsoft CEO Satya Nadella mentioned that one of his motivations for this deal is to get his gaming empire to be big enough that gamers will come to it directly, bypassing Apple.

Adams: Activision Blizzard has had so many stories coming out about sexual harassment and hostile work environment. What does this deal mean for any potential reforms happening there?

Bass: You have to bear in mind the deal is not going to close until 2023. So Microsoft cannot exert significant influence, they cannot run Activision, they cannot do anything until that point. Nadella told investors, “We recognize that after the close, we will have significant work to do in order to continue to build a culture where everyone can do their best work.” So they know that this is a challenge, even though they’re encouraged by what Activision is doing already. They know that that’s an issue. Now one issue, since some of these allegations deal directly with Activision CEO Bobby Kotick, is what happens to Kotick? Microsoft said today in their press release that he will continue to serve as CEO. However, it was made clear to me by a source that what Microsoft means by that is he will continue to serve as Activision CEO only until the deal closes, and he’s expected to step down after that. And these issues, to be clear, are very likely what made Activision a target, and everything that’s gone on has potentially been the thing that put them in play because it was going to be harder given all of that for Kotick to continue, for the company to continue to grow in the way that it wanted.

Related Links: More insight from Kimberly Adams

Bass has been sacrificing quite a bit of sleep to cover this story. Here’s her piece.

My colleague Amanda Peacher also covered this story, digging a bit more into what this move means for Microsoft.

And for a detailed look back at what’s been happening with the widespread allegations of sexual harassment and discrimination at Activision Blizzard, the gaming news site Kotaku has a collection of stories to get you up to speed.

Finally, in an interesting bit of timing, on Tuesday, the same day this Microsoft-Activision Blizzard news broke, the federal government’s two big antitrust enforcement agencies began a process to rewrite regulatory guidelines for big mergers. The Federal Trade Commission and the Justice Department are seeking public comments on how to “modernize” rules around mergers. Especially, as CNBC highlights, in areas where existing regulations might “underemphasize or neglect” types of competition not tied to prices. Like maybe around issues such as privacy, innovation or being able to play your game across platforms.