Why Microsoft spends $69 billion for video games

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  • Sara McMunn of Lake Forest was one of more than 35,000 people, many dressed up as video game heroes, that made their way to BlizzCon, at the Anaheim Convention Center, in Anaheim on Friday, November 3, 2017. Considered one of the premier gaming conventions in the world, the annual convention celebrates the games of Irvine-based Blizzard. (Photo by Mark Rightmire, Orange County Register/SCNG)

  • Attendees play the Call of Duty: Black Ops III game by Activision Blizzard Inc. during the E3 Electronic Entertainment Expo in Los Angeles, California, U.S., on Wednesday, June 17, 2015. E3, a trade show for computer and video games, draws professionals to experience the future of interactive entertainment as well as to see new technologies and never-before-seen products. Photographer: Patrick T. Fallon/Bloomberg

  • Gamers will get hands on with Project xCloud at the Xbox E3 Showcase in the Microsoft Theater at L.A. Live, Sunday, June 9, 2019 in Los Angeles. (Photo by Casey Rodgers/Invision for Xbox/AP Images)

  • Los Angeles Valiant win the Overwatch League Stage 4 Championship event held on June 17, 2018 at the Blizzard Arena Los Angeles in Burbank. Photo by Robert Paul for Blizzard Entertainment.

  • Santa Monica-based Activision Blizzard said Tuesday, Feb. 12 it plans to slash costs and hundreds of jobs across the company after reporting fourth-quarter sales that missed estimates and delivered a disappointing forecast. Seen here in this 2018 file photo,
    attendees stand next to signage for Activision Blizzard Inc. Call Of Duty: Black Ops 4 video game showcased at E3. (Troy Harvey/Bloomberg)

  • Rod Fergusson, Studio Head at The Coalition, reveals Gears 5 launch date at the Xbox E3 2019 Briefing at the Microsoft Theater at L.A. Live, Sunday, June 9, 2019 in Los Angeles. (Photo by Casey Rodgers/Invision for Xbox/AP Images)

  • California’s Department of Fair Employment Housing sued the publisher behind games like Call of Duty and World of Warcraft, detailing alleged incidents of sexual harassment and assault and a culture in which women faced unequal pay and retaliation. Activision called the allegations false and distorted.

  • IRVINE, CALIFORNIA – JANUARY 18: The Blizzard Entertainment campus is shown on January 18, 2022 in Irvine, California. Microsoft announced a $68.7 billion purchase of Activision Blizzard in the largest gaming industry deal ever. (Photo by Mario Tama/Getty Images)

  • SUN VALLEY, IDAHO – JULY 06: CEO of Activision Blizzard Bobby Kotick arrives for the Allen & Company Sun Valley Conference on July 06, 2021 in Sun Valley, Idaho.
    Activision, which is based in Santa Monica, and is worth about $70 billion, has nearly 10,000 employees. The company, with its Blizzard division in Irvine, has faced criticism from its workers over wage disparities, especially as shareholders narrowly approved a $155 million pay package for CEO Bobby Kotick in June, making him one of the country’s highest-paid top executives. (Photo by Kevin Dietsch/Getty Images)

  • Blizzard co-founders Frank Pearce and Mike Morhaime, next to Illidan, a character from Warcraft Universe.




You learn a lot of tough lessons as a parent, like how wrong you were to say to the kids “You’re wasting your life playing those video games!”

Just how wrong? Well, the company behind some of the gaming industry’s most popular products is being sold for $69 billion.

Technology giant Microsoft — perhaps best known for its Windows, Excel and PowerPoint software — is buying Activision Blizzard, a Southern California gaming pioneer. It’s an all-cash deal that not only marks Microsoft’s largest acquisition, but it’s also the biggest video-game deal in history.

Now if you’re a gamer, you get it. Microsoft also makes the Xbox game console.

If you follow Wall Street, you understand the ebb and flow of dealmaking. Microsoft, worth $2.3 trillion, gobbled up a smaller player in the gamer field. You know, “synergy” in corporate lingo.

But if all you know is watching young adults — primarily males — gathered around a TV participating in some interactive activity, you likely need this Gaming 101 column.

Here’s how we got to this moment in gaming history and the thinking behind the eye-catching merger.

How much?

Let’s put the $69 billion price tag into perspective.

The deal puts Activision Blizzard’s value on par with the likes of consumer goods’ Colgate-Palmolive, the Norfolk Southern railroad, shipper FedEx, Capital One bank or the electric truck startup Rivian in Irvine.

In terms of the deal’s size, it’s loosely on par with the dollars involved in drugmaker Pfizer’s purchase of Wyeth in 2009; Dell Computers’ buy of EMC in 2013; the 2015 healthcare merger of Actavis and Allergan of Irvine; 2017’s CVS Health acquisition of Aetna; or Walt Disney Co. buying 21st Century Fox in 2018.

Of course, we must also offer a real estate perspective: $69 billion would buy you nearly 88,000 existing California single-family homes at the 2021 median selling price of $787,000.

For what?

Microsoft wants a bigger slice of an industry that entertains 3.25 billion people around the globe, players who spend $180 billion a year video games.

So the acquirer gets to beef up its already hefty online entertainment audiences who play on computers, mobile devices or dedicated consoles. Those customers pay to play many of these games, or they spend cash on various in-game upgrades,

Look at the three key slices of Activision Blizzard.

There’s the Activision chunk of this company from Los Angeles and its war-game “Call of Duty” franchise, plus assorted endeavors including a new professional eSports league. There’s Blizzard in Irvine and its “World of Warcraft” community-gaming empire. And don’t overlook King, the mobile platform best known for “Candy Crush.”

All those kids playing all these addictive games — psst, many adults play, too — add up to Activision Blizzard taking in roughly $8 billion in annual revenue and generating $2.5 billion in profits.

Who’s Activision?

It’s the classic Silicon Valley story that started with guys who created games in the late 1970s for the Atari game console.

They got angry after the company was bought by Warner Communications. So, they quit and started what became Activision in 1979.

It was a pioneer of third-party game development with founders who started working on their new products in, yes, a garage! But likely many fast-growth industries, expansion was too hot — and game-making businesses suffered for much of the 1980s.

Current CEO Bobby Kotick bought the then-struggling company in 1990 and essentially started over. He added a new focus of buying content while moving the corporation to L.A. Among the top-selling games bought were “Call of Duty,” the Tony Hawk skateboarding series, and “Guitar Hero.”

Oh, and the merger with Blizzard Entertainment brings the ground-breaking “massively multiplayer online role-playing game” known as World of Warcraft.

Who’s Blizzard?

What became Blizzard Entertainment was founded by three UCLA graduates Michael Morhaime, Allen Adham and Frank Pearce in 1991.

They started out authoring games for other studios and went through a series of corporate names and awkward ownership issues. That didn’t stop them from honing their specialty: Games where participants play online with and against others — building a community in the process.

In 1994, the first Warcraft online multiplayer game came out. Four years later they were acquired by French publisher Vivendi

And then in 2004, “World of Warcraft” was released and soon became the world’s most popular product in this genre. It was so popular, it allowed Blizzard to create the annual BlizzCon fan convention held at the Anaheim Convention Center.

Activision paid $19 billion to acquire Blizzard in 2008 from Vivendi, renaming the merged entities Activision Blizzard.

What’s Mircosoft’s angle?

Microsoft may be better known to us older folks for its computer operating system or its suite of office software, but it’s been a player in gaming for over two decades.

Yet Xbox — Microsoft’s entry into gaming that’s now roughly one-tenth of overall sales — was far more about playing corporate defense than any bit of entrepreneurial magic.

The Xbox brand was launched in 2001 because Microsoft saw Sony’s evolving PlayStation gaming machines as a possible threat to personal computers, which rely heavily on Microsoft software.

But what began as primarily a gaming machine effort has since grown into a lucrative online gaming platform, the Xbox Game Pass subscription service.

What’s next?

Let’s ignore all the legal formalities that will take until late this year to finish.

Gaming’s buzz is the “metaverse,” the as yet defined merging of real life, online life and entertainment that blossomed in the pandemic era.

Think of how the Internet and social media have changed communication and information sharing. There’s plenty of money to be made guessing what the next life-altering thing from cyberspace will be.

Will most office meetings someday be held in virtual reality? Might families gather around some future gaming platform to celebrate the holidays? Can the next generation of great athletes be playing eSports?

Microsoft is betting $69 billion that one important intersection will revolve around the type of community-scale gaming Activision Blizzard helped pioneer.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com

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