Microsoft is acquiring Activision Blizzard in a landmark deal worth $68.7 billion. The purchase, should it go through, will reshape the gaming industry and potentially catapult Microsoft’s Xbox gaming division and Game Pass subscription service.
With the purchase of Activision, Microsoft will own a star-studded roster of some of the most popular and critically successful game franchises of the PC/console era, including Call of Duty, Overwatch, StarCraft, Warcraft, and Candy Crush. Potential benefits of bringing those titles onboard are apparent: access to hundreds of millions of gamers and the position of “the world’s third-largest gaming company by revenue, behind Tencent and Sony,” Microsoft said in its announcement of the deal.
But it’s a little more complicated than a handshake and a wire transfer. Activision is in the midst of a crisis following months of sexual harassment and discrimination allegations and evidence that it creates and enables a toxic workplace for women. Some gamers have pledged to avoid the publisher and are asking for its current CEO to resign. At the same time, some of Blizzard’s most successful franchises are in limbo, and many gamers feel the publisher has lost its way in recent years.
Microsoft expects the Activision Blizzard deal to wrap in the fiscal year 2023, so it could be up to 18 months before the transition occurs. Let’s talk about some of the hurdles Microsoft faces and the possible reward of rescuing a sinking ship.
Satisfying Regulators
Before even talking about what needs to happen once Microsoft swallows Activision, we need to warn that this acquisition might not pass the inspection of regulators. It’ll be interesting to see how Microsoft argues against inevitable complaints that the purchase is anti-competitive.
The Federal Trade Commission has been on high alert of late with attempts to prevent big tech from becoming even larger. The agency recently laid out an argument for why Nvidia shouldn’t be allowed to acquire Arm, stating it would “stifle competing next-generation technologies.”
Microsoft has already purchased several once-independent studios, and about a year ago, it spent $7.5 billion on ZeniMax Media, the parent company of Bethesda. The deal was approved by the European Commission without conditions.
Microsoft announced the Activision Blizzard acquisition publicly, so it clearly thinks it’s in a good place to move the deal forward. It may help to have obvious competitors—namely, Tencent and Sony—that Microsoft can point to as being larger than it, even after the purchase. Calling out these rivals could help massage this through the regulatory process, but for now, the purchase is nowhere near a done deal.
Cleaning House
That’s perhaps the least of Microsoft’s troubles. Last November, Xbox boss Phil Spencer said he was “disturbed and deeply troubled by the horrific events and actions” of Activision Blizzard. He went on to say Xbox was “evaluating all aspects of our relationship with Activision Blizzard and making ongoing proactive adjustments.”
We don’t know what those adjustments might have been, but apparently, the evaluation somehow concluded with Microsoft purchasing the embattled video game publisher, which Spencer is now signed on to lead.
For context, his condemnation came after a scathing Wall Street Journal report revealed that Activision CEO Bobby Kotick knew for years about rampant sexual misconduct within the company and even has his own history of horrifying behavior.
The question on many minds is what will become of Kotick. After all, following the Journal’s report, nearly a fifth of Activision Blizzard’s 10,000 employees asked for Kotick to resign. In the short term, Kotick’s position is safe. He will continue to serve as CEO of Activision Blizzard which, as we’ve noted, could be for another year or longer. Once the company is folded into Microsoft’s gaming division, Kotick will presumably lose his post to Spencer, who is now the CEO of Microsoft Gaming and will run Activision Blizzard.
Removing Kotick is the obvious first step in what needs to be a comprehensive transformation of the publisher’s workplace culture. The work toward that goal has already begun: dozens of Activision Blizzard employees have reportedly “exited” since last July and another 44 were disciplined. This comes only after the California Department of Fair Employment and Housing (DFEH) sued Activision Blizzard for rampant sexual harassment and the Equal Employment Opportunity Commission reached a settlement with the publisher.
Microsoft is doing everything it can to reassure us of forthcoming wholesale changes to Activision’s organization, but it faces the risk of inheriting its soiled reputation should it take too lenient of a stance.
“As CEO of Microsoft, the culture of our organization is my number one priority,” Microsoft CEO Satya Nadella said in a statement. “We believe it’s critical for Activision Blizzard to drive forward on its renewed cultural commitments. We are supportive of the goals and the work Activision Blizzard is doing. And we also 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.”
Microsoft is now accountable for Activision’s shitshow, and even if the company clears house, there is no guarantee gamers respond. For some, the reports of daily harassment and abuse experienced by women at Activision will leave a permanent stain, but I presume most gamers will go back to playing Call of Duty (if they ever stopped) once Microsoft folds Activision into its gaming division and promises a zero-tolerance policy on workplace harassment.
Gamers have a short memory, and it will be easy for them to justify playing the next Overwatch, should it ever arrive (read below), when the title screen says Xbox instead of the two-worded studio accused of being a “breeding ground for harassment.”
What About the Games?
Microsoft hasn’t revealed its plan for the franchises it could soon have under its belt, but it’s clear a hands-off “go about your business” approach can’t be applied to every title.
Call of Duty: Vanguard, the latest entry to one of the best-selling video game franchises of all time, was panned by critics and customers alike when it launched last year. Overwatch 2, the sequel to Blizzard’s most recent smash-hit IP, is in development hell, where, rather fittingly, Diablo 4 also finds itself. Sure, Microsoft’s Xbox division has limitless resources to put behind these titles, but there doesn’t even seem to be a coherent plan on how to move forward with them. Overwatch and others are in a delicate place, and one wrong decision and Microsoft may as well hold a bundle of that $70 billion up to a flame.
Then there is the question of exclusivity. Microsoft didn’t throw down so much money to release games that would be available on rival platforms. Surely, some, if not most, of the games set to be under the Microsoft umbrella will be shielded from the likes of Sony.
Certain titles, though, need to find a wide enough audience to be considered a commercial success, so I don’t expect Call of Duty or Overwatch will become Xbox exclusives unless Microsoft figures that enough people will swap platforms or sign up for Xbox Game Pass, which now has 25 million subscribers, to justify a significant decline in overall sales.
This is all speculation, of course. We can turn to Microsoft’s recent acquisition of Bethesda for hard evidence, and let me preface this by warning my fellow PS5 owners: The future looks bleak. We already know the upcoming blockbuster Starfield will be an Xbox-exclusive when it launches late this year, and Spencer also suggested The Elder Scrolls VI will only be playable on Xbox and PC. We can therefore use the transitive property to conclude that many of Activision Blizzard’s current IPs will be made exclusive to Xbox and PC unless those pesky regulators have something to say about it.
What About the Metaverse?
Microsoft says this acquisition could help build the metaverse. Cue the collective eye-rolling.
For those who have somehow avoided 2022's most obnoxious buzzword, the metaverse is a theoretical future where the physical world is augmented by virtual spaces enabled by virtual, augmented, and mixed reality. If you’ve read or watched Ready Player One then you have an idea of what it might look like, though a world that has descended into dystopian chaos, I presume (but can’t say for sure), isn’t part of the plan.
“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” Microsoft CEO Nadella said. “We’re investing deeply in world-class content, community, and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive, and accessible to all.”
The metaverse is considered by some to be the inevitable replacement to the internet, but for now, it’s a place for billionaires who are bored of Earth—the same flock using its bottomless streams of cash not to fix our planet but to literally leave it behind.
Microsoft’s commitment to the metaverse is discouraging and distracts the millions of gamers who are more interested in seeing Activision’s beloved franchises given new life when a path to recovery seemed unlikely amidst the publisher’s crumbling walls. There is no guarantee that the metaverse will fail to become realized, but what’s clear is that we’re many years, if not decades away from the grand vision tech companies have been pushing endlessly for months now. To put it bluntly, Microsoft has too much on its plate to start thinking about how Activision Blizzard can enable this proposed successor to the internet.
The Stakes Are High
It’s much too early to declare winners and losers in this acquisition, but it’s hard to envision a different path out of the turmoil Activision Blizzard finds itself in. With a parent company like Microsoft, Activision Blizzard can cut its losses and work under new management that will hopefully create an inclusive workplace and get some of the most cherished PC and console franchises back on track.
If it does so, purchasing Activision Blizzard could give Microsoft the firepower it needs to eventually overtake Sony in the console wars by expanding its already sizable video game portfolio. Bringing these games to Game Pass will make the subscription service even more compelling to gamers, while releasing new games exclusively on Xbox could encourage, or more accurately force, gamers to move from Sony’s PS5 to Microsoft’s Xbox platform.
But the risks are as high as the rewards. Microsoft will soon inherit the mess Activision leaves behind, and if it can’t resolve the growing list of problems at the embattled game studio, then Microsoft might blow its own reputation—along with $70 billion.