Completes US$69bn takeover of Activision with a small trade-off
- Microsoft Inc (MSFT) has completed its US$69bn deal to buy Activision Blizzard after a revised deal to transfer cloud gaming rights of Activision games to Ubisoft for 15 years.
- Ubisoft to pay MSFT for the streaming rights through a one-off payment and a market-based wholesale pricing mechanism.
- The acquisition is a way for MSFT to break into the US$142bn mobile games market which could contribute significantly to MSFT’s revenue.
MSFT to lose a minor portion of Activision’s revenue from small but growing cloud gaming business to satisfy the UK’s competition watchdog. MSFT has completed its US$69bn deal to buy Activision Blizzard, after the UK’s competition watchdog “The Competition and Markets Authority” (CMA) cleared the acquisition. CMA had blocked the deal in April 23, citing concerns that MSFT the maker of the Xbox gaming console would dominate the emerging cloud gaming market. Under the re-worked deal, MSFT has handed the rights to distribute Activision’s games on consoles and PCs over the cloud outside European Economic Area (EEA) to French video game publisher Ubisoft for 15 years, while inside the EEA region streaming rights will be shared by Ubisoft and MSFT. Ubisoft will pay MSFT for Activision’s cloud streaming rights through (i) a one-off payment and (ii) a market-based wholesale price based on usage. But while a concession has been made preventing Activision titles from being offered exclusively on MSFT’s Xbox Cloud Gaming service, MSFT will now control games such as Call of Duty, World of Warcraft, and Candy Crush that will provide the firm with huge revenues. By giving Ubisoft the rights to stream Activision’s games, MSFT will be able to generate revenue on a wider range of platforms, including Sony’s PlayStation. Nowadays game companies make much more money from in-game purchases, also known as microtransactions. In 2022 Activision reported US$5.9bn from microtransactions, downloadable content and royalties – more than three times the US$1.6bn it made from selling the games themselves. In-game purchases in games like Call of Duty will go to MSFT, even though Ubisoft has the cloud streaming rights for the game. This is a common arrangement in the cloud gaming industry. Meanwhile, Ubisoft streaming rights of Activision games will further strengthen it’s content offering through its subscription service Ubisoft+. It will get access to the Activision players who will have to pay a subscription-based payment to access the games in Ubisoft+.
The acquisition is a way for MSFT to break into the US$142bn mobile games market. MSFT expects that acquiring Activision will increase the demand for its Xbox console and allow the company to expand its Xbox Game Pass service. With Xbox Game Pass, subscribers pay a fee to access a wide range of games from the cloud, which they can either download or stream. MSFT’s Game Pass would get access to 360m active monthly players of Activision. The acquisition is a way for MSFT to break into the mobile games market. According to Mordor Intelligence, mobile gaming market size is US$142bn in 2023 and is expected to grow at a CAGR of 16% over 2023-2028 reaching US$300bn. Activision makes popular mobile titles including Candy Crush Saga and Call of Duty- Mobile games that were excluded from the cloud streaming Ubisoft deal. This acquisition solidifies MSFT’s position as a major player in the video game industry, potentially moving it ahead of Nintendo to become the third-largest in the industry behind Sony, the owner of the PlayStation console, and market leader Tencent. The PlayStation currently outsells MSFT’s Xbox but like all entertainment platforms, the key to success is access to the best content. MSFT’s massive investment in the gaming business is evident that it sees potential development over the next years.