Rumour confirmed: Microsoft Purchase Minecraft for $2.5B (Post#122)

[dobwal]

This is because the US dollar is the nearest thing to a universal currency in countries outside of Europe, Russia and China. And because so many other countries exchange and trade in US dollars, as does Europe, Russia and China.



While true, that's not the reason that international companies like assets in foreign currencies. When I was project manager at BAE Systems I had budgets in Pound Sterling, French Francs and German Deutsche Marks. Why? Because most of my purchases were from those three countries and to avoid exchange rates throwing project costs out, you'd purchase using the most favourable currency.

Companies may keep on hand enough capital in other currencies to deal with day to day business. They not going to keep the bulk of their capital in something other than US currency in an effort to mitigate risk of an economic downturn.

A large fraction of the business that MS conducts is done in the US. The way they limit taxes on this income is they treat the US arm as company who basically gets paid a fee to handle the sales/operation for a Ireland arm of MS. Most of the MS's capital is held in Ireland because not only does it employ this strategy in the US but most of Europe and the world.

Its a tax strategy as Ireland has a corporate tax rate of 12.5%.

 

[MfA]

Everquest 2 failure had nothing to do with Everquest 1 continued presence.

Not everything which doesn't make 2.5 billion was a failure ... EQ2 made money for a long long time, the odds that they didn't get a good ROI out of it are nil.

 

[Deleted member 11852]

Companies may keep on hand enough capital in other currencies to deal with day to day business. They not going to keep the bulk of their capital in something other than US currency in an effort to mitigate risk of an economic downturn.

But this is exactly what large international companies do because you never know where that economic downturn will take place. In the last five years the economy that has suffered most has been, surprise surprise, the USA. Imports exceeding exports, spending more than it produces, reliance on Chinese credit. If you look at the prevalent exchange rates against the Euro, Pound and Yuan, it does not make for happy reading. Arguably the Yen, in country hit by a Tsunami and a literal nuclear meltdown, has fared better in the last five years.

Hence the phrase, don't put all your eggs all in one basket.

A large fraction of the business that MS conducts is done in the US. The way they limit taxes on this income is they treat the US arm as company who basically gets paid a fee to handle the sales/operation for a Ireland arm of MS. Most of the MS's capital is held in Ireland because not only does it employ this strategy in the US but most of Europe and the world.

And it makes sense for money made in the US to stay in the US, like I said in this post earlier. You only move money if you can do so with minimal costs or because you have too.

I didn't know Microsoft were still in Ireland, Amazon, Apple and Starbucks (the masters of tax avoidance) are in principally banking in Luxembourg now.

 

[dobwal]

Not everything which doesn't make 2.5 billion was a failure ... EQ2 made money for a long long time, the odds that they didn't get a good ROI out of it are nil.

I am equating failure with being a big or relevant as EQ1. Not in terms of financial success.

 

[dobwal]

But this is exactly what large international companies do because you never know where that economic downturn will take place. In the last five years the economy that has suffered most has been, surprise surprise, the USA.

You don't want you eggs in one basket, but MS has $80 billion in short terms assets. Diversifying does not mean having inability to produce 2.5 billion in USD, which is one of the safest assets to have.

Surprise, surprise, surprise, like I said before a lot of foreign investment capital got poured into the US dollar in response. How many times have you seen a country go into one of its most severe economic downturns in its history only to see its bond yields go down?

MS structure is not something I made up. Look it up. Companies do this as a tax saving strategy. Here in the US, the term "tax inversion" is the new word of the day. Its involve companies merging with foreign companies and then relocating the headquarters to the foreign companies' home country to take advantage of cheaper corporate tax.

Moving capital around the global isn't an expensive/complicated/intensive endeavor. Its mostly moved electronically for reasonable fees especially at the that volumes that MS is doing it. Paying more than a third your income versus a little over a tenth is more than enough motivation to avoid corporate US taxes. Banks aren't charging anywhere near 20% to move money to Ireland to make such moves untenable.

 

[Deleted member 11852]

You don't want you eggs in one basket, but MS has $80 billion in short terms assets. Diversifying does not mean having inability to produce 2.5 billion in USD, which is one of the safest assets to have.

Now imagine the exchange rate of USD:SEK was 2:1 and Notch's asking price was in SEK. That'd cost Microsoft $5Bn instead of $2.5Bn.

Exchange rates are important. Only the US cares about USD, nobody else does other than when it's a preferable alternative to the local currency. I remember my first trip to Moscow, the cab drivers wouldn't except nothing but USD. I had no Rubles at all. Currencies can became valueless real quick.

Surprise, surprise, surprise, like I said before a lot of foreign investment capital got poured into the US dollars in response. How many times have you seen a country go into an economic downturn only to see its bond yields go down.

This isn't a who's currency is best debate. Economic stability is found in economic diversity.

 

[dobwal]

Now imagine the exchange rate of USD:SEK was 2:1 and Notch's asking price was in SEK. That'd cost Microsoft $5Bn instead of $2.5Bn.

Exchange rates are important. Only the US cares about USD, nobody else does other than when it's a preferable alternative to the local currency. I remember my first trip to Moscow, the cab drivers wouldn't except nothing but USD. I had no Rubles at all. Currencies can became valueless real quick.


This isn't a who's currency is best debate. Economic stability is found in economic diversity.

I am not arguing about whose currency is the best. I am arguing that your argument makes no rational sense.

You know why 60% of foreign exchange reserve are US dollars? It because it the dominant foreign currency being exchanged for local currency. That money your company hold in so many currencies is backed by US dollars held in foreign exchanges of the countries your company does business with. The US dollar is just about relevant every where in the world because it is the most readily used currency in local investment from foreign entities.

The USD being held relatively in large amount in most foreign exchanges means the converting to USD from foreign currency is the easiest form of currency exchange there is.

There is nothing hard about MS producing billions upon billions of dollars in USD in just any countries it conducts a ton of business. The problem is moving money into US without triggering corporate taxes.

 

[Deleted member 11852]

I am not arguing about whose currency is the best. I am arguing that your argument makes no rational sense.

Eh what? Last post because a) it's off-topic and probably going to be deleted and b) because your'e not reading anything and just repeating yourself.

You're arguing that, having financial investments in different currencies makes no rationale sense? You're really arguing that people should just accumulate US dollars because nothing can possible happen to the US currency and that exchange rates mean nothing? Ok

You know why 60% of foreign exchange reserve are US dollars?

And not because the Federal Reserve will honour those dollars, even incurring crazy debt upon themselves. You don't think it's anything to do with that? Nothing at all?

It because it the dominant foreign currency being exchanged for local currency.

Well I said it was the most common currency outside of Europe, Russia and China. Not including that, no. Not close. Like under 20% of world currency exchanges.

But here I'm out because topic

 

[Shifty Geezer]

So, no, just because they spent $2.5B on this doesn't mean they can do any of the things you spoke about.

There's a difference 'could' and 'should'. I said in my post it was an MS move, not an XB1 move. If MS wanted to prop up XB1, they could have done other things with their money. Unless you're saying they physically couldn't soend the money on whatever they want, and that money couldn't be spent on anything other than acquisitions (and not other console game devs either), I'm not sure where I'm contradicted.

 

[Deleted member 11852]

There's a difference 'could' and 'should'. I said in my post it was an MS move, not an XB1 move. If MS wanted to prop up XB1, they could have done other things with their money. Unless you're saying they physically couldn't soend the money on whatever they want, and that money couldn't be spent on anything other than acquisitions (and not other console game devs either), I'm not sure where I'm contradicted.

I started out thinking the acquisition was an Xbox move but that didn't make any obvious sense to me so I shifted to thinking this was a larger strategic Microsoft acquisition where all the pieces weren't immediately visible. But Phil Spencer seems to be the face of the acquisition, although he's talking about all of Microsoft's platforms.

It's really difficult from Microsoft's messaging (ha!) what they see in Minecraft (beyond the obvious), how they came to value it as they did and what they intend to do.

It's vexing

 

[dobwal]

You're arguing that, having financial investments in different currencies makes no rationale sense? You're really arguing that people should just accumulate US dollars because nothing can possible happen to the US currency and that exchange rates mean nothing? Ok

No I am arguing that US company with a 80 billion dollar war chest, is not going to have a problem producing $2.5 billion in USD locally because of currency diversification. There is no reason for a large international company to have less 5% of cash in USD or short term investments easily convertible to USD.

That and your refusal to see a strategy readily and commonly identified as a tax avoidance strategy as something that fits your individual beliefs.

In an event of a severe US economic downturn, its hardly going to be localized and because the US is the dominant world reserve currency and mostly readily convertible, most people will flock to the US dollar. Most of the countries in the world don't have as strong as economy as the US or Europe. If you are Germany or England, there may be no practical reason to move capital into US currency.

But all the foreign investment in third world countries in South America and Asia is mostly in the form of USD and so when backing out, the local currency will be mostly exchanged for USD. World reserve currencies like the USD and euro benefit from downturns because they are backed by economies are more resilient to downturns and less likely to default. The ideal is running toward strength not away from it. You don't want to be in the currencies of a bunch of brittle countries when a downturn happens.

There is no point in diversifying away from the USD to other currencies to point you practically have none in hand.

And not because the Federal Reserve will honour those dollars, even incurring crazy debt upon themselves. You don't think it's anything to do with that? Nothing at all?

It doesn't matter what I believe, the financial markets obviously believe since they loan money to the US gov't at historical low rates despite the historically high debt carried by the US.

Well I said it was the most common currency outside of Europe, Russia and China. Not including that, no. Not close. Like under 20% of world currency exchanges.

But here I'm out because topic

90% of the foreign currency carried by foreign exchanges are USDs and euros.

You think if the volatility of the USD was such a big deal something as important as oil wouldn't have its prices tied to it.

 

[tabs]

I thought I was in a minecraft thread.

 

[liquidboy]

as Polygon says...

$2.5 billion brought back to US would attract 37% tax

$2.5 billion in a foreign bank may be attracting $25m in interest

$2.5 billion in Minecraft brings in $102m (2012), $237m(2013 - double the year before)


Breakeven point for earnings from a GAAP perspective is $25m ..

therefore - sounds like MC will easily meet this $25m judging by 2013/2014 revenues

http://www.polygon.com/2014/9/15/6153497/microsoft-minecraft-2-billion-deal

 

[liquidboy]

I started out thinking the acquisition was an Xbox move but that didn't make any obvious sense to me so I shifted to thinking this was a larger strategic Microsoft acquisition where all the pieces weren't immediately visible. But Phil Spencer seems to be the face of the acquisition, although he's talking about all of Microsoft's platforms.

It's really difficult from Microsoft's messaging (ha!) what they see in Minecraft (beyond the obvious), how they came to value it as they did and what they intend to do.

It's vexing

Phill is very good friends with the founders apparently, this deal was brokered through his relationships I heard somewhere

 

[Deleted member 13524]

Two thousand million euros.

I just want to swear at my screen right now.

 

[Silent_Buddha]

From Mojang's PR:



That could be really interesting, if they all leave it could mean that they planned to do together something that could be really innovative, maybe as much as Minecraft was.

Them leaving is irrelevant when it comes to Minecraft. None of the founders has been particularly invested in the day to day development of it for quite a while now. Notch was just more public about it then the other two due to being the public face of Minecraft.

If read what he wrote...

As soon as this deal is finalized, I will leave Mojang and go back to doing Ludum Dares and small web experiments. If I ever accidentally make something that seems to gain traction, I'll probably abandon it immediately.

He doesn't want anything he makes to become a big thing and if it starts to, he'll stop working on it and abandon it. I'm sure that probably makes a lot of Notch fans unhappy, but he's not the type of person that wants the public recognition or the responsibility that goes with having the "next big thing." And that is completely understandable.

All the people (not like there are many of them ) that have had a direct hand in Minecraft's success for the past 2 years is staying with Minecraft. At least that's what they've said so far.

Regards,
SB

 

[Deleted member 11852]

All the people (not like there are many of them ) that have had a direct hand in Minecraft's success for the past 2 years is staying with Minecraft. At least that's what they've said so far.

Are you referring to user input? Because an awful lot of Minecraft's direction for a good three years has come from the users, the developers are the implementors of those ideas.

I've been a Minecraft fan for about 3 years and can't think of any other game community where the users have inputted so much to the overall direction of the game.

 

[zed]

MS paid about a billion too much, mut still like I said after GTA prolly the second best IP to have (excluding nintendo ones,which I assume arent for sale) the problem I see with the IP is the users are chiefly very young, i.e. short attention/fad length. Though it should be good for another 5 years I'll say, they'ld be very worried if lego released a similar game though

 

[mosen]

“Gaming is a top activity spanning devices, from PCs and consoles to tablets and mobile, with billions of hours spent each year,” said Satya Nadella, CEO, Microsoft. “Minecraft is more than a great game franchise – it is an open world platform, driven by a vibrant community we care deeply about, and rich with new opportunities for that community and for Microsoft.”

Under the terms of the agreement, Microsoft will acquire Mojang for $2.5 billion. Microsoft expects the acquisition to be break-even in FY15 on a GAAP basis. Subject to customary closing conditions and any regulatory review, the acquisition is expected to close in late 2014.

http://www.microsoft.com/en-us/news/press/2014/sept14/09-15news.aspx

 

[liquidboy]

MS paid about a billion too much, mut still like I said after GTA prolly the second best IP to have (excluding nintendo ones,which I assume arent for sale) the problem I see with the IP is the users are chiefly very young, i.e. short attention/fad length. Though it should be good for another 5 years I'll say, they'ld be very worried if lego released a similar game though

You assume LEGO can crack building a MMO world successfully... and have the cloud scale to do it..

As well as the chops to build out the customizability that MC has, being able to self host servers etc..

Good luck to LEGO if they can replicate MC's infrastructure/engineering chops!