Microsoft acquired Activision Blizzard King for $69 Billion on 2023-10-13

[BRiT]

I question every day why I even post here.

You're not the only one.

 

[ChuckeRearmed]

Sony might have to buy Square just to stop MS from buying them.

It is possible that Sony will go after Square East, while MS will grab Square West. But knowing how greedy Square is...The premium will be immense.

Honestly, from the sounds of it this was all a special case

Well, MS did not plan to buy Activision in September that's for sure. It is kinda funny how the deal was on a whim basically.

The I of RoI is investment which is almost $70bn. Activision-Blizzard actual profits are around $1.5bn a quarter selling on all platforms.

I am pretty sure that profits from Activizion Blizzard specifically was the last thing on their money and ROI from selling Call of Duty on Playstation. Them make around 7b per year. MS makes 60b per year. In profit.

 

[Deleted member 7537]

Making money is relative to the investment - the RoI from your earlier post.. We know what Microsoft are spending, we have no idea what - if anything - Microsoft is making in profits. What is the goal? What is the strategy for converting investment into profit? How long will it take Microsoft to recoup their Zenimax and to-be-approved Activision-Blizzard Acquisitions? That's closing on $80Bn in the past few years.

What is a successful business model you ask? I don't know, but Sony and Nintendo seem to be doing really well without spending almost a tenth of a trillion dollars. Their profits are transparent in their financial reports. I mean... WTF.

OK, then the question is. Why are Sony and Nintendo doing well? Do they make money on hardware? Barely. Do they make money on software? A ton. But where is the real money being made? On their stores.

- Hardware, low margin low ROI
- Software, high margin once you hit a number of units sold. Still risky if several big titles flop.
- Software distribution, high margin, almost zero risk. You charge people for selling their software in your store.

When you ask, are they going to recup the 80 billion? if they manage to control the software distribution to a certain degree they will have a super profitable business for the years to come. Will they gain it back in 5 years? Probably not, but if you have 100 millions users tied to your store is basically shitloads of money coming your way every day.

But as I said many other times, in the digital world where we don't own anything, once you are inside a walled garden it's hard to leave. That's why they can increase the price of Office 365 every single year, because when you become dependant on a service, the consumer loses all power, which translate into pricing power for the company that owns the service.

 

[ChuckeRearmed]

You're not the only one.

At least I know why I post here when some aquisition happens - because I am permanently banned on Restera and Xbox Era and can't post there

 

[Deleted member 11852]

Technically they don't have to recoup it. Both AB and Zenimax are assets and not expenses. If they sold Zenimax tomorrow it could sell for greater than 8B if Starfield has explosive growth.

Who the hell would buy Zenimax for $8Bn? They might ask for $8Bn but I can't think for anybody who would buy then. People have a tendency over over-value things they own but your thing is worth exactly what somebody else will pay.

It's not absolutely necessary that they recoup the cost all that soon. You buy a house/flat and you rent it out. It's not necessary that the rent pay the entire mortgage back right away. Because if you are desperate you can still sell the house for more than you likely bought it at and you profited from the rent.

This is an utterly terrible analogy, man. Microsoft's cannot "rent" out Activision-Blizzard for "rent". Property - being land as in bricks and mortar, except if suffering damage, generally holds value well. What Microsoft have bought is IP which can devalue very quickly indeed. You'll be telling me next that Microsoft didn't lose almost $8bn in a few years due to their acquisition of Nokia but that is the reality. Microsoft's acquisition of LinkedIn for $26bn is also considered to have been a waste of money because Microsoft have not been able to attribute any profit to it - they now just refer to the LinkedIn acquisition as "a new franchise".

tldr; ROI is % growth of the market cap of the studio during ownership + sales

No, it's not. It is exactly your profit minus your investment. It doesn't get any simpler. https://en.wikipedia.org/wiki/Return_on_investment

Are you really trying to re-define a well-established industry-wide term so as to make this acquisition look sensible? The only thing that impacts RoI is inflation. Please show me any credible RoI which includes market cap.

 

[eastmen]

OK, then the question is. Why are Sony and Nintendo doing well? Do they make money on hardware? Barely. Do they make money on software? A ton. But where is the real money being made? On their stores.

- Hardware, low margin low ROI
- Software, high margin once you hit a number of units sold. Still risky if several big titles flop.
- Software distribution, high margin, almost zero risk. You charge people for selling their software in your store.

When you ask, are they going to recup the 80 billion? if they manage to control the software distribution to a certain degree they will have a super profitable business for the years to come. Will they gain it back in 5 years? Probably not, but if you have 100 millions users tied to your store is basically shitloads of money coming your way every day.

But as I said many other times, in the digital world where we don't own anything, once you are inside a walled garden it's hard to leave. That's why they can increase the price of Office 365 every single year, because when you become dependant on a service, the consumer loses all power, which translate into pricing power for the company that owns the service.

I pay the same price for Office 365 every year. Its been $100 for the family plan for years now. Even the business side ones don't change much although they have more programs and options than ever before

 

[Deleted member 7537]

I pay the same price for Office 365 every year. Its been $100 for the family plan for years now. Even the business side ones don't change much although they have more programs and options than ever before

I just had to google o365 and price increase.
https://www.microsoft.com/en-us/microsoft-365/blog/2021/08/19/new-pricing-for-microsoft-365/

 

[Dr. Nick]

COD sales are faltering though. The last two titles have gotten progressively worse.

I know many people would like the franchise to get away from yearly releases, but is there a good reason they have been releasing it yearly? It could just be that Activision was trying its best to milk the franchise for all it is worth, but there might be sound reasoning in having them released every year. Are they afraid that some other franchise will come in and steal their thunder if they don't release yearly? Based on 2020's Call of Duty sales, they could have taken the year off and still had the number 1 title. Can gamers wait 2-3 years for the next entry in the franchise?

MS should consider acquiring as much as they can get away with, but Square, Sega, and Capcom seem like the most bang for the buck to me.

I think Microsoft needs to do some soul searching in Japan before trying to purchase another Japanese studio or purchase a Japanese publisher. After the latter days of the 360 and most of the Xbox One generation, they need to build up their relationships in Japan to find the studio or publisher that fits their company culture. All of the acquisitions Microsoft has made so far have been no-brainers. You look at it, and they all make sense. I am not sure if I am getting that from any company in Japan. Back in the day, Tecmo made the most sense because they were at least 85% on board with Xbox at the time. Now the best partner in Japan IMO is Namco-Bandai, and they are maybe only 50%-60% on board. Maybe things will be different in a couple of years, but not right now.

 

[ChuckeRearmed]

Microsoft's acquisition of LinkedIn for $26bn is also considered to have been a waste of money because Microsoft have not been able to attribute any profit to it

So? What are trying to prove there? It actually proves that MS buys strategically. Linkedin has almost 1bn users. MS now has 200m+ monthly users with King. Not to mention all those Battle.net folks...

 

[iroboto]

Who the hell would buy Zenimax for $8Bn? They might ask for $8Bn but I can't think for anybody who would buy then. People have a tendency over over-value things they own but your thing is worth exactly what somebody else will pay.



This is an utterly terrible analogy, man. Microsoft's cannot "rent" out Activision-Blizzard for "rent". Property - being land as in bricks and mortar, except if suffering damage, generally holds value well. What Microsoft have bought is IP which can devalue very quickly indeed. You'll be telling me next that Microsoft didn't lose almost $8bn in a few years due to their acquisition of Nokia but that is the reality. Microsoft's acquisition of LinkedIn for $26bn is also considered to have been a waste of money because Microsoft have not been able to attribute any profit to it - they now just refer to the LinkedIn acquisition as "a new franchise".


No, it's not. It is exactly your profit minus your investment. It doesn't get any simpler. https://en.wikipedia.org/wiki/Return_on_investment

Are you really trying to re-define a well-established industry-wide term so as to make this acquisition look sensible? The only thing that impacts RoI is inflation. Please show me any credible RoI which includes market cap.

Sure but that works both ways. These companies can easily go up as much as they fall. I'm not trying to justify anything really. But I can just assure you there's no way any acquisition amount will be able to be made up in pure profits. That's the inherent risk MS is taking on. If you don't like the risk they're taking on, sell MS.

 

[BRiT]

To help keep discussions on point, here's a breakdown of threads and topics:

• https://forum.beyond3d.com/threads/what-should-sonys-acquisition-plans-be-spawn.62704/ - For discussing Sony's Acquisitions Plans or what you think they should be

• https://forum.beyond3d.com/threads/...e-possibly-completes-2022-07-to-2023-06.62702 - For discussing Microsoft's Acquisition of Activision Blizzard

• https://forum.beyond3d.com/threads/microsoft-rumored-to-be-buying-2020-04-2020-07-2020-11.61697 - For discussing rumors of new Microsoft Acquisitions

To assist in directing the discussions, the Microsoft Acquisition Rumors thread is temporarily closed and the Microsoft Acquisition of Zenimax is closed since it's an old topic with nothing new coming about.

 

[Deleted member 11852]

OK, then the question is. Why are Sony and Nintendo doing well? Do they make money on hardware? Barely. Do they make money on software? A ton. But where is the real money being made? On their stores.

- Hardware, low margin low ROI

How are you calculating the return of investment for hardware? This doesn't make any sense.

Nintendo have almost always made a profit on hardware but their big profits are selling software and the same for Sony. But neither of those companies are spending tens of billions on acquiring third parties. Because spending billions of dollars wipes out what you make on software sales because the margins of profitability is bound by tens of millions of customers, who are not spending tens of millions of dollars. Again.. math.

 

[ChuckeRearmed]

I think Microsoft needs to do some soul searching in Japan before trying to purchase another Japanese studio or purchase a Japanese publisher.

Considering their alliance announcement with Sega, possible dealings with Bamco...They are doing something. But I believe that acquisition of ATVI will have even bigger effect on japanese publishers as MS now enters mobile space with King too.

 

[Deleted member 11852]

I'm not trying to justify anything really. But I can just assure you there's no way any acquisition amount will be able to be made up in pure profits.

Are you saying Microsoft are spending more money than they can possibly make in profit? I think at least BRiT (and others) said Microsoft shouldn't just sit on money because it was bringing in little interest but little interest is at least profit. How is a loss better than profit? What would Microsoft's narrative for investors be? Sure we spent $70bm that we could be paid out in dividends to you but on the plus side, we don't make any profit? Like, literally, WTF!?!

I literally do not know what you are saying. It does not make sense at all.

 

[Nesh]

Well, its no different to what Sony does. just that MS can swing much harder, thats all. Sony invested in EPIC for 250m not long ago, they also buy studios here and there whenever they can (Housemarque one of the latest), and put their games on their console and pc, exclusive content, delayed releases for xbox etc. MS does the same thing but they have much more resources so they eventually will eat much more of the market.
Atleast MS doesnt go hard on keeping everything as far away from the competitors console as much as possible. I cant blame them if they are starting with that aswell.
Its good to be on the PC, its sorta the middle-land, like Alex/DF noted, its not so much a problem for those users, instead your getting stuff from both sides. Its one of the reasons i think MS is ahead of the times in that regard, platform exclusivity (something restricted to a certain hardware box) isnt going to exist for that much longer. Even Sony themselfs are expanding to other platforms as of late, quite much hardcore so.

Consoles historically sell around the 100 million mark on average at most, aside the PS2 which had a ultra long life span, that doesnt seem to change be it PS3, PS4 or the PS5 (were 1.5 year in almost already there). You cant continue with just that in the ever-exploding gaming/entertainment market.
.

I m totally perplexed how you even compare the two and also you havent answered my points. You are just trying to find justification for such huge acquisitions. Its 3 times my country's GDP

 

[Deleted member 7537]

How are you calculating the return of investment for hardware? This doesn't make any sense.

Nintendo have almost always made a profit on hardware but their big profits are selling software and the same for Sony. But neither are those companies are spending tens of billions on acquiring third parties. Because spending billions of dollars wipes out what you make on software sales because the margins of profitability is bound by tens of millions of customs, who are not spending tens of millions of dollars. Again.. math.

Are you saying Microsoft are spending more money than they can possibly make in profit? I think at least BRiT said Microsoft shouldn't just sit on money because it was brining in little interest but little interest is at least profit. How is a loss better than profit? What would Microsoft's narrative for investors be? Sure we spent $70bm that we could be paid out in dividends to you but on the plus side, we don't make any profit? Like, literally, WTF!?!

I literally do not know what you are saying. It does not make sense at all.

No, what I'm saying is that, in my opinion they want to control the portion of the market with the highest ROI (or really ROIC - WACC) which are the distribution channels.

Your argument is that, or so I understand, that their ROI is going to be negative because they are spending so much money it's never going to be profitable.

My argument is, I don't know if they are going to be profitable or not, but that the only way for all this to make sense is if Gamepass eats out a signifcant marketshare out of Steam, PS Store and even Apple Store.

I hope this clarifies it.

 

[iroboto]

Are you saying Microsoft are spending more money than they can possibly make in profit? I think at least BRiT said Microsoft shouldn't just sit on money because it was brining in little interest but little interest is at least profit. How is a loss better than profit? What would Microsoft's narrative for investors be? Sure we spent $70bm that we could be paid out in dividends to you but on the plus side, we don't make any profit? Like, literally, WTF!?!

I literally do not know what you are saying. It does not make sense at all.

If they cut the deal in November and stock price was 60 and they sold it today it would be sold at 80. That's profit. That's all I'm trying to say. You don't need the studios to make 68B in sales to equalize the cost of the principal investment. Buy low and sell high is profit. Whatever you want to say about that is fine, I'm just saying the need to somehow repay the 60B in less than 10 years is probably not the way to look at it is all I'm saying. Nokia is an example of death sure. I'm not expecting ACTI to go to 0.

Releasing dividends vs reinvestment. So I'm not sure I would agree with 70B in cash should be dividends paid out. It could easily be reinvested to cause the stock price to drive higher which is what this is. The 70B is not loss, it's just been converted into ACTI.

And on this we're talking about whether 70B in cash can grow faster than Activision can grow. it's a risk sure, but if they believe ACTI can grow substantially and it aligns with MS Gaming strategy and it can cause their goals to grow, then, as investors should we assume that choosing to buy ACTI for 70B is better than leaving 70B in cash to grow at a meagre rate?

I don't understand why I should be upset as an investor? MS is a tech stock not a bank.

 

[Lurkmass]

Once again, that's the reason why games have been homogenizing for some time now. Gamers are asked to commit to a $80 purchase for a game. That squeezes out a lot of titles and risk taking.
Game Pass doesn't have that problem because players who subscribe are free to play any game on the service.

Just because Call of Duty sells the most, it does not make it a better game than the other titles that died out, it just makes it a safer bet for players who don't know where to place their money. It's a mainstream title for a specific demographic of players. There are certainly a lot of other games out there that could be every bit as successful in other audiences, but no one will make them because everyone is fighting over the same slice of the pie repeatedly.

AAA - Homogenous, Safe, Lack any real personality, nothing really different but to add a different story and improve graphics. That's what CoD is to me. Safe for players, safe for studios.

If you are trying to run a subscription service, you don't want homogenous, safe, and lacking personality. You want the opposite, you want the gamers to try as many different games as possible, you are trying to appeal to as many audiences as possible and hopefully fund that next marquee title that takes the gaming industry by storm. You can't do that by playing it safe.

That's what Activision was struggling with. They could only make decent profits with CoD, so that's where they put all their money. They couldn't take risks and not get penalized for it.

Look at the state of World of Warcraft. They kept making it easier and easier that it got too easy and everyone left.. So they released World of Warcraft Classic to just reboot the entire timeline and they are going through it again. If this isn't a sign the model isn't working, I don't know what is.

Then why did Microsoft purchase a company that's counter-intuitive to this strategy you mentioned ? Of the AAA game publishers in this industry, Activision and Electronic Arts easily take the most conservative approaches to their release schedules so how did Microsoft supposedly justify buying one of them outright ?

Activision's studios keeps making CoD because they simply don't have anything else better to do. Activision can't make much more aggressive releases with other franchises either because they don't have the capacity or the market isn't willing to bear it so they specifically work on CoD to kill time and be productive. Most of Activision's value is arguably derived from their staples which is what drives their stock dividend payments. If the model wasn't working like you believe it to be then Activision would've moved away from producing CoD, Candy Crush, and to a lesser extent WoW some time ago since they wouldn't be generating most of their profits and they wouldn't have been given a ~$70B valuation by Microsoft ...

Many of Activision's other franchises have limited potential for growth or even negative prospects of decline with fewer platform vendors and can they afford pushing more aggressive release schedules to make up the deficit ?

 

[Scott_Arm]

@Lurkmass Activison released Call of Duty every year because it's insanely profitable. People shit on those games for being unoriginal sequels, but they sold in massive quantities. Vanguard sales are way down, but it's still probably the top selling game.

If Microsoft can get the franchise trending back towards its peak, then it's easy money, especially if they keep it multi-platform. COD makes more money than any of Microsoft's other franchises. Probably more than a lot of them put together.

 

[Deleted member 11852]

No, what I'm saying is that, in my opinion they want to control the portion of the market with the highest ROI (or really ROIC - WACC) which are the distribution channels. Your argument is that, or so I understand, that their ROI is going to be negative because they are spending so much money it's never going to be profitable.

I'm not saying they won't be profitable, just that it'll take the best part of two decades to get there. This is not idle speculation, we have decades of Activision financials reports showing trends and sales data. We have some data for Microsoft. It is not known if Microsoft will drop PlayStaton and/or Switch from games but this will only limit the scope of revenue. To be clear I like that Microsoft bought Activision-Blizzard because I think it bodes well for Blizzard (which I do care about) but it financially, based on publishers numbers, it seem like a poor and very risky investment given the purpose of Microsoft's business is to spend money to make money for the people who actually own Microsoft - investors.

If they cut the deal in November and stock price was 60 and they sold it today it would be sold at 80. That's profit. That's all I'm trying to say.

Surely you know that this is nonsense? Once Activision-Blizzard becomes part of Microsoft, they can't just sell off the Activision-Blizzard shares because when Microsoft acquire Activision-Blizzard, the value of those shares are amortised into Microsoft shares at Microsoft's value. I'm using this acronym a lot today but.. WTF.