Microsoft (MSFT) officially owns Activision Blizzard (ATVI), making it the world’s third-largest gaming company in terms of revenue, behind Tencent and Sony (SONY). But this acquisition does more than boost Microsoft’s position in the global gaming industry. This gives the company greater access to the mobile gaming market, prepares it for revenue through mobile game advertising, and gives it the opportunity to grow its Xbox Game Pass subscription service and Xbox cloud gaming streaming service.
Thank you for reading this post, don't forget to subscribe!“This is certainly a huge change in the way money flows into the gaming ecosystem,” said Lewis Ward, research director at the International Data Corporation (IDC). “This is the largest acquisition in Microsoft’s history. This is one of the biggest acquisitions in the tech market. This…is, from anyone’s perspective, a pretty big change.”
But don’t expect the company to start reaping the benefits of the $69 billion deal any time soon. Microsoft still has a long way to go before it starts putting its stamp on any of Activision Blizzard’s games like “Call of Duty” and placing its bets on cloud gaming.
Microsoft is a major mobile player
Microsoft has never had much of a say in the mobile gaming market. And while the console and PC markets are huge, accounting for $43 billion and $40 billion respectively in 2023, the mobile gaming market is even bigger. According to a study by data.ai and IDC, this segment will bring in a whopping $103 billion in revenue this year alone.
But with Activision Blizzard, Microsoft is now one of the biggest players in mobile gaming. Activision Blizzard’s “Candy Crush Saga” was the second-highest-grossing mobile game in the world in the first half of 2023, behind Tencent’s “Honor of Kings.” And by Q2 2023, Activision Blizzard’s King Mobile division had an incredible 238 million monthly active users. That’s far more than Activision’s 92 million, despite running “Call of Duty,” or Blizzard’s 26 million.
Blizzard gift cards are seen at a store in Krakow, Poland on July 17, 2023. (Jakub Porzycki/Nurfoto via Getty Images) (Nurfoto via Getty Images)
“The amount of revenue generated by ‘Candy Crush’ should not be underestimated,” said Will McKeon-White, senior analyst at Forrester. “Microsoft has traditionally had a minimal mobile gaming presence. So this acquisition helps a lot in this also.”
That mobile presence also gives Microsoft a significant edge in the mobile advertising arena. After all, mobile games make money either through in-game sales or advertisements, and “Candy Crush” does both.
Subscriptions and cloud gaming are key
In addition to mobile gaming, Activision Blizzard gives Microsoft the power it needs to exploit its Game Pass subscription service and nascent Xbox cloud gaming. Game Pass gives subscribers access to hundreds of games that they can download to their Xbox console or PC for $16.99 per month. The service has been a key part of Microsoft’s gaming strategy, with CEO Satya Nadella regularly talking about the service during the company’s earnings calls.
In January, Nadella announced that the service had surpassed 120 million monthly active users. And with Activision Blizzard’s library of intellectual property, Microsoft can make Game Pass an even more attractive option for gamers, giving the company more firepower to increase subscriptions over time.
Then there’s the cloud gaming aspect of the deal. Microsoft is a leader in cloud gaming, and has opened up the service to a number of new devices, including smart TVs and even the META Quest 3 AR/VR headset. But cloud gaming is still in its early stages. The quality of the stream doesn’t always match what you get when playing games on a console or PC, and high-speed internet is still not available in some parts of the US, let alone globally.
A general view of trade fair goers is seen in front of the Xbox booth during the opening day of Gamescom at the Cologne Trade Fair Center in Cologne, Germany on August 23, 2023 (Ying Tang/NurPhoto via Getty Images). (Nurfoto via Getty Images)
“In terms of cloud gaming, we’re still in the active experimentation phase,” McKeon-White said. “And while the current results are much better than before, it’s still… not the best possible experience for playing video games, if we’re completely honest.”
It’s also important to note that cloud gaming is still a small portion of overall gaming revenue. But, ultimately, the service could power a Game Pass subscription.
“I think it’s positive for CloudStream gaming,” Ward said. “I think this will be one of the drivers of growth over time, but let’s not delude ourselves. Right now, it’s only 2% or 3% of market revenue. “It’s a very small component of total market revenue.”
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But as Microsoft continues to improve the technology and high-speed internet continues to spread around the world, Xbox cloud gaming will become a far more attractive and viable option for gamers in regions where consoles are not available due to taxes or import restrictions. PCs are very expensive.
Microsoft can take advantage of Activision Blizzard’s library
There’s another aspect of Microsoft’s acquisition that could prove beneficial over time, and that’s how the company can take advantage of old Activision Blizzard assets. There are several titles, like “Guitar Hero,” that the gaming giant hasn’t worked on in years, and with Microsoft’s support, it can start pulling them out of storage and breathing new life into them.
Additionally, it boosts the number of first-party games Microsoft releases each year.
“There’s just a critical mass that they probably didn’t have before the acquisition, and it pushes them over the top,” Wedbush analyst Michael Pachter told Yahoo Finance. “You suddenly go from about half a game’s worth of new content per year under the old Microsoft to four, five, plus ‘World of Warcraft.’ ,
Overall, this acquisition is a boon for Microsoft. However it may take some time for dividends to start paying out. After all, the games are already in development and it will be some time before Microsoft gets any real say over how Activision Blizzard develops new titles.
There is also a threat that the Federal Trade Commission (FTC) could break up the companies as part of its antitrust case against Microsoft. The FTC is moving forward with an internal challenge to the deal and is working on an appeal of a prior ruling against the commission’s effort to block the move.
Still, if everything goes in Microsoft’s favor, Activision Blizzard’s acquisition could be a turning point for the company and the gaming industry as a whole.
Daniel Hawley is a technology editor at Yahoo Finance. He has been covering the tech industry since 2011. You can follow him on Twitter @DanielHawley,
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