On Tuesday, Microsoft (NASDAQ: MSFT) announced plans to buy out troubled mega-developer Activision-Blizzard (NASDAQ: ATVI) in a $68.7 billion deal, amounting to the largest tie-up in the history of the gaming industry.
Once the ink is dried, Microsoft will be the third-largest gaming company by revenue, surpassed only by Tencent (OTC: TCHEY) and Sony (NYSE: SONY).
"This acquisition will accelerate the growth in Microsoft's gaming business across mobile, PC, console, and cloud and will provide building blocks for the metaverse," said the Redwood-based tech giant in a statement.
Microsoft inherits a roster of multi-billion-dollar franchises in Activision, like 'Call of Duty', 'Warcraft', and even 'CandyCrush'. Undoubtedly, such titles and the 400 million monthly active players who play them will bolster Microsoft's game pass offering and give the company a solid foundation in mobile gaming as it seeks to build the metaverse.
Microsoft's head of gaming, Phil Spencer, told the New York Times that "gaming will be at the forefront of making that (the metaverse) mainstream." However, he qualified that the primary intent of the deal was to bolster the company's mobile gaming credentials and get a studio with several multibillion-dollar franchises under its belt.
Microsoft has been signaling its intent to make a major deal for some time; after all, it has $130 billion in cash on hand. The company has made headlines for its attempts to buy TikTok and social gaming platform Discord, and in 2020 Microsoft bought out ZeniMax Media, the studio behind the incredibly popular 'Fallout' and 'Elder Scrolls' franchises.
The deal likely could not have come at a better time for Activision. Shares in the powerhouse gaming studio have dipped 27% since July after the state of California sued the company over claims of sexual harassment.
Meanwhile, in November, the Wall Street Journal released a bombshell report detailing how Activision's CEO Bobby Kotick knew about the culture of sexual abuse within the company and essentially turned a blind eye.
Kotick will remain in his role as CEO after the deal is done but will report to Spencer, who told the New York Times that he had "sat down with Bobby and the team and looked at the plan that they have in place," adding that "We are very supportive of the progress that he and the team are making."
An unnamed source told Bloomberg that Microsoft used the scandal and its long-standing relationship with Activision to bring the gaming powerhouse to the table and eventually secure the buyout.
However, Kotick told Bloomberg on Tuesday that the deal had nothing to do with the issues currently plaguing the company.
Kotick instead has cast the buyout as a means for Activision to secure the resources needed to stand up to behemoths like Tencent, Google (NASDAQ: GOOGL), and Apple (NASDAQ: AAPL).
"We realized it was going to be an increasingly competitive world with resources that we just didn't have," he said.
The deal is expected to close by June 2023 but could face significant regulatory headwinds as lawmakers on both sides have sought to put a check on the growth of big tech companies.
Meanwhile, just last week, 'Grand Theft Auto' purveyor Take-Two Interactive (NASDAQ: TTWO) bought out mobile gaming giant Zynga Games for $11 billion. This, coupled with Microsoft's massive purchase, likely signals a growing appetite for mobile gaming studios among traditional game developers as they seek to expand their footprints in the emerging metaverse.