Microsoft’s enormous Activision Blizzard King deal makes Microsoft Gaming the world’s third-largest games company. According to Bloomberg, Microsoft’s $68.7 billion acquisition puts the Redmond company at no.3, with only Sony and Tencent above them.
A lot of attention has understandably been paid to the Activision Blizzard part of the deal, since their studios make the megahits of Call of Duty, Overwatch, and World of Warcraft, but the mobile arm of the publishing giant - King - plays a major role in the astronomical price tag.
“Microsoft needs an effective mobile strategy for long-term growth. This acquisition brings with it an opportunity to scale up Microsoft’s mobile games content portfolio,” says Ampere Analysis’ Piers Harding-Rolls.
Sony’s success in video games has transformed the Japanese giant, but it lacks a significant mobile gaming business, which could mean it eventually falls behind its American rival. Previously the electronics company was known for Walkmans, TVs, audio-visual equipment, among others, but nowadays video games account for much of its revenue, with sensors, such as the photographic ones found in smartphones, being another major source. Sony has, in effect, become The PlayStation Company.
Tencent, meanwhile, is known for WeChat in its native China. There, the app is ubiquitous, with over a billion users. An astronomical number of social and business interactions occur daily through the messaging app, which has other features such as social media, payment, e-wallet, and much else. But considering where most of its revenue and profits come from, Tencent reigns as the biggest games company in the world.
A lot of that comes from its mobile games portfolio. Honor of Kings basically prints money for them, with the MOBA being hugely popular in China. In June 2016, it acquired mobile games developer Supercell in a deal that valued the Finnish firm at $10.2 billion. The likes of Clash of Clans, Clash Royale, and Brawl Stars means Supercell generates hundreds of millions of dollars worth of profit each year, with the company grossing €1.3 billion ($1.47 billion) for the 2020 financial year.
One under-reported factor in Microsoft’s Activision Blizzard deal is that Microsoft will now also own King. Activision Blizzard acquired King Digital in February 2016 for $5.9 billion, which is in itself one of the largest business deals in video games. King is the publisher of Candy Crush, which still scores in the top 10 of top-grossing mobile games worldwide. In 2020, King reported revenues of more than $2.1 billion.
In fact, in the company’s Q3 2021 earnings report, it’s shown that King generated revenues of $652 million, putting it ahead of either Activision or Blizzard’s earnings. Meanwhile, figures for monthly users regularly places King ahead of its two sister companies. In some ways, Activision Blizzard should be known as the Candy Crush company.
This grossly simplifies things, of course, and Call of Duty, which is Activision’s main business, pulls in a huge number of players and cash. But with the purchase of Activision Blizzard King, Microsoft now has a better route to mobile gaming, where profits can be substantial. “Certainly, it gives Microsoft a strong foothold in the incredibly lucrative mobile gaming market, which it desperately lacked”, says George Jijiashvili, principal games analyst at Omdia.
The mobile market is the fastest growing video games market worldwide and can transform the fortunes of companies. Shanghai’s Mihoyo, which made Genshin Impact, and Niantic, creator of Pokemon Go, are testament to that. We only need to look at Take-Two’s hitherto biggest video games deal, when it acquired Zynga for nearly $13 billion - less than a fifth of the ABK price - to see how significant the mobile games market has become.
“This deal has some parallels to last week’s Take-Two’s acquisition of Zynga, in that it greatly expands Microsoft’s audience on both mobile and casual-gaming terms,” says Jijiashvili. “With the Activision Blizzard acquisition however, Microsoft also will increase its clout in PC gaming,” he adds. This latter point seems ironic considering the PC background Microsoft has, although the deal also means Battlenet is now under the Microsoft umbrella.
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“Undoubtedly, this acquisition strengthens Microsoft’s position in gaming on all fronts globally, including console, mobile, and PC, as well as cloud gaming and subscriptions,” Jijiashvili says.
“It's clear that games and gaming technology will play a pivotal role in the development of the metaverse – this acquisition, in addition to Microsoft’s existing assets and capabilities mean that it is well-positioned to make a big impact in this space.”
With this historic deal for Activision Blizzard, Microsoft has put itself in a strong position on multiple fronts, including console and PC, and the potential addition of Activision Blizzard’s library of titles to Game Pass could be game-changing. But perhaps even more significant is that in mobile gaming, Microsoft has gained a King.