How Activision Blizzard's Reputation and Future Hinge on Successful Microsoft Acquisition
Can Phil Spencer and Xbox save the "World of Warcraft" and "Call of Duty" developer?
I took a break from writing in January following my exit from Dot Esports. A couple weeks later, Microsoft announced that it would pay $68.7 billion for Activision Blizzard. Here are some thoughts.
It's the biggest merger and acquisition deal in gaming history and emblematic of industry change. Gaming is consolidating as it becomes more mature and transitions from the rising hype to the king of entertainment. Other acquisitions came before it, others came after, but none are more important than Microsoft and Activision Blizzard.
The stakes aren't just one gaming giant buying another. It's the world's third most valuable company buying a competitor, one that's been in disarray for years and free fall for the past nine months, and hoping it can turn it around.
The deal isn't expected to complete until mid-2023. It may prove to be the first one that the newly-retooled Federal Trade Commission takes head on. It's clear to those who follow Washington politics that the change in administration has led to a more fervent antitrust agenda. The FTC's new chair, Lina Khan, is looking for a case to put her stamp on. Will this be the one?
There's debate about the broader industry effects this deal will have on gaming. The Biden administration let Amazon's acquisition of film giant MGM go. Even today, Amazon doesn't hold a firm grip on the film industry.
The combination of Microsoft and Activision Blizzard, especially following Microsoft's acquisition of ZeniMax, shows a trend of vying for power in game publishing. But will it hold a monopoly or hurt the consumer? It'll be a hard case to argue.
For Activision Blizzard and the future of its business, though, it needs the Microsoft deal to go through more than anyone else. There’s no more goodwill left for Activision Blizzard leadership anymore.
Despite high sales numbers on annual titles like “Call of Duty,” consumers have become wise to a developer that does the least over and over again. The main “Call of Duty” franchise is stagnant. It's plagued by stale gameplay and bemoaned by players for a seeming lack of interest to change that. Yes, “Warzone” and “Call of Duty Mobile” found Activision new financial life for the shooter, but it isn’t enough.
Whatever praise still existed for Activision Blizzard eroded this past summer, when the California Department of Fair Employment and Housing sued the company in July for alleged sexual misconduct and misogyny.
Company leadership, who have always favored Activision among its studios, quickly threw shade at Blizzard and parted with its top exec. They used former Bush White House aide Frances Townsend as a token to undermine the experiences of other women within their walls. In July, Townsend sent an internal email stating she hadn't experienced sexism within the company, despite her very short tenure as an executive. The actual author of that email, according to The Wall Street Journal, was Activision Blizzard CEO Bobby Kotick.
Kotick’s reign as CEO will end, assuming the Microsoft acquisition goes through, and he’s leaving with a golden parachute. His time to exit the games industry as a meaningful power is long overdue.
What has always meant most to Kotick is power and status. Even in my brief interactions with him over the years, that much became clear.
A few years ago, when I worked at ESPN, I interviewed Kotick for a piece about the formation of the Overwatch League.
In 2017, when Kotick flew across the world with his esports executive team, it was important that the league land a big buyer as its first team owner. That ultimately became the Kraft family, the owners of the New England Patriots.
In our on-the-record conversation, Kotick boasted that he had explored the opportunity of purchasing a NFL team himself and that his friend, Robert Kraft, gave crucial advice about the opportunity. It meant more to be “business partners” with wealthy NFL owners to Kotick than to see the esports product of his own company succeed.
Kotick’s exit will prove healthy for Activision Blizzard. It will boost morale, given the confidence he has lost from his employees, and begin a vital process of healing the wounds of a tattered company.
Microsoft is no stranger to rebuilding an image and increasing morale of a game studio with culture issues.
It itself drew fire after it hired go-go dancers for a Game Developers Conference afterparty in San Francisco in March 2016. Earlier that day, the company hosted a “women in games” lunch as a part of the conference.
“That was a painful moment in our history of Xbox,” Xbox head Phil Spencer told The New York Times’ Kara Swisher in a January interview. “Some of the things that make me proud of that is how we came out of it. … I love the fact that my own team was some of the strongest voices out there on social talking about how this wasn’t right. And then the work that the team did to come out of that and say, this moment won’t define what Xbox means but rather will be a catalyst for us being better and growing.”
Less than a week after he sat down with Swisher, Spencer did another round of press, this time announcing his company would buy Activision Blizzard.
Spencer and Xbox are becoming an increasingly powerful force within Microsoft.
The Xbox Series X launched to much more success than its predecessor, the Xbox One. In 2021, Xbox saw a 166% growth in hardware revenue year over year.
The strategy though, for this generation, centers less on the console and more on the content. It's why the Xbox team has been more aggressive with software-focused M&A activity and why the Activision Blizzard and ZeniMax acquisitions matter so much. Microsoft's doesn’t necessarily want to sell you an Xbox. It wants to make sure you play its games, whether on a console, mobile or PC (it owns Windows, after all).
Spencer is brilliant. He's highly regarded among his peers, and the press and the timing of the Activision Blizzard acquisition wasn't at all coincidental. Just days after the Journal exposed Kotick's knowledge of sexual harassment within Activision Blizzard, Spencer called. Two months later, the deal became public.
Activision Blizzard has made steps to fix its problems over the past two months. It's settling a suit with the U.S. Equal Employment Opportunity Commission for $18 million. A part of those funds will go to employee claimants who experienced sexual harassment. Activision Blizzard is also converting 1,100 quality assurance employees from contract to full time in July and raising its minimum wage to $20 per hour.
It's still facing suit from the California DFEH, though, and while Kotick is still in charge, employees remain skeptical. New leadership have a tall task. Spencer is betting his reputation he'll win them over and that he can help rebuild Activision Blizzard.