Microsoft’s (MSFT) win against the Federal Trade Commission in its attempt to block its $69 billion purchase of “Call of Duty” maker Activision Blizzard (ATVI) could clear the way for the company to move forward with the largest deal in gaming history.
While the FTC is appealing US District Judge Jaqueline Scott Corley’s ruling to the Ninth Circuit Court, the momentum is increasingly moving in Microsoft’s favor. And if the acquisition moves forward, Microsoft could dramatically alter the landscape of the gaming industry, ranging from the home console market to mobile gaming and the still-nascent cloud gaming industry.
“I think it's very clear now that Microsoft, as a company, views gaming as a really important part of what the company does overall,” IDC research director of AR/VR and Gaming at IDC told Yahoo Finance.
“At a high level for Microsoft, getting a lot more content from Activision Blizzard…is a game changer.”
A new gaming giant
Activision Blizzard is the largest game publisher in North America. In addition to the hit “Call of Duty” franchise, the company also offers “World of Warcraft,” “Diablo,” and “Overwatch.” The firm, however, also owns mobile game publisher King, the company behind “Candy Crush.”
Adding those franchises to Microsoft’s existing first-party titles including “Halo” and “Forza” would catapult Microsoft past Nintendo (NTDOY) to make the company the second-largest home console maker by revenue behind Sony (SONY). It would also put Microsoft behind Tencent and Sony as the third-largest gaming company by global revenue.
More broadly, the deal would push Microsoft higher up the food chain in the global gaming industry as well.
“Historically, Sony would have twice the market share of Microsoft at all times. And so now with this acquisition, on a revenue basis they're the same size,” explained NYU Stern School of Business professor Joost van Dreunen. “It’s a huge moment for the games industry.”
A deeper push into mobile gaming
While much of the conversation surrounding Microsoft’s acquisition has focused on whether “Call of Duty” will continue to be available on Sony’s PlayStation services — Microsoft says it will for 10 years — a more overlooked aspect of the deal is the impact it will have on the mobile gaming space.
Mobile gaming has been one of the fastest-growing areas of the gaming industry, but Microsoft is largely left out of the conversation. With Activision Blizzard’s mobile gaming power, Microsoft will instantly become a major player in the space.
In March 2023, Activision Blizzard had 368 million monthly active users. Of that, 243 million fall under the company’s King business. In Q1 2023, Activision Blizzard reported consolidated net revenue of $2.4 billion. A whopping $956 million of that came from mobile.
“With a large trillion dollar company like Microsoft at the table, owning ‘Candy Crush’ as a franchise, ownership over ‘Call of Duty Mobile,’ the ‘Diablo’ franchise, all these major IPs, Microsoft is now in a position to play a more meaningful role in mobile that they haven't been able to obtain,” van Dreunen said.
It’s not just the addition of King that would make Microsoft a mobile gaming juggernaut, though. By adding Activision Blizzard’s library of titles to its Game Pass cloud gaming business, the company will become a mobile behemoth. Cloud gaming allows consumers with strong internet connections to stream games from the cloud to traditionally underpowered devices such as smartphones, smart TVs, and low-powered laptops.
“Their vision is for Game Pass Ultimate, to be put on Azure, and the…Xbox Live games to be served up through either the Game Pass Ultimate subscription or probably some either reduced price tier or even a free tier in certain markets, which will be driven by advertising,” Ward explained.
By offering Game Pass Ultimate and King’s lineup on mobile devices, Microsoft will be able to reach gaming populations that either don’t have access to traditional consoles or can’t afford them.
Sony will be forced to adapt
A newly empowered Microsoft will also force Sony to adapt to market changes. The company is already working to bring more live services games, those that are constantly updated and played online, to market, and has been on a studio buying spree in recent years.
“I think they're going to need to ramp up, dramatically, their live service game catalog, either organically or through acquisition, so that they're prepared to deal with, potentiality, 10 years from now that the Activision Blizzard game catalog, including Call of Duty, may get increasingly skewed toward Xbox and Windows,” Ward said.
Sony will also need to push deeper into the cloud gaming space, something it currently offers but doesn’t emphasize nearly as much as Microsoft does with its own business.
“By redefining the boundaries of what the gaming ecosystem really is across different devices and technologies, Sony is now suddenly a much smaller player in a much bigger pool,” van Dreunen said. So they have to now become more innovative, they have to start thinking of alternative strategies on how to leverage their existing IP.”
As for Nintendo? The Mario maker has long been its own kind of gaming company. It relies largely on sales of its own franchises, and its Switch console, though a huge seller, can’t run high-powered games like “Call of Duty.” And while it could change that with its unannounced next-generation console, precedent would leave you to believe that the company is uninterested in hitting performance benchmarks.
For Microsoft and Sony, though, the Activision deal could just be the start of a new front in the battle for gaming dominance.