14 | October | 2023 | The Ancient Gaming Noob

The deal closed yesterday, seemingly moments after the UK gave its final blessing to the deal, and Microsoft now owns Activision Blizzard. I used the pending acquisition as a frame for a bullet points bit in yesterday’s bullet points post about Blizzard. Today a bit about the deal itself.

XBox plus Activision Blizzard equals something

Though, really, at this point, what is there left to say? I am sure I’ll find some words, but an actual conclusion will likely elude me.

It has been a while coming. Microsoft announced its intention back in mid January 2022. The FTC and the UK’s CMA made some fleeting attempts to hold back the merger, which gave us a glimpse of the contempt for regulating bodies that large companies have before they made their token gestures, empty promises, and no doubt made sure the right people got paid behind the scenes. Stories about regulators who get lucrative jobs at the companies they regulated after leaving government service are so common as to be not worthy of coverage.

So yes, no secret, I am not a fan of mergers and acquisitions. That is mostly because far too many of them are handled badly and end up with a whole of less value than the independent parts. It is a symptom of the Wall Street “If you’re not growing, you’re dying” mentality. Companies that stall… which often means they have a decent, sustainable business… buy companies to simulate growth due to the perverse incentive structure of Wall Street where, if you buy a company, it is automatically assumed to be an asset worth exactly what you paid for it, but if you put more money into R&D that impacts margins and your stock gets punished.

I’ve been through a few of those mergers, where a company gets acquired solely to take their customer base or bring in a new product for a price that is cheaper than developing from scratch. Some times it works out. More often it does not… but even when it doesn’t, Wall Street gets paid. Those playing the meta game, the people who couldn’t even tell you what a given company actually does as a day to day business beyond a generic category, they are the bank in this game of Monopoly. They always get paid. The house always wins.

I started out in college, where my major was business accounting and finance, thinking that Gordon Gecko was just eliminating the inefficiencies of the system. More than 30 years down the line and nearly a dozen such deals later, I know that the only efficiency being sought is a speedier path for money to flow into the hands of the already wealthy, usually at the expense of the people actually doing the work. I am a product of my environment, and Silicon Valley is an incubator, always at the head of the pack in new ways to consolidate value into the hands of the wealthy. Anyway, we’ll get to some of that in my Telephony Tales series of posts pretty soon.

So the deal has been closed. Microsoft issued an announcement with Phil Spencer’s name on it, which he might even have read before it was posted, about how important we, the gamers who play their products, are.

There is also a happy video about how wonderful the acquisition will be. Totally not Microsoft trying to secure a monopolistic position in yet another market… this is for the gamers.

All the IPs are exploited to send that happy message.

So what happens next?

Nothing. Nothing for a few months. Every company that knows how to do an acquisition, that actually values the company they have purchased, first and foremost does not want to screw up their new asset.

So there will be a time of “just carry on as before” while everybody is moved over into the main payroll system, hooked up with the right email address, and is signed up for all of the usual things that every new hire has to go through.

And then the layoffs will come. The obvious redundancies will go first. Executives not listed as critical will get their golden parachutes and will depart with deeply ingenuous farewell messages. I am sure Bobby Kotick’s will be a doozy. I hope that one gets leaked, because it will be a comedy of lies. But at least he will be gone come January 1st. Other execs will stick around, usually due to an incentive structure to keep them around for six months or a year in order to maintain continuity. Mike Ybarra will probably be sticking around for a while I bet. But once the payout hits, we’ll see who Microsoft really feels they need

The accounting people will be let go once payroll is settled. They’ll need a few who know the business, but that will probably be under a dozen individuals.

They might keep a local HR person, a familiar face that knows the local staff, but everybody in a supervisory position will be let go. Groups will be folded into the main organization, and more redundancies will be remove. Then, as leases run out, teams will move to new locations. Who needs those Activision HQ buildings up in San Mateo when Microsoft has open office space in Mountain View and Sunnyvale?

My point in all of this is that in any such deal there are always winners and losers. That Bobby Kotick will be the biggest winner will stick in the craw of many. Take solace in the fact that at least he’ll be gone. Meanwhile, the losers in such deals are almost always employees and consumers.

Still, it will likely be the happiest, softest sort of merger, if for no other reason than Microsoft has the money to do it right, values the asset they purchased, and because Activision Blizzard was reported to be a crap place to work. For those that remain, life will likely be better.

For consumers the jury is still out. It would be cool to have more games on the XBox game pass I am sure. But we don’t know what we’ll actually get.

And then there are the games themselves, the place where we will now interact with Microsoft. For me, that is WoW in particular. Even in its diminished state WoW is still between 25% and 50% of Blizzard’s revenue. It might get overshadowed when something like Diablo IV launches, but it delivers that subscription revenue every quarter. When there was only one set of footsteps in the sand… that was when WoW was carrying the whole company because it had nothing else going on that quarter.

So WoW was a big fish, an important asset, for Blizzard, one they needed to keep producing to be viable, to be able to fund all their other projects. I always laugh when I see somebody suggest that Blizz should let WoW go, be done with it and move on. WoW is literally the central pillar of the company. They will never willingly let it go.

Now, however, WoW is in a much larger pond, with owners for whom Candy Crush is a more important part of the deal, where Call of Duty is much higher on their priority list than yesterday’s MMO news. Somebody is going to look at how many resources are dedicated to keeping Azeroth relevant and start comparing it to many of the other games in its stable and what resources they need. Maybe WoW will remain worth the investment, or maybe somebody’s spreadsheet will indicate that resources would be better applied to some other title. We don’t know. We won’t know for some time. But it is a different world now and WoW is no longer an obvious crown jewel for its owners. In the overall Microsoft business line, XBox is maybe 10%, well behind the Azure cloud services, Office, and Windows units. And WoW will just be a small slice of that XBox business. We’ll never see WoW or Blizzard on a quarterly report again… except maybe as color on a side bar.

Anyway, just some rambling thoughts to mark the occasion. The deal is done. Now we wait for the results to come in.