Gaming

Activision Blizzard wanted to sell, so it approached Microsoft


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Activision Blizzard leadership and key ownership wanted to sell and was shopping itself around. In early November, the company brought that proposition to Microsoft. Xbox began working on the deal immediately, and the details came together over the holidays. Now, the two companies have agreed to terms on an acquisition that will close by the end of Microsoft’s fiscal 2023 in June of next year. But how did the industry get to this point? The answer to that lies within the volatility of making triple-A, big-budget games.

Activision Blizzard’s future was more uncertain than ever and not only because of the investigations into the alleged civil rights violations at its studios. Making massive blockbuster games was reaching an unsustainable level. While the publisher continues to have some of the biggest hits in the world, it has found it more challenging to commit resources to games outside of the Call of Duty brand. And in an industry where talent is in high demand, Activision struggled to attract the people that actually make the games. The company needed a reset, and that led its leadership to consider the possibility of selling to a larger corporation.

This might seem counterintuitive because Activision is responsible for the biggest franchise in the console space. Just yesterday, industry-tracking firm The NPD Group confirmed that Call of Duty: Vanguard was the No. 1 selling game in the United States in 2021 — No. 2, by the way, was 2020’s Call of Duty: Black Ops Cold War.

How could a company with the best-selling games possibly find itself struggling to find a path forward?

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Activision tapped out Call of Duty, and didn’t know what to do next

Activision’s biggest problem is that it had no obvious vector for growth. Over the course of the pandemic, Activision’s revenue grew, and the publisher responded by reinvesting into Call of Duty. That continued a trend where instead of a single, annual Call of Duty product launch, the publisher peeled out parts of that product into a free-to-play battle royale shooter and a mobile version.

All of these parts are successful, but they are also all likely encountering an upward climb in terms of growth. The pandemic is seeing occasional stutters, and gaming can longer rely on people stuck at home to turn to their consoles and phones. So the only way to truly ensure bigger returns for Call of Duty is to put a lot of development effort into improving the games.

This is the biggest problem for Activision. The industry is flush with cash for senior developers that want to leave to join other studios or start their own. That talent is often choosing to skip over Activision and its headline-attracting toxic work environment.

It is difficult to make bigger and better games every year with fewer and less experienced developers.

This is where Activision traditionally would have turned to Blizzard to fill in the gap, but it is facing a potentially grimmer future. World of Warcraft, the once dominant massively multiplayer online game, is bleeding subscribers with no end in sight. A similar exodus of talent — due to an equally hostile work environment (reportedly) — has forced Blizzard to delay the release of Diablo Immortal, Diablo 4, and Overwatch 2.

Activision Blizzard is in a deep hole, and the current leadership did not want to dig its way out. But don’t feel bad for them, this was all too predictable. Activision’s creative model was only ever possible in an industry where talent was so abundant and willing to sacrifice that they would put up with low pay and frat-boy leadership. It is not coincidence that the company’s disintegration accelerated the moment the pandemic caused the labor market to tighten up.

Consolidation is better than the alternative

The concern now is the specter of market consolidation. Does Microsoft have too much power by taking over one of the biggest publishers in the world? Maybe, but the alternative wasn’t working either. Activision was independent, and it was known for treating employees poorly and its women and minority employees even worse. The glimmer of hope here is that Microsoft’s alternative incentive structure of Game Pass, with its subscription fee, will unlock some of the creativity of the devs that Activision smothered with annual Call of Duty releases.

This consolidation is probably more frightening for independent studios looking in from the outside, though. If Game Pass grows into the dominant gatekeeper of what succeeds and what doesn’t, that could lead to a lot of people getting left out while Xbox hoovers up more and more of the industry’s revenue.

Again, however, it’s now like the system we have now is great either. Independent studios struggle because the industry is producing more games than ever, and we have a stark system of haves and have nots where a few games break out and everyone else struggles to earn a living wage.

These problems are literally more deadly than they should be in the United States because we do not have universal, single-payer health care.

But even as Microsoft takes over Activision, that is not the end of the story. Talent that is currently at Blizzard, Infinity Ward, and Toys for Bob will almost certainly depart in the next few years to start their own studios. And investors, with the hope of an eventual Xbox-acquisition payday, will fund those new ventures. And this broken system will continue, and hopefully we get plenty of good games and developers are able to feed their families.

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