Microsoft will buy Activision Blizzard, a bet on the next generation of the Internet.

PicturePlayers play the game Call of Duty: Black Ops at the 24th Electronic Expo in Los Angeles in 2018.
Credit…Frederic J. Brown / Agence France-Presse – Getty Images

Microsoft is the dominant force in business software and a huge player in cloud computing. On Tuesday, the company made it clear that its ambitions were even greater, saying it planned to buy the powerful video game player Activision Blizzard for nearly $ 70 billion, in a deal to position the company for the next generation of the Internet.

The acquisition, Microsoft’s largest ever, would throw the company into a leading position in both the video game industry and could strengthen its hand in the burgeoning world of virtual and augmented reality.

It is also a challenge for regulators in Washington, as both Democrats and Republicans have been pushing to limit the power of the technology giants. Microsoft, which makes Xbox consoles and owns studios that produce hits like Minecraft, has expanded its gaming business to exceed $ 10 billion in annual revenue. In anticipation of a longer review, Microsoft said it did not expect the Activision agreement to close before the next fiscal year, which ends in June 2023.

Activision is making big hits like Call of Duty and Candy Crush, and the acquisition would make Microsoft the world’s third-largest gaming company in terms of revenue, after Tencent and Sony, the company said. The industry has consolidated rapidly as it increasingly moves deeper into mobile and cloud gaming.

The agreement could also give Microsoft a significant boost to Facebook, which is considered to be a leader in the so-called metaverse, the name given to the virtual world. The meta-verse is more of a buzzword than a thriving business, but companies are putting huge sums of money and talent behind the idea. Facebook renamed its parent company Meta late last year to underscore its commitment. The addition of Activision is a bet that consumers want to play great games anywhere – on phones, consoles, computers and ultimately in virtual reality.

“Our vision of the meta-verse is based on cross-cutting global communities rooted in strong franchises,” said Phil Spencer, vice president of gaming at Microsoft. “A big part of that is the fact that mobile is the biggest category of games, and it’s an area where we’ve not had a major presence before.”

Microsoft has been looking for ways to use its huge liquidity reserve, more than $ 130 billion, to expand its consumer business, after looking at acquiring the thriving social network TikTok and the popular chat app Discord.

In Activision, which faces allegations that executives ignored sexual harassment and discrimination, Microsoft found a target under stress. The allegations have weighed on Activision, where the stock has fallen 27 percent since California sued the company in July because of the case.

The game maker’s shares have risen nearly 40 percent in pre-market trading. Microsoft shares fell 1 percent after the announcement.

The deal can be seen as a victory for Bobby Kotick, Activision’s longtime CEO, whom some critics had tried to oust because of the controversy. Mr. Kotick negotiated a big premium for investors – Microsoft pays $ 95 per. share, about 45 percent above his company’s share price before the announcement – and he will continue to run the company at least until the deal closes. The companies have not indicated whether he will stay after, but said the studio would report to Mr. Spencer.

The deal is the largest in the gaming industry’s history, breaking the record set a few days earlier when Take-Two Interactive, the creator of games like Grand Theft Auto, bought mobile game publisher Zynga for more than $ 11 billion.

The gaming industry, which has been liquid with cash since the pandemic increased the industry’s profits, has consolidated rapidly. Last year, Electronic Arts and Take-Two took part in a bidding war for Codemasters, a racing game company – which eventually sold to EA for $ 1.2 billion – and Microsoft made another splashy purchase in 2020 when it bought Zenimax Media and its line of game studios for $ 7.5 billion.

By acquiring Activision, Microsoft is gaining access to some of the most popular and recognizable titles, most notably Call of Duty, World of Warcraft, Overwatch, Diablo and Candy Crush. Activision’s latest profits have been shared fairly evenly across its three subsidiaries, with Candy Crush maker King pulling the most money, $ 303 million in operating revenue, in its latest quarterly report. Activision earned $ 244 million in operating revenue and Blizzard pulled in $ 188 million.

But Activision’s gaming efforts are also facing headwinds, with its latest Call of Duty released panned by players and delays among titles such as Diablo and Overwatch, which have seen key executives leave in recent months in the wake of the company’s series of scandals.

A major driving force behind deals is the arms race for exclusive content: Locking down a well-known franchise like Call of Duty or Skyrim, for example, could force fans of these games to switch from Sony’s PlayStation console to Microsoft’s rival Xbox system if Microsoft chooses to make a game exclusive.

The acquisition is likely to be among the biggest announced this year and continues a boom in the merger business. Last year, $ 5.8 trillion worth of deals were signed – beating the previous record by $ 1 trillion – as companies embraced acquisitions as a way to grow their businesses.

Deal makers said they expected the zeal to continue as business leaders took advantage of low interest rates to buy cheaply-funded assets.

Activision itself was a product of serial deal-making by Mr. Kotick through decades, rolled up smaller game studios. It took shape in its current form when Activision – then primarily known for producing titles for traditional game consoles – agreed to combine with the gaming unit from French Vivendi to expand to multiplayer online games like World of Warcraft.

Activision later acquired King, the European gaming company behind Candy Crush, to expand into mobile gaming.

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