Why Activision Blizzard did the deal with Microsoft

Jan 18, 2022

Microsoft and Activision Blizzard announced the biggest deal in gaming history today with Microsoft’s $68.7 billion cash offer to buy the decades-old independent game publisher.

I wonder is there anything that you think will benefit Call of Duty from this? I’m sure it’s the number one thing Call of Duty fans and people like me, who are Warzone players, are worried about. Kotick: I would say probably the biggest thing is the AI and machine learning, and ultimate access to that talent. And that that’s one of our big needs. For the long term, we could have a real streaming Call of Duty experience that’s going to be critically important.

Why do the deal? Why is this a good time to sell? And why is it a good price as well?

Bobby Kotick: The most important is — it’s funny, you and I were talking about AI last time — as you look at the increased competition between Tencent, and NetEase, and Sony, and now you have Google and Amazon, and Apple, and Facebook, and Microsoft and Netflix. We were looking at over the course of the next couple of years, and starting to realize that we need thousands of people to be able to execute against our production plans. We need them in disciplines like AI and machine learning, or in data analytics, or in purpose-built cloud and cybersecurity — and that we just don’t have. And that competition for that talent is expensive, and really hard to come by.

And so, as we’re starting to think about all these skills that we need, that we don’t have and that were really necessary, we realized that we should be thinking about ways to get that talent. This was an acknowledgement and recognition. And then Satya [Nadella, CEO of Microsoft] and Phil [Spencer, head of gaming at Microsoft] and I have had conversations over many, many years of bigger things that we could do together.

And so when Phil called, it happened to be at a time where we were getting ready to start our long range planning process, and realizing that these were going to be issues and challenges. We had the discussion. Phil and I know each other well, and we have a great relationship, and the company has a great relationship. And when you start to think about all the skills we need, all the resources we need, and what they have, it made a lot of sense.

When they originally called, we said we would we think about it, and then they made this offer that was incredibly attractive at 45% premium over the stock price. And I think it just made a lot of sense. And so, the more we spent the time talking about how it would work, and what would happen, what resources were available, they clearly were the best partner.

I assume there are going to be antitrust questions here. How do you address that? And how is this good for consumers? And does your content stay on all the platforms?

Kotick: I think that was an important part of the discussions. With Microsoft, most of the content they create has nothing to do with gaming. They’re on every device with a microprocessor and a display. And I think that they have no mobile business. So for them King was a very complimentary thing. But we all realize that gaming over the next five years is going to be more on phones than on any other devices. And I think that they they have given us repeated assurances that our content will be available on as many devices as possible.

And I think that was really important for us. They’ll drive the bus, obviously, on the antitrust issues. I think the thing that is obvious to me is that when you look at the competition, whether it’s Tencent and NetEase, and Alibaba or Sony, or Amazon, Apple, Google, Facebook, Netflix, then you start looking at like, the second part of competition and content, and you realize whether it’s Roblox or Minecraft, or the variety of other sort of platforms that are becoming available for content creators, I think there’s more competition than we’ve ever seen for games.

It’s a reality that started to factor into our thinking. There is more competition from bigger companies with more resources. Facebook is spending [billions] a year on the metaverse. I’ve never seen as much competition, and we’re seeing it even in the wage inflation. Whether its Riot, Tencent, Epic, Sony, or Microsoft, EA, there are just so many different places that people are recruiting talent.

And then you look at the specialized skills, like AI and machine learning or computer graphics. You’ve got Nvidia and all of those big companies recruiting the best AI and computer graphics talent. And so we realized the pipeline for talent — we just didn’t have it. And we needed to have access to somebody’s pipeline of talent. And that was a big consideration.

And was the sexual harassment investigation factor in this, as it certainly seemed to affect the stock price?

Kotick: I think what affected the stock price more than that is pushing out Overwatch and Diablo. And then I think people started to see that this year’s Call of Duty wasn’t performing as well. So I think certainly the [California Department of Fair Employment and Housing] filing and the Wall Street Journal article contributed to that, but stocks go up and down for a variety of reasons. I think our view was that at $95 a share with all cash, that’s a really great deal for our shareholders. And so that was an easy and independent judgment. It’s a great deal.

What what do you think of reporting to Phil? What might you think about doing next once the deal is done? And is retirement one of your thoughts.

Kotick: Right now my focus is just staying CEO and running the business. And I think you probably could tell this from the stock price, there is still a long way between now and getting a deal approved, and all the regulatory issues. So I’m still going to be first focused on running the business. What I told Microsoft is that I care so much about this company, that whatever role they want me to have, in making sure that we integrate the business and we get a proper and smooth transition, I’m willing to do. However much time that takes, if it’s a month after the close, if it’s a year after that, I just care that the transition goes well.

Reporting to Phil is an easy thing to do. He’s a great guy, and we have a great relationship. And if I have to do that, I’m happy to do that. All I care about is making sure that the transition and the integration go well.

Kotick: I mean, like, I come to work every day, as excited as I was, I mean, we have a lot going on right now. I have a new set of responsibilities in my focus on the workplace. And that is my principal focus is making sure that when you think about and part of why I’m so committed to this welcoming, inclusive workplace is when you think about companies that have defining characteristics that are going to help attract talent. Having a really welcoming, inclusive workplace will be a defining characteristic of the culture of a company in an increasingly competitive talent environment that will ensure that we’ll have access to great talent, and so independent or not thought, that is an important part of what I think will allow us to attract talent, we have to do that. And that’s something I’m spending a lot of my time.

You got had a few months of tough coverage. A lot of tough words from the Wall Street Journal. What was some of the learning from this experience that you’ve had?

Kotick: From my perspective, if you have one single incident of harassment at your company, that’s one too many. And you don’t want to ever have an environment where people don’t feel safe and comfortable and respected. And so when the EEOC started their investigation, where it was like three years ago now, that was the catalyst for us to start thinking about, how do you change and transform the culture to making sure that you do have the most safe welcoming, inclusive culture. It’s a priority for me to make sure we have the very best workplaces.