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Metaverse Licensing: Microsoft Makes a Big Move With Acquisition of Activision Blizzard

By Gary Symons

TLL Editor in Chief

Microsoft says building the metaverse is a big reason it acquired gaming company Activision Blizzard this week for $68.7 billion.

While Microsoft says gaming is also very important to the company, which also produces the Xbox and runs the DirectX gaming platform, the company says the long-term vision is on becoming a major player in the metaverse, often known as Web 3.0.

“With three billion people actively playing games today, and fueled by a new generation steeped in the joys of interactive entertainment, gaming is now the largest and fastest-growing form of entertainment,” Microsoft said in a statement. This acquisition will accelerate the growth in Microsoft’s gaming business across mobile, PC, console and cloud and will provide building blocks for the metaverse.”

Microsoft has announced it is acquiring Activision Blizzard in a friendly takeover. Activision produces some of the top games for Microsoft’s Xbox platform, and is considered a key component to help Microsoft in its quest to become a leader in the development of the metaverse.

Microsoft will acquire Activision Blizzard for $95.00 per share, in an all-cash transaction valued at $68.7 billion, inclusive of Activision Blizzard’s net cash. When the transaction closes, Microsoft will become the world’s third-largest gaming company by revenue, behind Tencent and Sony. The planned acquisition includes iconic franchises from the Activision, Blizzard and King studios like “Warcraft,” “Diablo,” “Overwatch,” “Call of Duty” and “Candy Crush,” in addition to global eSports activities through Major League Gaming. The company has studios around the world with nearly 10,000 employees.

The Jan. 18 announcement came as Activision remains in turmoil over allegations of misconduct and unequal pay for its employees

Microsoft CEO Satya Nadella said in a conference call with investors “the culture of our organization is my number one priority” and that “it’s critical for Activision Blizzard to drive forward on its” commitments to improve its workplace culture.

Activision disclosed last year it was being investigated by the Securities and Exchange Commission over complaints of workplace discrimination.

Activision CEO Bobby Kotick will retain his role, and he and his team will maintain their focus on driving efforts to further strengthen the Santa Monica, Calif., company’s culture and accelerate business growth. Kotick also said improving the work culture at Activision is a key goal for himself and the entire Activision management team.

The deal Tuesday follows Microsoft’s $7.5 billion acquisition last year of ZeniMax Media, the parent company of video game publisher Bethesda Softworks, which is behind popular video games The Elder Scrolls, Doom and Fallout.

Kotick will continue to serve as CEO of Activision Blizzard, and he and his team will maintain their focus on driving efforts to further strengthen the company’s culture and accelerate business growth. Once the deal closes, the Activision Blizzard business will report to Phil Spencer, CEO, Microsoft Gaming.

“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” said Satya Nadella, chairman and CEO, Microsoft. “We’re investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all.”

“Players everywhere love Activision Blizzard games, and we believe the creative teams have their best work in front of them,” said Phil Spencer, CEO, Microsoft Gaming. “Together we will build a future where people can play the games they want, virtually anywhere they want.”

“For more than 30 years our incredibly talented teams have created some of the most successful games,” Kotick said. “The combination of Activision Blizzard’s world-class talent and extraordinary franchises with Microsoft’s technology, distribution, access to talent, ambitious vision and shared commitment to gaming and inclusion will help ensure our continued success in an increasingly competitive industry.”

However, while gaming revenues will be the focus in the short term, the long term vision for the merger of Microsoft and Activision is to build a company that can compete head-to-head with other leaders in the development of the metaverse. Competitors in that space include Meta (formerly Facebook), the virtual world platform Roblox, Apple Computers with its focus on developing Augmented Reality, Nvidia, Unity, Epic Games and Riot Games, to name a few.

This is particularly true right now, as The Wall Street Journal reports that more than 100 employees working on augmented reality at Microsoft left the company.  More than 40 of those key workers are now working at Meta, which also attracted a few former Apple employees.

Meta owns Oculus, maker of the world’s top VR headset and a key component of entering the metaverse, and they have also partnered with Ray-Ban on their first attempt at augmented reality glasses. Two of the key people who left Microsoft for Meta include Charlie Han and Josh Miller, who were previously working on Microsoft’s team developing the HoloLens, an advanced augmented reality rig the company first announced in 2015.

Microsoft HoloLens 2

This photo from Microsoft shows its newly developed augmented reality smart glasses, the HoloLens 2.

While Microsoft was originally focused on augmented reality, Meta has been more focused on virtual reality, considered the initial entry point to the metaverse. It acquired Oculus in 2014 for $2 billion, and the company’s Oculus Quest 2 is a PCMag Editors’ Choice pick for VR headsets.

However, augmented reality is expected to be a second route to the metaverse. As opposed to virtual reality, which allows people to enter a digital, virtual world, augmented reality brings digital artifacts into our real world. For example, augmented reality could allow 3D animated images of celebrities to sell clothing inside a real world clothing store.

Beginning with its first version of smart glasses known as Ray-Ban Stories last year, Meta reportedly has set its sites on developing true AR glasses, which has fueled its attempts to hire Microsoft employees from the HoloLens project.

According to the International Data Corporation, Virtual Reality headsets are expected to lead the sector in growth initially, but IDC said last month that “AR will face substantial growth from 2023 – 2025 and will capture one-third share by the end of 2025. Newer headsets from smartphone vendors and growing appeal in the consumer segment is expected to drive volume for AR headsets.”

The acquisition of Activision now places Microsoft in the forefront of companies vying for leadership of the rapidly growing metaverse sector, which is expected to top $15 trillion in revenues globally. While Meta made a lot of noise by recently releasing its Horizon Worlds metaverse product, Microsoft also owns Minecraft, a platform that most consider a pioneering effort in creating virtual worlds, and now has acquired one of the top video game teams in the world in the form of Activision.

That combination of Minecraft’s expertise in monetizing virtual realities and the almost unmatched technical ability of Activision is seen by Microsoft as key to remaining a metaverse leaders.

In the meantime, the merger will also give Microsoft a leg up in the mobile gaming space and with its current Game Pass subscription service.

Mobile is the largest segment in gaming, with nearly 95% of all players globally enjoying games on mobile. “Through great teams and great technology,” Microsoft and Activision Blizzard say they “will empower players to enjoy the most-immersive franchises, like “Halo” and “Warcraft,” virtually anywhere they want. And with games like “Candy Crush,” Activision Blizzard´s mobile business represents a significant presence and opportunity for Microsoft in this fast-growing segment.”

Microsoft will also be able to launch Activision Blizzard games into Game Pass, which recently reached a new milestone of over 25 million subscribers. To underscore how important this acquisition is for Game Pass, consider that Activision Blizzard games have close to 400 million monthly active players in 190 countries, and they own three of the world’s billion-dollar-plus gaming franchises. By any measure, the deal will make Game Pass one of the most compelling and diverse lineups of gaming content in the industry. Upon closing the deal, Microsoft will have 30 internal game development studios, along with additional publishing and esports production capabilities.

The transaction is subject to customary closing conditions and completion of regulatory review and Activision Blizzard’s shareholder approval. The deal is expected to close in fiscal year 2023 and will be accretive to non-GAAP earnings per share upon close. The transaction has been approved by the boards of directors of both Microsoft and Activision Blizzard.

The Metaverse Is Growing Faster Than Expected: Is Your Company Ready?

Metaverse Gets Real As Meta Unveils Horizon Worlds

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