Microsoft Corporation Plays The Real Game With Activision

Microsoft Corporation

Here’s a proposal if Microsoft Corporation (NASDAQ: MSFT) 0.85% wants to earn real money from investors: It should publicly commit to keeping “Call of Duty” on the PlayStation indefinitely. 

Microsoft Corporation Plans for Activision Blizzard

Concerns over Microsoft Corporation (NASDAQ: MSFT) 0.85%’s potential plans for the popular videogame brand still loom over the software giant’s proposed acquisition of Activision Blizzard ATVI 2.27%. 

The U.K.’s Competition and Markets Authority announced last week that it is stepping up its probe of the $75 billion merger due to concerns that uniting the producer of the Xbox with the largest third-party videogame publisher in the world by yearly revenue will strangle the market. One of its main concerns is that Microsoft may hurt competitors “by refusing them access to Activision ATVI 2.27% Blizzard games or granting them on considerably harsher conditions,” according to a statement made by the agency earlier this month. 

Investors are anxious as a result of the increased regulatory scrutiny. The price of Activision stock increased on Thursday after Microsoft Corporation (NASDAQ: MSFT) CEO Satya Nadella said he was “very, very confident” the deal would close. However, the stock is still 19% below Microsoft’s $95 offer price, down from the 13% discount it was trading at the close on the day the deal was announced. And they are quite audacious declarations of faith in Microsoft’s ability to seal the acquisition. In the first two quarters of this year, Warren Buffett’s Berkshire Hathaway acquired nearly 54 million Activision shares, more than tripling its ownership stake in what Mr. Buffett referred to as an arbitrage play that he personally approved after observing the difference between the stock price and deal price. 

According to rumors, Microsoft Corporation (NASDAQ: MSFT) has privately promised Sony that “Call of Duty” will be available on the PlayStation for several years after the present deal expires. The worry that the Xbox creator would someday make the game exclusive to its own platform hasn’t been allayed by this guarantee, either. According to data from NPD, “Call of Duty” is one of the most lucrative series in the market, with its annual release for game consoles ranking as the best-selling title in the U.S. market for 11 of the past 13 years. That includes last year, when the most recent installment, “Call of Duty: Vanguard,” received the lowest critic reviews in franchise history and sold so poorly that, according to a regulatory filing in February, Activision’s internal long-term targets had to be “downwardly adjusted” six weeks after its release. 

Activision appears to be very motivated to avoid making the same mistake twice. The company unveiled this year’s title, “Call of Duty: Modern Warfare II,” in a virtual event last week. Andrew Uerkwitz of Jefferies called it “easily the most expansive version to date.” According to consensus projections from Visible Alpha, experts anticipate a 20% increase in “Call of Duty” unit sales in the fourth quarter compared to the same period last year, which included the launch of “Vanguard.” The game is scheduled to go on sale on October 28. 

Microsoft might use the release of the newest game as an opportunity to demonstrate a more transparent and unwavering commitment to maintaining “Call of Duty’s” widespread distribution. Microsoft shouldn’t be purchasing Activision only to move more low-margin game hardware, even though making the game exclusive would assist Microsoft’s Xbox game console, which has lagged behind the PlayStation for the last two console generations. These franchises now give their owners a variety of opportunities to make money, and those options are especially well suited to a cloud computing behemoth that has moved beyond its reliance on the widely used Windows platform

For instance, “Call of Duty” has a mobile game that was released in late 2019 and, according to Sensor Tower, produced over $1.5 billion in total player spending in less than 18 months. The same battle royale design that made “Fortnite” so popular also inspired a free-to-play online game named “Warzone.” The popularity of those games has allowed “Call of Duty” to diversify its source of income. According to Visible Alpha, analysts predict that little over a third of current franchise revenue comes from initial game purchases. 

Therefore, maintaining a large rather than a confined distribution of the game is in Microsoft’s best interests. That remains true even as subscription-based and cloud-based gaming services become more common. Microsoft’s products in this market will undoubtedly benefit from “Call of Duty,” but even if Sony offered the game on its rival PlayStation Plus service, Microsoft would still receive licensing and royalties. Although Sony would hate to pay its adversary any money, PlayStation owners would consider the cost worth paying to maintain access to “Call of Duty.” For the Xbox owner, it wouldn’t be a bad deal either.

 Featured Image: Megapixl © Nmedia

Please See Disclaimer

About the author: Valerie Ablang is a freelance writer with a background in scientific research and an interest in stock market analysis. She previously worked as an article writer for various industrial niches. Aside from being a writer, she is also a professional chemist, wife, and mother to her son. She loves to spend her free time watching movies and learning creative design.