Microsoft Will Seek to Reboot Activision Blizzard Culture After $68.7B Acquisition

After announcing that his company would buy Activision Blizzard for $68.7 billion — its largest acquisition to date — Microsoft CEO Satya Nadella addressed the game studio’s roughly 10,000 employees with a message: change is coming.

The Santa Monica-based video game company has had a tumultuous year. Last summer, the California Department of Fair Employment and Housing filed a lawsuit against the firm, alleging that senior management allowed unfettered sexual harassment and pay discrimination at the company for years. Wall Street Journal the study in November revealed that Activision chief executive Bobby Kotick had known about the sexual harassment allegations for years. Almost a fifth of the firm’s employees signed a petition demanding Kotik’s resignation.

In a Tuesday morning conversation, Nadella made it clear that he was aware of the company’s shortcomings and the anger they caused within the company. “We believe it’s critical for Activision Blizzard to promote its renewed cultural commitment,” Nadella said. “We support the purpose and work that Activision Blizzard is doing, and we also recognize that there is significant work to be done post-closure to continue building a culture where everyone can perform their best.”

Workers who pushed for reform Activision, the news of the acquisition caused mixed feelings. On the one hand, Kotick is expected to leave after the deal closes, according to Blomberg, and Microsoft doesn’t have a reputation for having an abusive workplace culture. On the other hand, Kotick’s proposed departure will come with a nine-figure golden parachute, and workers who fought for protections, including better job security, now face the prospect of post-merger optimization.

Meanwhile, for gamers, the merger could mean more of Activision’s back catalog becomes available, and the company’s franchises like “Call of Duty” and “World of Warcraft” could become more accessible via Microsoft’s cloud streaming technology – provided that they are willing to buy Microsoft hardware or join its game subscription service.

If approved by antitrust authorities, the merger would make the Seattle-based software giant the third-biggest gaming company by revenue behind Japanese Sony Group and China’s Tencent Holdings.

The acquisition came at a time of financial vulnerability for the gaming company. Activision’s share price has fallen 30% in the past six months after news of the California lawsuit first broke. However, Microsoft agreed to pay $95 per share at the merger, nearly 45% above the share price before the deal was announced, valuing Activision at a premium over its pre-lawsuit price, albeit below its February 2021 peak of above $103 per share. share. .

Microsoft has been active in acquisitions in recent years, and Nadella hoped to invest his $130 billion in cash reserves. In 2020, the company held negotiations on acquisition of TikTokas the Trump administration pushed a Chinese social video app to sell to a US company before that deal fell through.

The video game industry has also been booming during the pandemic, with profits reaching new heights as consumers spend more time at home due to COVID-19 precautions and a number of mergers have taken place as studios look to invest. Last week, Grand Theft Auto creator Take-Two Interactive announced a deal to buy mobile gaming company Zynga for more than $11 billion. In 2021, Electronic Arts bought Codemasters, the racing game company, for $1.2 billion, and Microsoft bought Zenimax, the company behind Doom, and the Elder Scrolls and Fallout franchises, for $7.5 billion in 2020. . .

Microsoft’s video game strategy depends on having exclusive in-house games to create the Game Pass subscription service, for which users pay a monthly fee to access the company’s game catalog. While its gaming division only brings in 7% of Microsoft’s total revenue — $11.5 billion, or $168 billion in 2021 — the subscription business is growing rapidly. Phil Spencer, Head of Games at Microsoft said that he sees a big growth opportunity in Microsoft’s cloud computing capabilities, which allow users to stream games on any computer, rather than requiring a powerful desktop or Xbox console.

“Players around the world love Activision Blizzard games and we believe the creative teams have the best ahead of them,” Spencer said in the announcement. “Together we will build a future where people can play the games they want, virtually anywhere.”

Activision shares rose 26% in Tuesday trading on news of the acquisition, while Microsoft shares fell more than 2%. Analysts generally described the deal as a smart move for Microsoft and good news for Activision employees who are looking to make real change at the company.

“Probably Bobby was looking for a way out, and Microsoft had the patience and ability to fix it,” said Andrew Werkwitz, an analyst at Jeffries. “Employees were probably relieved that they were working for Phil. [Spencer] now Bobby is retiring.” He noted that Microsoft’s subscription model and scale of operations relieved the urgency of tight deadlines to some extent.

A case in point is the latest version of Halo, one of the flagship Xbox games since its debut in 2001. After the pandemic hit in early 2020, Microsoft called for a full calendar year delay in the release of the game to allow developers to adjust to working remotely and overcome challenges in game development. “Actvision would never do that with Call of Duty, its flagship game,” Werkwitz said, “because the company’s financials are tied to tent releases.

Microsoft’s newfound flexibility could also allow Activision to revive smaller games in its back catalog, Uerkwitz said. In the same way that stable cash flow and a subscription user-base retention model has allowed Netflix and HBO to fund mid-budget movies, the Game Pass model means “Microsoft doesn’t just want triples, they want doubles and smaller titles.” , and can connect to that directory to find smaller games that are suitable for the subscription service.”

The morning news came as a surprise to Activision Blizzard employees, who expressed ambivalence about the deal. Jessica Gonzalez, a former company employee and organizer of the A Better ABK task force that led efforts last year to push for Kotick’s resignation and employee layoffs, said it didn’t change anything for the group’s goals.

“A Better ABK will continue to seek worker representation, regardless of who owns Activision Blizzard,” she said. “Nothing will change the organizational effort, we hope that Microsoft will meet the requirements of the employees, but in any case will move forward.”

Gonzalez expressed her disappointment at what she called in a tweet a “golden parachute” for Kotick, who has been urged by workers to step down for months. If Kotick leaves within 12 months of the acquisition and is not fired for good cause, he will receive a total compensation of more than $292 million, according to the compensation table in the company’s 2021 annual report to shareholders.

Xbox creator Seamus Blackley tweeted that he was “sickened that the reward for years of despicable practice towards developers seems like a huge paycheck for its criminals.” I hope this acquisition will change the culture of Activision and can act as a catalyst for accountability for those who have avoided it so far.”

The gaming company riots go beyond allegations of harassment and discrimination detailed in the California lawsuit. Raven Software, the division of Activision that develops Call of Duty, quit their jobs in early December after several quality assurance employees were laid off at the end of their contracts. Between 70 and 75 workers from Raven and other divisions of Activision Blizzard are still on strike.

One of the striking workers, Alex DuPont, said the news would not change his colleagues much in the short term, given the deal’s timeline until 2023.

DuPont resigned last week, saying he “doesn’t want to be in a company that runs a third of a division and won’t tell the rest why,” and said he was “a little wary” about the impact of the deal on his job. Terms at Activision. As a source of concern, he cited Microsoft’s policy of only allowing contractors to work for 18 months with six months off in between, which is a major stumbling block in the development of Halo Infinite. However, he is optimistic about how Xbox has bought studios and “given them more autonomy” in day-to-day operations, he said.

Microsoft said the deal won’t close until fiscal 2023 as regulators are expected to take some time to look into the antitrust implications of the merger. In an open letter to employees, Activision’s Kotick wrote, “Microsoft recognizes the commitment to excellence and creative independence that sets us apart, and we expect minimal change for our employees after the deal closes,” and said the company will continue to operate. regardless of its new parent.