Specialist
Former general manager at Microsoft Corp
Agenda
- Pending purchase of Activision Blizzard (NASDAQ: ATVI) by Microsoft (NASDAQ: MSFT) and rationales for the acquisition, including more exclusive first-party games, Xbox and Game Pass opportunities, and metaverse possibilities
- Combination risk factors – legal and regulatory considerations and company culture challenges in light of Activision’s corporate issues
- Potential industry impacts such as competitive responses and more M&A activity, highlighting companies such as Sony (NYSE: SNE) Take-Two (NASDAQ: TTWO) and Tencent (HKG: 0700) and its major gaming subsidiaries
Questions
1.
What were your initial thoughts when you learned that Microsoft was going to buy Activision Blizzard?
2.
It has been well-documented that Activision Blizzard has had high-profile corporate culture issues that have affected many things in and around the company. Do you think what was happening in that context contributed to Microsoft identifying Activision Blizzard as a target and changing the timetable for a deal? How much of an influence do you think that had?
3.
Why do you think Microsoft landed on Activision Blizzard? You referenced a perceived price disconnect related to the issues occurring at Activision Blizzard, but what were some other qualities you think in particular attracted Microsoft to the company? You alluded to mobile, King Digital, the metaverse and how the company has many first-party games.
4.
How has the video game industry grown and how has it evolved more recently since you joined Microsoft 15 years ago? What are some of the biggest changes you would highlight?
5.
What do you think is the TAM for the video game industry? I think this is one of the industries where people are all over the map in terms of what the TAM and growth are. You touched upon the metaverse earlier. I know people have been talking about very lofty numbers regarding the opportunity there.
6.
What annual growth would you expect, and where do you think that number could go over the next 3-5 years? It seems the metric you want to focus on is the number of players, and you mentioned 2.5 billion.
7.
Do you have any thoughts on the pandemic’s impact on industry growth as we near its end? There are some people who would say this was a pull-forward, and many people that were buying and playing games over the last two years will now go outside and do other things that they haven’t been able to do because of the pandemic. On the other hand, there are those people that say no, these are people who just became gamers before, or maybe they weren’t going to be gamers otherwise and now they are.
8.
What is the importance of triple-A first-party games and IP to Microsoft, when thinking of rationales for the acquisition? You mentioned Microsoft has been acquisitive in the past, having bought ZeniMax in March 2021 and Mojang, which is responsible for Minecraft, in November 2014. Why are these properties so important?
9.
There have been concerns from regulators and legislators that Microsoft will purchase Activision Blizzard and suddenly make its games exclusive to its primary distribution platforms, Xbox and Game Pass. To what extent do you think those are legitimate concerns, and could Microsoft take more of a broad-based approach or will it make properties more exclusive similar to how it’s done for some ZeniMax IP?
10.
Many people think that one of the major reasons Microsoft is trying to acquire Activision Blizzard is because it wants to bolster the amount of content that’s available for Xbox and Game Pass, exclusive or otherwise. How much of a priority do you expect Microsoft to place on that, if and when the deal is consummated? Would it try to bolster those platforms through Activision Blizzard?
11.
You mentioned Activision Blizzard has many franchises and titles, but not many current blockbusters, and how Microsoft could rummage through that list of franchises to try to resurrect or reinvigorate them. To what extent do you think that’s a part of the strategy and could that be one of the approaches to build out Xbox and Game Pass content?
12.
You mentioned how Activision Blizzard cross-promotes. When Zynga reported results recently, I think one of the tailwinds it highlighted is advertising not just other games within its game platforms, but actually taking advertising from other companies’ games. Do you think Microsoft will leverage that opportunity with broader-based platforms with more IP that presumably would attract more users and engagement?
13.
You touched upon mobile as being one reason that this deal makes sense for Microsoft. How important do you think mobile is, and is there the potential for Activision Blizzard and its subsidiary King to come in and help Microsoft do a better job with mobile?
14.
Many people have hailed what Activision Blizzard has done with Call of Duty and CoD: Mobile as a strong effort and success, and you referenced that it’s creating a lineup of shooter-box games, without the box. How helpful do you think what Call of Duty has done in mobile could be to inform what Microsoft is currently doing with related IP, whether it’s Halo or Overwatch, the latter of which Activision Blizzard owns as well?
15.
What is the opportunity that Activision Blizzard could bring to Microsoft pertaining to the metaverse?
16.
What do you think are the risks to this acquisition? I believe Microsoft and Activision Blizzard have begun to communicate their plans to Congress.
17.
It’s worth nothing that Microsoft indicated that the deal could take a 1.5 years to close. To what extent do you think Microsoft would be open to agreeing on not making some Activision Blizzard franchises and games exclusive to Microsoft properties over 3-5 years, or some other designated time frame, something that would mandate that consumers be able to continue accessing these games as they currently are? Could Microsoft agree to something like that?
18.
Some people have pointed to risks related to the combination of corporate cultures. You referenced that Microsoft has allowed recent acquisitions such as ZeniMax to operate independently, and I think it’s done that with LinkedIn to some extent as well. However, there is an issue with Activision Blizzard’s corporate culture, and when the deal was announced, Microsoft CEO Satya Nadella implied that he thought Microsoft’s corporate culture could help Activision Blizzard overcome many of the issues it’s been facing. It seems those are two different concepts. How do you think something like that would play out?
19.
It seems you think Activision Blizzard will independently try to resolve many of the corporate culture and leadership issues that have been raised for the last few quarters. What do you think that means for current leadership? CEO Bobby Kotick still is running the company. Do you think he joins Microsoft, or he ends up leaving Activision before that? How do you think about the bench strength Activision Blizzard has going into Microsoft?
20.
How do you expect competitors to respond to this proposed combination? There has been a lot of M&A in the industry. We’ve talked about Take-Two and Zynga, and Sony announced it’s buying Bungie. Who do you consider the most likely buyers in the environment right now?
21.
Do you think Epic and Supercell could function as Tencent’s consolidators in the industry and what do you think they could do?
22.
Do you expect other competitive responses? You talked about if Microsoft were able to get Grand Theft Auto as an exclusive for Xbox or Game Pass. What other competitive actions do you think players are thinking about and we should expect over the next 1-2 years?
23.
What do you expect from the gaming industry over the next 1-3 years, assuming Microsoft closes on Activision Blizzard?
24.
What do you think of cloud platforms and cloud gaming? You mentioned Apple and Google in particular having these offerings. Arcade and Stadia come to mind, but they haven’t gained a lot of traction. Could console companies more aggressively pursue cloud gaming, especially Microsoft with Activision Blizzard, as well as Xbox and Game Pass? Would you expect progress on that over the next 1-3 years?
25.
What do you think is the biggest opportunity for the Microsoft-Activision Blizzard combination or for the industry?
