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Activision on the block: Assessing the potential buyers
Activision on the block: Assessing the potential buyers Exclusive
July 11, 2012 | By Chris Morris

July 11, 2012 | By Chris Morris
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    28 comments
More: Console/PC, Business/Marketing, Exclusive



Vivendi might be getting more serious about offloading Activision-Blizzard.

Reuters reports the French conglomerate has been in talks with a number of video game (and mass media) companies about a potential sale of the industry's top seller.

That makes for a good headline – and I have no doubt about Reuters' report, but as the industry works itself into a frenzy trying to guess whether Microsoft, Time Warner, or Tencent will be the new home of Call of Duty and Diablo, too many people are failing to scratch the surface.

It's entirely possible those companies – and private equity firms like KKR, Providence and Blackstone – are kicking the tires and peeking at the books. Any company in its right mind would do so, if only to learn more about the strengths and weaknesses of the industry's largest third-party publisher. But to assume that talks mean a sale is imminent is a mistake.

There is, of course, the fact that Vivendi has yet to officially announce that its 60 percent ownership stake in Activision is, in fact, for sale. Reuters reports the company is hoping to pocket somewhere in the neighborhood of $10 billion for the division – and if it finds there's little interest in paying that much, it could hold off on a sale until gaming stocks start to rebound (which almost certainly won't happen until the next generation is underway) or explore other options.

Putting that aside, though, there are plenty of culture issues that could come into play with all of the companies mentioned that could scuttle the sale. Let's run 'em down.

Microsoft: Admittedly, there's a lot that seemingly makes sense about a Microsoft buyout of Activision.

Xbox exclusivity on Call of Duty? Suck it, Sony! An opportunity to revive Guitar Hero as a Kinect game? Get Rare on the horn! Blizzard console games boosting both the console and PC divisions? Steve Ballmer would be dancing for joy.

But Microsoft has a lot on its plate already. It's trying to wrap up new hardware. And it's in the process of essentially relaunching the Halo franchise. More to the point, the company hasn't had tremendous luck when it comes to software. Bungie prospered, of course. And 343 Industries seems to be doing just fine. But Rare has yet to create a true blockbuster. And many internal studios were shut down after failing to produce a hit.

Moreover, by bringing Activision's mega franchises in-house, the company could hurt its relations with third-party publishers, which are critical to the Xbox. And Activision's profitability would plummet as a Microsoft division, since there's no real chance the company would make games for the PlayStation or Nintendo platforms.

Microsoft, at this point, seems more interested in focusing on cross-platform functionality, expanding the Xbox's entertainment options and internally focusing a very few key franchises. And, as we've seen over the past couple of years, that's a strategy that has worked well for the company.

Tencent: Tencent is a company that's interested in expanding its presence in the U.S. market – and it's already partnering with Activision to bring Call of Duty Online to China, so of course it's going to be mentioned.

The company, though, works on an entirely different business model than Activision – and the learning curve for retail games is a steep one (even with an accomplished executive team in place – and hate all you want on Bobby Kotick, the man knows how to make money).

If this were five years or so in the future, it'd be easier, perhaps, to make a case for Tencent, but right now the company has its hands full. It recently bought a minority stake in Epic Games and a majority stake in League of Legends creator Riot Games. Those two acquisitions are said to have added up to a $1 billion cash outlay, far less than the price tag Activision will carry.

Additionally, those purchases are going to keep it busy for a while, as it learns how the North American market works. And that alone could cause it to pass on Activision.

Time Warner: The media giant certainly has an interest in the gaming world. Warner Bros. Interactive Entertainment is doing well -- so well, that it reportedly got into a bidding war with Tencent over that stake in Epic.

Sure, there's some possible synergy between the companies. The film division would lick its chops at having Activision's IPs in its portfolio. But operating a video game unit at the size and scale of WBIE versus Activision is a jump that it's not ready to make.

It has gone all-in with video game companies before, though, and it didn't work out well. And with the bitter aftertaste of the AOL merger still lingering after all these years, it's going to be hesitant to make any multi-billion dollar leaps into industries it doesn't fully understand.

Just ask the boss.

Time Warner's acquisitions of late have been in areas it's comfortable with – and most of those have been overseas. And last year, CEO Jeff Bewkes told attendees at a UBS investor conference that he plans to stay away from "strange conceptual diversification into areas that nobody understands".

Time Warner understands games, but whether it understands where the gaming industry is going in the next five years is less certain. And the spotty track record of the video game industry could spook investors.

As for those potential venture capitalists, they're likely to be interested, but rustling up $10 billion won't be easy, given the dearth of successful IPOs since 2008.

In the long run, Wedbush analyst Michael Pachter may have called this one right earlier this month. Vivendi, he said, wouldn't have a lot of luck finding a buyer – and ultimately it's more likely to spin-off Activision as its own company.


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Comments


Tawna Evans
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Oh, imagine if Zynga were to buy Activison... XD

Kevin Reilly
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Not enough cash on the ole balance sheet.

Samuel Cho
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Bungie would literally be on a bungee cord if Microsoft buys Activision.

John Trauger
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One has to wonder if Vivendi isn't getting while the getting is good by seeling Blizzard while it still looks like a game company that can do no wrong.

WoW's last expansions have tanked and it's lost some subscribers. Starcraft 2 and Diablo 3, while both fun, don't seem to show quite the same creative spark as Starcraft and Diablo 2. Then there's the whole RealID fiasco.

Seems to me Blizzard has been getting more "corporate" in mindset and one wonders if it's really working for them. so vivendi either get $10 Bill for Blizzard now as opposed to maybe $7.5 Billion in a year or three.

Christopher Plummer
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Not sure where you are getting this from.

Starcraft II is on pace to sell as well as or better than Starcraft (the 11 million includes expansions). The Brood Wars expansion equivalent hasn't been released yet, but the popularity of the e-sports scene is more popular than ever.

Diablo III out sold its predecessor by a wide margin. Diablo III sold more copies in a week than Diabo II did in its lifetime.

If anything, I'd say they are trying to see what people will offer for Activision's console business before Cloud gaming takes off and turn a profit while the iron is hot.

Eric Geer
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@Christopher

I think what John is getting at is that...while it did sell lots of initial copies of Diablo 3--the reception by fans is...meh.

Next round may not be so successful. So Vivendi wants to unload it while it "looks good"

Added note--I bought D3 because my friend said it was going to be good and he was going to be playing it all the time...This was my first Diablo purchase..and I mean it's entertaining, but I wouldn't say it is an incredible game. I would wait on the next round as I just don't play it that much. Hell I haven't even beat the game yet.

J Z
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Yea the thing with consumers is it takes getting disappointed 2-3 times before they really think about throwing their money back at the same company. So it may not show in initial sales until the next game or two.

Still I question how "disappointed" players really were with Diablo III. I see posts on gaming forums with lines like "I have 150 hours played and this game is so disappointing". If 150 hours of entertainment for $60 is "disappointing" then I don't know what isn't.

Ian Uniacke
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The only thing that's changed is that the vocal minority have more optimised platforms for complaining. Diablo 3 is looking to be Blizzards biggest non-mmo game ever, and in terms of pure unit sales (ignoring the massive revenue which is WoW subscriptions) possibly even bigger than WoW. Plus like was stated Starcraft 2 Hear of the Swarm is going to be massive. I also don't think you can declare WoW dead just yet...it's got at least a couple of expansions and who knows what Blizzard can do in that time? (4 years so....maybe make 1 third of a game? amirite? :P)

Jonathan Osment
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Starcraft 2 is fine, it is Diablo 3 that "tanked" it all. You cant suggest sales are what made it a success...sales based entirely off of brand ID. If Diablo 3 were developed by another studio, had a different name but was the exact same game... it wouldnt have sold much at all, much less get positive reviews from certain game media.

At the end of the day its the consumers that have the biggest impact, and you cannot write them off as the vocal minority in this case. Diablo 3 isnt just met with negative critism, evidence of misinformation and shoddy game design, it comes with Blizzard's Korean HQ getting raided by the government due to a record number of complaints being filed. It comes with similar treatment in certain European regions and its followed by a massive refund request movement. Blizzard has never really seen anything quite like that and it goes to show that whoever was in charge of the product really made a mess.... they made it worse with the following responses which borderline on insulting the consumers.

D3 is one of the worst products I have seen in a long time, one would have expected more from Blizzard in this case. No doubt though it was a learning experience and I hope its not repeated.

John Woodruff
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@Jonathan O: If we had better statistics on who was complaining and why, it'd be much easier to decisively state what the consumers are complaining about with Diablo 3. People who complain about lack of content/boredom after pumping over 150 hours into it - the kind of people I think we're dismissing [myself included] as the 'vocal minority' - should have a lot to look forward to with Torchlight 2. If not, well, there's no helping them.

The problems with the launch, and the (imho) justified raid on Bliz Korean HQ had to do with the backend support of the game, and the fact that you HAD to be online to play. Bliz online launches have ALWAYS experienced outages and overloaded login servers, and 6 million people trying to log in to play D3 all at once - there honestly isn't any precedent for that except for the company's prior experience.

Even then, they still got hammered badly enough to cause their login error to trend worldwide on twitter. From what I know, they took their web servers offline temporarily and diverted them to attempt to handle the login traffic of Diablo 3 (pretty impressive, i thought). Unfortunately, it was too little, too late, and they scrambled to play catch-up. I find it ironic how Bliz's success was its shortcoming.

When I heard about the nightmare that NASDAQ had with the Facebook IPO a week later (so many trades in 30 minutes that it took them 3-4 days to map out what happened), I thought IMMEDIATELY of Blizzard's problem with the D3 launch. The NASDAQ could have learned a few things from Bliz - but, both companies got caught flat-footed.

Keep in mind that a lot of the complaints in Korea came from internet cafe owners who advertised PLAY DIABLO 3 HERE AT LAUNCH, and lost from their investment in D3 keys...wanted refunds within days, before bliz could react. When Bliz DID react, they tried to fix the situation before handing out refunds (too slowly, by many accounts). A lot (what %? we don't know) of end users who waited for the situation to sort itself out were content with what they got. I personally think the game is great.

I honestly don't see how the situation could possibly have played out differently for anyone involved, though there's a LOT to be learned through what happened. The key in all this was the "always online" DRM. The industry NEEDS to examine this. As much as I hate it, it could be the future of AAA PC titles. I can see why every party made the decisions they did in light of this. Do I blame Bliz for trying to rectify the situation (even if they botched the response) before handing out refunds? Nope - nor do I blame upset customers for demanding a refund.

TL;DR - We don't know how many people are upset about what issues - DRM/backend issues vs quality of the game (and how much of the backend issues bled into complaints about the quality of the game itself - and whether the two can or should be distinguished). We know how many copies were initially sold, but I doubt we'll get info on how many refunds were issued. The industry needs to look at this as a warning for how costly an "always online" architecture can be to a company. I think Bliz probably had the best capability to deal with it (experience and capital), but even then it was ugly. D3's launch set a new precedent for DRM, and as I have some stock in the company (jumped into it with the d3 launch - still don't know whether that was a mistake or not >.< ) I am keenly interested in what happens with all this.

Aaron Nakahara
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Hmmm.. imagine if Apple bought out Activision … They certainly have the cash on hand and could possibly push a lot of direct integration of the IPs into their iOS ecosystem.

Jonathan Murphy
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Is there an option to just buy Blizzard?

Rajat Ojha
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Would love to see Zenimax buying it out.

Alex Nichiporchik
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That's probably the only media giant that hasn't ruined a purchased gaming company.

Skyrim.

Josh Rough
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Are you kidding? There are many, MANY AAA devs that wouldn't touch Vlatko Andonov with a 10-foot pole. Talk about a shark.

Dragos Inoan
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Selling the company that makes the highest grossing games in the world makes perfect sense.

Jeremy Reaban
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I would guess they don't think that's going to continue

Maria Jayne
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That's what it looks like to me, there has been a definite backlash of negativity around the company over the last few years. Blizzard seems to be losing it's shine, with "fans" hating on WoW and Diablo, the Vince/Zapella legal battle aired some ugly business practices and evidently cost a fair chunk of cheese to silence.

Are they still making a lot of money? no doubt, is it a shrewd move to ditch a company before it starts losing value though? absolutely. Acti-Blizzard seems to have hit it's pinnacle, both call of duty and World of Warcraft are on the downturn and somebody at Vivendi can see this in the numbers.

[User Banned]
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Joshua Hawkins
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From a business perspective Activision is in a horrible spot. They've managed to run 2 of their most successful franchises into the ground (Tony Hawk, and Guitar Hero) in just a matter of a few years. COD looks to be heading in the same direction. Even though that's speculation it's not smart business sense to put "all your eggs in one basket." There's a promising connection w/ Bungie, but since it's new IP they'd be smart to wait till next gen meaning they won't have a title from them for awhile.

Besides COD Activision is completely reliant on Blizzard which only releases a title ever couple of years, and WOW has been slowly in decline since 2010. Essentially there's no release time frame for the next blizzard games which doesn't make investors happy. As there's more pressure for Activision to financially perform the more pressure they'll put on Blizzard to rush releases, and eventually Blizzard will be ran into the ground also.

Jeremy Reaban
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I think MS just hasn't tried all that hard with its 1st party software. Other than Fable, there hasn't been much that they put effort into that flopped. The Rare stuff is almost an after thought.

I think if they do buy Activision, Sony needs to just forget about the console business. They can't produce anything like Halo or CoD, their best efforts are likely going to suffer from franchise fatigue

Marc Schaerer
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Thats why Sony is going to buy Gaikai.
With their strive for a solid userbase it will just be a platform where you have to go to as publisher in the coming years.

Nintendo would be the one to worry if Microsoft would get an even stronger following as the turnaround time on 'gimmick input innovation' wearing off is shorter and shorter. The WiiU won't have 3-5 years of 'happy existance' till the competitors close in as they are going there already before the WiiU is launching.

Michael Rooney
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@"With their strive for a solid userbase it will just be a platform where you have to go to as publisher in the coming years."

They are already a platform where you have to go as a publisher.

Not that I agree that Sony would be boned, as Sony has a much larger set of first party developers anyway, but Gaikai isn't cool because of it's publishing capabilities.

[User Banned]
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Jeff Stolt
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There is more speculation than information so far. For all we know, Blizzard isn't on the block.

Matt Cratty
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Edit: Never mind. This doesn't address the point of the article.

Garrett Mickley
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I really don't think it's anything sinister.

"Vivendi's Universal Music Group is willing to sell assets and make commitments about its future dealings with digital start-ups, independent labels and larger rivals to win regulatory approval of its proposed acquisition of the recorded music arm of EMI, UMG chairman and CEO Lucian Grainge told the Financial Times .
European regulators have in a recent filing of concerns about the $1.9 billion deal raised fears that UMG's market share could exceed 50 percent in some countries. The company, whose artists include Lady Gaga, last week filed its response after getting a couple of extra days to do so."

http://www.hollywoodreporter.com/news/universal-music-ceo-open-as
set-347976

Ian Uniacke
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Come on man. What's this with factual statements when you clearly should be proclaiming the death of popular games like warcraft and call of duty. And you call yourself a gamer?


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