Microsoft’s acquisition of Activision – a game changer?

Background

The gaming war between Sony and Microsoft has been turbulent and bloody for over two decades and the American computing giant, led by Satya Nadella, has launched its biggest attack since the COVID-19 pandemic began. Media outlets have reported that Microsoft are planning on acquiring Activision Blizzard, the company behind the popular gaming series Call of Duty, for around $68.7 billion, causing its Japanese rivals’ shares to plummet as financiers aim to squeeze and short.

The Pandemic

The COVID-19 pandemic, which has caused misery to P&Ls around the globe, may have been a blessing in disguise for the gaming industry as people’s appetite for entertainment soared. During the pandemic, Activision released Call of Duty: Warzone, a game which adopted the revolutionary free-to-play mode, posting a record quarterly revenue of $2.28 billion for the three months ended March 2021. Moreover, net income rose 23% from the previous year to $619 million, causing its accountants to forecast $8.37 billion in net revenues for the year (up 4% year on year).

Gaming has come out on top in the entertainment industry with its historic rivals, film and music, suffering due to social restrictions. Why risk catching COVID-19 going out to watch a film or live music when you can game at home? More importantly, what better way to spend isolation at home if you have caught the virus than gaming? With China relaxing its rules on foreign companies investing in its ever growing entertain space and the Asian market representing 60% of global market revenue of PC and mobile gaming, further ground is to be made.

The pandemic has caused the perfect storm for gaming, and it seems that analysts and investors want to join the ride.

The losers

Whilst shareholders of gaming companies, which employ over 50,000 people in the UK, seem to be facing rising profits and dividends, shareholders in game retailers seem to be regretting their investments.

Gaming has gone through a significant change in the last decade since the now infamous administration of Game in 2012. Online stores provided by console manufacturers seem to be price matching games that used to be bought from cheap second-hand stores on the high street. Customers in the industry who used to be teenagers running from school to buy games in stores using their parent’s money, are now older. The customers now have money and don’t have time to be visiting traditional brick and mortar stores; they’d much rather just download a game from an online platform from the comfort of their home or order next day delivery via service such as Amazon Prime. In addition to this, online free-to-play games, a method of gaming which is profitable and will be the most popular strategy imposed by investors, further reduce the role of physical stores, who will undoubtedly face restructuring or insolvent procedures for survival.

Conclusion

As with many retailers on the high street, video game shops are faced with the threat of financial failure as online gaming seems to outcompete physical copies, and this has only been exaggerated by the pandemic. The biggest insolvency risks are from landlords, tax liabilities and suitable buyers. Video game publishers would face different insolvency challenges around extracting value from intangible assets such as intellectual property.

Contact Us

If you have been affected by any of the issues discussed above, please don’t hesitate to contact Louis Byrne or Vit Varoththayan.

Louis Byrne, Corporate Restructuring Manager. Louis is a qualified Insolvency Practitioner, with experience in working with distressed companies and individuals and dealing with complex solvent restructuring matters. Vit Varoththayan, Corporate Restructuring Trainee.