Microsoft made its biggest purchase ever on Tuesday, announcing an agreement to take over scandal-plagued video game giant Activision Blizzard, in an all-cash deal valued at $68.7 billion. The move will make Microsoft the world’s third-largest video game-maker while giving it control of some of the most popular games ever made, including the war simulation series Call of Duty and the fantasy behemoth World of Warcraft.
“Together with Activision Blizzard, we have an incredible opportunity to invest and innovate to create the best content, community and cloud for gamers,” Microsoft CEO Satya Nadella said in a conference call with investors Tuesday.
Both companies pitched the deal, which is due to close sometime in the next 18 months, as an opportunity to grow their respective franchises in the highly competitive and lucrative video game industry. “This is not about short-term results,” said Microsoft’s gaming head Phil Spencer, on the call. “We’ve seen Activision Blizzard’s product roadmap and are incredibly enthusiastic about what the teams are creating and the company’s pipeline over many years to come.”
With Activision Blizzard, Microsoft is hoping to position itself as one of the next major entertainment companies, despite Activision’s reputation for a toxic work culture. Though Microsoft has long been associated with its Windows and Office productivity software, the company has steadily expanded its efforts to lead the video game industry with its Xbox brand. And it believes Activision represents a key investment in its gaming future.
Microsoft pitched its pending purchase of Activision, along with earlier acquisitions like Fallout- and Doom-maker Bethesda, as central to its effort to build itself into a Netflix-like company, investing heavily in content that convinces people to pay subscriptions. “As our platform becomes more attractive, the flywheel of content creators and players accelerates as the creative range on our platform continues to expand,” Spencer said.
The company expects to use Activision games in different ways. Microsoft sees games like Activision’s puzzler Candy Crush Saga as a way to help it expand into mobile gaming. Meanwhile, it can use titles like the hit action adventure games Diablo and Call of Duty and the fantasy shooting series Overwatch to bolster its $15 per month Game Pass Ultimate subscription service and cloud gaming efforts.
While the deal offers a significant opportunity for Microsoft, it comes at a time of intense scrutiny for Activision, which has been mired in scandal, facing accusations of discrimination against its female employees and of fomenting a “frat boy” workplace culture. Accusations heated up this summer when California’s Department of Fair Employment and Housing sued the company over incidents including alleged discrimination and harassment. In September, the US Equal Employment Opportunity accused it of violating the civil rights of employees, subjecting them to sexual harassment, pregnancy discrimination and retaliation. Activision Blizzard quickly settled with the EEOC for $18 million.
Amid investigations and employee activism, Activision’s CEO Bobby Kotick has been accused of both ignoring and furthering these issues, leading to calls for him to step down.
Microsoft said it plans to keep Kotick in charge of Activision Blizzard as the deal progresses. Once completed, Microsoft said Activision Blizzard will report to Spencer, who the company pitched as a successful cultural change agent. The Wall Street Journal reported later Tuesday that Kotick planned to leave the company after Microsoft’s purchase.
“As CEO of Microsoft, the culture of our organization is my No. 1 priority,” said Nadella, harkening to efforts he’s made to soften his own company’s historically cutthroat ways. “We must continuously improve the lived experience of our employees and create an environment that allows us to constantly drive everyday improvement in our culture. This is hard work. It requires consistency, commitment and leadership that not only talks the talk but walks the walk.”
Microsoft’s shares on Wall Street, which already valued the company at more than 32 times Activision’s purchase price, fell slightly following the news to $302.65, down more than 2% for the day. Microsoft’s share price has risen nearly 40% in the past year.