[pandaman]

Acquiring a game studio only makes sense if you see a way to make it grow either by providing capital or better management. E.g. Activision acquired Treyarch in 2001 for $20M, which was probably 4-5x of its annual profit at the time. Seeing that very few people played (or even heard of) Die By The Sword or Draconus you could imagine that there was still a room to grow so there was a good chance you break even on your investment even sooner than 5 years and start making profit for yourself. Treyarch, who did not need to do the sports games contracts anymore and could hire more people, proceeded to making Spiderman and, later, CoD. I believe Spiderman alone made way more than $20M spent in the acquisition.

Buying Activision for 20x of its annual profit, on the other hand, makes zero sense. ABK was not lacking capital, had the same MBA management Microsoft has and did not have much room to grow, Blizzard alone had 5K employees. Their IPs had long time since plateaued or had been in decline already. What was Microsoft plan to increase profit? Switch everyone to Teams? Put more people to work on CoD and release 2-3 CoDs per year, hoping they all will sell as well as the annual CoD? The more realistic path to return of the investment could come from increasing Xbox's share of the market by making their newly acquired IPs Xbox exclusive. But they did not do even that.

[weakened_malloc]

> What was Microsoft plan to increase profit?

IMO, at the time, it was to buy ABK and make CoD an Xbox exclusive. That clearly didn't play out when everyone screamed about it being (rightly!) anticompetitive, and so they had to resign themselves to accepting that day 1 gamepass exclusive was going to be their way to get people to switch over from PS. That also didn't work.

The 'K' part of ABK was also probably going to be their way to drive mobile into Xbox as well with their 'everything is an Xbox' push at the time.

[pandaman]

Even if they had made it exclusive, $70B is too much for this. CoD sales would fall - not everyone buying it would go out and buy an Xbox, Xbox hardware sales would raise. Let's be optimistic and say every CoD player (including ones who already bought Xbox ) goes out and buys another Xbox and then buys 2 xboxes in the next generation. So it's ~20M more Xboxes sold. To break even on this investment in 10 years MS has to make ~$2400 from each console sold over lifetime ($68B - 10*$2B annual profit = $48B over 20M extra units). Of course, if each sold Xbox made that much money they would not sell them for $400, they'd pay you to get one.

[isqueiros]

I already thought the deal was bad to begin with, but if you look at the numbers like this it feels even more catastrophically bad, damn.

This is not even considering they basically bought all the PR issues that came with Blizzard.

[venzaspa]

CoD is just one title though, the deal included WoW and Candy Crush and the rest of the Activision IP.

[pandaman]

Yes. How many consoles would WoW and Candy Crash move?

[schnitzelstoat]

Yeah, they could have spent the money on founding new studios. With that sheer amount of money you could pretty much poach any talent you wanted too, but it wouldn't be as obviously anticompetitive.

Instead, they paid way over the odds for IPs that seem past their prime.

[pandaman]

IMHO, there is no room for a 70B investment in games at this time. The industry is mature and won't be growing any time soon, at least in the West. There had been a rush of investors founding new studios and propping old ones in the past decade but the vast majority of those had already been wiped out. And all of those were probably just a fraction of what Microsoft had spent just in this acquisition.

Another crazy deal like this is the EA's buyout, I wonder if it will come through or the investors will eventually realize that they are not going to see their money ever again.