Five reasons Microsoft is making Activision Blizzard its biggest deal ever

Microsoft is buying Activision Blizzard in a $68.7 billion all-cash acquisition, uniting two of the biggest forces in video games. It’s the software maker’s biggest deal ever, almost three times as large as the 2016 purchase of LinkedIn. Here are five key reasons why it happened.

Size

The transaction, if it can get regulatory approval, will create the world’s No. 3 global gaming company, catapulting Microsoft to just behind China’s Tencent, the publisher of League of Legends, and game console rival Sony, maker of the PlayStation. Activision couldn’t compete in the new world of gaming on its own, CEO Bobby Kotick said in an interview. “You look at companies like Facebook and Google and Amazon and Apple, and especially companies like Tencent — they’re enormous and we realized that we needed a partner in order to be able to realize the dreams and aspirations we have,” he said. As for Microsoft, “together our ambition is to bring the joy and unity of gaming to everyone on the planet,” Microsoft CEO Satya Nadella told investors Tuesday.

Mobile

It’s the fastest-growing segment of gaming. Activision owns mobile-gaming studio King, maker of Candy Crush, one of the most popular mobile games of all time. Microsoft has next to no presence in mobile gaming. “We all know that the No. 1 gaming device on the planet today is mobile phones,” Phil Spencer, the Xbox chief who on Tuesday was named CEO of Microsoft Gaming, said in an interview. For similar motivations, see Take-Two Interactive Software’s deal to buy mobile game maker Zynga for $11 billion, announced earlier this month.

Bypass app store fees

Nadella wants his gaming empire to be big enough that gamers will come to it directly, bypassing Apple’s App Store. Microsoft has been at war with Apple, and Alphabet’s Google, over the fees the app stores charge for games. “Today, we face strong global competition from companies that generate more revenue from game distribution than we do from our share of games sales and subscriptions,” Nadella said on a call with investors. “We need more innovation and investment in content creation and fewer constraints on distribution.” Or, as Spencer said when talking about mobile phone gaming, “Distribution on those devices are controlled by two people, two big companies.” So Microsoft wants its own “unfettered” ability to distribute games and content, Spencer said.

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