I am a big fan of Activision Blizzard, Inc (NASDAQ:ATVI) and I own the stock. In fact, it's really hard to find another publicly listed videogame company that shows true long-term growth, is as consistently profitable and has such a relatively high ROIC. In the volatile world of videogame development and publishing, Activision Blizzard is a true gem. Unfortunately, a very big cloud is on the horizon.
As people following the company probably already know, Vivendi Ord Shs (OTCPK:VIVEF), the majority stakeholder of Activision Blizzard has decided to sell its 61% stake in the company. This is almost certain to happen—Jean-Bernard Lévy, the CEO of Vivendi who was opposed to this idea, has been recently ousted from the company, and the company board has indicated that if no buyer can be found for the whole stake, the shares will be disposed of on the open market.
61% of Activision Blizzard is no chump change: at the current market price, the block of shares is valued at $8.2 billion and very few players can afford to spend such a large amount of money to acquire the controlling position. Among the prospective buyers, three names have emerged as potentially having an interest— Microsoft Corporation (NASDAQ:MSFT), Tencent Holdings Ltd (OTCPK:TCTZF) and Time Warner Inc. (NYSE:TWX).
The possibility of Tencent or Time Warner going through with the transaction does not concern me much, as I believe they would take a hands-off approach to handling Activision Blizzard, but Microsoft acquiring the company is a whole different scenario and I believe it would be a very negative thing for current stakeholders of this videogame powerhouse.
The basic gist of the problem is that what Microsoft would most likely want from Activision Blizzard (push XBOX and Windows 8) is on a collision course with what's in the best interest of existing Activision Blizzard shareholders and should Microsoft go through with the transaction, I would most likely dispose of my shares.
XBOX Vs. the World
The Blizzard arm of Activision Blizzard (which makes up roughly half of the company) is purely a PC/Mac developer, while the Microsoft gaming division's first and foremost focus is on the success of the XBOX360 console and its inevitable successor. While I would not expect Microsoft to prevent Blizzard from releasing the future titles on the PC, it would most definitely pressure it into releasing them for the XBOX.
So far, Blizzard has mostly steered clear from the consoles—Starcraft for Nintendo 64 more than a decade ago is the only released title that comes to mind. It has closely looked at every console generation so far, but has concluded that it would not be able to release the best games it can by catering to the console crowd. The simple reason is the console controllers: Blizzard games are renowned for fluid and precise controls and there is no way around the fact that the kind of games it makes would greatly suffer from being designed with options other than keyboard and mouse in mind.
Windows Windows Windows
While I would not expect Microsoft to prevent Activison from releasing its existing console franchises on the Playstation, I am afraid that the Mac ports of Blizzard titles would end up on the chopping block. Microsoft feels the ever-increasing pressure from Apple Inc. (NASDAQ:AAPL) and it would only be natural that it would do its best to not help the company by releasing games compatible with MacOS X.
If Windows 8 starts showing signs of becoming another Vista-like flop with the consumer, Microsoft could also take the drastic step of making all future Activision Blizzard PC titles require Windows 8, dropping support for previous Windows versions and trying to force at least the PC gaming crowd to upgrade.
While all these potential steps are perfectly understandable from Microsoft's point of view, they would definitely do great and perhaps irreversible damage to the massive goodwill and positive brand recognition Activision Blizzard currently has with gamers.
Disclosure: I am long ATVI.