3 Active Stocks Alert : Activision Blizzard, (NASDAQ:ATVI), JD.Com (NASDAQ:JD …

4 Nov 2015 | Author: | No comments yet »

“Call of Duty” maker jumps into mobile gaming with $5.9 billion acquisition.

Three years ago, a group of senior Activision executives led by CEO Bobby Kotick met with Stephane Kurgan and Riccardo Zacconi, the heads of mobile gaming company King. Last night, Activision Blizzard announced in a press release that they have bought King for $5.9 billion, an acquisition that has created the biggest games powerhouse in the Western world, second only to Tencent on a global scale.NEW YORK — The company behind the hugely successful Call of Duty video games is launching an all-out attack on the mobile gaming market by shelling out $5.9 billion for the maker of “Candy Crush Saga.” Activision Blizzard’s purchase of King Digital Entertainment will create one of the world’s biggest entertainment networks, with a combined total of more than a half-billion monthly active users in 196 countries, by Activision’s count. Today, if we add H1 revenues of Activision Blizzard and King together, this would give the new mega-company $3.4 billion in half-year revenues, jumping over Microsoft ($2.7 billion), Sony ($2.4 billion) and EA ($2.4 billion) to take second place behind Tencent ($4.2 billion). “People who think the $5.9 billion valuation is too high are wrong,” comments Newzoo CEO Peter Warman, “One key value element is a complementary pipeline in terms of games in development.

And that customer base is one reason the acquisition “makes a ton of sense” said Mr Mark Pincus, who founded the social gaming pioneer Zynga. “There’s no question women like competition,” said Mr Pincus, whose company’s titles include Farmville and Words With Friends. “They just don’t like blood and guts and gore.The game industry has had that wrong.” Women have represented almost half of the gamers in the US for the past few years, according to the research firm NewZoo BV. Having King’s experience in running and monetizing mobile games as a service will be a priceless asset to a company that is still on the learning curve when it comes to mobile.” What is most appealing about the acquisition is how complementary the companies are. Predictably, the revelation sent shockwaves through the industry: it’s a hefty sum – more than Disney paid for legacy entertainment companies Marvel and LucasFilm. Some critics have lambasted publishers for games that include overly sexualised female characters or that write sexist behaviour into the play, or omit women altogether.

Last week, the organisers of next year’s South by Southwest Interactive conference in Austin cancelled two panels, one featuring Ms Wu, that would focus on such harassment and on women in gaming, because of threats of violence. Purchasing King would bring it an experienced workforce, plenty of proven IP, and a vast global audience, stretching far beyond the traditional “hardcore” gaming demographic. The organisers did an about-face after a public outcry and announced that there would be a full-day summit to discuss the issue. “You are seeing more women in video games, but it’s coming slowly,”said Ms Bonnie Ruberg, a postdoctoral scholar at the University of Southern California who studies gender and sexuality in video games.

Ubisoft Entertainment SA’s Assassin’s Creed, created in 2007, this year included a female main character for the first time, and Electronic Arts put female football players into its popular Fifa game, including stars Alex Morgan and Christine Sinclair on the cover. In a coruscating article on the deal, the journalist Rob Fahey wrote: “In all likelihood, Activision has just paid a huge premium for a company which is past the peak of its greatest hit title and into a period of managed decline, not to mention a company with which its core businesses simply don’t fit in any meaningful way.” The IHS Digital analyst Piers Harding-Rolls added: “The mobile games market is highly unpredictable, even with a strong set of games franchises and brands success is far from guaranteed.” So what does Bobby Kotick make of all this? We’ve prioritised it, evaluated a variety of alternatives, both building and buying, and we came to the conclusion that King does the best job of any team that we’ve come across in the creation of franchises, in sustaining those franchises, in commercialising those franchises and thinking about new franchises.

We felt very confident that they were the right partner for us.” But then, traditional game publishers have floundered in the past when they tried to buy their way into the mobile industry. Electronic Arts paid $680m for Jamdat in 2005, $300m for social gaming specialist Playfish in 2009 and $750m for Bejeweled creator PopCap Games in 2011. Is this not a stark lesson in how the gears grind when very different development cultures meet? “Well, if you look at the history of our company, we don’t do a lot of acquisition,” says Kotick. “The reason is, we need to see that people are culturally and philosophically aligned with the way that we approach the business. It’s very rare that you find people who have the same commitments, and the same commercial instinct.” Kotick also shrugs off concerns about King’s reliance on Candy Crush. “They had product concentration, and so Mr Market looks at that and says, ‘Hey, you know, is that a one-trick pony?’ But when we looked at King, we saw four great franchises with lots of potential, one super franchise, and a fantastic pipeline. That got us really excited.” From King’s point of view, the deal makes sense in that it gives them Activision’s proven IP with which to build new smartphone titles.

He has drawn the ire of core gamers with Activision’s endless cycle of money-spinning brands, the DLC packs, the vast number of Skylanders toys, the expense of keeping up to date with Destiny, but the monster rolls on regardless. And right now, according to him, that’s all he cares about. “Look, the way we see it, this audience is investing in our content right now,” he says. “Whether they’re paying for it or not is not really relevant.

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