Microsoft and Activision deal takes US$20 billion off Sony’s market value

The backstory:

• Earlier this week, Microsoft Corp. anounced that it would buy Activision Blizzard Inc. for US$95 a share in good ol’ cash, putting the sale at a cool US$68.7 billion.

• This is Microsoft’s biggest deal yet and comes amid sexual misconduct scandals, complaints and concerns within Activision, with calls for their Chief Executive Officer Bobby Kotick to resign.

• This sale should help Microsoft’s Xbox obtain more intellectual property assets for its Xbox Game Pass Service and compete with rival Sony Corp.’s PlayStation.

• With the announcement of the sale, Microsoft said that it has over 25 million game subscribers and “will offer as many Activision Blizzard games as we can within Xbox Game Pass and PC Game Pass,” said Xbox chief Phil Spencer.

The development:

• Investors scared that Sony won’t be able to compete with the tech giant led to Sony’s shares falling 13% in Tokyo on Wednesday.

• But, other smaller game makers with strong IP saw their shares rise.

• Both companies compete to attract paying customers with a good-looking portfolio of exclusive games, and this sale is a direct challenge to Sony’s sales. The company’s game and network services make up around 30% of its revenue.

• “Sony will have a monumental challenge on its hands to stand on its own in this war of attrition. With Call of Duty now most likely to be added exclusively to the Game Pass roster, the headwinds for Sony are only going to get tougher,” said Amir Anvarzadeh of Asymmetric Advisors.

• “Sony will struggle to match Microsoft in terms of money it can spend to buy popular game IP. Falling shares illustrate investors are worried that Sony may not be able to keep winning if indeed the industry shifts away from the hardware-based model,” Morningstar Research analyst Kazunori Ito said.

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