Tag Archives: Activision Blizzard

5 thoughts on the Activision Blizzard/King deal

Well, that was a bit of a surprise wasn’t it? The news that Activision Blizzard bought Candy Crush Saga maker King for $5.9bn caught everyone out, probably panicking PR reps across the world as they desperately pump senior leaders for ‘hot takes’.

But amidst the jokes that are, to be honest, almost entirely coming from me, there are a few things about the deal that I thought were worth committing to digital paper. So here they are.

1) The deal is overvalued, but in an understandable way

 $5.9bn is a lot to pay for an entertainment company. Activision Blizzard’s decision to splash the cash is already being compared unfavourably with Microsoft’s acquisition of Minecraft at $2.5bn and Disney’s Lucasarts purchase at $4bn.

And it does make some sense to query the amount forked out. King’s market cap was $4.65bn on November 2nd, down from the $7bn plus predicted valuation pre IPO in 2014, suggesting clearly that Activision Blizzard did overspend. And when you consider the company already has a top grossing free to play mobile game in its arsenal already (Hearthstone), it seems like a costly entry into the market.

But there’s more to it than that. Purchasing King doesn’t just buy Candy Crush Saga; it buys access to a market of hundreds of millions of users that the company has never reached before. And while King’s powers have been on the wane, they still saw 500m active monthly users through the last quarter and half a billion in revenues.

Activision Blizzard may have paid slightly over the odds for King, but its valuation makes sense in the context of King’s position as a major player in the casual space within the mature mobile gaming market.

2) The companies will cross-pollinate ideas, not games

If we accept that King’s positioning is a vital factor in its valuation, I’d say it’s pretty unlikely that we’ll see the cross-pollination of gaming brands across the companies.

Call of Duty, Destiny and World of Warcraft each have strong fanbases, but I’d be exceptionally surprised to see King in its current form work on any games related to those franchises.

What we will almost inevitably see though is the transfer of knowledge between businesses, as console continues to learn lessons from the best practices in the mobile space. Take Destiny, the Activision published FPS, as an example. An excellent piece in The Guardian from Keith Stuart shows how their development process has already been revolutionised by analytics – something that’ll feel familiar to near enough everyone already working in the mobile space.

And with the recent integration of a premium currency into the game, it would make a lot of sense to see King’s mobile monetisation bods sharing ideas with their Activision Blizzard counterparts to help improve the work already being done by traditional publishers.

3) Candy Crush to remain the flagship, but portfolio to tighten up

Candy Crush Saga is not going to stop being King’s flagship overnight. In fact, it won’t probably stop being its flagship ever.

With a game so ubiquitous that mentions of it slip into the script of Orange Is The New Black, it makes sense that King pins its hopes on a game that has achieved as much cut through as Tomb Raider did for Eidos or Call of Duty for Activision.

But there are questions about the portfolio strategy King has pursued and whether it has really offered the support needed. Outside of a handful of games, including Bubble Witch Saga 2 and Pet Rescue Sage, there are very few of King’s 200 games achieving anything like the necessary recognition (let alone revenues) to be worth crowing about.

So in the same way that a studio like Rockstar relies on Grand Theft Auto but has a tighter circle of supporting titles like Red Dead Redemption in reserve, I’d expect to see King’s portfolio to reduce in size but tighten up to offer better support to Candy Crush.

4) A reduced marketing spend?

In King’s quarterly results to the market, it has had to list how many of its games have achieved top 10 grossing positions on the App Store and Google Play. As a measure it may seem pretty legit – after all, isn’t that a measure of strong revenue generation?

Well yes, of course it is. But it isn’t quite that simple. The top grossing charts only measure how much money players have spent in a mobile game. And though a title near the top of those charts has to be well designed to generate strong monetisation performance, we don’t know how much money has been spent on marketing and acquisition to keep that flowing.

In short, there is a possibility that there may be games from King sitting higher up the grossing chart because they’ve had to ramp up spend to reassure share holders. There could be games that generate a lot of revenue but have it all eaten up by spend on marketing or otherwise. Simply put, we don’t know.

So without the pressures of a public market, we might see their marketing spend of nearly half a billion dollars per year come down as a result – presenting an opportunity for developers in the rest of the space to react…at least until they launch their next major mobile release.

5) Lowering the headcount (and increasing the startups)

Finally, expect the axe to fall for a lot of King employees across the world in the coming year. Because, despite the success of the company, it has what looks to be too many staff on its books.

Though King is currently worth marginally more than Supercell its employee count is nearly 10 times larger, as Stuart Dredge pointed out this year. And considering that a lot of the games the company has been running haven’t been doing brilliantly…well, you get the picture.

But wherever the reductions happen, hopefully the industry will benefit as a whole. Not only will it release a lot of talent out of the company for the market to snap up, it could leave a lot of room for new start-ups focused on mobile gaming to emerge.

As seen in my research in Dublin and Helsinki, a big game company handing out the redundancies can inadvertently create the next generation of great game companies. So here’s hoping that takes place if Activision Blizzard do cut things back, for the sake of its employees and the industry at large.