Activision to Buy King Digital for $5.9B
bloomberg.com
bloomberg.com
I'll never forget his answer: "No one has figured out how to really make money with casual games yet, but once someone does, we'll just buy them."
I can't imagine that this deal will be profitable, but with profits at $604.5 million it is hard to argue that this deal should have been cheaper.
The video game industry is largely moving toward the studio model used by Hollywood as a result.
Apple is far larger than Activision and are basically the kings of innovation.
And really, most of Apple's "innovations" are taking innovations created elsewhere and applying them to mass-produced consumer products. Not that what Apple does isn't innovative; but it's industrial-scale innovation.
Activision is a media marketing and investment company. Why bother being innovative when the mass-market AAA games they churn out earn $1-2 billion each in global sales? They're not trying to be innovative; they're trying to make mainstream video games.
As a result of that, it's a boom-bust company. A few bad releases can put them in trouble. Media is volatile because consumer tastes are fickle, and video games are no exception.
That has gradually declined of course, over a decade. They still have ~5.6 million paying subscribers to WoW, generate a billion in sales annually from it, and hundreds of millions in profit.
Games may have a longer shelf life than movies, but at the macro level, the same principles apply. EA and Activision are the MGM and Paramount of the games industry because they know and practice this. As unpopular as it may make them among industry insiders or hardcore fans, this is the way the hits business (as applied to conventional notions of a stable company) works.
King, in fairness, has multiple games in the App Store at the top of the Top Grossing charts in addition to Candy Crush Saga. No idea what Activision gets out of this. (games like Call of Duty have been sneaking ad-hoc microtransactions similar to F2P games)
Worse news: the thing that they sell is something that people regret buying.
Two things:
One, King has more sustainable revenues than OMGPOP. Two, they get to tell their shareholders they are competing in an established area of high growth (i.e. mobile apps).
I realize analogies aren't meant to be perfect but when you stress the 'exact same'-ness I'll confess I find Activision is nothing like Zynga here. Zynga was already focused on social/mobile games like OMGPOP and bought them defensively (Words WF was hemorrhaging daily users to Draw Something at time of the purchase). Meanwhile Activision and King are focused in completely different niches and Activision isn't in danger of disappearing or cannibalized to bits by copycats overnight.
Second, King appears to be remarkably safer investment than one hit wonder OMGPOP. They've kept multiple titles in the top 20 for several years running and their annual gaming revenue is on scale with Nintendo[1].
Given that Supercell is not on the market is there an aquisition target remotely as good as King which is demonstrably great at the one thing Activision is terrible at? (granted Blizzard is doing well in mobile with Hearthstone).
[1] http://www.newzoo.com/wp-content/uploads/2011/06/Small_Newzo...
The F2P environment has been shifting to be more user friendly, and consequently less revenue-generating. I'm still uncertain that King's brand of F2P is sustainable in the long term.
Exploitative f2p games fall by the wayside and the most successful formula seems to be: (1) make a game that's great even for people who spend nothing, (2) take advantage of network effects to get a large sticky playerbase and (3) profit off a fraction of the players.
Boom Beach is my favorite mobile game by a large margin, I've spent a whopping $5 (on account of relying on the wiki for costs) and there are players in global top 50 who have spent nothing. I feel zero compulsion to spend anything except perhaps to reward the company for hundreds of hours of ad-free gaming.
The fact that you call the OMGPOP game 'Tetris' explains how they got away with it I think =)
edit: is there any other example like tetris in the games industry?
Blizzard has no idea how to make money from mobile. King makes an absolutely ungodly amount of money (especially measuring per user). Blizzard knows it needs to be able to make money from mobile eventually. Hence, a huge price.
Blizzard isn't just buying King for Candy Crush. They're buying King because they know how to make Candy Crush.
A coworker was under the impression that King had trouble duplicating the success of Candy Crush. No idea if that's true, but if it is, it could be that it was a lucky hit, and King actually had no idea how to make these games successful.
Perhaps Supercell would have been a better target; they seem to have a number of reasonably successful games. More minor successes might be better than a single smash hit if you're more interested in the underlying knowledge.
They know what they are doing.
Uhh, Hearthstone?
Activision/Blizzard doesn't have a huge presence in the casual space. This expands their market and doing so with success. It should at the very least turn out better for them.
You were killed by L33TGUY37. You are out of lives for today, would you like to:
- Purchase 5 more lives for $2.99?
- Spam your social media for life requests?
Call of Duty: Advanced Warfare has Supply Drops (http://callofduty.wikia.com/wiki/Supply_Drop ). At the game's release, you get Supply Drops every few multiplayer games, which have chances of dropping cosmetic gear for your character, or weapons with statistical modifiers. (naturally, you mostly got cosmetic gear). While the weapons w/ modifiers were technically balance, some weapon modifiers synergize a little too well with a given weapon and they became the most-used weapons in the game.
Then Infinity Ward added the ability to buy as many Supply Drops as you want for $1.99 each.
(Later, they did implement daily challenges for a bonus Supply Drops along with Prestige challenges for the good weapons, in order to make things more fair.)
The best part must be the claim that they own all Accounts, which means everything you buy using online transactions is not yours.
My estimate is that Blizzard will make this money back in less then 5 years. They just need to put the proper money-milking free-to-play model into their next big game and all the "core" gamers will shell out the money.
After that, we will see the entire industry shifting to free-to-play and the way games are currently monetized on mobile will dominate PC as well.
If I were Google, I'd start developing AdSense plugins to Unity, Unreal and other game engines.
Just wait for Overwatch.
They have also invested in a new engine, Defold (http://www.defold.com/), that should let them iterate faster and that they let other developers use. I hope it will thrive under Activision management.
Four billion dollars in box office revenue, and over three billion more in home video sales. When you're done thinking about just how much money that is, take a look at how that pales in comparison to the merchandise.
http://www.statisticbrain.com/star-wars-total-franchise-reve...
Now Star War games look great + are on multiple new platforms (namely mobile), and the Star Wars films look great.
Riccitello is the reason why EA is still relevant, shame they got rid of him before his mobile efforts paid off.
Thought for sure when I saw the announcement was going to be using the incredible run-up on the ATVI stock we've been seeing lately.
How exactly they are going to find the 30% increase in revenue year after year on a company that feels exactly like Zynga in its prime.
Perhaps Bobby knows something, but I can't seem to be grasp this one.
Update: even worse, nearly 30% of the float is short. There will be a lot of red tomorrow.
I feel silly asking... but I don't know what this means exactly. Can you explain? :(
If you shorted KING at something greater than $18 you lucked out and have made money, but if you shorted at say $17 you will end up losing $1 per share. It has been under $13 in the past three months so some shorts are going to be losing a fair amount of cash.
Another common, but less risky way to be short is through put options. You buy the right to sell shares at a given price. If you had a put for less $18 you have now lost all your money. Safe to say there will be a lot of money made and a lot of money lost tomorrow when options start trading.
Update: even worse, nearly 30% of the float is short
(But yeah, it's been a long time since Activision has been relevant, and they haven't done mobile right, obviously, this might be a good first step for them.)