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Microsoft’s $68.7 billion deal for Activision shows big tech’s dominance over legacy media

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Activision Blizzard’s “Call of Duty: Mobile” displayed on a smartphone.
Ryan Browne | CNBC

Microsoft’s decision to buy video game company Activision Blizzard in a $68.7 billion deal shows big tech firms keep pushing the envelope, while legacy media companies, desperate to reposition themselves for younger audiences, sit on the sidelines.

The largest technology companies, including Apple, Amazon and Alphabet, have drawn consistent scrutiny from regulators and U.S. lawmakers for having too much market power in today’s economy. It’s possible the government could decide Microsoft shouldn’t be allowed to buy Activision.

But, if the deal is approved, it’s hard not to view it as another missed opportunity for older media companies to transform. While Meta, Roblox and other technology companies position themselves around a metaverse-dominated world filled with new gaming opportunities, legacy media companies have focused on subscription streaming video — perhaps a more limited form of entertainment.

“Gaming is the most dynamic and exciting category in entertainment across all platforms today and will play a key role in the development of metaverse platforms,” said Satya Nadella, Microsoft’s CEO, in a statement. “When we think about our vision for what a Metaverse can be, We believe there won’t be a single, centralized metaverse. It shouldn’t be. We need to support many metaverse platforms as well as a robust ecosystem of content commerce and applications.”

Gaming would allow Disney and Comcast to stay relevant to younger audiences even as legacy assets fade away, said Brandon Ross, a media and technology analyst at LightShed who focuses on the gaming industry. A nearly $70 billion deal would be an enormous deal for even the largest media companies, such as Disney or Comcast, which have market valuations between $200 billion and $300 billion. It’s not nearly as big of a swing for Microsoft, which has a market capitalization of $2.3 trillion.

But it wasn’t always like this. Microsoft will acquire Activision for $95 per share. Activision shares were trading as low as $42 about two years ago, in February 2019. Turn the clock back further, to 2012 or 2013, and Activision shares were about $10 each.

The idea of a big media name buying a large video game company has been rumored for many years. Here’s a 2012 CNBC story speculating Time Warner, which sold to AT&T in 2018, buying Vivendi’s 60% stake in Activision for about $8 billion.

Obviously, it never happened.

Big media “was too self absorbed to see how the world was changing,” Ross said. “The video game industry got bigger and legacy media got smaller.”

Netflix, the quintessential tech company that has eaten legacy media’s lunch, said last year it will experiment with offering video games with its subscription video service. WarnerMedia, formerly called Time Warner, owns a small video game division called Warner Bros. Interactive Entertainment, but AT&T considered selling it before deciding to merge all of WarnerMedia with Discovery.

Comcast and Disney have largely stayed away, potentially because video gaming isn’t in the core competency of either company. Disney shut down its game development business in 2016.

“That business is a changing business, and we did not have enough confidence in the business in terms of it being stable enough to stay in it from a self-publishing perspective,” said Bob Iger, then Disney’s chairman and CEO, at the time of the decision.

Microsoft, which owns Xbox, has focused on the gaming world for more than two decades.

Maybe Activision won’t move the needle much for Microsoft. It’s possible gaming, in general, will distract Microsoft from its core competency — servicing the business community with software. Video game creation is a hits-driven business, and it’s possible games like Call of Duty, Warcraft and Overwatch will fade away in popularity as virtual reality or other technologies rise. Perhaps Activision won’t be able to keep up with new favorites.

Or, maybe the Activision deal will prompt a legacy media company to finally make a play for another large gaming company such as Take-Two Interactive — which just announced a deal to buy Zynga — or Electronic Arts.

But Microsoft can afford to take a swing, while legacy media has positioned itself to keep its collective bat on its shoulder and hope the pitch is a ball.

Disclosure: Comcast is the parent company of NBCUniversal, which owns CNBC

WATCH: Microsoft, Activision setting up ‘collision course’ with DC lawmakers.

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