Acquired - Episode 40: Activision Blizzard

Episode Date: July 13, 2017

Ben & David cover the creation of the gaming world’s equivalent of the 70’s rock supergroup: the 2008 merger of Blizzard and Activision. We tell the story from the Blizzard perspective, tracing the history of one of the most innovative companies in the business from humble beginnings at the hands of UCLA undergrads, to surviving multiple acquisition rollups (including at one point being owned by the French national water company), to joining ultimately with Activision to form the largest gaming company in the world, all while inventing multiple game genres that define the industry as we know it today. Sponsors:ServiceNow: https://bit.ly/acqsnaiagentsHuntress: https://bit.ly/acqhuntressVanta: https://bit.ly/acquiredvantaMore Acquired!:Get email updates with hints on next episode and follow-ups from recent episodesJoin the SlackSubscribe to ACQ2Merch Store!Topics covered include: Blizzard’s founding in 1991 as "Silicon & Synapse” by recent UCLA grads Allen Adham, Frank Pearce, and Mike MorhaimeThe team’s first projects making ports for other games, including Battle Chess on the Commodore 64Early success on the Super Nintendo with Rock & Roll Racing and The Lost VikingsOrigin of the Real-Time Strategy game genre (“RTS”) and Blizzard’s fist mega-hit, Warcraft Blizzard’s crazy corporate ownership changes over the yearsDevelopment of further legendary game franchises like Diablo and Starcraft, along with sequels to Warcraft and the rise of the rise of player moddingEmergence of the Multiplayer Online Battle Arena genre (“MOBA”) from the Warcraft III modding community, and its growth into one of the biggest sectors in the games and esports industries todayBlizzard’s role in developing the concept of online gaming, from early hacks to play against friends to World of Warcraft and Massively Multiplayer Online Role-Playing Games (“MMORPG’s”)The 2008 merger with storied gaming company Activision Growth and success since the merger, including the launch of new game franchises Hearthstone, Heroes of the Storm and Overwatch  The Carve Out: Ben:  Dick Costolo on Vanity Fair’s  Inside the Hive  podcastDavid: Nellie and Joe's 100% Natural Key Lime Juice (tip:  buy in bulk from Walmart/Jet)

We're getting professional actors on here. I know. The human torch was denied a bank loan. Welcome back to episode 40 of Acquired, a podcast about technology acquisitions and IPOs. I'm Ben Gilbert. I'm David Rosenthal. And we are your hosts. Today we are covering the 2008 merger of Activision and Vivendi Games, the parent company of Blizzard Entertainment.

We've got a pretty wild episode because these companies have had a crazy history it's got a lot of ins, a lot of outs, a lot of what have yous and it's really been kind of a winding path there's a lot of confusing names so we will try and demystify the winding river that is Blizzard Activision Yeah, you'd think that if you look at this merger happened between these two huge game companies Blizzard and Activision. Probably Blizzard was another public company.

Activision had a normal path there, you'd think, maybe IPO'd at some point. Nope. Turns out that they had been subsequently owned by the publishers of the Math Blaster software. Remember that, Ben? Oh, yeah. Back in the day, the holding company that owned Ramada and Days Inn hotels in the U.S. And then one of the French national water companies created by Napoleon III during the Second Empire in France.

We'll get into it on the show. We will. This is going to be fun. Indeed. Okay, listeners. Now is a great time to tell you about longtime friend of the show, ServiceNow. Yes, as you know, ServiceNow is the AI platform for business transformation, and they have some new news to share. ServiceNow is introducing AI agents. So only the ServiceNow

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and they continuously improve, handling the busy work across your business so that your teams can actually focus on what truly matters. Ultimately, ServiceNow and Agentic AI is the way to deploy AI across every corner of your enterprise. They boost productivity for employees, enrich customer experiences, and make work better for everyone. Yep. So learn how you can put AI agents to work for your people by clicking the link in the show notes or going to servicenow.com slash AI dash agents. All right, David, you ready to dive in? Let's do it as always. So we're going to tell the history of Blizzard, the Blizzard entertainment side of Activision Blizzard, mostly because we think there's kind of more interesting stuff, both from tech themes going on in that regard. And the story, as I alluded to earlier, is just crazy.

Yet another example of you can't make this stuff up. So Blizzard was started initially as a company called Silicon and Synapse by three college friends from UCLA right after they graduated in 1991. And they had all studied computer science together. Alan Adam, Frank Pierce, and Mike Morhaime. And they love video games, and they wanted to get into the scene. And they decided, hey, rather than working for someone else, this industry is young, let's start a company. And so they did. And they started out at first not actually making their own games, because they just graduated from college. They didn't really know what they were doing. They started porting other people's games from

platform to platform. So like one of the big titles that they ported was Battle Chess. I kind of vaguely remember this. And they ported that version onto the Commodore 64. And that both let them make some money as a baby startup, but also got them experience with game development. And they got kind of access to these code bases of what games look like. So they did that for a little while. And then in 1992, the next year, they sort of got some confidence in themselves and said, Okay, it's time to make our own games. And so they did the I believe the first title they released was rock and roll racing for the Super Nintendo that came out in 1992, followed quickly by the Lost Vikings. And I remember these titles. And this is where Blizzard sort of really starts to develop its personality

and these guys like they are quirky dudes. And rock and roll racing i believe was the first video game at least the first console game to feature like actual you know music like licensed music in the game and it was a racing game and had cars with like you know lasers on them and uh rocket boosters and kind of like fun stuff uh and um then lost vikings i, I believe the plot of this was that three Vikings like from, you know, ancient Norse mythology get kidnapped by like an alien space pirate and they have to escape. And both of them are incredibly successful and they win a bunch of awards and really establish this tiny little game studio down in Southern California as a premier game developer in the early 90s. Yeah, you know, early innings of computer gaming, sort of after the original

console wars, but you know, long, long way before the eSports crazy MMORPG world we live in today. Yeah, a shadow of what would be to come. But this is where gaming was at in the early 90s. And Super Nintendo, that was the big, big platform. Another thing happens in 1992, though, that ends up having a big impact on the future Blizzard. And that is that another game developer called Westwood Studios releases a title for the PC called Dune 2, which is based on Frank Herbert's classic sci-fi novels, the Dune series, which are awesome, by the way. And Dune 2, the game, I don't think becomes super, super popular, but it's the first real-time strategy game, first kind of top-down perspective, resource management strategy game that comes out.

And it's actually the predecessor, Westwood, the studio that developed it, they would go on to develop the Command & Conquer franchise, which I totally remember playing too. It's sort of a more modern military-themed sort of competitor to what Blizzard would ultimately develop, which is Warcraft and Starcraft. Yeah, and for listeners, we should demystify some of the acronyms. A real-time strategy game is commonly known in the gaming industry as RTSs. And the phrase that I mentioned earlier, these MMORPGs, are born out of RPGs, which are role-playing games, and the MMO is Massive Multiplayer Online.

Yep, so we will get to the MMO in a second. But so that was 1992. Dune 2 comes out and the Blizzard guys, they're fans of it. They start playing it and say, hey, we should we like this, we've got some ideas, we can do an RTS, real-time strategy game

of our own. But before that comes out and that would end up being Warcraft, the first Warcraft, they in 1994 go through a couple things well first they changed the name not to blizzard but to chaos studios which is what they want to be known as uh but then it turns out that uh there's already another company that has another software developer that has chaos studios so they have to change again and they settle on reluctantly blizzard um And they had actually changed,

did that second name change after they got acquired. So the first time that they get acquired is by a company called Davidson and Associates. Acquires them for $10 million, which is huge for these kids are at this point three years, I think, out of college. David, it really feels like you never want to be acquired by an Ant Associates. Yeah, seriously. They get acquired for $10 million. Just a little future preview, Activision Blizzard, of which they're in the title,

more than half the company's revenues, trades at a $44 billion market cap today. But these guys, Davidson and Associates, they are the publishers of the math blaster educational software which I totally remember playing on my really early PC in my room growing up in elementary school that my parents bought for me

I was like oh it's educational that must be okay for kids but this was mid 90s the internet and the tech bubble was just starting to form. And this was but the start of a whole chain of crazy, totally nuts 90s stock deals that end up happening, which we'll get into in a minute, that result in the crazy ownership that we talked about earlier. But before that, later in 1994, Warcraft comes out. And this is the first huge, huge hit that Blizzard has on their hands. Unfortunately, they kind of sold the company at the wrong time because they sold it before it comes out.

But Warcraft was really the first game that popularized this real-time strategy genre among pc gamers becomes a huge hit you can can play against the computer on your own which lots of people did but it also had multiplayer over LAN so if you had LAN parties and you could local area network it is sort of like precursor to the local uh networking not on the internet uh you could play against other people who brought their own computers over, but you could also, through some third-party software, hack to, and I remember doing this

with the original Xbox, too. You could hack the multiplayer so that you could play online against other people who weren't physically there with you. Oh, is that before the Xbox Live-style thing? Yes, this is before. You could trick it into thinking the WAN was a LAN. Yeah, somebody out there on the WAN over the internet.

You could trick the console, or the PC in this case, or Warcraft, into thinking that they were there on your local area network. It's so hacky. But these were the links people were willing to go to to play games against one another back in the day. This is before xbox live before battle.net that blizzard would ultimately release these are desktop computers right like it's not

like i mean i thought it was cumbersome enough bringing a uh you know little tv and uh xbox i think it was it wasn't the 360 yet playing halo 2 and and having yeah yeah it's like it was cumbersome enough to bring the console, but a whole freaking tower. I remember even in college people doing this. The internet was definitely around by then, so I don't understand why people did. Lugging their desktops from one another's rooms all together into a common room to wire them up. I guess maybe to have lower latency.

Totally still happens. But yeah, Warcraft was one of the first games to really popularize this happening. So that's a big success. And then Davidson, the parent company, says, okay, great, we'll give you a bunch more resources. They work on the sequel, Warcraft 2, and that comes out in 1995, late 1995 and that becomes even a bigger hit and this is

the first time that it starts to like really strive the mainstream into getting into PC games and I remember buying this you know at like either CompUSA or Best Buy back in the day because as we talked about on the Sound Jam episode you used to have to buy software in a store in a box and games were no exception. You used to have to actually pay for games to buy them rather than get nickel and dimed along the way later. Yeah, I don't know what was better. Well, we'll get into this in a little bit

with Blizzard's kind of come full circle now with Overwatch. But Warcraft 2 Tides of Darkness comes out and that includes sort of more robust multiplayer. You still have to use a third party tool to connect with people over WAN over the internet instead of on a local area network. But the tools are more robust and they can actually do matchmaking. So you can play against people you don't know, but who also want to play. But the bigger thing that Warcraft 2 comes with for the first time is a map editor so now all these you know many millions of fans of warcraft some portion of them that like it so much they can design their own maps for the game their own

levels for and then release them on the internet for other people to play and we'll see in a little bit this comes back and actually spawns a whole new industry. But this is a major, major innovation. You're talking about with the Warcraft 3 mods? Yeah, foreshadowing Warcraft 3 mods. That comes a little later. But Warcraft 2 is the first game that isn't just, there's sort of three aspects to it. There's the solo single player campaign. You can play against the computer.

You can play against your friends over a local area network or online. But also, if you want to go even deeper into it, you can actually get in and start mucking around with the game itself and the maps and making your own versions of it and then releasing them. And that spawns, you know, a whole big community of modding as it comes to be called. So later in the year, back to the corporate drama, in 1996, Davidson, the owner of Blizzard at this point, gets acquired by this early kind of internet conglomerate that had acquired a whole bunch of companies called CUC International. And they buy Davidson and Sierra Online, which was another video game publisher, for about $1.5 billion, all in inflated internet company stock. So a huge portion of that, obviously there are lots

of assets within these conglomerates, but Blizzard Entertainment is kind of one of the crown jewels of Davidson at this point. And so we'll see there's yet more drama to come. But Blizzard, they're still hard at work. They kind of are cranking through this despite the ownership changes. In 1996, they actually contract for the first time with a third-party studio up in Northern California called Condor Games. And they contract them to make a game that they end up calling Diablo. And Diablo, even before it comes out, the Blizzard guys love this game so much that they go to Davidson and CUC now and they ask for resources and they just acquire Condor outright and say, this needs to be part of Blizzard. This is going to be one of our core

franchises. And so later in 1997, Diablo comes out and just like Warcraft kind of took the real time strategy genre and popularized it for millions and millions of gamers, Diablo does that for the quote-unquote dungeon crawler genre. So this is sort of like the action RPG or role-playing game. And this had always been like a cornerstone of gamer and nerd culture. I mean, I remember playing the Japanese RPGs like Final Fantasy and stuff on Nintendo and Super Nintendo growing up. Yeah. So David, does that come out of like the physical RPG culture, like Dungeons and Dragons? Yep. Very much. I see. Yeah. That makes sense.

Very much. And this is like, you know, I'd say Diablo is the first or one of the first, you know, sort of, this has always been, like I said, a cornerstone of nerd and gamer culture, but to make it just like an insanely addictive experience. And one of the key innovations to Diablo is it's kind of infinite. Like most RPGs before that, you'd play them, you'd get to the end, you'd beat the boss, you'd save the world, and then the game's over. But with Diablo, it had this like insanely addictive leveling up system, and not just leveling system, but equipment system. So as you were playing through the game, you know, you'd find swords and armor and stuff. And there were all these levels of equipment and it kind of became like a treasure hunt. And so even after you'd beaten the game and you could play online with other people too, you could then acquire and find more and better

equipment and then you could trade it with people online. So this whole sort of economy started to emerge on the internet around Diablo. Yeah, and for listeners, like, it's kind of crazy thinking that before that, games were completely finite. Like, we now know about, you know, World of Warcraft and these games that, you know, you can sort of play indefinitely and have not only a sort of infinite feeling experience for you but also an infinite feeling experience for everyone else and you can you know work collaboratively on you know teaming up to accomplish goals and just didn't exist until yeah and this is you know just as sort of unintentionally warcraft popularized this idea of like playing against your friends and even people you don't know on the internet diablo is one of the first games that popularizes, like I said,

this economy. It's, you know, you want to play with and you can battle other people on the internet. But the bigger thing becomes this, you know, sort of trading of items and kind of taking a lot of sort of real world dynamics and they're just starting to get recreated in a game online. Yeah, pretty cool. So on the technical side, Blizzard had obviously been observing all that had been going on with Warcraft, and they built their own and all the third-party tools that were enabling people to play against one another online.

They built their own service called Battle.net, which is still a huge part of Blizzard today. All their games run on it. That is the Xbox Live version. It's their way of owning and controlling how people play online against one another. And it also becomes a pretty huge revenue generator for them. First, as they sell advertising on the service for other games, for their own games,

for other publishers' games. But then they also start to monetize it later with World of Warcraft, which we'll get into. Monetize it directly in a minute. Yeah, this really foreshadowed later with World of Warcraft, which we'll get into, monetize it directly in a minute. they basically can take a cut of every game that gets pumped out and control distribution because you know everyone already has steam installed and that's where they go to browse games and that screen real estate's incredibly valuable battle and that's the same way xbox live really controlling the entire all the api surface underneath all the games for you know a lot of the player management and matchmaking and all that really like paving the way for these other um other companies that would come later for what their product and business model looked like.

So that was 1997. And then 1998, things start to really snowball here, both on the momentum for Blizzard and their games and all these innovations that they're driving, and on the internet tech bubble era here. So first thing that happens at the very end of 97, CUC, the new parent company, merges with another holding company called HFS.

And so CUC, which was the current parent company, merges with another holding company, internet holding company, called HFS. And this is the company that owned the Ramada and Howard Johnson and Days Inn and all these like random hotel assets. The company gets renamed Sendent. And let's put a pin in that for a sec. We're going to come right back to it. Immediately after that, Blizzard releases their next big title, which is StarCraft. And StarCraft just takes everything that we talked about with

Warcraft and the success they'd had there and Diablo and starting to grow the whole gamer genre and bring more people into it. And StarCraft just like blows past all of that and takes this right into the mainstream. StarCraft becomes the biggest selling game of 1998 anywhere on any platform, console, PC, what have you, sells one and a half million copies right out of the gate. It's basically Warcraft. It's a real-time strategy game like we talked about, but it's evolved. So the graphics are better. They have a sort of isometric view, which is sort of like a quasi 3D. It's kind of a three quarters view down onto the battlefield instead of just a straight top down. They have three character races, classes you can play as. So it's really balanced and it's super, super deep. And so this comes out and people love it so much and it's all around the world. And actually,

randomly in South Korea over its lifetime, it sells 1 million copies in South Korea. There are only like 50 million people that live in South Koreaorea so and this is crazy important like this is the beginning of what we really see today in the esports world like you have nearly a third of the people who are watching esports in south korea it is the world epicenter for this there is the um um the south korean government has rules and regulations around these live tournaments. It's a part of the public fiber of the country. That's what we're getting to. This is the birth of, which is now being ironically

re-exported back to the US and the rest of the world with what's happening in esports now. But this is the moment that's the birth of esports and it becomes so popular in this relatively tiny country of South Korea that television channels get devoted to showing StarCraft tournaments. People start quitting their jobs and playing StarCraft professionally. There are all these what otherwise would be called internet cafes that pop up all around the country that are called PC bangs. And they're just dedicated to their rows and rows of computers. And you go there and you log in and you play Starcraft. And I've been to South Korea,

it's a it's a really cool place. And, you know, our listeners that have been as well, you know, will be well familiar with this. And it's just one of the most surreal things you can imagine. And I went in 2013. So what's that like, you you know 15 years after it came out and it's still just as popular crazy totally crazy um so that happens blizzard is now enormous and at the same time i mentioned that the parent company had just been rolled into this third holding company send in it turns out that they were cooking the books on their accounting they were a public company and like total Enron style. They are basically the Enron of the tech sector.

And the company totally implodes. They were falsifying revenue and earnings and just making up all sorts of stuff. And as a result of that, they end up divesting all their assets. And they sell all of their games division to a French publishing company called Havas. And then Havas turns around, this is still 1998, and gets acquired by another French conglomerate called Vivendi, which started in 1853 as the Compagnie Générale des Eaux, the National General Company of Water,

by imperial decree of Napoleon III. And it was like, controlled all of the water utilities imperial decree of napoleon the third and it was like controlled all of the water utilities in you know most of france god it is great david that you just spent all that time and i know it's perfect really doing wonders for our literally preparing for this show and here like this is an unbelievable company history of just conglomerate to conglomerate handing it off rolling it in spinning it out as a. And to really put the cake topper on it, I didn't even realize this when I was doing the research because it seems so out of left field. But the next thing that Vivendi did after they bought Havas was actually buy Seagram's.

Like the gin. You know Seagram's, like the beverage company. Which itself owned Universal Studios. Yes, that's the best fact I've found. Amazing. This was a super personal throwback for me doing this and really fun because it was a few years later but it was right before the Activision and Blizzard merger happened.

Right out of college, my first job was doing media investment banking on Wall Street. All these bankers were running around covering and going and talking to Vivendi, this French conglomerate, which owned Universal Studios, which made movies, obviously, and Blizzard, which was huge. And trying to advise on these deals that were all happening. And obviously, it ended up happening with Activision. But so funny. Yeah, yeah, it's funny.

When I was reading through this, like listeners, we were deciding whether or not we were going to sort of like do this part of the show where we talk about they bought this and then they bought that and then they bought that because it's almost like that part of the, like for anybody who's read like the Old Testament, you skip over those parts that are like, so-and-so begat so-and-so begat so-and-so begat so-and-so

and you're like, yeah, yeah, yeah, yeah. But it's important to understand sort of the foundation of they'd been incredibly, like the narrative to take away here is that incredibly Blizzard as a group of people creating these games stayed brilliantly creative and innovative and were able to spot what that next big thing was and either go after it themselves or sort of buy it. And not even so much on the distribution side, but as the developer studio over and over and over again through all this corporate turnover.

It's pretty incredible. And really a testament to both the creativity and just the pure sort of IP and franchise value of these franchises, Warcraft, Starcraft, Diablo, and then later Hearthstone and Overwatch, that Blizzard has created. But also, exactly what you were saying, these guys are really not just best at spotting waves that are coming, in terms of tech waves relevant to the gaming world, but they're actually generating waves.

They're executing on it. Yeah, yeah, yeah. Absolutely. And it's worth, at this point, mentioning to listeners, David and I were talking about this before the show, that the way the games world works is very similar to the way that the movie world works. And I think it sort of borrowed the same playbook when people realized how many analogs there were as the industry was growing up. But there are really publishers who are responsible for marketing, distribution, in the old days, physically printing the discs and capitalizing projects.

And then there's developers who are kind of the studios that actually often initially have the creative insight themselves, build the games. And like the movie industry, sometimes these are smashed together in one where you have somebody doing their own kind of creative work and development and distribution. And sometimes they're sort of separate. And the way you can think of Blizzard is, a lot of their genius really is in all of the games that they are able to develop in-house themselves, and they do, or historically did, some of their own distribution.

And the way that, we haven't really talked about it yet, but you can think of Activision is primarily as sort of that distributor, publisher, and capital source to fund these games. So we'll kind of accelerate here getting to the merger with Activision. But along the way, a couple big things happened for Blizzard.

First, Warcraft 3 comes out in 2002. And this is, when I alluded to earlier, sort of the map editor that came with Warcraft 2, allowing gamers to make their own versions of the game. It was the version, the campaign editor that came with Warcraft 3 was even more robust. And you could really have sort of full control over the experience. And it shipped just right with the game. Anybody could do this.

And so people started making even more mods. It got really a robust community for Warcraft 3. And this one guy. Yeah, david i'm going to stop you real quick and say why don't i propose what if i were to build like a warcraft 3 mod that um like you can have a base sort of the lower left hand corner and i'll make a base for me in the top right hand corner and rather than you know the traditional map that we're going to play on build buildings yeah like why don't no no how about we just play sort of like a capture the flag style thing

where we just try and go after and blow up each other's bases. Oh man, that'd be super cool. And because, Ben, you have the campaign editor that's just bundled in with Warcraft 3, you can just do that. Isn't that really cool? Yeah.

Do you think I could invite other people and sort of get them to play it with me and kind of give it my own name and branding and all that? Yeah, and maybe you could call it Defense of the Ancients. And then maybe it would get really popular and people would call it just Dota. It's acronym D-O-T-A. And then maybe it would just like transform the whole industry. And David, it kind of feels like you Blizzard feels like you should have maybe maintained a little bit more control over that. Well, it that way so blizzard you know they really mean it when they're giving everybody control

and so you know everything we just described of course did happen and in 2003 a member of the mod community named eel uh i may be pronouncing that wrong e-u-l he creates a mod a map uh that he calls defense of the ancients and it is the multiplayer online battle arena genre which is now if not the biggest one of the biggest portions of the whole gaming industry i mean this is the roots of league of legends of dota 2 of heroes of the storm which blizzard does itself um and it all just starts in the mod community yep um it is over 50 percent between league of legends and Dota 2. And for listeners out there, if you've heard people throw around these games,

but you're not a gamer yourself, if you ever want to Google a screenshot of League of Legends and a screenshot of Dota 2 and look at it, you're going to be like, your mind's going to be blown by that. These are number one, separate games. Number two, made by two completely different companies. You look at these and you feel like they're indistinguishable.

And then obviously you play them and you start to understand the differences. But it is just mind-blowing to me that the format was so popular and yet the way that it all played out, it didn't consolidate on one single game. Number three, you're mind will be blown by Blizzard has no involvement with either League of Legends or dota 2 but they really mean it i mean it was the ip that these people you know created and neither of them are the actual ip of defense of the ancients the first initial mod there's a long and very

fascinating history that you can look at some really great reddit threads for about this but the short story of what sort of happened here is Dota got really popular. It was a Warcraft 3 mod. It was Blizzard's IP. People wanted to build a second Dota and started to build what became Dota 2. Actually, I'm not sure if I'm getting my timeline right, but somewhere along the lines there, some people sort of spun out and decided that they wanted to start creating their own Dota-like game, but that sort of didn't have a lot of what they believed to be the flaws of Dota. And so they started creating League of Legends, and that ended up founding the company Riot. Yep.

Well, we'll come back to all of that in a little bit. But super interesting. I mean, this is all starting in 2003. And Blizzard is completely not focused on it. They're focused on what comes out in 2004, which is World of Warcraft, which is just another and again, it's kind of mind blowing, like so many huge waves in the gaming industry all come out of Blizzard. World of Warcraft, there had been MMOs, quote unquotequote massively multiplayer online RPGs, MMORPGs, before World of Warcraft. But this becomes just an enormous phenomenon. And it comes out in 2004 and grows over time to over 12 million monthly subscribers that are playing World of Warcraft. And so to play, it also revolutionizes

the business model of the game industry. It's actually a subscription fee to play this game online. You pay between $12 to $15 a month. So at its peak, when it had over 12 million subscribers, Blizzard was making over $1 billion a year. Every year, recurring, just from this game. And the company basically goes on to full-on all World of Warcraft support mode. They don't release any other games until 2010.

They're just running this one game. It's the best business model innovation to happen in games since games. And they largely had it all to themselves. I mean, this was a time when, yes, they had the business model innovation, but you want to talk about value creation, value capture. They were capturing all of it. And while they were working hard on both supporting the servers

to keep this game going and releasing new content that they were making at Blizzard for the game, it really was a community. The reason people played and the reason they kept coming back year after year after year wasn't the content that Blizzard was putting out, it was the other people in the game and this community. And so it really was brilliant that all this money they were making, of course they were investing to keep the game running, essentially, but the content and the experiences

were coming from other people who were playing the game. Totally wild. So this is all the backdrop to the merger that happens, gets announced in December 2007, which is that Vivendi, the parent company, the French conglomerate, the water company, announced... I still can't get over this. The water company. The French water company, no less.

No offense to France, of course. I love France. But they announced that they are doing a deal with Activision, which is a large publicly traded video game publisher, that they are going to contribute, merge their games division, of which the vast majority is Blizzard, into Activision, value it at $8.1 billion. And then the total new combined company will be valued at $18.9 billion.

So assigning a close to $11 billion value to Activision, which is a 31% premium to where they've been trading. And that combined, Vivendi is also going to invest close to $2 billion in cash into the combined company, and then also fund a share offer. There's just so much corporate transaction history around this company. It's mind-numbing even to myself to say it. The net result of which is that Vivendi is going to own 63% of this combined company, and the other 37% is going to trade in the public markets. So this makes the structure more complicated, not simpler.

It's worth pausing for a minute. So listeners, we've covered a ton about Blizzard. We're not going to do the history and facts of of um activision but it's worth you know addressing real quick who are these activision guys and uh and you know you know why are they worth approximately um what did we decide 11 billion dollars so activision is a long time uh video game publisher conglomerate they own some some studios. The Guitar Hero Games, they publish those, all those cheap pieces of plastic you bought in the mid-2000s. Call of Duty, Crash Bandicoot, Skylanders, which your kids probably play with now, Tony Hawk, all this stuff. Activision's run by a guy named Bobby Kotek, who's been

I believe he actually bought the company himself in the super early days of the gaming industry in the 80s or 90s. And he'd been CEO forever and is just a total grizzled veteran. Yep, exactly. And he's known to be passionate, ruthless, true capitalist. Someone that a lot of these articles described him as the guy that gamers love to hate. He is a capitalist amongst the idealists of the video game industry. And in fact, Activision, they're really, they're quite old for this industry.

They were founded in 1979. They're the first video game publisher, and they're the first people to publish games for video game platforms that are not the platform themselves. So, you know, Nintendo obviously made Mario and Super Mario. The Activision you can think of as sort of the first third party game developer to ever exist. So much business model. Sorry, third party game publisher.

And it's worth noting that all those franchises that we listed off earlier have not one, but each one with a variety of development studios that activision worked with to create those games and create all the sequels for those games so all right let's uh let's bring this on home i'm i'm exhausted already um so when the merger happens blizzard is projecting in 2007 1.1 billion dollars revenue, $520 million of operating profit. Um, they have about 10 million subscribers on World of Warcraft at that point. Since then, a bunch of stuff happens. They released Starcraft two, they released Diablo three, they released Hearthstone, uh, which is basically a, um, a video game online version of magic, the gathering, which I probably lost a

year of my life being addicted to and went through rehab and I'm out of it now. No, David, no, it's not. It's completely different. Why would you say such a thing? That's not... Yeah, right. Everybody respects IP in the video game world or not. Right, right. Well, it's an interesting point. I mean, we'll talk about this in tech themes later, but listeners, Hearthstone is basically using a lot of the very same game mechanics from Magic the Gathering, but doing what Blizzard does best in a very Disney-like way with their IP, and that's let people play a new game with the existing World of Warcraft characters that they know and love. And when you think about the incredible complexity in building a game like World of Warcraft

and the, I think it's only like a 15 or 20 person, or initially it was like a 15 or 20 person development team that just built Hearthstone and Unity. Like they have incredibly high margins on what are effectively the de minimis costs of creating a game like Hearthstone. The Disney parallels are apt here. We'll come back to that in a minute.

So 2013, Activision Blizzard ends up buying back most of the stake, the 63% stake that Vivendi owned in it. They raise external capital, including from Tencent, which owns Riot Games, which makes League of Legends now. Interesting. So wait, Tencent wholly owns Riot Games? I believe they own the majority of Riot Games at this point. Not 100%. But then also have a minority share here in Blizzard Activision. Yes, they do.

And net result of a few of those buybacks is Vivendi now owns just under 6%, and 94-ish percent of Activision Blizzard is a publicly traded company. No investment advice on this show, but if you want to invest in a publicly traded gaming company, there are basically two. There's Electronic Arts, there's Activision Blizzard. They are the main, you know, pure play gaming companies out there. Yeah. And this is pretty interesting to make a point on. So, you know, I don't want to take us too far forward. But as a quick flash forward, you know,

esports is enormous today. There's over 300 million people a year that can watch other people play video games competitively. Investors are often trying to figure out how to make bets in this space. And EA is not a major player in esports. Riot Games is privately held, mostly by Tencent. Valve is privately held, incredibly tight-lipped, and their own very special company. Really, the only way that public company investors can really bet on this wave is through Blizzard Activision. I think it's all because of Blizzard being part of the company.

Activision itself would never, I think, have innovated on this level of stuff. Blizzard finally gets in the act on MOBAs itself, the League of Legends style, Dota style games. They released Heroes of the Storm in 2015, which gets some market share, but is still less than Dota, Dota 2, and League of Legends. But in January, two things happened in 2016. First, Activision Blizzard acquires Major League Gaming, which Ben probably knows more about than me, but is sort of a play at another level into esports at the actual kind of league. Right. It's basically making the bet that competitive video gaming is going to start

to look more and more like real sports and starting to kind of vertically integrate there and not just owning the IP of the game itself, but start to own some of the kind of league structure and broadcast of the games as well. And the second thing that they do in 2016 is they release a totally new franchise called Overwatch. And Overwatch is also... Yeah, David, have you played Overwatch? I'm scared. This stuff is like, we should put a warning label on this episode. Like, this stuff is like opioids. It is like, if you start playing this stuff, you will get addicted. It is designed to addict you, and you will spiral into a vortex.

So use with caution. And more and more so now, unlike the old days where they were wholly optimized for the playing experience, these games are starting to be optimized for the viewing experience as well. So games that are starting to come out now are, you know, not only fun to play, but are optimized for, you know, basically the top of the funnel, like how can we get people to enjoy watching this as a competitive sport so that they'll eventually on Twitch and YouTube and elsewhere. Yep, exactly. And so Overwatch for our listeners out there is very intentionally designed to be like

a love child of a MOBA but from a first-person shooter perspective yep so everything that is Halo meets League of Legends exactly so you're on that very same arena style battlefield that is a very capture the flag mechanic to it but you the camera is mounted as a sort of first-person shooter and you are on the ground and it has the best of both games. So it is a very intentional attempt to capitalize on everything that's going on in the esports world today. And not just an attempt, like a success. Like it comes out in May of last year of 2016, gets 7 million players in the first week, 25 million players by the end of 2016. And now it's over 30 million players and already over a billion in revenue. And what's super interesting about that is Blizzard made, I would love to,

I wish I knew more about the industry and the history of how this decision got made. They sort of go with a hybrid business model for Overwatch. So League of Legends and Dota 2 and the other MOBAs are completely free to play. You can log on, you can play them, you can compete at a level playing field with everyone else without paying a dime. But if you want to get special sort of aesthetic items for your character or special characters or whatnot, you have to pay money to get those sort of add-ons. They don't really affect your skill at the game, but they look cool. And that's been a hugely successful business model. I mean, again, billions of dollars of money made from these things just from sort of, you know, aesthetic

add-ons. But Overwatch, Blizzard decides to actually go back to their roots and charge money for the game. So if you want to play Overwatch, you got to pay either $40 or $60, depending on the version you want, to buy the game. But then they also have sort of Diablo inspired. They have loot boxes that you can buy that contain items that you can essentially sort of also Magic the Gathering as sort of like, you know, booster packs you can buy for your for your characters. And so they make money on that too. And yeah, totally. It's incredible to watch everybody sort of steal from each other's mechanics here. And what's old is new again. And people sort of reinventing that over and over again. And David, as you were saying that

Overwatch has been phenomenally successful, I pulled up some stats that are worth mentioning, and there's a couple observations out of them. The first one is that there's incredible staying power in what people care about. So in the very same way that baseball is the American pastime, and even though attention is waning on it a little bit, it's still like a huge fiber of what people grew up with. You have this in esports as well. And so even though Overwatch has sold quite well, they're really only 1.9% of the monthly esports hours viewed on Twitch, which incredibly is exactly the same percentage as Starcraft 2. Like that is an old, old game that is still highly revered in...

Seven years old at this point. Yeah, everywhere, but still a lot in South Korea. And if you look at the two biggest games, we were mentioning these MOBA style games, seven-year-old League of Legends still commands 23.3% of the viewing hours and and dota 2 has 32.2 percent and it's like the you know there's these these newer games that are coming out that are really tuned to take advantage of this wave but what it still has the majority of the attention share and it's unclear if this will wane in the future or not is uh is these games that people have sort of been playing for a while well Well, I think this is, we'll get into this more in tech themes, but starting really with the modding community for Warcraft 2 and Starcraft

and Warcraft 3, and then especially with World of Warcraft, Blizzard really brought this new approach to the video game market where it's not about just publishing a piece of software, people buying it, and then that being the end. It's that these games grow and get bigger and more in-depth and make more money over time. And really brought very startup company-like business models to the game space. Yep. And actually, to make another parallel to the movie industry, these games, when they come out, are making as much money as movies are when they come out. But they have an incredible tail of the ability to continue making money. these games when they come out are making as much money as movies are when they come out but they

have an incredible tale of the ability to continue making money so like a star wars comes out and it'll be i forget if that was like a billion dollars or two billion dollars or you know something huge and then you know it's only in theaters for so long but for example like uh 2013 blizzard activision released call of duty ghosts and on the first day sold a billion dollars into retail. That's insane. It's for a video game and then they continue to make money on it for quite a bit of time after that. Yeah. So to wrap it up, at year end 2016, at the end of last year, Blizzard, just Blizzard within Activision Blizzard, did $2.4 billion in revenue, which, by the way, was up from $1.6 billion in 2015. So the growth is insane.

The growth on that huge number is insane. Yep, did over a billion dollars in operating income. And this just blew my mind. So combined between Activision properties like Call of Duty and the like, and Blizzard, and also Skylanders within Activision, in 2016, consumers spent approximately, this is a quote from their earnings release, 43 billion hours playing and watching Activision Blizzard content, which is on par with Netflix, and over one and a half times the amount of time that people spent in Snapchat.

So like, Acquired listeners, if you think that this episode is like, man, this is a lot of crazy games company stuff, this is small fry, why is Acquired covering this? Nope, this company had one and a half times the total attention of Snapchat last year. And it's distributed in such a different way. When you think about Snapchat bragging about, what was it, 20 to 25 minutes a day in Snapchat, it's these short little bursts. When you talk to people that really like to play these games, a lot of the time you'll ask someone if they're a big League of Legends player

and someone will say, no, I only play two or three hours a night. And you're like, what? And then you talk to the people and they're like, yeah, I'm really into it. I play probably six, eight hours a day. Yeah, well then you have professionals that literally, it's their job. It is crazy. It makes Facebook look like, you know, some app that you, you know, open like, you know, once a month. Yeah, it's true. All right, listeners, our next sponsor is a new friend of the show, Huntress.

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this summer. Yep. So if you want cutting edge cybersecurity solutions backed by a 24-7 team of experts who monitor, investigate, and respond to threats with unmatched precision, head on over to huntress.com slash acquired or click the link in the show notes. Our huge thanks to Huntress. All right, should we move on to category? Yeah, so I'd like to do category a little bit different today. I'd like to do a little bit of discussion for beforehand of sort of like, you know, why did this merger happen? Like, what did they see in each other? And you know, why did Activision sort of make this play to make it happen? Because, you know, Vivendi Games, which Blizzard probably wanted Activision's kind of marketing and distribution. And Activision obviously, you know, looked over and Blizzard

had hit after hit after hit of online games, games that really were, you know, they were not these sort of console games that you'd play through once and be done. I mean, it was, and when I say online games, I mean mean World of Warcraft at that time, where it's just an incredible behemoth that kept going, kept generating revenue at an incredible scale. So it's really trading sort of marketing and distribution in exchange for the ability to do these MMORPGs. Well, and I think not just World of Warcraft,

even though that was very much the focus of Blizzard, maybe this is retrospective history, but I think with all the Blizzard properties, you could see the potential for, because it was already happening in the modding community with Dota, you could see the potential for all of them to be what they've become, which is, you know, monetized over time and things that grow and don't, you know, fade, which, you know, in the knock on the video game industry has always been, oh, it's a hits-driven business. It's like Hollywood, right? And to a certain extent, it still is, in that before a game comes out, you don't really know how well that game is going to do. But with what has happened and this innovation in the industry,

once it has an audience and is working, it doesn't fade, it grows. And that's, I think, what Activision saw. I have to imagine what Activision saw in Blizzard. Yeah, and for Blizzard, it's kind of a hedge, right? It's the ability that, you know, number one, they don't have to pay like a separate entity anymore to actually publish and release their games.

They can sort of do all of that as one entity. But the other thing is that when there's a drought between titles, like if their next title didn't really hit, they have this well-funded, cushy way to smooth out the hits-driven business. Well, and also, like we said earlier in the show, I think it's a huge testament to the creative energies at Blizzard that through all this nutso 90s era ownership changes and ups and downs, they kept making great, they stayed focused on what they did

and made great products. But I got to imagine for them too, they're like, they must've been thrilled to get out from the former French National Water Company and be part of just a games company. Yep, yep, yep. All right, so I'll take a stab at acquisition category and call this a business line.

This is one that Activision was kind of in the business of doing their own game development with some studios in-house, but none nearly as successful as the scale of Blizzard. And really, yeah, there's some synergies in combining, and we can get to that later. But I really think that the big thing they saw here is, holy crap, this is a revenue-generating business line, and the secret sauce within Blizzard allows it to happen overnight. Well, and I think the proof's in the pudding in that if you look at the reporting segments of Activision Blizzard as a public company and their financial results, they report Blizzard as a business line, as a separate segment. So that's true. But I think there is also an element, though, of, I forget what category we assigned to all of our Disney series of acquisitions, but there's definitely a Disney element here, too.

Yeah, it feels like Disney buying Pixar, right? Exactly. It's like these are franchises that there is value both to the core games themselves, but now they're doing movies around these and merch and other, just like the Disney flywheel got created around Disney IP, you know, being Mickey and others over time and all the movies, you know, a similar thing is starting to happen around these franchises at Activision Blizzard. Yeah, absolutely.

All right. What would have happened otherwise? I feel like we talked about that, you know, a little bit just now. And I can't imagine that Blizzard was super happy, you know, being part of Vivendi. And yeah, they would have continued, you know, creating and doing their thing. But seeing all of the, you know, it almost feels like the fruits of the labor that resulted from all the game and product driven innovations throughout the 90s and kind of 2000s are really being harvested now by Activision Blizzard in terms of businesses that they're building on top of them. And that probably

would have been hard within Vivendi. Yeah. And here's the question coming at it from both sides. One on the Blizzard side, you know, would they have produced something like Overwatch without Bobby Kotick? Like would we see, you know, these very aggressive business-first games rather than creative people games? Make no mistake, it is aggressive. They are monetizing both ways. You pay for it up front, and you have microtransactions over time. And they're aggressive about building the ecosystem around it. The buy-in to have an Overwatch team in the Overwatch League, the rumors are that it's like a $20 million buy-in per team.

They're building up this game and the ability to buy a franchise in the competitive world of esports as being the next big thing, and you'd be a fool to miss out, and it's extremely expensive because of that. And I think that what would have happened otherwise, I don't think we would see Overwatch, and I don't think we would see a lot of the character of Blizzard Activision as it is today without that Activision component. Yep, it might be interesting. And again, I don't think I know enough about the industry to really speculate here, but Valve and Riot, Valve obviously does many things within gaming

as we've talked about in episodes past, but with Dota 2 that they control and then Riot with League of Legends, they've become huge companies and so powerful. But had Blizzard not been, you know, kind of put into its own sort of independent gaming focused company with Activision, maybe Valve and Riot would be even more powerful, you know, and Blizzard wouldn't be even part of the picture. Yeah, that's interesting. That's interesting. What do you think Activision would have done if they didn't buy or merge with Blizzard? Because they really missed MOBAs. I mean, they missed this enormous wave. It's almost like Microsoft missing mobile. old paradigm of video games didn't go away either. Activision's great at that. Call of Duty, like you're saying, makes billions of dollars.

But it just makes it in a way that is an inferior business model because you invest hundreds of millions of dollars in creating the content, just like movies, and then you release it and then you monetize it for a window and then it fades. They still would have done fine, but all the growth and the innovation and the better business model that Blizzard has has they would have missed out on yep and then two other things that i want to point out that i think are questions that i don't have answers for and listeners if you

if you know about the video games industry join us at acquired.fm in the slack we would love to hear your answers to these but blizzard activision you know had a as we as we put it at pioneer square labs when we work on something for a long time and don't create a company out of it, a very expensive kill called Titan, where they worked on this game for a long time and it was supposed to be the next big thing. And it was killed. And the question is, in my mind, if it were just Blizzard, would they have believed in it and persevered through it and shipped it anyway? Or would the expensive project have just, would they have continued to pour money onto it and would it have seen the light of day?

I don't know, but I speculate that that has more to do with Activision than Blizzard. And then the other thing I want to point out is the next big thing was also supposed to be Diablo 3, and that was a total flop. And I'd also love to hear. Well, I don't know that it was a flop. I mean, I think it was successful,

but just not to the degree of these other franchises. Yeah, and the stakes are so high now that if you're not like one of these other franchises, you just don't matter. In these businesses that have incredibly high capital requirements and then incredibly high revenues after that. Yep, no doubt. I think it's less well adapted

to the esports and viewing model that these other franchises have been so successful with. It just has less potential. I think Blizzard views Diablo as a core franchise, and it'll be super interesting to see what directions they take it in. I see huge potential. The original Diablo created this idea of an economy around items, and people love trading stuff online. So I see huge potential for that going forward. Great point. Tech themes? Tech themes, oh man, per usual. I think we've covered a lot of them.

I think for me, we've talked about a lot on this show already, but one that I think is super powerful is just this idea of building and then creating, enabling a platform for users of all types of it to then be creative themselves. And if you can execute that well in whatever domain and essentially create a marketplace around what you're doing, but a marketplace where you're enabling

new types of creativity and really entrepreneurialism, that's how you can grow just an enormous ecosystem in any type of business. And so specifically, I'm talking about the modding engine and the campaign and maps editors that Blizzard released. It literally created this industry that is tens of billions of dollars now combined in esports and MOBAs.

I think Apple was like this in a way. The industry that was created around software was really Apple enabling. And then next, in object-oriented programming, enabling people to build things and release it on the platform or iOS or even Square in a way, enabling people to go into business

and be merchants or Stripe. Another big one that we keep touching on is really this concept of sort of the IP flywheel that Blizzard released the Warcraft movie recently. And it'll be interesting to see how well they're able to parlay the IP from these games into physical locations, into cinema, into TV shows, into toys. It's nowhere near the level that Disney is now, but it's an open question to me if the sort of storyline and character development and affinity for these characters that Blizzard Activision and that Riot and, you know, these games are doing for the, you

know, the heroes and characters and champions in these games, if they'll be able to really parlay that the same way that Disney has with, you know, the characters in their universe. Yeah. Well, and you can start to see the pieces falling into place with the Major League Gaming acquisition and the analogies to Disney and all of the assets Disney owns that are part of its flywheel. And I'm thinking in particular of ESPN. The challenge, I think, for Blizzard and Activision Blizzard is they don't own Twitch, right? You know, Amazon owns Twitch and is Twitch the ESPN here, you know, and I think that obviously the dynamics

will be slightly different as it's a different world. But, you know, as we've pointed out throughout the show with as they sort of were late to the game with MOBAs, you know, sort of laid the groundwork for the MOBA genre to emerge, but then didn't participate in it until too late. There are several elements of the flywheel that are missing, that are holes in the chain for Blizzard right now. So it'll be interesting to see, do they continue trying to build them in-house? Do they buy things? I wouldn't be surprised at all to see more acquisitions coming

down the pipeline for Blizzard. Yeah, it's worth noting, listeners, they also bought King, the maker of Candy Crush, for what? Close to $5.9 billion. And so their divisions now, the way they're internally structured, are Activision, Blizzard, Activision Blizzard Studios, which is the movie-making arm, Media Networks, and then King Digital is its own independent subsidiary inside. And so, yeah, to your point, David, I'll be curious to see how those divisions really start

sharing more IP around inside of them. And yeah, it is mind-blowing to me that they are not really participating in the world of mobiles at all. Yeah, the King one is curious. Well, we'll have to do another episode on it at some point. On King, yeah. The quick take, again, not being an expert on the space and not having done the research is it doesn't feel as lasting or transformative or sort of future wave looking as blizzard um you know but anyway another topic for another day yep and i got one more and just keep on coming here we're a hits driven business at acquired Acquired. Yes. I'm going to amend what I... Actually, that's not true. It is not true. And the reason it's not true is really

awesome. The nature of podcasting is that when people subscribe, they're sort of pushed an episode and they have an opportunity to decide if they want to listen or not. But unlike a movie where their relationship with their customer sort of ends by going to the theater and then that person leaving the theater. It's not like Disney has my email address because I went and saw a movie at Regal Cinemas that was created by them. But, you know, listeners of Acquired know that a new episode comes into your podcast feed every time. You don't have to get reacquired as a customer and it really helps keep longevity around. So cool thing about podcasting as an ecosystem. And I think,

David, we're probably due to do a podcasting ecosystem part two here at some point soon. Yeah, we should do a follow up. We should. All right. So the one more that I'm going to amend, I wrote in my notes, the decreasing power of distributors in the internet era. But it's really the changing nature of distribution in the internet era. Because I think that if you look at the power that Activision had historically, and then you look at the power that Activision had historically, and then you look at the power that Blizzard has had more recently, the nature of these studios is that they can kind of do their own distribution once they get scale. Once they establish a customer relationship once and they have a Battle.net, they have a Steam, they don't need to incur a new cost every time of going and

printing a bunch of CDs and then putting them in boxes and then putting them on shelves and getting people to go to the stores. Like they actually, you acquire a customer once and you can retain them for a long time. It really inspires more of an ecosystem view of your customer where you can sort of keep sending new titles to them and figuring out what they would like for really their entire lifetime. And so I look at this like Activision sort of had to make a play into the content world because, you know, if they were not that they were dumb pipes like a Verizon or something, but like the way a lot of people think of Verizon, but not that they were just, you know, dummy distribution, but the importance of what they did changed and they sort of had to adapt their business model and do something different because it almost gets into aggregation theory here where all of video games are not aggregated

into a single place the way that all of information and advertising is starting to get aggregated into Facebook. It's still kind of fractured among multiple game publishers, but you really do see this incredible concentration of power because distribution is done differently now and it becomes winner take most. Yep. Aggregation theory. Hard at work. All right. Should we grade it? Let's do it. All right. So listeners, the way that David and I have never really done a merger before in this way, really a merger of pseudo equals. And so we were talking before the show about the way that we feel we should evaluate this. And I think the framework that we're going to use is the combined enterprise value, like far down the road. So let's say the

2017 combined enterprise value more than the combined enterprise value, or I'm sorry, the separated enterprise value. So put a different way, if they had stayed separate and executed, and, you know, both grew in value versus if they had combined and achieved, dare I say, synergies and were compared against what their actual combined value is today, was it a good idea for them to combine or was it value destructive? And David, we were sort of talking, it's tough to know, it's tough to really identify. They're at $44.9 billion market cap today. They were a $19 billion company upon combining the two companies. They grew over 2x.

And the question is, from 2008 until today, over a 10-year time horizon, would they have 2x'd on their own? And David, what do you think? Yeah, I don't know. This is a tough one. Going through the episode and thinking, I think we've been very laudatory of Blizzard, certainly, and the merger, and we've talked about how, in our expert opinion, it would have been hard

for a lot of this innovation and value capture, really, of that innovation that they realized to happen separately for both companies. On the other hand, though, this merger happened in 2008, so almost 10 years ago, and they've only grown 2x since then. I mean, now 2x on a huge base,

adding $20-plus billion of market cap, that's not easy to do for sure. The years are a little loaded, but what if in 2008 I had put $19 billion into an index fund? Yeah, right. Or $19 billion into Apple or Facebook. You couldn't have done Facebook then.

I'm actually a little surprised that the growth hasn't been larger. I mean, think about it. Like we talked about, this is one and a half times Snapchat in terms of engagement. And Snapchat itself is a $20 billion-ish market cap company. So I don't know. For me, without knowing enough about the ins and outs to understand why that's the case from a valuation perspective, I think just purely from the perspective we usually take here at Acquired,

which is a more operational and product-focused one, I think I give it an A- I'm going to go with, just because I do think it would have been really hard to do this value capture and some of the business model and pricing decisions that they've done around the product innovations separately. But it's an A minus question mark from me, given that I'm just a little puzzled on the finances. Yeah, I've been a little bit stumped too, because I think on an absolute basis, it's been fine.

The growth has been what you would hope for out of a 10-year investment. I think that when... So on an absolute basis, it's not like they did anything revolutionary. But then let's compare it on a relative basis to where they potentially could have ended up otherwise, and then how other competitors were performing. So it is probably worth noting that they're really the biggest sort of gaming company. They became the behemoth in the space. There were competitors that rose up incredibly fast in that time period.

I mean, Riot Games sold to Tencent for a huge amount of money. I mean, estimates were that... Yeah, but sold way too early, though, for not that much money relative to what we're talking about and relative to how big they are today. Exactly. But I'm thinking from a growth perspective, they were started seven years ago. They were started after this transaction. And I feel like Blizzard Activision or Blizzard

let a huge amount of value creation go elsewhere. I think that, sure, there was a lot of goodness created by combining these companies, but I can't believe that... It actually has not been anywhere near a flawless execution. No, no. And I don't know, I'd be more of a bull on, let's say they didn't combine. I would be much more likely to invest in Blizzard

than Activision on their own. I think that the way that the future is going, you look at where the value creation is, it is very much a smiling curve argument. It's the last place to touch consumers or the originator of the content or the IP or the components and very little in the middle. And as primarily capital and distribution.

Twitch or Riot. I'll go with a B-. I think they did great, but our bar on the show is not 2 point whatever X-ing in 10 years. Great point. Okay, so I'm going to revise my grade, and I'm going to take it down to a B plus, partially for the arguments you just made. But also, I do think I'm coming in higher than you because, as I thought about it more, it's only 2X'd in 10 years, but 2xing on $20 billion is really hard. You're talking $20 billion of value creation.

It sounds trivial when you say 2x over 10 years and for us in startups and venture land. But 2xing on that is really, really hard. But at the same time, I completely agree with what you said, which is they have kind of fumbled the ball here in that they could be another 2x or 3x bigger than that. And what we're not considering today is how well positioned they are. So let's say that their bets

are right and that Overwatch is the franchise of the future that becomes the competitive sport that everyone's watching. Teams are paying $20 million for these spots. And that all goes fantastically well. That the flywheel continues. That BlizzCon gets more popular. That the Warcraft movie does phenomenally well. That they're able to create even another franchise. I mean, there's all these things where you could argue they're one of the best, if not the best,

set up for the future. So I guess stay tuned for another episode in three to five years. But yeah, I think we've said our pieces. All right. That was both super fun and exhausting it's fun in the research you know i was doing for this and watching a bunch of videos and reading articles and like all of these pieces are like well here's the corporate history you know go if you want to take a nap like read through all this

and like uh man i get it now having just done it. Like even for by acquired standards, like this stuff is crazy. Yep. Totally agree. What's your carve out? Carve outs. All right. So my carve out is Dick Costolo appearing on a podcast on a vanity fair called Inside the Hive. And it's Twitter's former CEO talks about Trump's midnight tweets. And I love Dick Costolo. Like listening to that guy talk about leadership and management and storytelling and comedy is just so good. And there's a lot of very interesting insights to be gained there about the process of taking your company public, which I'm sure you guys would love listening to. But there's just so much great stuff in there about Dick's experience being in the writer's room for Silicon Valley and

his time at Second City doing improv in Chicago. And, you know, that guy, he's just learned so many great lessons along the years and you get to pick up a lot of really great sort of leadership insights. So highly recommend listening to that podcast. That's awesome. Mine, mine is out of left field today. I have been super busy lately working on a bunch of new stuff, which is exciting. More to come later on that. So I haven't had much time for media consumption or anything, but Jenny and I had our annual summer bash backyard party know, backyard party, uh, last weekend. And the, the cocktail that we served, uh, cause we always have a cocktail at our parties, uh, was mint margaritas. And, and the problem with margaritas for the summer, you know, is they're great, but you need

a bunch of lime juice. And that's like really exhausting if you're making, you know, cocktails for 50 or 60 people, uh people and putting it in a cooler. So thanks to the internet and to Amazon, found Nelly and Joe's 100% Natural Key Lime Juice. This stuff is amazing. It is literally lime juice from 100% natural organic limes in a bottle that you can use in margaritas. And it is perfect. So for your summer cocktails, key pro tip. Yeah, I think we found our next spot. We should reach out after this and let them know the first one's free.

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