Front Burner - Microsoft’s $70B bet on the future of gaming

Episode Date: January 20, 2022

If you've played Call of Duty, World of Warcraft, or even Candy Crush, you're among the 400 million people who play a game from Activision-Blizzard every month. On Tuesday, the company was purchased by Microsoft for $68.7 billion US. It's the biggest tech deal in history, over 15 times what Disney paid for the Star Wars franchise and LucasFilm. And the cost for Microsoft could be more than just cash. Activision-Blizzard has become notorious for allegations of discrimination and abuse. Last year, the company got hit with lawsuits from state and U.S. federal employment watchdogs, over its "frat house" culture. Today on Front Burner, we're talking to Polygon's Nicole Carpenter about how this unprecedented mega-deal will change the gaming landscape as we know it, and how the video game giant itself is trying to outrun its own toxic history.

In the Dragon's Den, a simple pitch can lead to a life-changing connection. Watch new episodes of Dragon's Den free on CBC Gem. Brought to you in part by National Angel Capital Organization, empowering Canada's entrepreneurs through angel investment and industry connections. This is a CBC Podcast. Hi, I'm Jamie Poisson. Call of Duty, World of Warcraft, Candy Crush, Overwatch, Crash Bandicoot, Tony Hawk. If you played any of these games, some of the biggest games in existence,

you're among the almost 400 million people every month who play a game from Activision Blizzard. And you're part of why the company is about to become the biggest tech purchase in history. Ladies and gentlemen, today's news is some of the biggest news in Call of Duty and Activision history. Wow! We got some news to talk about today! Because Activision no longer owns Call of Duty, which is utterly insane to say. Xbox just bought Activision Blizzard. What the living hell is going on? Literally, like, the biggest deal in, like you said, like, gaming history ever.

It's so big, I can't even comprehend it. I can't comprehend Dr. Evil levels of money when you think about $70 billion. On Tuesday, we learned Microsoft is buying Activision Blizzard for $68.7, wait for it, billion dollars US. For context, that's over 15 times what Disney paid for the Star Wars franchise and Lucasfilm. And the cost for Microsoft, it could be more than just cash. In an industry with well-documented misogyny, deadline pressure, and endless overtime, Activision Blizzard has become notorious for allegations of discrimination and abuse. Today on FrontBurner, we're talking to Polygon's Nicole Carpenter

about how this unprecedented mega deal will change the gaming landscape as we know it, and how the video game giant itself is trying to outrun its own toxic legacy. Hi, Nicole. Thank you so much for being here. Hi, thank you so much for having me. So maybe let's start here. What is Microsoft's play here? Why are they interested in acquiring this gaming company? Yeah, it's interesting because Microsoft is already one of the biggest gaming companies that's out there. They're the creator of the Xbox, which is one of the biggest gaming companies that's out there. They're the creator of the Xbox, which is one of the biggest platforms for playing games. So bringing Activision Blizzard in

is securing their lineup of gaming studios. They're having the creators of all these very popular franchises coming in and kind of securing their future in that way. Part of that is the Xbox Game Pass, which is kind of the Netflix for video games. By bringing in this huge slate of gaming franchises, they're kind of securing these as perhaps exclusives that can only be played on Xbox or Windows PC consoles. Right. And this acquisition, it is sort of in Microsoft's playbook, right? I mean, they did this not long ago with this company called Bethesda, which is another gaming company

who published titles like Fallout. And I know I was told how to pronounce this, but Skyrim? Skyrim? Yep, Skyrim. Okay, okay. Can you tell? I don't play a lot of video games. But yes, this is part of their playbook. They did this recently with Besetso, which was a much smaller deal, and have acquired other studios as well, like Mojang, which is the studio that owns Minecraft, and Rare, which is another studio

that's kind of been important for Microsoft in the recent years. Okay. And so, you know, I know that you sort of already touched on this, but if I am a gamer, what does this merger mean for me right now in the immediate future? Does anything change for me? I think in the very immediate future, within the next year or more that the deal is being finalized, not much is going to change. But there is potential for Activision Blizzard Games to come to Xbox Game Pass, the Netflix of games for players. And I think players are very excited about that because that makes games available for no extra cost beyond the subscription service.

And occasionally that means that these games could be exclusives on the Microsoft console and on Windows PC. Gotcha. I wonder if you could give me a sense of the landscape, like where does Microsoft fit now globally? Right. So after this acquisition, Microsoft is in the top three gaming companies by revenue, and the top two are Tencent and Sony. So Microsoft is gaining ground with this acquisition. And that's not to say that they weren't in the playing field before. They've always been huge, and their console has been really, really important for a number of years. Okay. And why are these companies so interested in gaming? Sorry if this is a very obvious question for you. But I mentioned in the intro that Disney's acquisition of Star Wars, it doesn't even come close to this acquisition. Yeah, the numbers are shocking to see. And I think it's because people are starting to realize that video games are more than just some place to waste time or some place to it's become a social space. There are platforms in their own right. And this is where people are hanging out.

This is where people are chatting with their friends. This is where people are meeting in groups, people are going to concerts in games like Fortnite. And, you know, people are building all sorts of buildings in Minecraft and kind of using that space as something much more than just, you know, a place of play. I guess maybe it's worth talking here about the metaverse. Hey, and welcome to Connect. Today, we're going to talk about the metaverse. Back when I started Facebook, that mostly meant... Which is currently more of a concept, I know, but it's supposed to be this place where we have these online identities and literally live online where we go to work or go to concerts where we try and

close and, and it's supposed to incorporate VR and NFTs and all the things and is Microsoft thinking about the metaverse here? Yeah, Microsoft is absolutely thinking about the metaverse. But you're right, it is really right now more of a concept than anything else. And I think that companies are still trying to figure out what the metaverse is going to be. And I think that acquiring video game studios, which have already built these sorts of platforms and digital worlds that people already live in. They're already doing these things. And I think that's why the video game studios are becoming more and more important to companies that are interested in whatever the metaverse is going to be. Right, because obviously video games will play or they're betting on video games playing a really important role in the metaverse. Yeah, and I think it's just because all the things that the metaverse is supposed to be, everything that you mentioned from the concerts to places to work, video games already have those spaces and they're already on smaller scales. They're all little metaverses in a way.

You know, when you mentioned all the time that people are spending on video games and all the time that people are spending on video games and how they're becoming these really important spaces for people in their lives. What kind of money are we talking about here? What kind of revenue did these games bring in for these companies? Oh, it's huge. And I think the scale of the Activision-Blizzard deal really shows that this isn't $12 billion. This is hundreds of billions of dollars that are coming out of the video game industry. of shows just how confident the companies are in that video games are going to contribute to the future of you know tech industry entertainment social spheres

what kind of games do you like to play and why? I am a fan of Halo, which is a game from Microsoft. That's one that I played as a kid, and it's one that I continue to play as an adult because it's always been a social space for me, somewhere for me to get together with my friends online or get together in person. And even my family too, my sister, who is not typically into video games, started chatting with me on Halo, just because she, you know, wanted to be in that space with me. Oh, that's really interesting. Also sounds a lot better than a Zoom call. Yes. So this isn't just a merger of epic proportions.

It also is involving a company that has been plagued with controversy, right, over the last year. And all of this is happening while the company is still in the middle of ongoing litigation and accusations of this really toxic workplace. ...arrived here in this new lawsuit filed by the California Department of Fair Employment and Housing. I wonder if you could take me back to last July when all of this came to light. force, they're subjected to what is described as pervasive frat boy culture. For example, I wonder if you could take me back to last July when all of this came to light. What did we learn? So when the California Department of Fair Employment and Housing lawsuit came about,

the accusations became public of sort of this frat boy culture at Activision Blizzard. The lawsuit itself was focused more, it was focused primarily on Blizzard Entertainment side of things, but it included Activision as well. And it was basically saying that the culture here has been a problem for a long time. Some of what was mentioned was something called cube crawls, which were kind of parties at work where people were encouraged to drink and kind of socialize around their cubicles. And that led to stuff like sexual harassment, unwanted sexual advances, sexist comments, just general bad behavior in that way and then when people would

try to report this to hr this the infrastructure there wasn't supporting employees needs there and as some of the reporting from the wall street journal uh suggested that this went all the way to the top with with ceo bobby kod, knowing about and kind of sweeping sort of this stuff under the rug. The statement we did just receive from the company, from the board in particular, that we read out, including the line, the board remains confident that Bobby Kotick appropriately addressed workplace issues brought to his attention.

There's an article today that paints an inaccurate and misleading view of our company, of me personally, and my leadership. Anyone who doubts my conviction to be the most welcoming and inclusive workplace doesn't really appreciate how important this is to me. I understand too, like at some point a group of employees rented out a hotel room and put up a portrait of Bill Cosby and called it the Cosby Room? This was mentioned in the lawsuit as well, the Cosby Suite. And it was a hotel room, they said in the lawsuit at BlizzCon, which is Blizzard's annual convention. So it's where

the company comes together with fans and kind of it's a huge celebration of Blizzard games. And so this room was part of that. It was a place that had the similar alcohol-soaked culture. And finally, I think it's worth mentioning, we also heard of one woman who tragically died by suicide after nude photos were reportedly circulated around the office, but we don't know much more about that at this point, right? Right. It's horrifying. That was one of the details in the initial lawsuit,

but there hasn't been much more reporting on that. I'm going to go. Hi, it's Ramit Sethi here. You may have seen my money show on Netflix. I've been talking about money for 20 years. I've talked to millions of people, and I have some startling numbers to share with you. Did you know that of the people I speak to, 50% of them do not know their own household income? That's not a typo.

50%. That's because money is confusing. In my new book and podcast, Money for Couples, I help you and your partner create a financial vision together. To listen to this podcast, just search for Money for Couples. CEO Bobby Kodak has been at the helm of this company for three decades and that, you know, a lot of these allegations kind of got swept under the rug. I wonder if you could tell me a little bit more about that. Right. So he has led Activision for almost 31 years now. A lot of people would argue he's a colorful guy not known to convention.

This company is built in his image. And Bobby Kotick was part of the team that brought together Activision and Blizzard Entertainment. So for a really long time, people saw Activision and Bobby Kotick as kind of these corporate overlords who were going to ruin Blizzard Entertainment's culture. But from what we've learned from the lawsuit is that these problems have been ingrained long before Activision and Blizzard came together. But that doesn't mean that Bobby Kotick's role

is clean in this. Reporting from the Wall Street Journal suggests that he has had a role in minimizing some of these accusations. And, you know, as recently as a few days ago, a new report said that he was still trying to kind of minimize the amount of bad publicity that was coming out on this. Before this deal was announced with Microsoft, they did make some moves, right, to, I guess, clean things up. 40 employees have been fired, and they've collected around 700 claims of workplace behavior.

And so, was the goal here to be like, yes, we are changing our culture. Yeah, I think they are trying to show that they're changing their culture and they are creating a system that kind of better serves the employees. But for a lot of employees, specifically the Activision Blizzard Workers Alliance, it's not enough. A lot of workers want to see Bobby Kotick and his team step down. Now, do you think that that might happen if and when the deal goes through with Microsoft? Will these guys step aside? Will there be new leadership? There are reports that the leadership will transition out after the deal is finalized, But that's going to take a while. So it'll be a bit. You know, you're a woman who spends a lot of time in this industry. And I wonder,

all these allegations about the culture, around the culture at Activision Blizzard, what does it say to you about the video game culture as a whole? It's upsetting. As a woman who has been in the industry, who has been covering the industry for about five years, and beyond that, I was someone who played video games, who was embedded in the culture since I was a child. So I've experienced a lot of what is being talked about in these spaces on my own.

And that, so when I see stuff like this come up, it's not surprising to me, which is what's the most upsetting part of it. The good news is that things are changing. There are a ton of people in the industry, a ton of women and other marginalized people who are making changes and who are pushing for a better industry. Part of that is the unionization movement, which really has been led by people who believe in the video game industry and believe in the good that it could do. Okay, so we talked about the metaverse being one of the big issues facing the tech sector right now. I mean, Mark Zuckerberg is so convinced of the metaverse, it even changed the company name from Facebook to Meta. I believe the metaverse is the next chapter for the internet. And it's the next chapter for the internet, and it's the next chapter for

our company too. It is time for us to adopt a new company brand to encompass everything that we do, to reflect who we are and what we hope to build. I am proud to announce that starting today, our company is now meta. The second big issue facing these companies are concerns over their bigness, right? And governments wanting to rein these guys in. And so an acquisition like this, a massive acquisition like this, I imagine, might face some serious antitrust scrutiny, right? Which is something that Microsoft has, for the most part, avoided in recent years. And so can you tell me about how that might play out? Yeah, I think the Federal Trade Commission and the European Union are going to really be looking at these. And I think what's going to be interesting is to see whether they look at this merger as, you know, in the realm of big tech, or if they see it as kind of entertainment

consolidation. And that will, I think that's going to play into, you know, how this plays out. Though, you know, I think it is rare for these kinds of deals to be rejected, to not go through, but it'll be interesting to see how this is looked at and what if it seemed kind of a big tech deal or if it's more in the entertainment realm. You know, we talked about the importance of the gaming sector, how much money it brings in, and then long term, how it could be really at the center of this metaverse. And so do you think that we're going to be seeing more big moves like this by other companies? Yeah. So I've spoken to a number of video game industry analysts and experts in the past couple of days. And what everyone has said is

that these sorts of acquisitions and mergers mean more acquisition and mergers, not necessarily for Microsoft and Activision Blizzard, but for other companies who kind of feel like they have to make similar moves to kind of, you know, with the consolidation happening, they're trying to kind of snap up companies in a similar way and keep up in a way. Okay. Okay, Nicole, thank you so much for this. This is really, really interesting. Thank you. Thank you so much for this. This is really, really interesting. Thank you. Thank you. All right. That is all for today. Thanks so much for listening, and we will talk to you tomorrow. Thank you.