Tech Brew Ride Home - Fri. 10/13 – The Activision Acquisition Goes Through

Episode Date: October 13, 2023

Microsoft wins its big prize. The EU officially opens and X investigation. VC investment activity has reached its lowest level in years. Netflix dips its toe into the IRL experience business. And, of course, the weekend longreads suggestions. Links: Microsoft's purchase of Activision Blizzard for Xbox has been fully APPROVED by the UK regulator (Windows Central) EU opens probe into Elon Musk’s X over Israel-Hamas war misinformation (Financial Times) U.S. VC funding hit lowest level in 6 years in Q3 | A story told in charts (VentureBeat) Netflix to Open Stores Where Fans Can Play, Shop and Eat in 2025 (Bloomberg) Weekend Longreads Suggestions: Adobe Is Focused on AI Rather Than Figma With Acquisition in Limbo (Bloomberg) Can EA’s FIFA-Free Soccer Game Win Fans? (Bloomberg) Has Bob Iger Lost the Magic? (Bloomberg) Why Dizziness Is Still a Mystery (The New Yorker) Learn more about your ad choices. Visit megaphone.fm/adchoices

On April 4th, 2023, around 2 in the morning, a man was found stabbed multiple times on a sidewalk in downtown San Francisco. Hey, who did this to you? What happened next turned the story into a political firestorm. Reports have identified the victim as Bob Lee, the founder of Cash App. From Bloomberg Podcasts, this is Foundering, the Killing of Bob Lee, beginning April 16. Welcome to the Texas. Meem right home for Friday, October 13th, 2023. I'm Brian McCullough. Today, Microsoft wins its big prize. The EU officially opens an X investigation. VC investment activity has reached its lowest level in years.

Netflix dips its toe into the IRL experience business. And of course, the weekend long-read suggestions. Here's what you miss today in the world of tech. Well, looks like they got them. The UK CMA has approved Microsoft $69 billion dollar Activision acquisition. After Microw Microsoft restructured the deal to sell some of Activision's cloud gaming rights to Ubisoft. Quoting Windows Central. The biggest acquisition in gaming history is cleared to go ahead, per the UK regulator. UK regulator, the CMA shared on Friday that it has approved Microsoft's restructured acquisition of Activision Blizzard, a deal worth almost $69 billion that has taken nearly

two years to complete with the purchase first being announced back on January 18, 2022. Activision also offered a statement, quote, The CMA's official approval is great news for our future with Microsoft, and we look forward to becoming part of the Xbox team. In a note to employees, Activision noted its excitement about getting the deal through to closure. Microsoft's Brad Smith also chimed in to reiterate that this was the final major regulatory hurdle ahead of the deal fully closing. The UK regulator had initially blocked the deal, citing concerns over Microsoft becoming dominant in the Uber-nacent cloud gaming market. Shortly after a court hearing in the U.S. that saw the FTC unable to block Microsoft's purchase, the CMA reopened negotiations with the Xbox publisher eventually granting preliminary approval to a restructured deal.

In the restructured deal, Microsoft is selling off the cloud gaming rights of Activision Blizzard titles to Ubisoft, with the Assassin's Creed publisher getting the cloud gaming rights to any current Activision Blizzard titles or any new games that arrive in the next 15 years, end quote. The EU has officially opened an investigation into X over hosting disinformation tied to the Hamas-Israel War and sent X a formal request for information under the DSA, quoting the Financial Times. EU officials have sent a series of questions that the social media platform must answer by next week to people with direct knowledge of the matter said. The formal probe, which is the first to be launched under the newly approved Digital Services Act,

comes days after EU Commissioner Tieri Britton wrote to billionaire Elon Musk raising concerns that the platform was, quote, being used to disseminate illegal content and disinformation. Failure to reply or a submission of incomplete or misleading information by X could lead to periodic penalties or fines amounting to up to 5% of the company's daily global turnover, the people said. EU investigators are also seeking to find out how X is preparing to react during a crisis and what protocol it has in place to deal with misinformation. The company is required to reply to the commission by the end of the month. The move marks the first-time regulators in Brussels have exercised the powers of the DSA, which set out how big tech should police the internet and aims to keep European citizens safe online. The Block's probe comes after concerns were raised over the proliferation on acts of misinformation related to the Palestinian-Israeli conflict, leading to posts that included graphic images and gathered

millions of views. Under the EU Rules X is considered a, quote, very large online platform with special responsibilities when it comes to monitoring content on the web. On Tuesday, Breton warned Musk that the company had to introduce, quote, proportionate and effective mitigation measures to deal with disinformation, end quote. According to a pitchbook and NVCA report in Q3 of 2023, U.S. venture capital deal value fell to its lowest levels since Q2 of 2018, and U.S. deal count is on track for its lowest year since 2019, quoting Venture Beat. The last 18 months have seen a level of tumult in the economy that would have been unimaginable just a few years earlier, but amid stormy seas, VC remains well-positioned to ride the waves, the report said. While generative AI exploded this year, geopolitics,

not even counting the latest war in Israel and Gaza, inhibited the enthusiasm with the stock market, also showing that investors are cautious. Deal counts are on track to have the lowest year since before the pandemic in 2019. Overall, the market remains under considerable stress, the report said. More companies are taking bridge continuation or down rounds. Inside rounds are at multi-year highs, and there are fewer rounds with a new lead investor obtaining a board seat than at any time in at least a decade. Investors and founders alike are optimizing for stability and cash flow to meet the challenges of the current market. However, the ecosystem remains well capitalized, and additional sources of liquidity from federal programs like the Inflation Reduction Act and the Chips

and Science Act are becoming available. Meanwhile, the stock market's low multiples and price to sales ratios for public companies are causing IPOs to dry up. Current estimates place the number of companies waiting to go public at 75, and while exit activity is expected to be modest in the near future, the impending listings of household names like Stripe, Chime, and Reddit could portend a more robust liquidity environment. And pre-seed and seed deal counts in the U.S. have hit a 12-quarter low, or the lowest since 2020. On the front end of the market, the relative share of pre-seed to early-stage deals dropped consistently over the past year. In comparison, late-stage and venture growth deals have been on a relatively flat trend over the past several quarters. There has also been a marked decrease in

mega deals over the past year, with deals over $100 million making up 48 and a half percent of deal value in Q3, a far cry from their 60 percent of deal value in Q4, 2021, end quote. This is either a bit weird or it makes total sense, but Netflix is planning to open Netflix House, permanent stores where fans can buy clothes, eat themed food, and try live experiences, starting with two U.S. venues in 2025, quoting Bloomberg. Netflix plans to open new destinations where fans can immerse themselves in the worlds of their favorite TV shows, shop for clothing, eat themed food, and maybe even try a squid game obstacle course. Dubbed Netflix House, the venues will feature a mix of retail, dining, and live experiences,

according to Josh Simon, the company's vice president of consumer products. The streaming TV pioneer plans to open the first two in the U.S. in 2025 and then expand the concept around the world. Netflix has been experimenting with pop-up fan experience. for a few years and has introduced 40 and 20 cities around the world. They include The Queen's Ball, a Bridgeton experience, a night of drinks and dancing inspired by the periodic drama that has traveled to several cities, as well as a pop-up Netflix store at the Grove Shopping Mall in Los Angeles. For years, media companies have used theme park rides, costumes, toys, and other consumer products

to promote their characters and generate additional cash. This business is new to Netflix, who's marketing efforts have sometimes been criticized as inadequate by film and TV producers. Management views Netflix House more as a way to promote its titles than as a meaningful source of revenue, at least for now. Shows inspired by popular series and restaurants featuring food from unscripted shows seem to be on the menu. The food and drinks will range from fast casual, think burgers and fries, to more high-end dining desserts and spirits. Simon declined to provide more specific details on the features, in part because final decisions haven't been made. The company is still looking at potential locations. It has opened most of its pop-up experiences in

major cities, including Tokyo, New York, and Mexico City. Netflix opened a pop-up restaurant in Los Angeles earlier this year, showcasing food and drinks created by chefs who have appeared in Netflix cooking shows. It also sells Stranger Things branded frozen pizza and ice cream from that popular show through Walmart, end quote. Time for the weekend long read suggestions, and the fates served up three Bloomberg stories up top. First up, on this day of an acquisition going through, remember another big one from recent times that we haven't heard much about recently? Quote, Adobe's proposed $20 billion acquisition of Figma was a cornerstone of the creative giants plan to become cool again. But more than a year after the deal for the digital design

startup was announced, it has stalled due to regulatory challenges, and the software company's attention has moved on to the next big thing. Artificial Intelligence. Adobe's focus at its annual conference in Los Angeles this week was on new generative artificial intelligence features in signature products like Photoshop. There were no mentions of Figma during keynote speeches and only one reference during an hours-long investor briefing. The design startup had no presence on the exhibition floor. The deal is scheduled to close by the end of March. Adobe may owe the design startup a $1 billion dollar breakup fee if it takes longer than that, and the deal collapses, according to the merger documents. It may be hard to conclude the purchase within the tight timeline, with at least one of the regulators

likely to challenge the deal, wrote Bloomberg Intelligence Antitrust Analyst Jennifer Rye, end quote. Then, Bloomberg takes a look at EA Sports's FC24, the first soccer game after EA broke up with FIFA. It's impossible to overstate how big the FIFA gaming friends. franchise was. So will the gamers come along to this new franchise? Quote, the partnership between FIFA, the Video Game, and FIFA, the Federation International de Football Association, soccer's corruption-prone Zurich-based governing body, was one of the most lucrative in sports media. Like most corporate breakups, the split was mostly about money, with FIFA asking for more than EA was prepared to pay. There were other disagreements, too.

EA's leadership had long chafed at the requirement to run proposed game tweaks, past bureaucrats in Zurich, while FIFA feared any loss of control. The newest edition of the game is called EA Sports FC24, FC as in football club. While it retains almost all the content from previous games, authentic versions of nearly every major club, national team, league, stadium, player, ball, shoe, jersey, and yes, the shorts, you can't play the World Cup. In interviews with Bloomberg Business Week, EA executives argue that this shouldn't matter that their customers care more about the other aspects of professional soccer that FIFA doesn't control. At the same time, they give the distinct impression that EA would have happily renewed its licensing agreement if only FIFA

weren't asking for so much. EA was set to pay $160 million a year for the rights, but FIFA wanted much more, says Michael Pactor, an analyst at brokerage Wedbush Securities, EA, and FIFA declined to comment on the terms. The FIFA rebrand comes at a key time for EA and its chairman and chief executive officer Andrew Wilson, an Australian-born veteran of its FIFA franchise. The company will likely soon become the most valuable independent game publisher left standing. Microsoft is in the final stages of its $69 billion acquisition of Activision Blizzard, which would add Call of Duty and Diablo to a stable of franchises that already includes Halo, Elder Scrolls, and Minecraft.

Sony has also been steadily buying up game studios such as Bungee and Insomniac Games. Over the past year, EA shares have routinely moved up or down in response. to developments in Microsoft's pursuit of Activision Blizzard, a sign that investors suspect EA could be the industry's next acquisition target. There's no clear list of interested suitors, but as EA has a market value of $33 billion, speculation centers on deep-pocketed tech companies, and quote. And then third in our Bloomberg trilogy, a piece simply titled, has Bob Eiger lost the magic? Quote, like Apple's Steve Jobs and Starbucks's Howard Schultz, Eiger was a star CEO whose identity had become indistinguishable from the company he helped build.

Eiger's first run as CEO of Disney was one of the most celebrated tenures in corporate history. He oversaw the acquisitions of Pixar, Marvel Entertainment, Lucasfilm, and 21st Century Fox. He pulled those intellectual property powerhouses off Netflix to build Disney Plus, which signed up an extraordinary 10 million customers on its first day. He launched new cruise ships and opened a theme park in Shanghai. By the time he stepped down from the CEO role in early 2020, Disney's market value had grown fourfold since he first took the job in 2005. But Eiger has suffered more setbacks in 11 months than he did during his first 15 years at Disney's helm,

with some problems unforeseen and others years in the making. Disney is now a business saddled with a dying TV division that Eiger all but put on the block in that CNBC interview, declaring it may not be core to the company's future. Disney Plus has lost the company more than $2 billion so far this year. and is bleeding subscribers as it tries to raise prices. Setting aside last year's Avatar the way of water, which is now the subject of a breach of contract suit filed by the film's financier, its movie division is suffering from a string of box office bombs that call into question its most prized franchises. Even Disney World in Florida is reporting lower attendance. Iger blamed the humidity.

For Bob, leaving Disney was like a father abandoning his favorite child, says a current Disney executive close to Iger. The good news is Daddy's back, but the bad news is, that the house is on fire, end quote. And finally today, not Bloomberg, but the New Yorker, and not tech, but science. Did you know that to medical science, why we get dizzy is still a bit of a mystery? Quote, biologically speaking, the vestibular system is located in the inner ear next to the spiral-shaped cavity known as the cochlea. If the cochlea were a snail's shell, the vestibular organs, the saccule, the uterical,

and three semicircular canals would make up the snail's body. Together they are known as the labyrinth because of their twisting shape. The canals are positioned at roughly right angles to one another, and as fluid moves through them, they can detect if the head is moving up and down, side to side, or left to right. The saccule and utrical detect acceleration and tilting. Vestibular organs appeared early in evolutionary history. They are key for survival, and most terrestrial animals have them. One medical textbook describes how the vestibular system, quote,

plays a subtle, almost occult role in our sensory experience. Michael Goldberg, a Columbia University neurologist, has said that the vestibular system helps our bodies answer two questions basic to the human condition. Where am I going? Which way is up? But there are many ways that the vestibular system can malfunction. The experience of dizziness has been documented for thousands of years, and it's one of the most common complaints that bring people to the doctor. Even children can readily identify it. If you are old enough to play Ring Around the Rosie, you know what it feels like. Yet dizziness, like pain, isn't something that can be seen directly on an x-ray or an MRI. It must be described by the person who feels it, and terms like vertigo and lightheadedness

never seem to capture the entire experience or how profoundly it can unsettle us, end quote. Reminder that the bonus episode this weekend is my review of the new pixel gear, followed by a surprisingly deep and philosophical discussion about what it means to be in either the Apple ecosystem or the Android ecosystem in 2023, what it means to be a stand of one or the other. Interesting stuff. Talk to you on Monday.