Microsoft’s acquisition of Activision Blizzard last month in a multi-billion deal to build the ‘next internet’ has sparked a feeding frenzy among the tech giants to scoop up gaming companies. Electronic Arts (EA) will become the largest independent video game publisher by annual revenue once the deal goes through.

The company’s current market value stands at USD 38 billion. The median value of the two biggest acquisitions in the gaming sector (Zynga & Activision) gives a 55% premium on the market value and translates to USD 60 billion for EA. In other words, only cash-rich companies such as Apple, Amazon, Google, and Facebook parent Meta can afford to purchase Electronic Arts.

Gaming and metaverse

Microsoft CEO Satya Nadella sees Activision acquisition as a pathway to metaverse. The metaverse-gaming symbiosis is not lost on big tech players. Live streaming of video games drives massive traffic for Amazon’s Twitch and Google’s Youtube. Apple earns significant revenue from games purchased through its app store and Arcade Service, and Mark Zuckerberg has rebranded Facebook in alignment with his metaverse vision.

Metaverse will allow us to shop, work, play games, and roam around as avatars in a virtual, immersive space—much like videogames. Many basic tools and technologies required for metaverse will probably come from what already exists in video games like “World of Warcraft.” The gold rush to acquire video game publishers speaks to the potential of the gaming technology in determining the digital lives of billions of users. 

According to media consultant Michael Wolf, “Every one of these [tech] companies knows gaming is going to be a growth area, and it ties into their metaverse ambitions more broadly.”

The appeal of EA

EA has a wide line-up of sports, action, and mobile games—and owns franchises like “Fifa,” “Madden NFL,” and “Apex Legends.” The pandemic has also boosted Electronic Arts’ EPS. In 2020, EA reported a profit of USD 4.81 per share, and for 2022 it is expected to report earnings of USD 7.01 per share. The company’s revenue is expected to jump to USD 7.67 billion—up USD 2.46 billion year on year. 

In the last few years, most video game acquisition deals fetched millions, not billions. Apparently, the scale has changed. The Microsoft-Activision deal is probably the forerunner for the imminent consolidation of the video game sector. Sooner or later, companies like Apple and Google will throw their hats in the ring.

What’s in it for EA? 

The Microsoft deal will give Activision Blizzard deep pockets. 

According to Stifel analyst Drew Crum, “Microsoft’s desire to bolster its metaverse…calls into question the implications for standalones including Electronic Arts and Take-Two, or even an incumbent such as Roblox and whether they are technically and financially disadvantaged, if in fact the metaverse is the next frontier of interactive entertainment.”

So far, Electronic Arts has not revealed any plans to go under the hammer. Potential bidders are likely to wait to see how the Microsoft-Activision deal plays out with regulators before making any move of their own.

Microsoft and Activision are aiming to close the transaction by 2023. The Federal Trade Commission (FTC) will review the deal to decide whether Microsoft’s expansion into the video game industry is in breach of the anti-competition policy. The regulatory process could last up to 18 months.