More than one year after my original analysis about the proposed acquisition of Activision (NASDAQ:ATVI) by Microsoft (NASDAQ:MSFT) they have yet to close the landmark deal, which would be Microsoft’s largest to date. The delay is clearly not due to a lack of effort as Microsoft and Activision have been battling it out with regulatory authorities worldwide. This week Microsoft suffered a major setback as the UK’s Competition and Markets Authority blocked the sale which may result in Microsoft fully abandoning its efforts to acquire the gaming company.
As a Microsoft shareholder, I would still like to see the deal go through, but based on my analysis I may be one of the few authors on SA who believe the CMA is right to fear Microsoft’s consolidation of the cloud gaming market. More on this later.
Following the CMA’s announcement Activision’s share quickly tanked, dropping more than 10% in just a few hours. In the days following the announcement, its shares stabilized at around $77-78 a share but that’s still a far cry from Microsoft’s proposed purchase price of $95 a share.
While Activision’s share price took a dive Microsoft experienced just the opposite, shooting up at a rapid clip due to its upside earnings surprise and renewed strength in mega-cap tech stocks in general.
While I am not an M&A expert, I can add some value by discussing the potential benefits Microsoft and Activision could gain from them finally closing on this deal and help shed some light on why the CMA may be so concerned.
Overview: The Growth of Real-Time Interactive Experiences
To understand why Microsoft was interested in Activision in the first place let’s start with a discussion about the video game industry, what makes it attractive, and what makes it such a challenging space to operate in.
First, on a positive note, the video game industry is massive and growing.
What started as a niche industry targeting children and tech enthusiasts exploded in popularity worldwide as consumers gravitated to new forms of entertainment powered by increasingly powerful technology. Long gone are the days when video games entailed playing Snake on your Nokia, now with just a headset our mobile phones can be used as virtual reality devices where we can interact in real-time with friends from all over the world.
Snake Game (Creative Commons)
Or maybe VR is not your speed, there are other games that are closer to interactive movies whereby the player can make decisions that have the potential to radically change the direction of the story. Detroit Become Human, has the player take the role of a detective where the choices they make determine if key characters live or die.
It’s my fundamental belief that we are moving to a world where entertainment becomes increasingly real-time generated, 3D, and interactive. These are all tailwinds benefiting the industry.
Such a massive shift in consumer preferences will create winners and losers. In my opinion, those that have the most to lose are the legacy providers of popular 2D content (movies + TV).
One of the largest of these companies, Netflix (NFLX), seems to be aware of this threat and is trying to adapt to remain relevant. In years past they launched interactive media experiences like Black Mirror Bandersnatch, a scripted live-action movie where watchers are asked to make real-time decisions about things like what cereal the character eats or what music they should listen to on the bus all the way up to some very big decisions… (which I will not spoil here!)
But beyond interactive movies, Netflix is making other moves in the interactive media space, notably their growing free games offering that is included in your Netflix subscription. But judging by the lack of news coverage, and what I’ve heard about the offering anecdotally I would venture to guess that Netflix’s games offering is off to a challenging start.
But Netflix does have one big head start, a huge customer base paying into a recurring revenue model.
The Power of IP
But a large subscriber base is not all that one needs to run a great media empire. Another challenge that Netflix has no doubt been feeling is the power of strong IP. As great as a huge subscriber base is Netflix simply lacks IP with the same clout as Disney’s Star Wars or Nintendo’s Mario.
The power of strong IP is clear, just look at the new Super Mario Bros movie which is already one of the all-time highest-grossing movies. Releases like Tiger King, Stranger Things, and Love is Blind, just can’t hold a candle to the strength of established IP.
It looks like Microsoft has learned the same lesson, IP is powerful. That’s likely a big part of the reason why they were attracted to Activision which has some of the highest-grossing IP in the industry vis-a-vis Call of Duty, Candy Crush, and many others.
Leveraging strong IP increases your chance of successful launch across all forms of content, from video games, to movies, to TV, to music.
IP is not a Silver Bullet
As essential as strong IP is, it’s not enough on its own to create a sustainable business that generates strong returns for shareholders, at least not usually.
You don’t have to look far for examples of this, even Activision itself has seen wildly fluctuating returns depending on the success of individual call-of-duty launches. Or alternatively, in the movie industry, massive commercial flops can torch hundreds of millions of dollars, even those based on strong IP like several of the latest Marvel movies.
When you are subject to the rapidly evolving tastes of consumers your financial success is dictated by whether you are able to hit that mark or not. And sometimes, despite best efforts, that mark is horribly missed.
The movie industry was slow to adapt, but Netflix forced them to. Now nearly all large movie studios own or have deals with a larger streaming service to get to lose lucrative recurring revenues.
But the video game industry has been even slower to adapt, in many ways it operates close to how it always has. Numerous individual studios invest huge resources into individual game launches and consumers buy the product one time. You can point to in-game purchases/DLC as positive steps in the right direction (at least positive for investors) but in the console market and PC market the industry is still overwhelmingly reliant on cranking out hit after hit.
As a caveat, the same cannot be said for mobile gaming which is largely built on a model of free-to-play games with recurring in-game purchases.
A Microsoft X Activision Combo could fundamentally reshape the industry
That’s where Microsoft and Activision come into the picture, I believe that the combination of these two could fundamentally reshape the industry, and that’s not me being hyperbolic, it’s my genuine belief. Here’s why:
Rolling in all of Activision’s IP into the Xbox Game Pass would combine all secret ingredients, powerful IP, a recurring model, and a massive audience could cement its position as the place to go for gaming.
Let’s take one hypothetical example to illustrate how this could drive value. Imagine a casual gamer, let’s call him ‘Kyle’, he only plays one game, the same game all his friends have, Call of Duty. The game, on its own, costs $70 a year. Let’s imagine Microsoft comes in with an aggressive offering, for $10 a month and you get access to all their games, new releases, and updates across your console, and mobile device. For each ‘Kyle’ that Microsoft can convert to its service, they earn more than 70% more than before ($120 a year vs $70). It becomes easier, and easier to convert more of these consumers as the portfolio of gaming properties on the service grows.
Given the strong profitability of its Azure cloud portfolio Microsoft can afford to invest heavily to make sure that the most important, most desirable games are on its platform. And if they wanted to, they have enough cash to continue the gaming shopping spree. If the deal is ultimately blocked, I think Microsoft will likely shift its sights to another studio.
Apart from Take Two’s Grand Theft Auto, and Nintendo, it’s hard to think of any other company with gaming IP anywhere near the quality possessed by Activision.
If they really wanted to, and I’m not suggesting they would do this, but if Call of Duty were made exclusive to Game Pass I believe they really could crush Sony, perhaps that is why the CMA is so fearful of the deal closing. Microsoft for its part, promises not to do that, but it’s easy to understand the threat that could pose should they go back on their word.
A brief word on the financials
Microsoft continues to execute on its cloud and office suite strategy, its Teams app continues to take share from Slack, showing off the power of the bundle. Azure, another growing category for Microsoft, is firing on all pistons, revenues have been stickier than many expected during the slowdown that started in 2022.
After a slow decade of growth under prior CEO, Balmer, Satya Nadella has ushered in a new era of growth. Both revenues and EPS continue to grow despite macro challenges. Cloud helped Microsoft get to this point, but I believe that gaming could unlock that next leg higher if the Activision deal closes.
Unsurprisingly returns on capital have been strong, constantly generating doubt digits returns since the turn of the decade. As the cloud computing market matures I would expect these returns to moderate. Again, cloud gaming and its recurring revenues represent a potential catalyst to juice these levels over the coming decades.
As someone who is generally neutral regarding capital allocation, I don’t normally pay too much attention to dividends and buybacks as specific indicators in their own right. With that caveat, they can provide some indication to investors that management views the shareholders as owners that should be paid, not just third-party observers. They can also provide a sense of safety during times of increased market volatility and help nervous investors calm their nerves as they see the quarterly dividend check come in.
Conclusion
Microsoft and Activision are winning the competition, the combination of the two would make them the clear leader in the cloud video game subscription market. They could transform an industry reliant on mega-hits, to one based on recurring cashflows as subs become stickier over time.
Now all that’s left is for the transaction to be pushed over the finish line if regulators will get out of the way. Again, I am no legal expert, and this is purely speculation but I believe Microsoft will look to sue to push through the transaction. Given how fragmented the gaming market is it will be hard to prove this transaction is so anti-competitive to the extent that it should be banned. That said, I am not an arb-trader, but I will hold my Microsoft shares for the long term.
I rate Microsoft stock a Buy.
Thank You
I hope you enjoyed reading my article, if you have any questions or have another viewpoint you wish to share feel free to let me know in the comments. Have an amazing day!
DUBAI, United Arab Emirates (AP) — The tiny Mideast nation of Kuwait has banned the release of the video game “Call of Duty: Black Ops 6,” which features the late Iraqi dictator Saddam Hussein and is set in part in the 1990s Gulf War.
The video game, a first-person shooter, follows CIA operators fighting at times in the United States and also in the Middle East. Game-play trailers for the game show burning oilfields, a painful reminder for Kuwaitis who saw Iraqis set fire to the fields, causing vast ecological and economic damage. Iraqi troops damaged or set fire to over 700 wells.
There also are images of Saddam and Iraq’s old three-star flag in the footage released by developers ahead of the game’s launch. The game’s multiplayer section, a popular feature of the series, includes what appears to be a desert shootout in Kuwait called Scud after the Soviet missiles Saddam fired in the war. Another is called Babylon, after the ancient city in Iraq.
Activision acknowledged in a statement that the game “has not been approved for release in Kuwait,” but did not elaborate.
“All pre-orders in Kuwait will be cancelled and refunded to the original point of purchase,” the company said. “We remain hopeful that local authorities will reconsider, and allow players in Kuwait to enjoy this all-new experience in the Black Ops series.”
Kuwait’s Media Ministry did not respond to requests for comment from The Associated Press over the decision.
“Call of Duty,” which first began in 2003 as a first-person shooter set in World War II, has expanded into an empire worth billions of dollars now owned by Microsoft. But it also has been controversial as its gameplay entered the realm of geopolitics. China and Russia both banned chapters in the franchise. In 2009, an entry in the gaming franchise allowed players to take part in a militant attack at a Russian airport, killing civilians.
But there have been other games recently that won praise for their handling of the Mideast. Ubisoft’s “Assassin’s Creed: Mirage” published last year won praise for its portrayal of Baghdad during the Islamic Golden Age in the 9th century.
Copenhagen, 22.10.2024 – COBOD International, the global leader in 3D construction printing technology, proudly introduces the BOD3 3D Construction Printer for 3D printing of real concrete. Equipped with an extendable ground-based track system, the BOD3 advances the construction process by eliminating printer downtime between multiple buildings on the same site, setting anew benchmark for productivity and efficiency. The BOD3 is the most advanced solution for high-volume low-rise construction and a very effective alternative to conventional construction methods.
The heart and key feature of the new BOD3 3D printer is the advanced extendable ground-based track system. This system enables limitless extension along the Y-axes (length), expanding the printable area to cover 2 or 3 buildings, and reducing setup time to a single installation for multi-building projects. It’s a game-changer, allowing continuous, uninterrupted printing across large sites, increasing efficiency for high volume and mass production at an unmatchable scale.
Render of COBOD BOD3 3D Construction Printer.
The BOD3, COBOD’s third printer model, is the outstanding achievement of years of dedicated research, development, and close collaboration with customers. It is a vital advancement in automated construction technology, directly addressing the urgent global demand for faster, smarter, more efficient and sustainable building solutions. Like every COBOD 3D printer, the BOD3’s modular design offers customization, allowing it to easily adapt to any customer’s size wishes in addition to complying with the various sizes of construction sites anywhere in the world.
The BOD3 follows COBOD’s vision to build smarter through automation. Its operational stand combines the control and monitoring of both the 3D printer and supplementary equipment in one user-friendly system. The Advanced Hose Management System (AHMS) transports 3D printable material from the materials delivery system to the printhead via hoses secured within E-chains, minimizing physical labor and optimizing material flow. With the addition of the dual dosing system for additives, operators can better control the concrete and adapt it to onsite environmental conditions. By introducing additives directly at the printhead, the system reduces drying time between layers, speeding up the overall construction process. Designed for easy operation and precision, the BOD3 can be operated by a small, trained, and certified team, reducing the costs of projects.
Incorporating the innovative Universal X-Carriage, the BOD3 is ready for future COBOD advancements and technologies, like the introduction of additional tools for the printer aimed at insulating, painting, sanding, etc. This ensures long-term versatility and performance that will keep the BOD3 at the forefront of the industry for years to come.
Universal X-Carriage with Printhead.
Already deployed to the global market, the BOD3 is currently active in Indonesia, by Modula Tiga Dimensi, Angola, by Power2Build, andBahrain, by Ab’aad 3D. The customers report faster project execution with near-zero downtime between individual buildings on the same site. The projects showcase the BOD3’s ability to speed up construction and print with real concrete, with 99% locally sourced materials and 1% of innovative D.fab, a co-developed solution by COBOD and Cemex to make concrete 3D printable.
Henrik Lund-Nielsen, Founder and General Manager of COBOD, commented on the BOD3: “The global housing crisis demands a more efficient construction solution that is faster, more efficient, and scalable. The BOD3 is our answer to this challenge. Drawing on years of research and expertise, we’ve designed the BOD3 with innovative features, making it our most cost-effective and efficient model yet for multiple low-rise buildings. Its design supports high-volume, linear production of houses, enabling mass production without compromising quality. The fact that six units have already been sold before its official launch speaks volumes about the BOD3’s market demand and the trust our customers place in our technology.”
Michael Holm, Chief Innovation Officer at COBOD, states, “The advanced ground-based track system was developed as a response to our customers’ needs to increase efficiency and productivity. Now the 3D construction printer can be easily extended, and multiple consecutive structures can be printed with minimal repositioning and zero downtime between projects, making 3D construction printing more efficient than ever before.”
The BOD3 is now available for purchase worldwide; for more information, please visit our website, www.cobod.com, or contact us at info@cobod.com.
COBOD stands as the global leader in supplying 3D printers for the construction sector, with over 80 printers distributed across North and Latin America, Europe, the Middle East, Africa, and Asia-Pacific. Driven by a mission to revolutionize construction through multifunctional robots based on 3D printing, COBOD envisions automating half of the construction processes to achieve faster, cost-effective, sustainable results with enhanced design versatility.
From residential, commercial, and public buildings, COBOD’s 3D printers have been instrumental in erecting 1- to 3-story structures across all six inhabited continents. The innovative technology also extends to fabricate large-scale data centers, wind turbine towers, tanks, and more.
Embracing an open-source material approach, COBOD collaborates with global partners, including customers, academia, and suppliers. The company, backed by prominent shareholders such as General Electric, CEMEX, Holcim, and PERI, operates from its main office in Copenhagen, Denmark, and regional competence centers in Miami, Florida, and Kuala Lumpur, Malaysia. COBOD’s dynamic team comprises over 100 professionals from 25 diverse nationalities.
ABOUT MODULA TIGA DIMENSI
PT Modula Tiga Dimensi is a joint venture between Bakrie & Brothers (BNBR) and COBOD. BNBR focuses on offering and providing solutions for housing backlog problems currently encountered by the country.
Teaming up with COBOD International, the company is now set to adopt the latest 3D printing construction technology and is ready to offer the Indonesian market a new and better solution to housing obstructions.
ABOUT POWER2BUILD
Reshaping the construction sector and adapting it to urgent human needs.
Power2Build is a technology company for the construction industry, prepared to establish partnerships with private, public, and non-governmental organizations (NGOs) so that they can make the transition to Build 4.0 through 3DCP.
We offer our clients value-added services and high-quality projects, always with a multidisciplinary approach that brings together the necessary experience to deal with complex issues.
SAN FRANCISCO (AP) — Artificial intelligence‘s recent rise to the forefront of business has left most office workers wondering how often they should use the technology and whether a computer will eventually replace them.
Those were among the highlights of a recent study conducted by the workplace communications platform Slack. After conducting in-depth interviews with 5,000 desktop workers, Slack concluded there are five types of AI personalities in the workplace: “The Maximalist” who regularly uses AI on their jobs; “The Underground” who covertly uses AI; “The Rebel,” who abhors AI; “The Superfan” who is excited about AI but still hasn’t used it; and “The Observer” who is taking a wait-and-see approach.
Only 50% of the respondents fell under the Maximalist or Underground categories, posing a challenge for businesses that want their workers to embrace AI technology. The Associated Press recently discussed the excitement and tension surrounding AI at work with Christina Janzer, Slack’s senior vice president of research and analytics.
Q: What do you make about the wide range of perceptions about AI at work?
A: It shows people are experiencing AI in very different ways, so they have very different emotions about it. Understanding those emotions will help understand what is going to drive usage of AI. If people are feeling guilty or nervous about it, they are not going to use it. So we have to understand where people are, then point them toward learning to value this new technology.
Q: The Maximalist and The Underground both seem to be early adopters of AI at work, but what is different about their attitudes?
A: Maximalists are all in on AI. They are getting value out of it, they are excited about it, and they are actively sharing that they are using it, which is a really big driver for usage among others.
The Underground is the one that is really interesting to me because they are using it, but they are hiding it. There are different reasons for that. They are worried they are going to be seen as incompetent. They are worried that AI is going to be seen as cheating. And so with them, we have an opportunity to provide clear guidelines to help them know that AI usage is celebrated and encouraged. But right now they don’t have guidelines from their companies and they don’t feel particularly encouraged to use it.
Overall, there is more excitement about AI than not, so I think that’s great We just need to figure out how to harness that.
Q: What about the 19% of workers who fell under the Rebel description in Slack’s study?
A: Rebels tend to be women, which is really interesting. Three out of five rebels are women, which I obviously don’t like to see. Also, rebels tend to be older. At a high level, men are adopting the technology at higher rates than women.
Q: Why do you think more women than men are resisting AI?
A: Women are more likely to see AI as a threat, more likely to worry that AI is going to take over their jobs. To me, that points to women not feeling as trusted in the workplace as men do. If you feel trusted by your manager, you are more likely to experiment with AI. Women are reluctant to adopt a technology that might be seen as a replacement for them whereas men may have more confidence that isn’t going to happen because they feel more trusted.
Q: What are some of the things employers should be doing if they want their workers to embrace AI on the job?
A: We are seeing three out of five desk workers don’t even have clear guidelines with AI, because their companies just aren’t telling them anything, so that’s a huge opportunity.
Another opportunity to encourage AI usage in the open. If we can create a culture where it’s celebrated, where people can see the way people are using it, then they can know that it’s accepted and celebrated. Then they can be inspired.
The third thing is we have to create a culture of experimentation where people feel comfortable trying it out, testing it, getting comfortable with it because a lot of people just don’t know where to start. The reality is you can start small, you don’t have to completely change your job. Having AI write an email or summarize content is a great place to start so you can start to understand what this technology can do.
Q: Do you think the fears about people losing their jobs because of AI are warranted?
A: People with AI are going to replace people without AI.
