
Activision to Buy King Digital for $5.9B - jonknee
http://www.bloomberg.com/news/articles/2015-11-03/activision-to-buy-king-digital-in-5-9-billion-games-merger
======
socalnate1
I met Bobby Kotick (Activision CEO) as an Intern at Activision in 2008 and I
asked him specifically if they were considering getting into "casual games"
which were just starting to come into their own.

I'll never forget his answer: "No one has figured out how to really make money
with casual games yet, but once someone does, we'll just buy them."

~~~
exelius
Companies like Activision are too big to innovate and they know it. They exist
to provide stable cash flows to investors, and big payouts (exits) to the
companies that do innovate. There's nothing wrong with that; but growth by
acquisition is a double edged sword: a few bad purchases can sink your
company.

The video game industry is largely moving toward the studio model used by
Hollywood as a result.

~~~
slantaclaus
Activision's cash flows aren't actually very stable though... Revenue:
[https://ycharts.com/companies/ATVI/revenues_ttm](https://ycharts.com/companies/ATVI/revenues_ttm)
net income:
[https://ycharts.com/companies/ATVI/net_income_ttm](https://ycharts.com/companies/ATVI/net_income_ttm)
combine that was a screaming market cap and I easily came to the decision not
to get on the $ATVI bandwagon just yet

~~~
exelius
As an investment, you should treat Activision (or EA, or any other dev studio)
like you would a movie studio. The business model is fundamentally the same,
albeit with potentially bigger numbers on a per-project basis. Hell, most
movies use a lot of the same production techniques that games do (motion
capture, 3d modeling, etc).

As a result of that, it's a boom-bust company. A few bad releases can put them
in trouble. Media is volatile because consumer tastes are fickle, and video
games are no exception.

~~~
adventured
That's only partially true in the case of Activision Blizzard. World of
Warcraft has provided them with something that very few gaming companies have
ever had: massive, dependable monthly payments.

That has gradually declined of course, over a decade. They still have ~5.6
million paying subscribers to WoW, generate a billion in sales annually from
it, and hundreds of millions in profit.

~~~
exelius
Yeah, but WoW is a once in a generation type of game. No MMO since (or likely
ever to come) will capture the type of mindshare that WoW did. It's got
staying power that can be rivaled by very few games -- CounterStrike and
Starcraft the only other games that come to mind for maintaining that level of
popularity for that long.

------
austenallred
"Activision acquires Candy Crush maker King Digital Entertainment for $5.9B in
the largest accidental in-app purchase in history." \-
[https://twitter.com/sean_a_rose/status/661398624421605376](https://twitter.com/sean_a_rose/status/661398624421605376)

------
minimaxir
This is the exact same as Zynga buying OMGPOP just for Draw Something, and we
know how turned out. Except with 10x bigger numbers.

King, in fairness, has multiple games in the App Store at the top of the Top
Grossing charts in addition to Candy Crush Saga. No idea what Activision gets
out of this. (games like Call of Duty have been sneaking ad-hoc
microtransactions similar to F2P games)

~~~
austenallred
No, it's not.

Blizzard has no idea how to make money from mobile. King makes an absolutely
ungodly amount of money (especially measuring per user). Blizzard knows it
needs to be able to make money from mobile eventually. Hence, a huge price.

Blizzard isn't just buying King for Candy Crush. They're buying King because
they know how to make Candy Crush.

~~~
mcv
> They're buying King because they know how to make Candy Crush.

A coworker was under the impression that King had trouble duplicating the
success of Candy Crush. No idea if that's true, but if it is, it could be that
it was a lucky hit, and King actually had no idea how to make these games
successful.

Perhaps Supercell would have been a better target; they seem to have a number
of reasonably successful games. More minor successes might be better than a
single smash hit if you're more interested in the underlying knowledge.

~~~
fasteddie
King has had many top hits in the same vein as CCS. Farm Heroes, Bubble Witch,
Pet Rescue etc. None as enduring as CCS, but profitable hits just the same.
They have a good formula: get it up cheaply on their web portal, iterate, and
launch the winners on mobile.

They know what they are doing.

~~~
mcv
I stand corrected. Or maybe I should inform my coworker that he should stand
corrected.

~~~
oli5679
soda, candy and farm are the same game with slightly tweaked skins and account
for 80%+ of King's shrinking share of the Western Casual games market.
Meanwhile their non-match games struggle. Your friend was correct...

------
evmar
It occurs to me that this is an interesting outlet for all these US megacorps
with tons of money overseas that they're unwilling to take back to the US for
tax avoidance reasons -- can they purchase non-US companies with that money
without repatriating it?

~~~
forrestthewoods
Yes. That was a common point when Microsoft bought Minecraft for 2 billion.

~~~
sgk284
Similarly when they bought Skype.

~~~
fulafel
And Nokia.

------
mavdi
I sold Lars Markgren a really bad Flash game for £500 back in 2006. It's
incredible how far King has come since then.

------
jpobst
From next year's Call of Duty:

You were killed by L33TGUY37. You are out of lives for today, would you like
to:

\- Purchase 5 more lives for $2.99?

\- Spam your social media for life requests?

~~~
minimaxir
To elaborate on the nature of Call of Duty's microtransactions I mentioned
above:

Call of Duty: Advanced Warfare has Supply Drops
([http://callofduty.wikia.com/wiki/Supply_Drop](http://callofduty.wikia.com/wiki/Supply_Drop)
). At the game's release, you get Supply Drops every few multiplayer games,
which have chances of dropping cosmetic gear for your character, or weapons
with statistical modifiers. (naturally, you mostly got cosmetic gear). While
the weapons w/ modifiers were _technically_ balance, some weapon modifiers
synergize a little too well with a given weapon and they became the most-used
weapons in the game.

Then Infinity Ward added the ability to buy as many Supply Drops as you want
for $1.99 each.

(Later, they did implement daily challenges for a bonus Supply Drops along
with Prestige challenges for the good weapons, in order to make things more
fair.)

~~~
Impossible
Infinity ward didn't make Call of Duty Advanced warfare, it was Sledgehammer
games. Everything else seems to check out though. I'm a Sledgehammer employee
that worked on the Daily Challenge feature.

~~~
minimaxir
Ah, something felt off as I wrote that. That makes more sense.

------
catwell
King is far from being a "one game company". I had the chance to visit their
Stockholm offices two weeks ago (they hosted Lua Workshop 2015) and I was
rather impressed. They have a whole pipeline in place that results in a few
successful games, but for every successful game many more come out of their
creation studio, are playtested, evaluated and (for the most part) killed.

They have also invested in a new engine, Defold
([http://www.defold.com/](http://www.defold.com/)), that should let them
iterate faster and that they let other developers use. I hope it will thrive
under Activision management.

~~~
seivan
I've played with Defold it's pretty impressive (apart from Lua ;-), has most
things a 2d engine and editor needs, but even gives you access to the lower
stuff that I wouldn't know what to do with anyway.

------
abrodersen
Aparently a mobile game is worth $2 billion more than the Star Wars franchise.

~~~
erikpukinskis
It's easy to forget if you run in geekier circles, but in fact not everyone is
in love with the Star Wars universe. I think we underestimate how many people
thought it was a great movie, but have no real desire to engage the universe
deeper than that.

~~~
runevault
Except when the movie was announced it literally crashed every online
ticketing site known to man, and last I heard first day sales were something
like 8x the previous record. Star Wars is biggest in geek circles, but it is a
full on cultural phenomenon.

------
brad0
Hahaha, I remember when Activision said that the mobile space was not worth
getting into. Now five years later they're having to spend $5.9B just to
continue to be relevant.

Riccitello is the reason why EA is still relevant, shame they got rid of him
before his mobile efforts paid off.

------
xfour
And in Cash.. 18.00 a share... 20% premium

Thought for sure when I saw the announcement was going to be using the
incredible run-up on the ATVI stock we've been seeing lately.

How exactly they are going to find the 30% increase in revenue year after year
on a company that feels exactly like Zynga in its prime.

Perhaps Bobby knows something, but I can't seem to be grasp this one.

~~~
jonknee
To be fair, King IPO'd at $22.50 a share so a lot of people lost out on this
deal regardless of the premium. It may not be all cash, the details are still
pretty scarce.

Update: even worse, nearly 30% of the float is short. There will be a lot of
red tomorrow.

~~~
forrestthewoods
"even worse, nearly 30% of the float is short. There will be a lot of red
tomorrow."

I feel silly asking... but I don't know what this means exactly. Can you
explain? :(

~~~
jonknee
A lot of people were short the stock (e.g. borrowed shares to sell them) and
are now on the hook to buy them back for very close to $18 where it will open
tomorrow. Shorting is a way to make money when the share price falls. There
are always shorts, but King had a ton.

If you shorted KING at something greater than $18 you lucked out and have made
money, but if you shorted at say $17 you will end up losing $1 per share. It
has been under $13 in the past three months so some shorts are going to be
losing a fair amount of cash.

~~~
flashman
Just so I have it straight, I borrow 1000 shares of KING from you and sell
them all at $15 each. At some stage, I have to give you back those 1000
shares, so I have to re-buy them. If the price of KING goes down to $12, I can
get 1000 shares for $12000, and because I sold the original lot of shares for
$15000, I've made $3000. But if KING goes up to $18, then when my loan comes
due it costs me $3000 _more_ than what I sold the shares for.

~~~
jonknee
Exactly. It's slightly more complicated since you pay to borrow the shares,
but that's exactly it in concept. It's risky as there are theoretically
unlimited losses (shares can keep going up, but they can only fall to $0).

Another common, but less risky way to be short is through put options. You buy
the right to sell shares at a given price. If you had a put for less $18 you
have now lost all your money. Safe to say there will be a lot of money made
and a lot of money lost tomorrow when options start trading.

------
shmerl
Activision still refuses to release VtM: Bloodlines on GOG. That's about all I
care in their context. May be Paradox should buy the rights for it from
Activision, like they did with CCP and White Wolf in general.

------
oli5679
Interesting that Activision already had the homegrown Hearthstone, a Warcraft
themed card-game that's earning $100 millions/ year.

------
hodder
38% of the float of King Digital is sold short. Looks like it will be a very
tough lesson for some short sellers today.

------
pfisch
You know they might be primarily trying to buy user data and analytics data
here. I mean the games are good too, but they must have a crazy treasure trove
of user data.

~~~
jrpt
That can't be correct given the price, and the fact that King had over $2B
revenue and $500MM net income last year. These games make millions of dollars
a day. They don't get bought just for data. The simplest explanation is that
Activision Blizzard wants to go bigger into mobile gaming and sees King as a
good acquisition for this.

------
ocdtrekkie
These are two companies that deserve each other.

(But yeah, it's been a long time since Activision has been relevant, and they
haven't done mobile right, obviously, this might be a good first step for
them.)

~~~
Tloewald
Cough -- Blizzard -- cough.

~~~
ocdtrekkie
Well, Blizzard was doing its own thing before Activision, and is still doing
it now. It's somewhat off on its own thing still in my mind, despite the
combined company.

