In a surprising move, Activision Blizzard announced last night that the company had purchased King Digital Entertainment for $5.9 billion dollars in what Bloomberg is calling a "tax saving deal."
Activision CEO Bobby Kotick says that the company will "provide King with experience, support and investment to continue to build on their tremendous legacy and reach new potential," which is a good thing for King, because right now their "legacy" and "potential" are in question. Despite finding huge success with Candy Crush Saga, King has recently run into a bit of a rut in terms of growth. It's hard not to compare this purchase to EA's acquisition of PopCap in 2011, but while PopCap had a large stable of popular games, King hasn't yet proven how consistent it can be over the long term. This is part of what makes Activision's decision to purchase the company so surprising, at least at first.
The other reason why it seems strange is that a purchase like this can sometimes indicate that a company feels that it is in need of a big boost. But Activision has had a strong year so far, with recent earnings coming in above analyst expectations, so it's not as if the console and PC game market has gone dry for them.
But there are a number of factors that may have made King an attractive purchase for Activision.
First, this purchase gives Activision access to King's massive user base. There were 474 million active users in the third quarter of 2015, which is more people than use Twitter. And as we've discussed on recent episodes of the Beastcast, access to user data is a goldmine for business analysts. And who knows, Candy Crush Players (Candy Crushers?) might see some Activision IP pop up in future game updates.
Second, Activision has recently had a taste of success in the mobile market via Hearthstone: Heroes of Warcraft, and that success may have spurred them on to expand further into the mobile space. Purchasing a dedicated mobile developer could help them do that, as King could have more efficient mobile development processes, infrastructure, and business relationships already developed.
And then there's the matter of the taxes. As Bloomberg's Christopher Palmeri writes:
Activision will use $3.6 billion of cash stored outside the U.S. to finance the deal, a move that will help save about $1 billion in taxes the company would have had to pay to repatriate the money, according to tax consultant Robert Willens.
In simple terms: Activision has money in offshore accounts that the company would need to pay taxes on if they brought back to the US. By spending that money on the Ireland-based King, Activision no longer needs to pay those taxes. It's not an uncommon tactic, just look at Microsoft's recent purchases of Mojang, Skype, and Nokia.
It's worth thinking about these sorts of business decisions whether you find that sort of tax maneuvering agreeable or not. As fans, it's easy for us to imagine game companies existing in a sort of ethereal plane where people go in to work and games pop out. But the truth is that game companies--especially AAA ones--exist in (and affect) the global marketplace, utilizing the same strategies of financialization everywhere else. As critic Ian Williams writes, "[Games] are made by people, funded by things that are not always nice, and overlap with politics, economics and industry in ways that we need to pay a little more attention to." Just a little something to keep in mind when you're playing Tony Hawks Pro Saga 6.
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