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US Federal Trade Commission "Likely to File Antitrust Lawsuit" to Block Microsoft Acquisition of Activision BlizzardBy Starym
Here's some potentially bad news for the sale of Activision Blizzard to Microsoft, as Politico is reporting that it is likely the US FTC will be filing a lawsuit to stop the acquisition - based on three sources "familiar with the matter". A lawsuit could postpone the deal's timing and even endanger it altogether, regardless of its result.
The acquisition deal has seen a lot of pressure and antitrust probes coming from many sides (including several other countries' regulating bodies and watchdog organizations), as it could constitute an unfair boost for Microsoft's side. The most vocal voice against the sale is Microsoft's chief console competitor, Sony, who argues that the sale would open the door to making many Activision Blizzard games (mostly focusing on Call of Duty) exclusive to Microsoft platforms. This, Sony argues, would significantly disadvantage Sony platforms and leave consumers with less choices for gaming.
A lawsuit challenging the deal is not guaranteed, and the FTC’s four commissioners have yet to vote out a complaint or meet with lawyers for the companies, two of the people said. However, the FTC staff reviewing the deal are skeptical of the companies’ arguments, those people said.
The investigation remains ongoing, but much of the heavy lifting is completed, including depositions of Microsoft chief executive Satya Nadella and Activision head Bobby Kotick, the people with knowledge of the investigation said. If the agency does move ahead with a case, it could come as soon as next month, said the people, all of whom were granted anonymity to discuss a confidential matter.
- Politico's Josh Sisco
Well known gaming industry journalist Jason Schreier also weighed in on the story as well:
You can read the full Politico article here, as it goes in to detail about both Microsoft and Sony's arguments so far, as well as Google and Epic's involvement.
A pretty big bombshell was dropped a couple of days ago, as Blizzard announced the end of their partnership with NetEase and a possible end of their games being available in China. We've seen the official posts and responses, but there's a lot of context missing there. Luckily for us, however, well known Chinese WoW community figure NasDa has jumped in to explain things and add some new information and even rumors.
There's actually quite a few new elements presented below, from a rumor of an (unlikely) potential new partner for Blizzard, an explanation on how exactly publishing and certification work in China and how long it takes, the potential Microsoft involvement, the fact that the last time Blizzard did something like this China got WotLK almost a year later, and more.
The below is from a TwitLonger by NasDa:
All the base knowlegde you need to know about this Blizzard-NetEase CATASTROPHE.
- Foreign game companies must work with a domestic game publisher who will operate the game in China. That's why you never see CN region on Blizzard's map when a new patch is about to hit the live servers. CN region is basically in another "parallel universe". It's like peeing in a dark rainy night, you know it's definitely there, but you can't really tell where.
- The publishing partner for Microsoft in China is NetEase, ironically.
- Chinese law requires all digital games to receive a license from the regulator to be published in China.
- In the past getting a game license is not an issue. Since last year it's been extremely difficult for any game, domestic or foreign, to receive a license, even more so for the latter. Last time a foreign title received a lisence was over 500 days ago. Popular ones like PUBG, Fortnite, Apex and Valorant still don't have their Chinese publishing licenses yet. All Tencent games.
- China has resumed issuing new game licenses since April, for dometic games.
- Changing a publishing partnership means re-applying for game licenses even if the games are already approved by the regulator and it could take months or even years.
- This is the second time Blizzard changes their Chinese publishing partner. 14 years ago, Blizzard ended the partnership with their first partner, The 9, and then started worked with NetEase. Combining the process of re-applying for new game license for TBC expansion due to changing the partnership from The 9 to NetEase and the difficulty of getting a game license for WotLK expansion, the original Burning Crusade exapanion in CN region lasted for a total of 1090 days. Chinese players were forced to play LK pre-patch for 19 months. Imaging playing TBC for 3 whole years.
NetEase launched WotLK expansion in CN region on 31/08/2010. Just giving you an idea of how late that was. Paragon killed Arthas on 26th of March 2010. LOL. This is one of the reasons why LK classics is so popular in China.
Now you can see why Blizz and NetEase's "divorce" is widely considered to be a BLOODY CATASTROPHE by the Chinese community.
- Potenital buyer or interesting parties:
miHoYo, the developer of Genshin Impact, has denies the rumors of licensing deal with Blizzard;
Tencent replied that there was no relevant news internally for the time being;
Perfect world is another hot candidate according to rumors;
My source told me(and it's a good source), ByteDance, the parent company of Tiktok will be the successor or at least in the lead.
"Does ByteDance have any experience of operating a game before?" Ye, that was my first question but I guess time will tell.
- NetEase has promised that they will be issuing refund for all the players that still have remaining blizzard bucks and active game time in their accounts.
- After 24th of Jan. all Blizzard services in China will be shutting down. I still don't know what to do after that and where to play wow yet.
Thanks a lot to NasDa for all this information and I really do hope something can be done before January 23rd, as I cannot even imagine simply losing your entire WoW account, not to mention other Blizzard games - even temporarily, and especially with the potential of it being permanently gone. There are so many Chinese players who are part of the WoW community it would truly be a tragedy to see them lose everything they worked, a decade+ of time invested into the game could simply disappear.
Update: NetEase have now issued statements to their players, explaining what exactly will be happening in the next months and after the license expires.
Blizzard have announced that they will be suspending "most Blizzard game services in mainland China", as they did not renew their licensing agreement with NetEase. This includes World of Warcraft, Hearthstone, Warcraft III: Reforged, Overwatch, the StarCraft series, Diablo III, and Heroes of the Storm.
Originally spotted by chaud on MMO Champion.
Chinese Publishing (Source)
Certain games will no longer be available at end of license with NetEase on January 23, 2023
IRVINE, Calif.--(BUSINESS WIRE)--Nov. 16, 2022-- Blizzard Entertainment, Inc. announced today that it will be suspending most Blizzard game services in mainland China due to the expiration of the current licensing agreements with NetEase, Inc. on January 23, 2023. This includes World of Warcraft®, Hearthstone®, Warcraft® III: Reforged, Overwatch®, the StarCraft® series, Diablo III®, and Heroes of the Storm®. Diablo Immortal® co-development and publishing is covered under a separate agreement between the two companies.
Blizzard Entertainment has had licensing agreements with NetEase since 2008, covering the publication of these Blizzard titles in China. The two parties have not reached a deal to renew the agreements that is consistent with Blizzard’s operating principles and commitments to players and employees, and the agreements are set to expire in January 2023.
We will suspend new sales in the coming days and Chinese players will be receiving details of how this will work soon. Upcoming releases for World of Warcraft: Dragonflight, Hearthstone: March of the Lich King, and season 2 of Overwatch 2 will proceed later this year.
“We’re immensely grateful for the passion our Chinese community has shown throughout the nearly 20 years we’ve been bringing our games to China through NetEase and other partners,” said Mike Ybarra, president, Blizzard Entertainment. “Their enthusiasm and creativity inspire us, and we are looking for alternatives to bring our games back to players in the future.”
About Blizzard Entertainment, Inc.
Best known for iconic video game universes including Warcraft®, Overwatch®, Diablo®, and StarCraft®, Blizzard Entertainment, Inc. (www.blizzard.com), a division of Activision Blizzard (NASDAQ: ATVI), is a premier developer and publisher of entertainment experiences. Blizzard Entertainment has created some of the industry’s most critically acclaimed and genre-defining games over the last 30 years, with a track record that includes multiple Game of the Year awards. Blizzard Entertainment engages tens of millions of players around the world with titles available on PC via Battle.net®, Xbox, PlayStation, Nintendo Switch, iOS, and Android.
Cautionary Note Regarding Forward-looking Statements: The statements contained herein that are not historical facts are forward-looking statements including, but not limited to statements of our plans and objectives, including those related to releases of products or services. Activision Blizzard, Inc. generally uses words such as “outlook,” “forecast,” “will,” “could,” “should,” “would,” “to be,” “plan,” “aims,” “believes,” “may,” “might,” “expects,” “intends,” “seeks,” “anticipates,” “estimate,” “future,” “positioned,” “potential,” “project,” “remain,” “scheduled,” “set to,” “subject to,” “upcoming,” and the negative version of these words and other similar words and expressions to help identify forward-looking statements. Forward-looking statements are subject to business and economic risks, reflect management’s current expectations, estimates, and projections about our business, and are inherently uncertain and difficult to predict.
We caution that a number of important factors, many of which are beyond our control, could cause our actual future results and other future circumstances to differ materially from those expressed in any forward-looking statements. Such factors include, but are not limited to: the expected effect of the expiration of the agreement with NetEase, Inc.; the effect of the announcement or pendency of the proposed transaction with Microsoft Corporation (“Microsoft”) on our business relationships, operating results, and business generally; risks that the proposed transaction with Microsoft disrupts our current plans and operations and potential difficulties in employee retention as a result of the proposed transaction with Microsoft; the global impact of the ongoing COVID-19 pandemic and other macroeconomic factors (including, without limitation, the potential for significant short- and long-term global unemployment and economic weakness and a resulting impact on global discretionary spending; potential strain on the retailers, distributors, and manufacturers who sell our physical products to customers and the platform providers on whose networks and consoles certain of our games are available; effects on our ability to release our content in a timely manner and with effective quality control; effects on our ability to prevent cyber-security incidents while our workforce is dispersed; effects on the operations of our professional esports leagues; and macroeconomic impacts arising from the long duration of the COVID-19 pandemic, including labor shortages and supply chain disruptions); our ability to consistently deliver popular, high-quality titles in a timely manner, which has been made more difficult as a result of the COVID-19 pandemic; our ability to attract, retain, and motivate skilled personnel; risks and uncertainties of conducting business outside the United States (the “U.S.”), including the need for regulatory approval to operate; risks relating to behavior of our distributors, retailers, development, and licensing partners, or other affiliated third parties that may harm our brands or business operations; our reliance on tools and technologies owned by third parties; outages, disruptions or degradations in our services, products, and/or technological infrastructure; data breaches, fraudulent activity, and other cybersecurity risks; increasing regulation in key territories; regulation relating to the Internet, including potential harm from laws impacting “net neutrality;” regulation concerning data privacy, including China’s Personal Information Protection Law; insolvency or business failure of any of our business partners, which has been magnified as a result of the COVID-19 pandemic; and the other factors included in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the U.S. Securities and Exchange Commission.
The forward-looking statements contained herein are based on information available to Activision Blizzard, Inc. as of the date of this filing, and we assume no obligation to update any such forward-looking statements. Actual events or results may differ from those expressed in forward-looking statements. As such, you should not rely on forward-looking statements as predictions of future events. We have based the forward-looking statements contained herein primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, prospects, strategy, and financial needs. These statements are not guarantees of our future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and may cause actual results to differ materially from current expectations.
View source version on businesswire.com: https://www.businesswire.com/news/home/20221116006090/en/
Source: Blizzard Entertainment, Inc.
NetEase has now responded to Blizzard's press release about the suspension of their game services in China and the end of their licensing agreement with NetEase, as reported by the Kechuangban Daily, via CaiLianShe (财联社).
[NetEase] has been doing its best to negotiate with Activision Blizzard, hoping to promote the renewal of the contract. After a long period of negotiations, we still could not reach agreement with Activision Blizzard on some key terms of cooperation. We regret that Activision Blizzard today announced that it will cease cooperation, and we will have to accept this decision. NetEase will continue to fulfill its responsibilities and serve the players until the last moment. A big thanks to Neo for the translation and for finding the announcement.
Activision Blizzard shared their financial results for Q3 of 2022, with stronger than expected earnings, an expectation of a mid-2023 completion of the pending Microsoft acquisition and more. There wasn't an earnings call this time around, with just a quote from CEO Bobby Kotick addressing the dedication of the teams in the company and the acquisition.
Blizzard itself had a significant increase in monthly active users, rising from 27 million in Q2 to 31 in Q3, owing to the launch of Diablo: Immortal, Overwatch 2 being free to play and the WotLK Classic launch.
You can check out the Blizzard-related press release figures and announcements below, and you can read the full release covering all of Activision Blizzard here.
Financial Results (Source)
Bobby Kotick, CEO of Activision Blizzard, shared, "Our games are the result of passion and excellence. This comes from an environment that fosters inspiration, creativity, and an unwavering commitment to develop and support our talent. Our employees’ dedication and teamwork are at the heart of an extraordinary workplace that enables the magic embodied in our games. We look forward to continuing to release epic entertainment in service of our global community of players as a part of Microsoft, one of the world’s most admired companies. We continue to expect that our transaction will close in Microsoft’s current fiscal year ending June 2023."
(in millions, except EPS)
GAAP Net Revenues
Impact of GAAP deferralsA
Impact of GAAP deferralsA
Please refer to the tables at the back of this earnings release for a reconciliation of the company’s GAAP and non-GAAP results.
For the quarter ended September 30, 2022, Activision Blizzard’s net revenues presented in accordance with GAAP were $1.78 billion, as compared with $2.07 billion for the third quarter of 2021. GAAP net revenues from digital channels were $1.61 billion. GAAP operating margin was 27%. GAAP earnings per diluted share was $0.55, as compared with $0.82 for the third quarter of 2021. On a non-GAAP basis, Activision Blizzard’s operating margin was 34% and earnings per diluted share was $0.68, as compared with $0.89 for the third quarter of 2021.
Activision Blizzard generated $257 million in operating cash flow for the quarter as compared with $521 million for the third quarter of 2021.
Please refer to the tables at the back of this press release for a reconciliation of the company’s GAAP and non-GAAP results.
For the quarter ended September 30, 2022, Activision Blizzard’s net bookingsB were $1.83 billion, as compared with $1.88 billion for the third quarter of 2021. In-game net bookingsC were $1.36 billion, as compared with $1.20 billion for the third quarter of 2021.
For the quarter ended September 30, 2022, overall Activision Blizzard Monthly Active Users (MAUs)D were 368 million.
As announced on January 18, 2022, Microsoft plans to acquire Activision Blizzard for $95.00 per share in an all-cash transaction. The transaction is subject to customary closing conditions and completion of regulatory review. The transaction, which is expected to close in Microsoft’s fiscal year ending June 30, 2023, has been approved by the boards of directors of both Activision Blizzard and Microsoft and by Activision Blizzard’s stockholders.
Conference Call and Earnings Presentation
In light of the proposed transaction with Microsoft, and as is customary during the pendency of an acquisition, Activision Blizzard will not be hosting a conference call, issuing an earnings presentation, or providing detailed quantitative financial guidance in conjunction with its third quarter 2022 earnings release. For further detail and discussion of our financial performance please refer to our quarterly report on Form 10-Q for the quarter ended September 30, 2022.
Selected Business Highlights
Successful content initiatives for key intellectual properties have positioned the company for a return to strong growth. Our expanded development teams are executing well as they deliver a wide range of compelling content across our portfolio. Following its October 28 launch, Call of Duty®: Modern WarfareTM II has broken records as the fastest-selling title in the history of the Call of Duty franchise. At Blizzard, the October 4 free-to-play launch of Overwatch® 2 has driven community engagement to new highs. These results build on the recent strong launch for Diablo® Immortal™ and a substantial content rollout underway for World of Warcraft®. At King, the Candy Crush™ franchise again delivered a record performance.
While the company remains cognizant of risks including those related to the labor market and economic conditions, we expect to expand our global audience, deepen community engagement, and deliver renewed growth in player investment in the fourth quarter and beyond. The company expects fourth quarter GAAP revenue to be 5% lower year-over-year or better. Net bookings and total segment operating income are each expected to grow at least 20% year-over-year.
Third quarter net bookings declined 3% year-over-year on a reported basis, and were slightly higher year-over-year on a constant currency basisE. The company continued to deliver strong results on the strategically important mobile platform, with mobile net bookings growing over 20% year-over-year to approximately $1.0B. Third quarter segment operating income increased versus the second quarter for each of Activision, Blizzard and King.
October 4 saw the global launch of Overwatch 2, with a free-to-play model designed to allow more people than ever before to experience the acclaimed team-based action game. Over 35 million people played the game in its first month, including many who were new to Overwatch. The expanded community is engaging deeply, with average daily player numbers for the first month of Overwatch 2 more than double that of its acclaimed predecessor. Player investment is also off to a strong start, positioning the title to be a meaningful contributor to Blizzard's business in the fourth quarter. Blizzard is looking forward to delivering an ambitious slate of regular seasonal updates for Overwatch 2 that introduce new characters, maps and modes, including the game’s much-anticipated PvE mode planned for 2023. In the Warcraft franchise, the September 26 release of World of Warcraft: Wrath of the Lich King® Classic contributed to a strong increase in WoW reach and engagement at the end of the third quarter. On November 28, Blizzard will release World of Warcraft: DragonflightTM, the innovative next expansion for the modern game, as the team increases the cadence of WoW content for the community. Elsewhere in the Warcraft franchise, mobile title Warcraft: Arclight RumbleTM is progressing well through regional testing. On mobile, Diablo Immortal expanded its global reach with a strong launch in China in July. The title reached the top of the download charts and has ranked in the top 10 grossing mobile games in China since launch. Around the world, Diablo Immortal is being supported with major new content, features, and events aimed at keeping the community engaged. Meanwhile, work on Diablo IV and its substantial ongoing post-launch content continues to progress very well ahead of its launch planned for 2023. Blizzard’s third quarter segment revenue grew double-digits year-over-year against a year ago quarter that included the release of Diablo II: ResurrectedTM. The third quarter benefited from the recent launch of Diablo Immortal, while Warcraft franchise net bookings were stable year-over-year. Segment operating margin was lower year-over-year, due to marketing investment to support the strong release slate and the shift in the mix of business in the quarter. Currently, we have licensing agreements with a third party covering the publication of several Blizzard titles in China. These agreements, which contributed approximately 3% of Activision Blizzard's consolidated net revenues in 2021, expire in January 2023. We are in discussions regarding the renewal of these agreements, but a mutually-satisfactory deal may not be reached. We continue to see substantial long-term growth opportunities for our business in the country. The co-development and publishing of Diablo Immortal is covered by a separate long-term agreement. Monthly Active Users3
September 30, 2021
December 31, 2021
March 31, 2022
June 30, 2022
September 30, 2022
3 We monitor monthly active users (“MAUs”) as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user. In certain instances, we rely on third parties to publish our games. In these instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable estimates of MAUs for these third-party published games.
Cash and short-term investments at the end of the second quarter stood at $10.9 billion, and Activision Blizzard ended the quarter with a net cashF position of approximately $7.3 billion. 1 Based on data.ai Intelligence
A Net effect of accounting treatment from revenue deferrals on certain of our online-enabled products. Since certain of our games are hosted online or include significant online functionality that represents a separate performance obligation, we defer the transaction price allocable to the online functionality from the sale of these games and then recognize the attributable revenues over the relevant estimated service periods, which are generally less than a year. The related cost of revenues is deferred and recognized as an expense as the related revenues are recognized. Impact from changes in deferrals refers to the net effect from revenue deferrals accounting treatment for the purposes of revenues, along with, for the purposes of EPS, the related cost of revenues deferrals treatment and the related tax impacts. Internally, management excludes the impact of this change in deferred revenues and related cost of revenues when evaluating the company’s operating performance, when planning, forecasting and analyzing future periods, and when assessing the performance of its management team. Management believes this is appropriate because doing so enables an analysis of performance based on the timing of actual transactions with our customers. In addition, management believes excluding the change in deferred revenues and the related cost of revenues provides a much more timely indication of trends in our operating results.
B Net bookings is an operating metric that is defined as the net amount of products and services sold digitally or sold-in physically in the period, and includes license fees, merchandise, and publisher incentives, among others, and is equal to net revenues excluding the impact from deferrals.
C In-game net bookings primarily includes the net amount of downloadable content and microtransactions sold during the period, and is equal to in-game net revenues excluding the impact from deferrals.
D Monthly Active User (“MAU”) Definition: We monitor MAUs as a key measure of the overall size of our user base. MAUs are the number of individuals who accessed a particular game in a given month. We calculate average MAUs in a period by adding the total number of MAUs in each of the months in a given period and dividing that total by the number of months in the period. An individual who accesses two of our games would be counted as two users. In addition, due to technical limitations, for Activision and King, an individual who accesses the same game on two platforms or devices in the relevant period would be counted as two users. For Blizzard, an individual who accesses the same game on two platforms or devices in the relevant period would generally be counted as a single user. In certain instances, we rely on third parties to publish our games. In these instances, MAU data is based on information provided to us by those third parties, or, if final data is not available, reasonable estimates of MAUs for these third-party published games.
E Year-over-year growth on a constant currency basis is calculated by translating current quarter local currency amounts to U.S. dollars based on prior period exchange rates. These amounts are compared to the prior period to derive constant-currency year-over-year performance. We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of currency rate fluctuations.
Total net bookings declined by 3% year-over-year for the third quarter of 2022. On a constant currency basis, total net bookings increased 1% year-over-year for the third quarter of 2022 as currency rate changes negatively impacted the quarter by 4%. Activision segment net revenues declined by 25% year-over-year, Blizzard segment net revenues grew by 10%, and King segment net revenues grew by 6% for the third quarter of 2022. On a constant currency year-over-year basis, Activision segment net revenue declined 22%, Blizzard segment net revenue grew 16%, and King segment net revenue grew 11% for the third quarter of 2022, as currency rate changes negatively impacted Activision segment net revenue by 3%, Blizzard segment net revenue by 6%, and King segment net revenue by 5%. F Net cash is defined as cash and cash equivalents ($7.7B as of September 30, 2022) and short-term investments ($3.2B as of September 30, 2022) minus gross debt ($3.7B as of September 30, 2022).