Activision's $6 Billion Candy Crush Gamble

Shamus Young

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Activision's $6 Billion Candy Crush Gamble

Last week it was announced that Activision paid 5.9 billion for King. To put that price tag in perspective: The rumor is that Star Wars: The Old Republic cost $200 million to produce. That values Candy Crush Saga at twenty-nine and a half MMOs.

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kajinking

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I'm REALLY curious as to how this plays out. I'd like to think whoever green lit this knew what they were doing with that chunk of money but this is making Facebook buying out the Rift for 4 bil look like financial genius. They paid 1/5th for a product that could possibly be a major factor in gaming one day, Acti just bought a company that has made a few mobile games.

Whenever I think about risks like this all I can think about is the fact that at one time someone thought 47 Ronin was a movie worth investing in. People with lots of money don't necessarily make good decisions (CoughTrumphCough!).
 

Albino Boo

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I'm sorry but you are wrong. Its valve want to make steamos and its VR a thing it's going to have to invest far more than it's doing. At the moment steam have put in chicken feed in terms of cash into the project and that means that valve won't get a big return. Volume PC manufactures are not going to risk their own money in taking on the xbox and PS4. If valve wants to compete than is going to have invest heavily in supply chain and inventory. Valve has taken a low risk strategy and that means valve are unlikely to see billions back. Its about risk/reward profiles and fundamentally Activision, as a listed company, can raise cash from a number sources that Valve, as an LLC would find more difficult. Valve by its model limits it growth potential by having to pay a higher premium for capital than Activision. So fundamentally Valve would betting the house in the way that Activision isn't for this kind of deal.
 

Neverhoodian

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Holy shit. HO-LEE SHIT.

I don't care how successful it is, no one game (because let's face it, what other game is King known for?) is worth that much. Disney didn't even pay that much for the Star Wars IP ($4 billion).

Clearly Activision has forgotten Rule of Acquisition #3: never spend more for an acquisition than you have to.
 

P-89 Scorpion

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Bobby Kotick has been CEO of Activision since he was 28 that's nearly 25 years. I think Activision can be said to be run by someone who knows games.
 

P-89 Scorpion

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Neverhoodian said:
Holy shit. HO-LEE SHIT.

I don't care how successful it is, no one game (because let's face it, what other game is King known for?) is worth that much. Disney didn't even pay that much for the Star Wars IP ($4 billion).

Clearly Activision has forgotten Rule of Acquisition #3: never spend more for an acquisition than you have to.
When Disney bought Lucasfilm in 2012 what had the company done recently? the prequel trilogy finished on 2005, the 4th Indiana Jones 2008 and a Star Wars cartoon. The simple fact was that nothing was being done with the IP except 4 films that people use as a punchline.
 

Callate

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Activision can't do what Valve does because Activision doesn't have a lot of smart people of its own.

...Well, that's not fair. I'm sure Activision does have smart people of its own. But it also by most accounts has a crushing atmosphere that burns smart people out like matches in a foundry and demonstrates to them that their contributions aren't valued, their prospects for reward or promotion are limited, and their emplyoment is considered to be highly expendable. If you're a genuinely smart person working there, you're probably either quietly (very quietly) talking about leaving for another studio or an independent project, or you're so cowed that the idea of trying to advance a good idea of your own to your immediate boss is terrifying.

Valve doesn't just have smart people, it encourages and rewards them. When their Augmented Reality team wanted to leave Valve to keep working on the project, Valve released the tech. A constant stream of income at Steam hasn't caused them to swell to a multiple-thousand employee roll, or snap up every promising company that catches their eye.

Somewhere in Activision right now, there is someone grinding their teeth at the thought that they are perfectly capable of doing what Activision just absorbed King to do. And they're going to glance at their savings account, heave a deep sigh, grab the antacid, and get back to work on debugging the metrics tool for the new Call of Duty map.
 

Neverhoodian

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P-89 Scorpion said:
Neverhoodian said:
Holy shit. HO-LEE SHIT.

I don't care how successful it is, no one game (because let's face it, what other game is King known for?) is worth that much. Disney didn't even pay that much for the Star Wars IP ($4 billion).

Clearly Activision has forgotten Rule of Acquisition #3: never spend more for an acquisition than you have to.
When Disney bought Lucasfilm in 2012 what had the company done recently? the prequel trilogy finished on 2005, the 4th Indiana Jones 2008 and a Star Wars cartoon. The simple fact was that nothing was being done with the IP except 4 films that people use as a punchline.
The film scene may have gone dormant, but they were still making money hand over fist with merchandise (toy sales accounted for something like 80% of Lucas' total profits), video games, TV shows and Expanded Universe novels. Disney wasn't just buying the films, they were buying a sprawling multimedia empire that was showing no signs of stopping.
 

P-89 Scorpion

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Neverhoodian said:
When Disney bought Lucasfilm in 2012 what had the company done recently? the prequel trilogy finished on 2005, the 4th Indiana Jones 2008 and a Star Wars cartoon. The simple fact was that nothing was being done with the IP except 4 films that people use as a punchline.
The film scene may have gone dormant, but they were still making money hand over fist with merchandise (toy sales accounted for something like 80% of Lucas' total profits), video games, TV shows and Expanded Universe novels. Disney wasn't just buying the films, they were buying a sprawling multimedia empire that was showing no signs of stopping.[/quote]

So what where 2 of the first things Disney did after buying Lucasfilm? shutdown the game division which had basically just been licensing out the Star wars licence for years (https://en.wikipedia.org/wiki/List_of_LucasArts_games) and shut down the extended universe novels.
 

Neverhoodian

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P-89 Scorpion said:
So what where 2 of the first things Disney did after buying Lucasfilm? shutdown the game division which had basically just been licensing out the Star wars licence for years (https://en.wikipedia.org/wiki/List_of_LucasArts_games) and shut down the extended universe novels.
Correct on both counts, but you forgot to mention one key element; they shut them down so they could do things "their way." Between the avalanche of F2P mobile games and the upcoming Battlefront, Disney is doubtless hoping to rake in that sweet gamer moolah. As for rendering the old EU as "Legends," it allowed them to wipe the slate clean and come up with their own version of how things went down between the films, thus making fans buy a whole new set of books.

As an aside, I actually didn't mind the latter decision. The old EU had become a bloated, convoluted clusterfuck with no quality control, and it bugged me how fans would treat what was essentially glorified fanfiction as undisputed canon. That said, it doesn't look like this new EU is going to be much better if novels like Aftermath are any indication...
 

CrazyCapnMorgan

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It's true, ya know, Shamus...

Those that wish to make dollars don't make a lot of sense.

[sub][sub][sub][sub][sub]See what I did there? Yes, yes you did.[/sub][/sub][/sub][/sub][/sub]
 

Imperioratorex Caprae

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Shamus Young said:
Activision's $6 Billion Candy Crush Gamble

Last week it was announced that Activision paid 5.9 billion for King. To put that price tag in perspective: The rumor is that Star Wars: The Old Republic cost $200 million to produce. That values Candy Crush Saga at twenty-nine and a half MMOs.

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My view is, among your points, King and its underlying money maker are not going to be viable forever. The casual market's only proven fact is that there's no loyalty to the developer/publisher, just whatever is hot. Zynga did not prove to be a hitmaker post-Farmville and the Farmville casual players migrated beyond Zynga's borders as soon as the shine wore off. King and Activision would be in the same boat when CCS drops off.

And as you said there's no guarantee one hit means the dev/pub is a hitmaker (and considering the development points, they didn't even really make the game themselves). So Activision would really be stupid to pay all that much for an untalented studio/publisher. I said it when the buyout first came up, that casual game players are not the most loyal and casual games have very little staying power, nor is one hit game proof of talent.
 

fix-the-spade

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This reminds me of EA buying Popcap a few years ago. They've picked a company at the top of it's game at the top of it's market, so the only direction it can go is down. Except EA paid just over a fifth of what Activision just blew up.

Still, if you're going to blow over half the total income generated by World of Warcraft, may as well do it in the most ostentatious, willy waving and wasteful way possible. So, job done I suppose?
 

Kameburger

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Apr 7, 2012
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I'm gonna go devils advocate here.

I think at first glance this is exactly how you might perceive a move like this, and I don't mean to be patronize, not just at first glance, but at 2nd, 3rd, 4th and 5th glance you'd be thinking exactly what you wrote, and it's a sound analysis for sure. What I would say, is that I don't know if this indicates what people might believe it does. We like to imagine that the top of these publishers are bumbling idiots without enough brains between them to screw in a light bulb (without bringing up micro-transactions at least). And I'm not even saying that this is the case with this article, what I'm trying to say is let's say that quotes and history aside, one of the largest game companies in the world made the largest purchase in gaming history. They did it to buy something unpopular with it's fan base and seem to be moving in a direction that enthusiasts don't particularly like. So there isn't much to like about this, in fact there is plenty of reason to speculate that this will result in a lot of things that many of the enthusiast community will hate to see happen.

So why do this? We are left with two possibilities; first is that those at Activision don't understand all of the above, and they saw something shiny and are hoping they can make it more shiny, and the second is that they are hoping for something that outweighs the costs, both physical and PR wise. I'm inclined to think that the latter is probably true.

First of all, PR when it comes to game companies translates to very little when discussing how business decisions relate to actual revenue. Lets be realistic. Sometimes the best business decisions are not the most popular ones. Steve Jobs, who must have an actual religious following by now among the business community was responsible from some deeply unpopular decisions surrounding the devices that made him famous. All of these are all but lost in the wake of Apple's success but if you were following them through out you can probably remember. It is not to say that PR doesn't influence decisions, of course it does, but the true industry shifts are not generally impacted. The unpopularity of the "free to play" business model as compared to the inversely proportional revenue it produces is as close as you will get to proof of this concept within our industry. But this just shoot's down a "why not."

To get to the "why?" of it all, you have to look beyond what king produces because everyone is focusing on candy crush as a product in itself. The popularity of candy crush is not spectacular because of its popularity. It's spectacular because of who it's audience is composed of. That audience is not an audience that read's this sight, nor is it the audience that picked up Halo last week. It's the audience that reads Kim Kardashian Gossip, and picks up their kids from soccer practice. I don't mean that in a patronizing way. They have disposable income, smartphones, and specific hours of the day they wish to kill. It is specifically targeting people who are not susceptible to the "mind games" of games. That's one demographic Activision barely touches. They have the core market because if Diablo 3 proved anything, it's that Blizzard could proposition their fan's to lick they're boot's clean of dog shit, and their fans will thank god it's only a dog's shit.

That's one angle that hasn't been touched on is that 6 billion is an indicator that they are making a very long term investment. That investment isn't that Candy Crush will be around forever, but it does mean that they think that the smartphone market will likely not change much over the next 6 or so years. That even the devices a decade from now will go largely unchanged from their current state. Touch screen's will not likely fade out of existence of the next decade, and it is much more likely that we will see devices that are easier for the demographic that king aims for to use and play and capitalize on. Is that worth 6 billion dollars? Absolutely. Activision can pump out about a billion dollars a year in profits if they're on their game, in fact for a company that pulls their kind of numbers without king, they could see as much as 2 billion dollars in profits, and while that would be impressive, it wouldn't be ridiculous or unheard of. Keep in mind that this is without a couple of years of Candy Crush money which will likely produce a sizable chunk in addition to that even if it's audience was cut in half.

A gamble? sure. A dumb Gamble? I'm not so sure it is.

That's my two cents though.
 

Smiley Face

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Kameburger said:
To get to the "why?" of it all, you have to look beyond what king produces because everyone is focusing on candy crush as a product in itself. The popularity of candy crush is not spectacular because of its popularity. It's spectacular because of who it's audience is composed of. That audience is not an audience that read's this sight, nor is it the audience that picked up Halo last week. It's the audience that reads Kim Kardashian Gossip, and picks up their kids from soccer practice. I don't mean that in a patronizing way. They have disposable income, smartphones, and specific hours of the day they wish to kill. It is specifically targeting people who are not susceptible to the "mind games" of games. That's one demographic Activision barely touches. They have the core market because if Diablo 3 proved anything, it's that Blizzard could proposition their fan's to lick they're boot's clean of dog shit, and their fans will thank god it's only a dog's shit.

That's one angle that hasn't been touched on is that 6 billion is an indicator that they are making a very long term investment. That investment isn't that Candy Crush will be around forever, but it does mean that they think that the smartphone market will likely not change much over the next 6 or so years. That even the devices a decade from now will go largely unchanged from their current state. Touch screen's will not likely fade out of existence of the next decade, and it is much more likely that we will see devices that are easier for the demographic that king aims for to use and play and capitalize on. Is that worth 6 billion dollars? Absolutely. Activision can pump out about a billion dollars a year in profits if they're on their game, in fact for a company that pulls their kind of numbers without king, they could see as much as 2 billion dollars in profits, and while that would be impressive, it wouldn't be ridiculous or unheard of. Keep in mind that this is without a couple of years of Candy Crush money which will likely produce a sizable chunk in addition to that even if it's audience was cut in half.
Here's the problem though - this overlooks the crux of Shamus' argument. Yes, the mobile market is lucrative and untapped by Activision. Yes, if they could get an inroad into it by buying Candy Crush and creating some knockout hits for a few years, could very well justify this purchase. The problem is that nowhere in your argument have you explained how buying King will accomplish that. This is a BIG investment, but the question is whether it will work. Mobile games are viral, difficult to predict, and King hasn't produced another one on the same scale as Candy Crush so far. If, as you say, the technological landscape will remain largely unchanged, then presumably their profits will remain the same unless they do produce such a megahit - meaning the investment won't be profitable for a LONG tine.
 

Kameburger

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Smiley Face said:
Here's the problem though - this overlooks the crux of Shamus' argument. Yes, the mobile market is lucrative and untapped by Activision. Yes, if they could get an inroad into it by buying Candy Crush and creating some knockout hits for a few years, could very well justify this purchase. The problem is that nowhere in your argument have you explained how buying King will accomplish that.
Sure I did. When I explained that Activision will gain access to King's audience, which matters because it doesn't overlap with Activision's existing audience demographically meaning that the people who are purchasing Activision Blizzard titles are not the same as the people who spending money on King's games, meaning that the titles don't cannibalize each other. To simplify it, this mean's that the profit's from king add in nicely and neatly to the profits from Activisions existing titles. There is a multitude of reasons why this works even from a profitability stand point. Now they have for instance an advertising method that they can use to target mom's for Christmas about products that they are making. Now they have a global network of mobile gaming studios that takes advantage of all the global business development that king has been doing over the years. Hell it even gives them revenue from Japan which is one of the strongest mobile gaming markets in the world, and a place where activision performs particularly poorly, considering that half of their highest grossing titles aren't localized there.

Think about the Comcast/time warner merger where they have already divided territories so if they merge it instantly doubles their customer base because they don't overlap.

This is a BIG investment, but the question is whether it will work. Mobile games are viral, difficult to predict, and King hasn't produced another one on the same scale as Candy Crush so far. If, as you say, the technological landscape will remain largely unchanged, then presumably their profits will remain the same unless they do produce such a megahit - meaning the investment won't be profitable for a LONG tine.
Yes, this is a historical investment. But it's not just a 6 billion dollar role of the dice. And if they maintained profits on Candy Crush they wouldn't recoup their expenses in a "Long" time as you put it, they would recoup it in, 3 to 4 years if they are conservative with some of their costs, or any one of their titles hits it out of the park.

Sure this plan could fail, but my point is this isn't exactly a the "gamble" everyone is making it out to be.
 

Adam Jensen_v1legacy

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Sep 8, 2011
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If they could spend that much money on buying this crap, then my guess is that they have a pretty solid reason. They probably didn't spend almost 6 billion on a gamble without looking at the numbers and predicting a good return on their investment. They probably just have a strategy that we didn't manage to think of yet. Of course, even that doesn't mean that it was a smart move. Just that we're not as smart as we think we are.
 

Smiley Face

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Kameburger said:
Yes, this is a historical investment. But it's not just a 6 billion dollar role of the dice. And if they maintained profits on Candy Crush they wouldn't recoup their expenses in a "Long" time as you put it, they would recoup it in, 3 to 4 years if they are conservative with some of their costs, or any one of their titles hits it out of the park.
Actually, if Candy Crush is pulling in a million dollars a day, it will take over 15 years to recoup their investment, assuming that it doesn't lose its popularity or become dethroned during that time, which is a highly improbable if.

The other point, regarding giving them access to an advertising platform, does make sense; I'm just curious whether such a platform is worth 6 billion dollars - which is only true IF they can turn out a mobile game that catches lightning in a bottle, which no one seems to have figured out how to do formulaicly. Maybe it is just a question of having access to a mobile customer base; but if that's the case then why hasn't someone like King figured that out so far?