The scandal in the workplace with Activision makes the gaming giant a major target

Bobby Kotik’s trajectory as a young technology entrepreneur in the 1980s was shaped by remarkable encounters with two future billionaires: Apple co-founder Steve Jobs and casino mogul Steve Win.

During a trip to Michigan in the early 1980s, Jobs met with Kotik and successfully persuaded him to leave university to run his full-time software company. And after a chance meeting in Texas in 1983, Win became a supporter of Kotik’s ventures – including $ 500,000, which he and his partners invested in 1990 in a nearly bankrupt video game company.

Thirty-two years later, Kotik agreed to sell the company, Activision, to Microsoft for $ 75 billion in a all-money deal that should change the gaming industry’s landscape.

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The deal, if approved, will also limit a groundbreaking career for Kotik, a CEO known for his sharp instincts, timely acquisitions – and more recently – oversight of what California regulators said last year was “a comprehensive culture in the workplace.” the boys of the fraternity. “

Concerns about allegations of harassment at the company continue, leading to questions about whether Kotick may remain after the deal is completed.

He told the Financial Times earlier this week that Activision had “moved with speed and unlimited resources” to change the culture of the workplace, adding that “this is a continuous job.”

But it was allegations of sexual harassment that weighed on Activision’s shares, which fell nearly 30 percent after the lawsuit was filed in California in July. This allowed Microsoft to throw. Shares of Activision have jumped more than 25 percent since the deal was announced on Tuesday.

“There was a strong strategic rationale for Microsoft to close the deal, and they had the opportunity to do so because [Activision’s] the problems were bleeding in the public perception and even [affecting the] gaming franchises, ”said Clay Griffin, a game analyst at MoffettNathanson.

According to people familiar with the deal, Kotick may remain in transition, but it is clear that Microsoft gaming chief Phil Spencer will run the business.

Nevertheless, the head of Activision has already won solidly. Kotik’s $ 155 million 2020 package, making him one of the highest paid executives in the United States, sparked protests by some investors in June.

According to the company’s proxy application for 2021, Kotik will be paid $ 293 million if terminated as a result of a change in control, but as the company’s shares reached efficiency targets in March 2021, $ 270 million from they have already been provided. No other capital has been provided, so any change in the control payment will be closer to $ 15 million.

If the deal is approved by regulators, Microsoft will add revolving Activision titles, such as Call of Duty, Candy Crush and World of Warcraft to its gaming division, where the Xbox console is the jewel of the crown.

Microsoft’s gaming business will be ready to further challenge Japan’s Sony, which owns industry-leading PlayStation, while expanding its presence in mobile gaming. It will become the third largest gaming company in the world in terms of revenue after Sony and China’s Tencent.

This potential gaming colossus is an universe away from Activision since 1979, a launch launched by former Atari programmers and music CEO Jim Levy.

Gamers play the latest video game Call of Duty during the Game XP event at the Olympic Park in Rio de Janeiro, Brazil
If the deal is approved by regulators, Microsoft will add revolving Activision titles such as “Call of Duty” © Carle de Souza / AFP / Getty Images

Activision became the first company to sell “third-party games”, developing titles for platforms and consoles created by others. But she struggled in the 1980s and turned to bankruptcy in the 1990s.

Not for the last time Kotik moved at the right moment. “He had a sharp mind to seize the financial opportunity,” said Alexander Smith, a historian in the gaming industry. “He came in cheap.”

Kotik and partner Howard Marx fired all but eight of the 200 employees and relocated the company from Silicon Valley to Los Angeles, a reflection of Kotik’s belief that gaming is more about fun than technology. For most of the 1990s, the company was successful in retrieving its back catalog.

In the early 2000s, Kotik helped the industry figure out how to adopt an expensive hit in Call of Duty in an annual blockbuster, instead of taking years to release updated versions of the game.

Pelham Smithers, who runs his own research group, said sports titles such as Madden NFL it can be released every season because the developers just changed the names and numbers of the T-shirts. A first-person shooting game, such as Call of Duty it was more complex, however, taking four years to develop. But Kotick broke the code and began earning annual revenue a decade before the streaming era.

“They slowed down development, so there were three games in development at once,” Smithers said. “It was a genius, really.”

Around the same time, Activision embarked on a series of appropriate acquisitions. In 2006, Activision bought Guitar hero publisher RedOctane for $ 100 million – a small amount for a game that will later enter the top 10 bestsellers of all time.

“He really knew the right time, not to satisfy Wall Street, but in terms of patience to see high-quality assets,” said Colin Sebastian, an analyst at Baird.

Two years later, Activision merged with Blizzard, the studio behind the PC hit World of Warcraft, then owned by Vivendi, in a deal that valued the combined company at $ 18.9 billion. The group later swallowed Candy Crush Saga-maker King for $ 5.9 billion in 2015, which gave him a hit in the fast-growing mobile market.

These acquisitions have given Activision great positions in games for mobile devices, consoles and computers. In its most recent quarterly submission, Activision had sales of nearly $ 800 million, while Blizzard had $ 532 million and King, the most profitable, had $ 651 million in revenue. “It gives you a remarkably solid base,” Smithers said.

However, some of Activision’s innovations, which have improved the end result, such as insisting on more frequent updates, are also seen as at the root of its problems.

Employees complain that they are overworked, which leads to high staff turnover. Employees of developer Raven Software, owned by Blizzard, have been on strike since December. Quality assurance workers whose responsibilities include checking for errors and mistakes Call of Duty: Warzone, have been on strike for five weeks.

Some gamers have complained that the quality has declined as the company seeks new ways to generate revenue from the reproduction of its titles.

Activision’s aggressive pressure to release updates each year has led to “franchise fatigue” or, as Smith puts it, “the release of some of the games on the ground.” He said there have been declines in the quality of games such as of Tony Hawk a series of skateboarding titles have made players suspicious of Activision.

Some gamers say they hope these practices will change under Microsoft if Kotick leaves.

“Investors loved this man,” Griffin said. “There has clearly been internal tension in the company and gamer communities see it as the number one public enemy, so this deal gives it a chance.”

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