Microsoft announced plans on Tuesday morning to purchase gaming mega-publisher Activision Blizzard for a record-setting $68.7 billion. When finalized, the acquisition would bring franchises like Call of Duty, Overwatch, Diablo, World of Warcraft, Starcraft, and many more under the umbrella of the Xbox maker.
That’s a lot of money for a bunch of games and a ton of sexual harassment claims.
It *sounds* a lot of money, but it actually makes sense. They have too much cash.
Microsoft had $136bn cash at hand in 2020, this year probably more. It means they can no longer grow as fast as they used to before.
The growth cycle is almost universal for successful companies. Tesla is said to make about $10k per vehicle. But they use it all to build new factories and double production every year. Amazon became a trillion dollar enterprise by investing almost 100% of their income in new areas (who else remembers them being an online bookstore only)?
Microsoft needs to grow, or die. Like every other organism on Earth, natural or artificial.
side note: There are other things, like how they will clean up the culture at ActiVision / Blizzard, of course.
This, again. $68.7 billion looks like a huge amount, but it’s just Microsoft re-investing their profit. And, other than the EA behemoth, there aren’t many publishers left to buy.
That is still a lot of money to spend on single acquisition that is tangential to Microsoft’s core business. The big question is what they will do with it. If they want at least some return on this investment they should let Activision continue working on their own but limit their distribution channels to Microsoft Store and XBox.
As for the unlimited growth model – it is definitely not universal even if currently it appears so. It is entirely made by excessive money creation (printing and interests) distorting basic rules of economy. Normally, a value of a company to the society would be defined entirely by its profits (within a legal framework, of course, we don’t want a company to profit from robbery, harming people, depleting natural resources etc). It is OK for a company to defer profits and go through a period of a financed growth assuming future profits provide a return on this investment. Conversely, a company that doesn’t show profits has a negative value to the society and should be disbanded to free its resource for use elsewhere.
This mechanism no longer works when investments are derived from empty money rather than from profits and savings. Investors throw their money without ever asking about dividends, banks pay companies and individuals to borrow money. In such system, the best strategy for a business is to take the money and “grow” (growth defined by revenue, spending, hype or plain scams like financial pyramids) for as long as the system lasts. Governments made it clear they would rather run whole economies to the ground than try tackling the financial bubble, so in the end these businesses do not take any extra risk compared to everyone else.
It’s not a lot of money when the value of the assets exchanged is taken into account. People are reacting to this deal like a 12-year old does when an adult tells them they bought a $300.000 house, when in reality $300.000 is not a lot of money for a house in a metropolitan area and it’s most likely a good call if they end up saving on rent in the long run.
Also, ever since Microsoft got their butts kicked in the mobile space by Google, they are heavily invested in gaming and VR (and that’s on Windows and on Xbox.) The last thing they want is someone else buying Activision and locking their Windows and Xbox platforms out of those games.
kurkosdr,
That sounds a bit privileged to be honest. For a lot of people buying a house is in fact extremely expensive and after interest is often double the market value. Unless they’re well off salary-wise, they may end up struggling to pay it off. People can and do loose their homes to foreclosure.
Some generations ago buying a house was an obvious move when they were so affordable compared to income. But housing prices have gone up much higher than middle class incomes, at some point we should recognize that those who don’t inherit a house may not have a viable path to home ownership because they’ve gotten too expensive. With that said, I don’t think any of this applies to microsoft and other billionaire and trillionaire companies who have the opposite “problem”: too much money and the need to find things to invest it in.
Alfman,
I would say housing is also a growth problem.
Once an area can no longer grow, and new houses cannot be built, things start deteriorating. First, existing houses become expensive, and then they fall into disrepair.
San Francisco, an extreme example, now has median house prices of $1.5 million. https://www.zillow.com/san-francisco-ca/home-values/ And we have all sorts of problems, from homelessness, to families leaving the region. So bad that, even Google employees cannot buy one: https://www.businessinsider.com/google-engineer-california-moved-home-with-parents-during-covid-19-2020-6 (or don’t prefer to pay that much)
All sorts of “solutions” are proposed, but without finding a way to build a huge number of new houses, the area will only decay more.
Also, in this deal, I think it was more of Activision needing a change for growth, than Microsoft’s side. They have “peaked” and could not even sustain their talent, especially with the current management culture.
@Alfman
Yes, it’s “privileged”, but it’s still a good call if it saves the individual in question money over the rent they would be paying, plus it eliminates the risk of any landlords kicking them out when the contract is up so they can get someone else in at +20% the rent.
Similarly, Microsoft is gonna make a profit from the assets they bought from Activision in the long run, plus they averted the possibility of someone else buying Activision and locking Microsoft’s Windows and Xbox platforms out of Activision’s games (or making them timed exclusives etc).
Jawdropping over the amount of money paid in the transaction is the wrong way of looking at it in both cases.
@sukru
At this point, San Francisco is a millionaire’s camp, much like Monaco or the City of London. Basically, if you can’t afford the price of admission (not even with a 30-year mortgage), you should look for housing options elsewhere (where it’s more affordable). You can complain about it, but it’s how it is.
The local government of SF tries to “get back” on the millionaires by restricting house supply (trying to discourage the growth of tech companies in the area) and by letting druggies sleep and poop on the streets (unless it’s Superbowl season when the druggies magically disappear from SF streets), but this has had the opposite effect: driving more “normal” families out.
kurkosdr,
None of that matters if you can’t afford it. It’s unfortunate that poor people end up with a lifetime’s worth of crushing debt to get an education, buy a house, have children, etc. I’ve seen people go the home ownership route only to end up homeless because home ownership wasn’t economically viable given their income levels. I don’t have an answer for this. I think our middle class was better off 50 years ago though. Average family income and retirement plans have eroded while those at the top keep taking more and more. It’s a sad reality that many in the upper classes own so many houses while lower classes will struggle to own one. I conceded that for those at the top, they’re probably happy that things are going this way.
I don’t agree that it’s the same, the huge corps already have hundreds of billions sitting around doing nothing. Even if they lost a $100B investment in a bad gamble, it’s hardly any skin off their backs when their net worth increases by even more than that every year. It could even be argued that the money shouldn’t be theirs anyways and that they need to pay their fair share of taxes. They have more than enough to keep their yachts gassed and make their next investment in a few months or years without making any lifestyle sacrafices. Normal workers don’t have the luxury of using monopoly power to print money. For them, loosing bets can leave their families in financial hardships for decades. So it’s not the same thing at all.
Alfman,
“I don’t agree that it’s the same”. Yes, I would argue they are not the same, but for the opposite reason.
The housing crisis is a failure of the democratic process. And I am only half joking. We have public ballot initiatives that fight increase of housing supply: https://reason.com/2021/09/01/would-the-mother-of-all-nimby-ballot-initiatives-accidentally-allow-more-development/. And without supply, the existing homes will continue to increase in price.
(The issue is, if San Francisco housing were to be *solved* today, average home owner would lose about a million dollar in wealth. @kurkosdr has a valid point there).
On the other hand cash reserves of Microsoft is not government printed money, or something they gained by avoiding taxes (compared to Prop 13 in California where voters exempted themselves from property tax increases). They actually earned it (though I don’t agree with their business practices. In fact, I disagree a lot on recent Windows 11 decisions).
Okay, I think I show my current personal state about housing affordability. Unfortunately this is what we talk almost every day now. And it over shadows all other issues.
sukru,
I don’t know so much about San Fransisco, but here in the NY area a lot of places are actually kept vacant until people willing to pay the high rents move in. Large areas of the coastline are secondary, third and fourth homes for people who are loaded with cash and don’t care that their extra properties displace others. It’s their money and they feel entitled too buy multiple houses.
This is so hard to fix because upper class wealth directly contributes to the shortages and there’s no escaping it. Even if we could successfully build 10% more housing, many if not most of those would end up being purchased as investment properties rather than going to new home owners.
In some ways this is like the GPU shortage. The obvious thing is to “just make more” so that there’s enough for everyone to have their own, which is ostensibly true. However unless you actually control the distribution somehow, the reality is deep pocketed crypto miners with deep pockets can buy up all available stock at inflated prices leaving many consumers empty handed.
Capitalism has a pretty simple solution actually: those with the most money will get what they want, even if it’s unfair to the rest, and for those priced out of the market…such is life.
But it does matter for those who can afford it (aka can afford the mortgage).
For them, making the big move and taking the mortgage is the right call (since the alternative is paying more in rent and being constantly in risk of being kicked out by greedy landlords).
Jawdropping over the amount spent is the wrong way of looking at it.
This can be solved by the SF government allocating land and/or easing zoning regulations (allowing for taller buildings to replace the current ones) under the condition any new housing built under this arrangement has to be sold to first-time buyers who live and work in SF.
But the SF government has spent years restricting housing supply, partly to “get back” at the millionaires (they thought this would stop growth of technology companies in SF, lol) and partly out of some misguided initiative to stop “sprawl” (damn, I hate this loaded term). Well, congratulations to everyone who voted these bozos in power, “sprawl” is no more. Now go and live in your rented cramped apartment (or more likely, flatshare) and pay through the nose for the privilege, just like people living in cities used to do “pre-sprawl”.
kurkosdr,
Don’t get me wrong, what you say absolutely used to be great advice for young middle class families, but we must recognize that the ballooning costs have had a dire effect on young generation’s abilities to buy their first house and it seems to me that you are underestimating the economic strife that many are living under today. Older generations were fortunate not only to buy affordable houses, but also to benefit from their inflation.
Even after the housing collapse that sent the economy into a tailspin, the housing prices were still more expensive for our generation than our parents when adjusted for inflation.
https://dqydj.com/historical-home-prices/
Combine this with lower inflation adjusted family income and we leave new generations neither able to afford houses nor rent and end up with many having to return to live with their parents after university. The median home buyer today is 15 years behind home buyers in the 80s.
https://www.marketwatch.com/story/this-chart-shows-just-how-much-is-stacked-against-young-people-who-want-to-buy-a-home-2019-12-05
So while it’s so easy to say everyone should be a homeowner, I also think it’s a bit naive of the economic reality that many in the lower and middle classes have much less buying power today.
kurkosdr,
I think something like this could help a generation who’ve been left behind, assuming the government actually cares about first time homebuyers enough to do something and also assuming they can build enough to go around. However part of me is skeptical that builders would actually agree to build and sell houses for those who are less financially privileged. There’s a whole industry of house flippers who’ve made small fortunes doing the exact opposite buying affordable housing, remodeling and reselling as high end housing.
Oh ffs, I was very clear and very specific in my comment. For the people who can afford to take a mortgage for a $300.000 house, it’s a good call if it saves them on rent in the long run and eliminates the risk of being kicked out by greedy landlords.
Key phrase: people who can afford
Jawdropping over the amount is the wrong way to look at it, because it’s objectively a good call for the people who can afford it, despite the amount of money involved in the transaction.
kurkosdr,
We veered a bit from the main topic, but I think that is okay.
Yes, I think Alfman’s point is that this is the old wisdom.
Because the *median* house is now $1.5m in San Francisco, and I am sure it is similar on the New York as well. (It is more like $2.5m+ for a family home with a yard).
That means you need an income of at least $250k to be eligible for a mortgage, or $350k to do it comfortably.
The problem is these are “peak career” numbers. I am not sure most software engineers can work 30 more years to finish off a mortgage after they become senior at age 35-40.
Yet, they can rent the same exact house for 1/3 the cost, but at the risk of sudden need to evict if the landlord decides to stop renting.
(Remote work changes all these equations, of course).
kurkosdr,
I know what you said, I just don’t think you appreciate just how close middle class households are from not being able to cover their bills. You’re implicitly assuming things go as planned, but real life doesn’t always go this way. Deteriorating health, layoffs, divorce, family members in nursing homes, ER visits for yourself or children, bad investments, fire/hurricanes, theft, unexpected breakages or lawsuits…the list goes on and on. In some cases there’s insurance but even then people get surprise bills. We had an $8k surprise bill from the hospital with employer insurance (I’m still pissed off about it). Likewise many insurance policies in this area won’t cover water damage, which is the most likely damage in the event of a hurricane. I have two friends who lost their houses to creditors due to circumstances beyond their control, one is now homeless.
Of course you’re going to say they shouldn’t have bought houses because they couldn’t afford it. But the point is they didn’t know that they wouldn’t be able to afford it in the future.
The problem with ignoring the housing costs is that you are ignoring the viability and economic health of the middle class. I guess maybe you don’t care about them, and that’s your prerogative, but the middle class families are absolutely within reason to point out the problem of decreasing affordability. It’s a very real problem.
ndrw,
” it is definitely not universal …”
I agree that unchecked growth can lead to problems. Cancer tissue would be a good example.
But growth is universal, literally. The universe itself keeps expanding, and things will become very bad when it can no longer do so, … or grown too much.
https://en.wikipedia.org/wiki/Ultimate_fate_of_the_universe
Same with every other entity, including companies. If they stop doing new things, they will lose talent. Unfortunately there is no option to keep doing the same thing. (Yahoo! is still around, but check some linkedin profiles, the teams have long moved on).
Oh, of course, I see what you mean. I was referring to current obsession of investors with growth (usually not even measured in profits), which is temporary.
ndrw,
Yes, short term thinking is really destructive.
People go for unreasonable growth targets, quarterly numbers, instead of long term sustainable growth that comes organically.
Beyond a certain point money has no more value or is dead money. It has to go somewhere and that is usually land or assets of some form. It becomes about power and patronage and rent seeking.
I’ve read through Microsoft’s diversity statements. More women on the board looks good on paper but if women have no power or influence and are unable to bring anything new to the table this counts for nothing. It would be interesting to test Microsoft’s recruitment selection and see if it really passes equality. Simply recruiting people with worldviews and habits similar to existing top management is an old dodge and these women and other diverse recruits may not actually be representative of the ambitions of their respective peer groups or wider more pluralistic and egalitarian society.
WSJ? Paywalled Murdoch paper? Really?
https://www.reuters.com/business/activision-blizzard-fires-more-people-sexual-harassment-probe-report-says-2022-01-17/
Oh, where to begin… This is actually quite small when compared to the problems caused by poor governance at a state level from lack of equality in power structures through to poverty and survival sex.
Are you running some kind of social experiment?
Nah, he just doesn’t believe in the concept of being understood by others. Or trolling, can’t tell to be honest…
She’s just a plain old misandrist.
Read up on the law and science then do the work and figure it out for yourself. You’re only shooting yourself in the foot if you stopped and thought about it for more than a millisecond.
Oh, and after complaints on what the implementation means in practice Microsoft have announced their own investigation into policy impact so you’re rather behind on this one. In other words Microsoft are agreeing with me not you.
As a follow up to my previous comment.
This is excessively naive. As soon as UK enacts a wealth tax billionaires and multi-millionaires will just shift to some other country and UK will lose billions a year.
To be effective it needs to be a global agreement between all countries. That’s not going to happen while USA is doing the opposite (pandering to the rich to attract wealth from other countries).
Not at all if you know anything about politics and have been following the discussion.
An “exit tax” solves financial flight even if tax evasion doesn’t. Good luck spending your money in jail.
There are also a range of factors feeding into this. Right at the top there is funny money and dead money. Once you have a certain amount you’re into inflationary/deflationary mechanisms. We’re not into classic stagflation but more a broader inequality and depressive effect. This leads into how did they get so much unearned wealth in the first place? Cue remuneration committees, tax,and capital gains tax issues. Business ability is also like humour notoriously not portable across borders. It’s actually very difficult to be a success in one country and move to another and be successful there because it’s a completely different business environment and culture as well as access to social networks not being that easy. Wealthy people may also choose to be resident even if tax is higher because of all this as well as soft factors such as where their children go to school and the fact their wife will divorce them if they move. I know of at least one corporate relocation which was reversed because of this.
That corporations and money will move to the lowest level is complete nonsense or Somalia’s GDP would be growing at 1000% a year.
Some of you really do need to read books and a wider range of sources and specialities. Another one for the list: behavorial economics. And yes I’ve had discussions in the past with a senior now retired economist. Don’t believe everything you read in the right wing press.
I neither trust nor care what Oxfam says. It’s one of the NGOs I despise most in the world. And they lie, a lot.
In recent years there is a ongoing wave of buying intellectual property for large sums of money. From singers, movies and now i guess games. Whole catalogues are being sold in i guess a preparation for some future, that is currently not here yet. This could pan out or they could be buying something that won’t have of much value in the future to come.
Geck,
You’re right, however it also seems like the bulk of viewers and our spending just mostly goes to reboots & spinoffs. New works that don’t have a proven audience and have to be heavily promoted are riskier than known brands that have a built in audience and can and will make billions. It’s like the starving artist facing absurd inequalities, but with movies, and now games. Wealthy companies want to own those money making machines, besides when you’re worth trillions, tens of billions isn’t really all that off-putting.
Whether it’s games, movies, or operating systems, there’s a small subculture where some people may go out of their way to support unknown artists. Every once and a while one will get extremely lucky but by and large they are the exception, they simply don’t have the promotional resources of the conglomerates nor the promotion power of “A-list” celebrities.
I notice nobody is in a breaking hurry to mention Joss Whedon.
More detail on this story.
https://www.theguardian.com/commentisfree/2022/jan/19/microsoft-activision-blizzard-acquisition-scrutiny-video-game-industry
And.
In conclusion:
The question is when will men wake up to the fact that they are being abused by other men? So calling me a misandrist isn’t just gaslighting and victim blaming but picking on the wrong target.
A lot of the problems documented here are not unique to America but there are a lot of things the macho long hours sink or swim American culture gets wrong which Europe gets right.