Microsoft has announced plans to acquire games company Activision Blizzard for $68.7bn, with completion expected in 2023.

Acquiring the creator of popular gaming franchises including Call of Duty, Warcraft and Overwatch will help Microsoft compete with gaming rival Sony.

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Historically, Sony’s PlayStation consoles have been more popular than Microsoft’s Xbox. Sony achieved revenue of JPY2,656bn ($23.2bn) from its Gaming and Network Services business during FY2021 and sold 7.8 million PS5 consoles.

In comparison, Microsoft generated $15.37bn in gaming revenue during the year ending June 30, 2021 and is expected to have sold few consoles.

However, the addition of Activision Blizzard games franchises could increase Microsoft’s games revenues by 55%. Activision Blizzard reported Net bookings of $8.4bn in 2020 which is expected to increase in 2021, with bookings already up 9.3% Y-o-Y during the first nine months of the year.

If Microsoft chooses to release franchises such as Call of Duty, Warcraft and Overwatch exclusively on Xbox, this could encourage more consumers to choose the new Xbox Series X/S creating more hardware and software sales

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The deal will also dramatically improve Microsoft’s mobile gaming portfolio, with Activision Blizzard responsible for Candy Crush and the highest grossing mobile game, Call of Duty Mobile, which had 450 million downloads by the end of 2020.

After the acquisition, Microsoft will become the world’s third-largest gaming company by revenue but will remain behind Tencent and Sony.

Gaming industry will be a pillar of growth for Microsoft

The gaming industry has experienced prolific growth in recent years. According to MarketLine data, the global games software retail market grew by 6.3% in 2020 to reach a value of $56.9bn.

Microsoft’s own gaming revenues grew 32.7% Y-o-Y during the year ending June 30, 2021.

Gaming is the largest category in the entertainment industry with approximately 3 billion people playing games worldwide. Therefore, Microsoft is looking to exploit growth opportunities within the industry.

The company is pursuing growth through its Cloud Gaming service Xbox Game Pass which provides a library of games titles for monthly subscribers.

Microsoft is continuously adding new and popular titles to its Games Pass. The acquisition of Activision Blizzard, as well as the $7.5bn purchase one of the largest, privately held game developers and publishers in the world, Bethesda, in March 2021, will enable the company to upgrade its library of games with some of the worlds most popular franchises.