Pachter tackles the 5.9 billion dollar topic.
On episode six of Pachter Factor, a SIFTD.net user asked industry analyst, Michael Pachter, a question about the acquisition of mobile game company and creators of Candy Crush, King Digital Entertainment, by Destiny and Call of Duty publisher Activision.
Zetsabre of SIFTD asked:
“How can Activision justify spending $5.9 billion to acquire King and not use that money towards development of new IP?”
First off, Pachter doesn’t understand why gamers are assuming Activision had the choice of either acquiring King or developing a new IP. Activision, one of the biggest money-makers in the gaming industry thanks to their huge franchises, does not have a finite amount of capital to spend. “Activision will spend whatever it chooses to on development of new IP. So, buying King didn’t suddenly drain Activision’s bank account to the point where it can no longer afford to do anything.”
He continues, talking about how Activision will end up getting their money back in the future by stating, “King generates about 800 million a year in what we call in the finance world ‘free cash flow.’ So, by spending 5 billion dollars, Activision is getting 800 million a year in free cash flow.”
As for what Activision is going to do with King, which hasn’t been specified as of yet, Pachter has a guess: Creating rip-offs. If players are big enough fans of recognizable franchises, they’ll prove it by paying for the mobile versions of the game as well. “I think it’s highly likely King is going to make a Clash of Clans rip-off. They’re going to copy the model. Clash of Clans essentially is a tower defense game; you defend your castle. Imagine if they make that Clash of Clans rip-off game, and they re-skin it, and they call it World of Warcraft: Dungeon Defender?”
Pachter gives praise to Bobby Kotick, CEO & president of Activision Blizzard, on the smart acquisition. “I think that if you start making games based on recognizable Blizzard IP, you actually have something in that mobile world.” He ends the discussion by going back to the original question, “How could THEY NOT justify spending $5.9 billion?”
Let us know if your thoughts have changed about the acquisition after reading Pachter’s thoughts in the comments section below!