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Microsoft-Activision deal expected to boost Xbox sales

Earlier this month, Microsoft (MSFT) completed its $69 billion acquisition of video game company Activision Blizzard (ATVI). The tech giant reported mixed results for its gaming segments in its fiscal first-quarter earnings on Wednesday— gaming hardware revenue declined, but content/services and overall gaming revenues increased.

Yahoo Finance’s Dan Howley explains the extensive gaming portfolio Microsoft will gain in marketing its Xbox platform, including popular franchises like Call of Duty.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video transcript

BRAD SMITH: Microsoft's cloud division shone brightly in its most recent quarter. The tech giant's push into the AI space boosting its overall performance. Azure grew 29% up from 26% in the previous quarter. But let's not overlook gaming here. While device revenue took a hit during the quarter, Xbox content and services revenue increased 13% from the year prior. And the company's gaming division has a lot to look forward to. Microsoft closed its $69 billion acquisition of video game maker Activision Blizzard earlier this month.

With more on what the future holds for Microsoft in the gaming space, let's bring in "Yahoo Finance's" chief gaming officer and tech editor Dan Howley here. Dan, what is the significance of this and this finally coming to a closure?

DAN HOWLEY: Yeah, Brad. CGO. Good title. I'm going to stick with that. And ask for a promotion now. Thank you very much. This is a big deal for Microsoft. This is something that they've been trying to get done for years now. And now, it's finally closed. Caveat that with the fact that the FTC is still trying to fight. It may work to attempt to break it up, if they have their way. But let's put that aside for now. And look at what it means for Microsoft moving forward in the quarter.

Xbox hardware revenue was down. That's not really too much to go by. If you look at Sony, they're still crushing it with Sony PlayStation sales. But as far as Xbox hardware goes, you expect that to probably start to ramp up in this current quarter because of holiday sales.

The big thing, though, is they had a surprise increase or jump as far as Game Pass subscribers. That's according to Amy Hood. As you said, content and services, that's up 13%. That includes game sales, as well as Game Pass subscription. That's really where they're trying to go. That's their-- I hate to say it-- but their North Star for gaming, where they want consumers to subscribe, have that recurring revenue over time. And perhaps, eventually, increase prices. Right now, it's a steal basically. I believe it's $15 a month around there for access to these games.

And so with Activision Blizzard, they're just going to be adding on those additional games and titles to get people interested. And outside of the UK, which has a carve out for its Game Pass and cloud services, you'll be able to get all of those through Game Pass. So that's the "Call of Duties," "The Diablo's," all of those titles that go with Activision Blizzard will be available on Game Pass at some point.

And so you have to imagine that when it comes to Microsoft's gaming division, this is going to be a boon. Now, we don't have exact breakdowns of the numbers specifically for Game Pass, as far as revenue goes. But they're increasingly leaning on that and calling it out. And if you look at the last few quarters, the CTO Satya Nadella had specifically mentioned Xbox and Game Pass as a big win for the company.

So the $69 billion deal is done. We're going to see them start to push the games into Microsoft's library. That's going to take a little bit of time. But once it starts to really hit, I think a new "Call of Duty" comes out. It's available on Game Pass. It's $15 a month. Why not sign up for it? And get the game. And then, oh, yeah. I get access to a slew of others. You don't have to spend the $60 or $70 on a game right now. And you get access to more and more down the line.

So I think it basically is going to start to sell itself now.

SEANA SMITH: All right. So I think we're going to watch. Dan Howley, thanks so much for breaking that down for us. Again, Microsoft shares up just about 2.5%.