What Microsoft-Activision deal means for PC, cloud gaming

Microsoft (MSFT) has gone through with its $69 billion acquisition of game developer Activision Blizzard (ATVI), bolstering the tech giant's already sizable occupancy in the gaming landscape.

Yahoo Finance Tech Editor Dan Howley highlights what the monumental deal to offer Microsoft in the PC gaming landscape and future cloud gaming prospects, and how the company can capitalize on Activision's mobile gaming segment.

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

Video transcript

DAN HOWLEY: Microsoft officially owns Activision, making it the third largest gaming company in the world by revenue. But for the nearly $70 billion price tag for the acquisition, it may take a while for Microsoft to reap the benefits. For more on this, Yahoo Finance tech editor, Dan Howley, is here with all the details. Hey, Dan.

RACHELLE AKUFFO: That's right, Rachelle. Let's talk about what this means for Microsoft overall. And just to, you know, break things down, the original complaints that we had seen from regulators around the world was really based on Microsoft's nascent cloud-gaming work. And so they have Xbox Cloud Gaming, it's where you can essentially play games, but kind of like Netflix, where you can scroll through a list of games and then all of the processing is done in the cloud on Microsoft servers.

You can stream that to a low-powered Chromebook, your smartphone, and it's going to have essentially the same graphics that it would have if you were playing on a more expensive console. Now, that's still a very small part of Microsoft's overall Xbox revenue, and probably isn't going to start taking off in a meaningful way for some years.

The big immediate impact that this has for Microsoft is on the mobile gaming side of things. They're basically a non-entity in mobile gaming, but with Activision Blizzard on board, they now shoot up to a massive amount. Just to give you an idea of what Activision Blizzard has to offer. In the first half of 2023, it's Candy Crush-- yes, that Candy Crush-- was the second-highest grossing game, mobile game in the world just behind a Tencent game called Honor of Kings.

Now, how big is the mobile gaming market compared to, say, the console or PC market? Well, according to data from IDC and data.ai, the mobile gaming market brought in $103 billion this year. It's expected to close at $103 billion. The PC and console market is only going to make only, you know, relative $83 billion. So the difference here is staggering that Microsoft is able to do.

It's also now going to have a bigger hand in mobile advertising because with Candy Crush, with other games that Activision Blizzard King offers, they also have in-game ads. So it's not only in-game app purchasing, but it's also in-game advertising that they're going to win out on. But let's go back to that cloud gaming aspect, part of cloud gaming is Microsoft's Game Pass. It costs you a monthly subscription. It allows you to get access to hundreds of games.

You can download them to your Xbox or PC depending on the version that you have. This opens up that catalog by adding Activision Blizzard games to it, allowing gamers around the world to get access to those titles through Game Pass without having to physically purchase those games. But the future is the cloud portion that I spoke of-- and that is where Microsoft really wants to expand globally.

The areas of the world where smartphones are the number one computing device don't have the money to get access to a $400, $500 console, or a $1,000 gaming computer, but they do have smartphones. And if they have access to high-speed internet, then they will be able to stream these cloud games. And so that's really the future vision for this. It's not there quite yet, even if you live in an area with high-speed internet, it's not going to be the same as if you were playing on a console or PC.

Sometimes lag pops in, sometimes you see the quality drop a little bit, but as Microsoft perfects this and as other companies perfect it, we'll start to see cloud gaming really begin to take off. And so that's their future part of this, their vision going forward. But right now, they're going to be a mobile gaming juggernaut right out of the gate.

And unless there's some kind of change where the FTC comes in and is able to say, look, this is an antitrust issue, we have to break this acquisition up, then they're going to stay the third-largest gaming company in the world by revenue.

RACHELLE AKUFFO: I mean, when you think of the access that we have, just from our mobile phones it makes sense that the cloud computing is going to be the future there. Great stuff. Our very own, Dan Howley, Yahoo Finance tech editor. Thanks so much.