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[WSJ] Sony Expects Microsoft to Keep Activision's Existing Contractual Agreements
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SLB1904
Banned
Ex-Call of Duty: Black Ops devs are making a brand new IP for PlayStation
Former Call of Duty: Black Ops developers are making a brand new IP for PlayStation.Deviation Games was set up by CEO D…
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mckmas8808
Mckmaster uses MasterCard to buy Slave drives
You trolling you man?
So how can Jim be so sure that the exist contracts will be kept? Is he referencing the SEC filings?
I'd say the chances are high that if contracts are not kept, there would be a suit against the entity it contracted with for damages under the contract. As well as a suit against MS for interfering in contractual relations, demanding the full amount of profit COD Sony would have realized during the contractual period. These companies are all legally distinct entities, so if one caused the other to interfere they'd be virtually certain to get sued.
ChiefDada
Gold Member
Activision stock has been in decline for years and it is perfectly normal for purchase companies to pay well in excess over current market value. These are the type of concepts people in this forum need to understand before we can even wish to have meaningful conversation.
Please be careful with your words when saying "Microsoft doesn't care to recoup money soon..." All companies want to recoup investment as quickly as possible. There is no such thing as "not caring" when it comes to any capital investment amount, regardless of size.
mckmas8808
Mckmaster uses MasterCard to buy Slave drives
I think a better way of saying "MS doesn't care to recoup money soon" is that Microsoft isn't planning on recouping this money soon, rather it's planting a seed in the ground that it plans to see blossom 5-10 years from now.
StreetsofBeige
Gold Member
Exactly.
I think MS started making big bank on Azure cloud services starting around 2015. Not sure, but it's a relatively new division compared to all their other stuff.
I'm pretty sure MS didnt wake up one day in 2014 and say "Hey's let's start doing some cloud stuff and get it up and running next year!".
The people spearheading it probably were already talking about this shit in the 2000s, but it finally got up and running and ramped up in the 2010s.
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Bladed Thesis
Member
Great way of looking at it.
And to add to that. Buying Activision at 70b doesn't need 70b to recoup. It is an asset. It has value in and of itself just simply EXISTING. You don't need to recoup the money on the asset in some timeframe. It is an acquired asset that if you wanted to sell at a later time then the idea of recouping investment makes sense. But as an existing asset in a company's portfolio and books, just simply existing as a valuable asset is enough. Especially with IP ownership which is very much a powerful asset to own.
itsjustJEFF
Member
Not sure why this is news or why some of you are surprised? You don't just renege on a signed contractual agreement... that's not how business works LOL Microsoft has already shown they don't do that this. They stood by all the contractual agreements Sony had with Bethesda... after those contracts tho, they are free to do as they please.
ChiefDada
Gold Member
Yes I figured this is what they are trying to get at but it is nevertheless an important distinction.
I do have some contention with your 5-10 year hypothetical (though I know you're just using as example). I hope this helps people to understand just how long-term this investment is:
Activision company wide operating income last year was 3 billion dollars. Assuming everything remains constant, it would take 23 years for this investment to break even. This is what I am trying to explain to people. It is a bold strategy that can't afford to adopt unnecessary risk such as implementing game pass exclusivity.
ChiefDada
Gold Member
No, assets do not have value by simply existing. That is absurd.
The intrinsic value of an asset is measured by the present value of their future cash flows. In buying Activision for $70b, Microsoft bankers and accountants came to the conclusion that Activision's value was in excess of $70b. Of course these calculations are eternally subjective, which is why we have markets and M&A transactions.
Jigsaah
Gold Member
You missed the part when they said "and continue". A very operative phrase there.
Bladed Thesis
Member
Damn, I feel bad for buying my house. I spent 500k and now its worth nothing because it has "no present value of future cash flow." (this phrase means nothing in this discussion). Intellectual property as an intangible asset is not some foreign concept.
Damn, I feel bad for my economic degree. Everything I learned was wrong.
Edit: like what does the bold statement even mean? And the second part of that statement is you literally saying nothing. "MS Bankers (lmao internal bankers? lmao) and accountants (yes) came to the conclusion that Activision's value was in excess of 70b (nothing I said countered this and this has no bearing on the purchase, what are you talking about?). Of course these calculations are eternally subjective (eternally or internally? and what are you trying to say?) which is why we have markets (for internal evaluations? what are you saying?) and M&A transactions (what are you trying to say? Your point makes no sense).
What are you even saying here? Some companies value other companies but its subjective so thats why we have M&A and markets?
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Papacheeks
Banned
They can and will sue. And it would be cut and dry because it was signed in a legal binding contract between both parties. If Microsoft want to just say fuck it and pay whatever the legal finds are for breach of contract then so be it. But thats a can of worms that could cost them a fuck ton. I mean they have the Fuck you Money, but in terms of taking to court?
I think thats something Microsoft wants to avoid.
Toni
Member
Keep selling PS5 at record numbers while having PSN as the #1 revenue generator in the console industry, I suppose.
Sony is doing everything right at the moment. As long as PlayStation has the traditional console industry in lockdown, these publisher buyouts will not shake up their core corporate startegies.
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Vognerful
Member
I don't think you practice what you are accusing me of being reckless in my statements.
First of all, here is the stock history of activision, there is no way you can interpret this as "in decline for years"
Second thing, the excess value we are talking about here is in 40% of company value; that is huge fucking deal.
And third thing, you know damn well what I mean by Microsoft no recouping this money soon. It means that it will not matter to them if after 2 years if they stop the revenue stream from Sony. it did not matter with Bethesda and it would not matter with AIBL.
Unknown Soldier
Member
If Sony wants to make sure Microsoft "honors existing contractual agreements" they need something to force it to happen. If Sony were to acquire EA, they could easily demand MS maintain Call of Duty on Playstation or they could threaten to stop making Madden and FIFA for Xbox. That would certainly make sure that "existing contractual agreements" are "honored" on the part of both companies.
Papacheeks
Banned
There are heavy fines and penalties with contracts like these. As in Microsoft would pay the full amount of revenue lost to Sony from not having Call of Duty on their platform. And we are talking millions to the billions. Though nothing for Microsoft, the bad press and implications would be very damaging. It would hurt any future deals they made with companies for lets say gamepass exclusivity.
Unknown Soldier
Member
Microsoft literally went through an antitrust trial and not only survived but has since become the world's second most valuable company by market cap, behind only Apple. They don't give a FUCK what anyone thinks. "Microsoft is a vampire" is a well-known saying in Silicon Valley. "The Beast from Redmond" is their nickname for decades.
The only way to force agreement from Microsoft is to threaten them with something big enough for them to care. The only thing big enough for them to care is Madden and FIFA. I'm willing to bet right now, EA is being bombarded with name your own price acquisition offers from literally everyone with the cash to make it happen today. If you control EA, you wield a powerful weapon against Microsoft Gaming because the Number 1, 2, and 3 franchises in the world are Call of Duty, Madden, and FIFA.
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Papacheeks
Banned
Madden, Fifa would stay multiplatform because FIFA, and NFL respectively control the license. So even if EA gets bought FIFA, NFL control direction of Madden/Fifa games.
ChiefDada
Gold Member
Yes, I misspoke. I meant to say that they were trading near their 5yr low just prior to acquisition.
No, it is not abnormal. Gaming M&A is very competitive. In fact, Microsoft paid double Bethesda's perceived value of $3.5b to acquire them.
The Activision and Bethesda transactions are in two different leagues, as illustrate with the $70b vs $7b purchase price. Also, the circumstances are especially different as Sony was/is a dominant revenue source for their most active IP.
Anyways, base on perceived tone, it seems that I might have offended you. It wasn't my intention to do so.
ChiefDada
Gold Member
You are referring to your place of residence. You are using it as a utility, therefore the principles we are talking about wouldn't apply. Although it would apply if you purchased that house as an investment and were renting it out.
I don't understand what you're trying to say with your edits but all I was saying is a market is collection of buyers and sellers with diff. opinions on value.
SenjutsuSage
Banned
I'm use to seeing us have lots of experts around here, but I didn't know there were so many Antitrust, Monopoly and Regulatory experts on GAF. You learn something new everyday.
Bladed Thesis
Member
Ah, I see. I didn't see how it was relevent as a follow-up.
Assets DO have value sitting and doing nothing. They are still an asset and the PV or FV of future cashflow has no bearing on them being or not being an asset. Owned IPs are an asset. Even dormant IPs are an asset.
ChiefDada
Gold Member
1000% agreed. But it would just be weird in most circumstances to purchase an income generating asset for big money and just leave it idle. I do get what you're saying now though and sorry for not understanding before.
Bladed Thesis
Member
Agreed. No worries, appreciate the conversation.
I wasn't arguing that they're leaving it idle. I was responding to the idea talking about "earning back 70b" and you see that type of thought process in terms of "MS can't make COD exclusive, they'll never earn that money back" type of thought process. Not necessarily from you, I will admit but that idea is very prevelent. This is entirely antithetical to the idea that IP has value in and of itself.
SLB1904
Banned
i didnt read this
James Sawyer Ford
Member
If so why did Phil say “going forward” we are not going to remove access from those communities?
It was certainly a different phrasing than the Zenimax deal
Methinks MS was willing to eat the sales loss from Zenimax but the size of the purchase and the overwhelming share that is on PS makes me question their willingness to block Sony revenue with CoD
Make it better on Xbox and a “better deal” with GP? Sure
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ManaByte
Gold Member
There’s no community for a game that doesn’t exist yet. He was talking about Warzone, which is no different than FO76 or TESO.
No matter what impression his choice of words give, communities is used in the present tense. He is using almost the exact same playbook as last year. I say almost because from a PR standpoint, he has brilliantly added another play that is getting people repeating the sentiment that its better this way so that Activision wasn't bought by a different big company without a gaming pedigree. I don't like seeing people fall for something so obvious, but I cannot knock that hustle if I'm being honest.
James Sawyer Ford
Member
CoD is a franchise, not a game
It’s not like this is some new ip that doesn’t come out regularly lol
James Sawyer Ford
Member
Yeah I’m not saying it won’t end up 100% exclusive eventually but there is a ton of that 70B valuation tied up into platstation players and it’s hard for me to imagine even a big company like MS willing to sacrifice a huge chunk of it
MS doesn’t like pissing that kind of money away
There’s precedence either way (Minecraft vs Bethesda). Im inclined to think this is more similar to Minecraft
But who knows, I wish Phil was less vague with his comments
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thebigmanjosh
Gold Member
That's not how contracts work. Same as with Bethesda, it would be a legal nightmare for MS to bail on contracts as they would be required to cover Sony's losses from the broken agreement. A new contract can only be substituted if both parties agree to terms, and I don't see Sony or Microsoft finding new, mutually beneficial agreements.
In all likelihood, the contracts are probably just marketing deals and promotions, and there's a near zero possibility that there are signed agreements that mandate the release of future multiplatform games.
FrankWza
Member
It’s ridiculous that they don’t do this. Why let another 25-45 million PS5s get sold before pulling games. PlayStation will sell another 100 million console and let another title slip in in the meantime to offset and keep people on PS. They already over paid into the billions to take away basically one game from PS. Just spend more and start being exclusive this October. Why give PS another infinity ward game that they’ll play over the next treyarch release anyway.
If the whole point was to take CoD away from PS then why wait?
mckmas8808
Mckmaster uses MasterCard to buy Slave drives
KungFucius
King Snowflake
Because they have the highest selling game every year and Bethesda has 2 big selling RPGs a generation at most. Also the cost of the deal is 10x. Wouldn't you treat something 10x as expensive as something else a little different? People don't really buy a console just for Bethesda games but people do buy consoles to have access to the annual COD title. They certainly want to make those players Xbox players, but they have to do so strategically. I am guessing no next gen COD on PS6 but COD on PS5 as long as it is viable.
Gamezone
Gold Member
By doing this Microsoft would have to hand over 30% of their revenue to their biggest competitor, along with cannibalising a potential Gamepass and Xbox growth. That's just too insane to be true.
Yoboman
Member
Yeah MS would never put their biggest game on a competitors device
yurinka
Member
They often had marketing deals or game subscription deals (to include / keep certain games on PS Plus or PS Now) with 3rd party publishers. In this case I assume CoD since it has been the case in the past. I think they don't have planned an upcoming Sekiro or Tony Hawk, but in that case probably these ones too.
The RE Village marketing deal document was leaked, and Sony asked that in exchange of investing X amount on marketing and to use their channels to promote the game, they asked Capcom to don't include the game in a game subscription for a certain amount of time (I think it was a year), and after that if they wanted to include it on a game subscription asked to have priority and exclusivity for subs over the competition during X years more.
So if they signed the same deal with Activision, it would mean CoD games (plus other ABK games) that had marketing deals with Sony during a certain amount of time couldn't appear on GP, but instead on Plus/Now if Sony wanted to do it and for the same offer than the competition. As usual, to break the deal would be compensated with a big amount of money and possible legal issue.
So pretty likely this is one of the reasons of why Activision, MS and Phil Spencer mentioned that want to continue supporting Activision Blizzard communities where they already were, that will honor the deals they had, that don't plan to remove games from other consoles and that Spencer wants to keep Call of Duty on PlayStation.
This would apply for the previous games that already got this deal, but exclusivity and marketing deals aren't signed at launch, they are signed seveal years before. So maybe Sony had marketing deals with ABK for games planned in maybe the next 2 or 3 years.
Yeah, pretty sure they'll remove Minecraft and its spin-off games from PS tomorrow.
When they publish on platforms or stores they don't own, they give this 30% to the platform holder but they are reaching a way bigger audience so they more than compensate it. This is why MS published games on PS, Switch or Steam (or why now Sony is publishing on PC, or why all 3 console platform holders expanded to mobile) and doesn't remove from there the older ones the companies they bought already had there.
Think also that even if they keep CoD multi, many PS users will go to play it on GP anyways due to the pricing. They can keep it at $70 on PS so many people would prefer the GP pricing, while MS would continue getting the revenue from PS.
No, Sony will be the publisher (so pretty likely will also own the IP) of their first game as Deviation.
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adamsapple
Or is it just one of Phil's balls in my throat?
That's .. now how contracts work. Come on, Frank
If MS breaches the contracts, Sony takes them to court and can get the courts to stop MS/Activision from selling the game for a long or short temporary length, which would pretty much ruin every shareholder and board members years.
They continue to generate revenue from whatever existing IP is on other platforms (ala Minecraft) while the developers work on new content exclusive to Xbox/PC after the contracted tenure.
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PlaystationFan5349
Banned
They wouldn’t unless there is some contract abiding them to release COD on PlayStation for x amount of years which I’m sure there is because PlayStation paid a lot of money for the marketing and exclusive dlc rights.
I don’t think this goes more than 2 to 3 years though.
Kerotan
Member
And this is why if T2 were to be sold they'd be bought for at least 25BN even though they're valued at 18BN.
anothertech
Member
Xbox fanbois really eating things up lol.
Will be interesting to watch Sony inexplicably continue to sell hardware 2:1 to Xbox for the for the foreseeable future and Ms continue to hide sales numbers when COD is exclusive.
Will be interesting to watch Sony inexplicably continue to sell hardware 2:1 to Xbox for the for the foreseeable future and Ms continue to hide sales numbers when COD is exclusive.
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