Microsoft acquiring Activision ‘is a great extension’ and ‘smart timing,’ tech analyst says

TECHnalysis Research President Bob O’Donnell joins Yahoo Finance Live's Akiko Fujita and Brad Smith to discuss the Microsoft-Activision deal expected to close in 2023, Microsoft becoming a behemoth gaming company, and the problems airlines are facing with 5G.

Video Transcript

- Here, we are beginning this hour, though, with that big news we got out this morning. Microsoft doubling down on the metaverse, acquiring gaming giant, Activision Blizzard, for $95 a share. We're talking about a deal valued at 68.7 billion. And we have seen shares of ATVI soar on that news. Let's bring in our first guest for the hour. We've got Bob O'Donnell, TECHnalysis research president, and chief analyst.

Bob, you cover Microsoft really closely. This is huge news in terms of how Microsoft positioned themselves in the gaming space but also the broader metaverse that we keep hearing about.

BOB O'DONNELL: Well, exactly right, Akiko. And, I mean, the thing about this that makes a lot of sense from a number of perspectives is first of all gaming has created digital communities well before there was a metaverse, right? I mean, arguably this whole metaverse thing really is an extension of what gaming communities and Activision has been a big part of that, have been doing for the last several years.

And, of course, obviously, Microsoft has their Xbox business and a huge gaming business in and of itself. But the other piece is also start to make sense because one of the things that the world is moving to is cloud-based gaming. And, of course, Microsoft has their huge cloud-based Azure computing business. So when you think about where things are going in terms of moving services to the cloud in terms of subscriptions and the Xbox pass business that Microsoft has been building, as well as just the whole notion of digital communities, and we can argue whether the metaverse word is the right one or not.

But the point is there is clearly movement in that direction. And so this is a great extension-- and, oh, by the way, smart timing on Microsoft's part because they're taking advantages of the fact that there has been a lot of, obviously, big issues around Activision, around leadership, around difficult working conditions, particularly for women there.

So it's-- they're taking advantage of the fact, the stock price on Activision has been down. And they're making this purchase. You've got a company led by Satya Nadella at Microsoft that clearly is a very people-focused, equality, equity-focused kind of organization. I think that should have a positive influence on Activision. So net, net I think makes a lot of sense on many different levels.

- Of course, Facebook on the metaverse side or meta platforms rather in the subsidiary that we've seen in Oculus continuing to run away with some of the sales on the headset devices, which are seen to be as one of the critical parts of that immersion in the metaverse.

So going forward in the future for Microsoft, how much do you expect them to also try to accelerate their own perhaps market share, or even positioning within that immersion part, considering the HoloLens? I mean, some of the price tags that we've seen on that, they've been well above the Oculus at this point in time.

BOB O'DONNELL: Well, no you're right. Brad. I mean, the thing is remember the HoloLens-- the initial efforts on HoloLens were never intended to be mass market. They knew coming into it that it was a high-end, very specialized thing. But they also made it clear that this is going to be something that they were going to do longer-term and bring to lower price points.

So, exactly as you point out, they are going to be able to leverage all the technology they've developed for HoloLens, and that's quite a bit by the way, and then use that moving forward for gaming. So, again, now, you've got the gaming applications. You got the gaming hardware. You've got the gaming infrastructure. All of those pieces really do. I think line up well. So I do think eventually we will see a more moderately priced HoloLens. And that's going to be a critical part of Microsoft's efforts here as well.

- Bob, any time you have a deal this size, you're certainly going to get the attention of regulators. And when you think about Microsoft, they've largely been able to sort of stay out of this conversation of this crackdown on big tech. Is-- do you think this puts them back in the crosshairs, or is there an argument to be made at all about the lack of competition that could come from this type of acquisition?

BOB O'DONNELL: Well, look, Akiko, I think you're right. It's going to raise the question marks because we're in an era when any of these kind of deals are going to raise a question mark. So, I don't think they're going to be free from it. And, yes, I think it's going to bring a little bit more attention to them.

In this particular case, based on some of the early numbers that I saw other people talking about, this would put Microsoft at the number three gaming revenue company in the world behind Sony and Tencent in China. So it would probably make them obviously the biggest here in the US, depending on how we think about Sony is you domestic versus Japanese company. But-- so it's going to raise certain degree of questions. But I don't know that it's going to completely change the nature of the game. But, look, there's no question about it. It's going to raise-- people are going to start looking at it and wondering what's the right thing to do.

But, again, remember that there's a lot of different impacts. I mean, Microsoft it's not just about gaming for them in this particular case. It is about these communities. It is about doing other things. It is about providing new opportunities for their Azure cloud business. So all of those things, I think, will play into this in terms of how people think about it. And makes it more complex to kind of completely analyze the whole deal. But I can't inevitably help but think that yes it's going to raise some questions.

- Just while we have here with us, we want to switch gears back to another story that we were covering to round out the 11:00 AM hour and it's on this topic of the catastrophic disruption that airlines were anticipating from the rollout of 5G. You've written extensively about this as well. And so help us break this down even further for our viewers and for what we've seen from the airlines and then the telecom side, where this all comes together even with new statements that we've seen from the White House?

BOB O'DONNELL: Yeah. I mean, this is it's really kind of a crazy story because the science on this is very clear. The issue is the frequencies that the telcos want to turn on these c-band frequencies. It's not like no one has been using them. They have been being used by c-band satellites.

Remember those huge satellite TV systems that people used to have. Not the dish ones. I mean, the big ones. Those all have been using c-band. That was the c-band frequencies. Those were called c-band satellites. That's why it has that name for decades. And they didn't have any issue on airlines.

Also, as you guys mentioned at the end of that piece, there are countries around the world where US-based planes are flying that you already have these c-band frequencies in use for 5G. And they haven't had any issues. This, in my mind, is much more of a political issue than a technical or scientific issue.

Obviously, airline safety is the number one most important thing. There is no question whatsoever. But this has been talked about and set up for years, and, all of a sudden, the fact that the airline industry is coming out now seems very odd. I mean, their having a lot of problems as it is. I feel like they want to kind of be able to point fingers at somebody else to say that they're problems are somebody else's and not theirs. There's a huge gap. When you look at radio frequency spectrum, and I get that it's complex.

But at the end of the day, there's hundreds of megahertz gaps. In a lot of industries, they have a 5 megahertz or a 10 megahertz gap. And yet the FCC gave a 200 megahertz gap to guarantee the future. And actually the frequencies we're talking about are 400 megahertz away. That's kind of like saying, oh, will a car driving along a bridge in San Francisco be felt by someone in Sacramento? It's so far away that it just doesn't make any sense for me from a basic science perspective.

So I'm really questioning what's going on here. It doesn't feel like the real details are there because if you look at the science of it, it's pretty clear that these issues would not be a factor, especially importantly with the mitigations that they're saying, hey, reduce the power around airports. That makes perfectly logical scientific sense. But the other stuff feels much more like an FAA versus FCC kind of battle.

- Yeah. It's an interesting counter perspective, Bob, to what we've heard from the airlines. But if you are traveling, regardless, still makes you a little jittery because you don't know all the details behind this. But we're going to be watching that story closely. Bob, it's always good to get you on the show here. Bob O'Donnell TECHnalysis Research president and chief analyst.