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(Mara Potter/PitchBook News)
Microsoft's blockbuster $68.7 billion bid to acquire video game giant Activision Blizzard, owner of the "Call of Duty" and "Candy Crush" franchises, has hit a snag. Yet venture capitalists, by and large, see the deal as good for their portfolio companies, despite concerns over competition.
The UK regulatory body, the Competition and Markets Authority, blocked the deal Wednesday, citing competition concerns in cloud gaming.
Several current and former investors at gaming-focused VC firms said the mega-deal would be good for investors and would lead to new investment opportunities. Moreover, they argued that UK regulators are focusing on the wrong issue, that consolidation is overdue and that blocking the deal could have chilling effects on entrepreneurs.
"Over the last three years, gaming has been on an absolute tear," Josh Chapman, a managing partner at Denver-based Konvoy Ventures. "A lot of cash in the gaming market is pursuing M&A; the environment is healthy. The deal is a positive for the industry because it showcases that big tech companies like Microsoft remain committed to gaming."
The wrong focus
The UK's main point of contention with the proposed deal is how Microsoft's Xbox platform could gain an unfair advantage and monopoly within the emerging cloud gaming subsector.
The investors PitchBook spoke with say CMA has the wrong focus. "They clearly don't fully understand cloud gaming," said Chapman.
Andrew Sheppard, managing director at Transcend Fund, agrees and said that the agency's concerns around cloud gaming don't alter his firm's investment strategy.
"Cloud gaming is inevitable; however, it is too far off on the horizon. This deal will not affect how that story will be told," he said.
Many VCs pointed to mobile gaming and Microsoft's push into the segment as one of the biggest investment opportunities surrounding the deal. King, the publisher of the popular "Candy Crush" mobile games, is owned by Activision Blizzard, and Microsoft's interest is a good sign, according to Chapman.
"Microsoft doesn't touch mobile right now," he said.
Microsoft would be acquiring about 400 million players from King's games, Chapman estimates, and the company has announced plans to launch its own Xbox mobile games app store to rival those of Google and Apple.
"They're playing the volume game," Chapman said of Microsoft expanding into new game segments.
'Consolidation is inevitable'
Several investors said consolidation in the games industry is long overdue and that it would ultimately benefit their portfolio companies and consumers.