Charlotte Street Partners

DAILY BRIEFING

DAILY BRIEFING

A world of gamecraft

Written by Javier Maquieira, senior associate 
Edited by Iain Gibson, partner
25 January 2022

Good morning,

The video games industry is still recovering from the sensational news that was the announcement of Microsoft’s acquisition of games publisher Activision Blizzard last week. Not only did the $75bn deal shock the investor community – driving the share prices of other big publishers higher – but it also heralded a new era for the $200bn global game sector.
 
With this purchase, Microsoft is bringing about 30 games studios under one roof, taking control over blockbuster franchises such as Call of Duty, Candy Crush, World of Warcraft, Diablo, and Starcraft. Although the Xbox producer has been successfully buying development studios to make their intellectual properties available exclusively on its platform, it has become particularly aggressive in its approach.
 
Following other high-profile acquisitions, including Minecraft developer Mojang in 2014 and Elder Scrolls and Doom publisher ZeniMax in 2020, Microsoft’s current video game business strategy has proven to be less about selling game products and more about increasing subscriptions to its Game Pass service. This has led many to assert that Bill Gates’s company is not just changing the rules of the game, but creating an entirely new game that transcends the “console wars” of the past.
 
As Patrick Dane explains in TechRadar, now the focus seems to have moved from a battle of brands – that is, Sony’s PlayStation versus Microsoft’s Xbox – to one of mega-corporations seeking to attract an audience of hundreds of millions of players.
 
Although gaming does not constitute Microsoft’s core business, it does represent a crucial step towards the metaverse – the name given to immersive online worlds that many believe will be the next big iteration of the internet. In this sense, the acquisition of Activision Blizzard would allow Microsoft to provide building blocks for the metaverse, ultimately opening new avenues to collect and use consumer data.
 
This means both privacy and antitrust regulators will be scrutinising the deal for any detail on how it could reshape the gaming industry, any hardware and software exclusivity, and whether the corporation might dominate any emerging markets. Not least because of the acquisition’s sheer size, we can expect a long approval process that could take up to 18 months.
 
Even if the deal is allowed to go ahead, the concentration of market power in the hands of a small number of tech companies raises cause for concern. As some have warned, it risks stifling innovation and opportunity, undermining data privacy, and making life harder for gamers. As is often the case in strategy video games, the path to absolute victory can get brutal.

News

Downing Street has disputed a report suggesting Boris Johnson held a birthday party inside Number 10 during the first lockdown. According to ITV News, the prime minister’s wife, Carrie Johnson, helped to arrange the event, which was held just after 2pm on the afternoon of 19 June 2020 and attended by up to 30 people. Under the Covid restrictions in place at the time, up to six people could gather outside with physical distancing.
 
The Pentagon has said that about 8,500 combat-ready US troops are on high alert to deploy at short notice in Ukraine as Nato reinforced its eastern borders with warships and fighter jets. The US president, Joe Biden, held a video call with European allies on Monday amid growing fears of a possible “lightning” attack by Russia to seize the Ukrainian capital, Kyiv. Despite amassing 100,000 troops near the border, Moscow has continued to deny planning military action against Ukraine.
 
At least eight people have reportedly been killed in a stampede outside an Africa Cup of Nations football game in Cameroon. The crush happened as crowds struggled to gain access to Paul Biya stadium in the capital, Yaounde, to watch the host nation play Comoros. Match officials were quoted as saying that some 50,000 people were trying to attend the match.

Business and economy

The UK government has confirmed that people arriving in England from abroad will no longer be required to take Covid tests if they are fully vaccinated. The changes will come in from 4am on 11 February. Rules have also been eased for unvaccinated travellers, who will no longer have to take a day eight test or self-isolate. However, they will still need pre-departure and day two tests.
 
Consumer goods giant Unilever is preparing to cut thousands of management jobs across the business in a “major initiative” due to be announced this week. The cuts will form part of a shake-up intended to “drive greater agility, improve category focus, and strengthen accountability”. The move, which comes after the firm failed in its bid to buy the consumer health division of GlaxoSmithKline for £50bn, will see Unilever slash the positions in more than 100 countries.
 
Mark Zuckerberg has announced that Meta is building the “world’s fastest AI supercomputer” to help Facebook in its transformation into a metaverse. The new machine, called the AI Research SuperCluster (RSC), will be the fastest supercomputer in the world when it’s fully built by mid-2022, according to the tech giant. Meta researchers have also said the RSC, which is built from thousands of processors and housed in an undisclosed location, would help identify harmful content on its platforms.

Columns of note

In the Financial Times, Paul Polman welcomes that more activist chief executives are being moved by the times to get off the sidelines and focus on sustainability and societal problems. Politicising this shift as “woke capitalism”, he argues, is anti-democratic and will stifle economic growth. Although not all corporate statements are to be believed, Polman concludes we should not let the shallow become the enemy of the sincere and we should encourage those executives ready to take a stand. (£)
 
Writing in The Guardian following Nusrat Ghani’s allegations of anti-Muslim prejudice within the Conservative party, Nesrine Malik posits that the former junior minister’s case is far from an isolated one. In the author’s view, as long as “Tory Islamophobia” continues to be endorsed by too many voters, it will fail to be a political issue that could really hurt the party and is therefore bound to happen again.

Markets

What happened yesterday?

London stocks closed well below the waterline on Monday amid a global sell-off in equities as tensions between Russia and Ukraine add to investor concerns. The FTSE 100 ended the session down 2.63% at 7,297.15, while sterling was weaker both against the dollar by 0.8% at $1.34 and versus the euro by 0.52% at €1.19.
 
In the US, stocks on Wall Street ended higher after investors took advantage of a severe drop early in the session to secure discounted shares. The S&P 500 index stock reversed earlier losses to gain 0.3% while the technology-heavy Nasdaq Composite index briefly fell 4.9% before rebounding to end the day in the green.
 
In company news:
 
Computacenter closed down 2.82% even after the computer services company forecast annual profits to be slightly in excess of £250m following a better-than-expected fourth quarter.
 
Unilever gained 7.31% following reports that Nelson Peltz’s activist hedge fund Trian had built a stake in the consumer goods maker.
 
Vodafone Group shares were up 4.52% following reports that the telecommunications company was looking at buying Three UK and had also entered talks with rival Iliad to strike a deal to merge their businesses in Italy.
 
Playtech rallied 4.4% as a takeover for the gaming equipment maker by Australia’s Aristocrat Leisure looked more likely after former formula one boss Eddie Jordan pulled out of the sale race.

What’s happening today?

AGMs
Barings Emerg.
Mitchells & Butlers
Marstons
Scotgold Di
Auction Tech

Trading announcements
TI Fluid Systems
Cairn Energy

Intl economic announcements
(14:00) House Price Index (US)
(09:00) IFO Current Assessment (GER)
(09:00) IFO Expectations (GER)
(15:00) Consumer Confidence (US)
(09:00) IFO Business Climate (GER)
(07:00) Public Sector Net Borrowing

Source: Financial Times

did you know

Despite living through the French revolution and the Napoleonic wars, Jane Austen only mentions France three times in her novels. (Source: @qikipedia)

Parliamentary highlights

House of Commons

Oral questions
Foreign, Commonwealth and Development Office (including Topical Questions)
 
Ten Minute Rule Motion
Consumer Protection (Double Charging)
 
Legislation
Remaining Stages of the Judicial Review and Courts Bill
 
Motion
Motion to approve a money resolution relating to the Down Syndrome Bill
 
Adjournment
Environment Agency and the Bromford Estate

House of Lords 

Oral questions
Reforming the UK’s water industry
 
Increasing the proportion of rape allegations that go to trial
 
Regulating the disposal of wet wipes
 
Military and non-military support to the government of Ukraine to deter the threat of an invasion by Russian forces
 
Legislation
Police, Crime, Sentencing and Courts Bill – third reading
 
Dissolution and Calling of Parliament Bill – committee stage

Scottish parliament 

First Minister Statement
COVID-19 Update
 
Stage 3 Proceedings
Transvaginal Mesh Removal (Cost Reimbursement) (Scotland) Bill
 
Committee Announcements
 
Members’ Business
S6M-02730 Jackie Dunbar: My Breath is My Life

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