Is Activision's purchase of King a good choice?
Activision has purchased mobile game company King for a massive $5.9 billion. The deal will see Activision acquiring all outstanding shares in King. This will be the second game company that Activision has bought, the other being Blizzard.
King's purchase does look good for Activision as another source of income but will it be a good choice on the long term? At the moment King is bringing in a lot of excess revenue, with over $600 million profit brought in the year of 2014. But $5.9 billion for a game company? Lucas Arts only went for $4 billion when Disney bought them.
This is a lot of money Activision is paying out for King. Yes, the mobile industry is very profitable at the moment, with one study saying the mobile gaming market could expand by 50% by the year 2018, but that doesn't mean the current marketing strategy of King will be right for then. By 2018 mobile games could be made at a similar standard to console games. They could have amazing stories behind them or brilliant multiplayer experiences to go through. The whole free-to-play model could be completely scrapped by then.
By 2018, King may not be bringing in the money it's bringing in today. Their reliance on microtransactions may become an obsolete way of bringing in cash. If this happens, King would start to become a drain of resources for Activision, who might just close down the company and cut their losses.
So for now King may work well for Activision, but if the mobile scene changes in the next couple of years, I would not be too surprised if King is forced to close up shop.