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Activision Tries to Fix Its Big Problem Before Microsoft Takeover

The video game publisher is rocked by scandals that make it a PR nightmare.

For those only briefly familiar with Activision Blizzard  (ATVI) - Get Free Report, the high-profile video game publisher that Microsoft announced it would acquire back in January, they might assume that the purchase is simply a strategic move to further boost its gaming business.

But the story of the company Microsoft is acquiring is a long-simmering cauldron that has finally boiled over. From plentiful sexual harassment accusations to a CEO who allegedly did his utmost to cover up his company's problems, Activision Blizzard's success--it earned $8.8 billion in revenue last year--appears to be built atop an unstable foundation.

One of the lawsuits in question was filed by the U.S. Equal Employment Opportunity Commission in September 2021. It alleged sexual harassment and discrimination against female employees, both issues it had been investigating as far back as 2018. 

This week, a federal court approved a settlement proposed by Activision Blizzard which included the formation of an $18 million fund "to provide monetary relief and significant injunctive relief." The fund was first proposed publicly in September, along with promises to develop software and training to ensure a healthier workplace environment.

While throwing money at problems is a luxury that the rich can afford, it doesn't do much to solve the root problem: deeply ingrained sexism in the video game industry.

Activision Blizzard Lead KL

What's the Problem With Activision Blizzard?

Regardless of how valuable your company is, no one wants to inherit ownership of a PR nightmare. And while Microsoft's acquisition of Activision Blizzard won't go through until 2023, the pressure is definitely on to repair the gaming company's reputation.

One major point of concern has been the leadership of CEO Bobby Kotick, who was named in a Wall Street Journal investigative report for allegedly keeping mum about reports of sexual harassment and rape within the company. The company's stock plummeted after the article was published, and shareholders and fans alike called for Kotick's resignation openly.

But Kotick is still there, and there's a reason: Terminating him is a complex option. According to a proxy statement Activision gave to the Securities and Exchange Commission, it could cost as much as $265 million to fire Kotick without cause. 

While there are reports that Kotick is expected to leave the company after the deal closes, none have been officially confirmed. His contract does expire in 2023, so he could choose not to renew. But for now, he's staying put.

Will Microsoft Make Changes at Activision Blizzard?

Despite all its thorns, Activision is still a lucrative prospect for Microsoft. Rolling it into Microsoft's pre-existing gaming stable will make Microsoft the third largest gaming company in the world, right behind Chinese publisher Tencent and Sony undefined.

Microsoft has been in the gaming space since 2001, ever since the debut of its very first Xbox. But Sony had a major head start, as it opened its own gaming division in 1994. That created a gap that has been difficult for Microsoft to close. Add in that Japanese markets have wholly rejected Microsoft's Xbox from day one, and the company has had major hurdles to cross. 

But gaining access to Activision Blizzard's loyal fanbase--26 million active users as of Q4 2021--is more important to Microsoft at this point than where the reputation might be by next year. 

Activision Blizzard's games have long drawn an international fanbase as well, especially for it's real-time strategy classic "StarCraft." So by acquiring Activision Blizzard, Microsoft may finally have a chance to reach an audience that previously wanted nothing to do with it.