Why Tencent (Probably) Isn't Buying Activision Blizzard

This past weekend saw the release of a very interesting rumor. Sources “close to the situation” told Reuters that French mega-corporation Vivendi was considering selling its 60 percent stake in Activision Blizzard, the mega games conglomerate that’s responsible for hits from Call of Duty to World of Warcraft. And there was an even juicier tidbit: Tencent was listed among the potential interested buyers.

This is all still very much in the realm of rumor, of course, but there are some reasons to think Tencent might be a prospective buyer. It has a lot of money; that one’s very important. It has also been pushing into gaming, and it already has a bit of a partnership with Activision Blizzard. Could buying a controlling stake in the company be the next step? Maybe, but I don’t think so. Here’s why:

• Culture shock: Tencent is moving into gaming, but it’s attacking primarily the Chinese market. Similarly, its partnership with Activision is on a China-focused product. The Western games market is an entirely different kettle of fish, being more focused on console titles with longer development cycles, higher upfront costs, and different marketing needs. Buying a $10 billion stake in business whose model you have no experience with doesn’t sound like a particularly smart thing to do. And say what you will about Tencent; it didn’t get where it is today by being dumb. (Yes, Tencent does have US offices, but there’s a reason they aren’t releasing triple-A video games for Western consoles yet.)
• Comfort zone: While Tencent obviously does want to move beyond China — look at WeChat, for example — it tends to start here and work its way out slowly and carefully. As evidenced by the aforementioned WeChat, it has seen some success using that strategy. An abrupt jump to the other side of the world seems a bit, well, out of character.
• It’s not alone: Obviously, Tencent’s not the only company that might be interested in ActiBlizzard, and some of the other heavyweights mentioned in Reutuers’ article seem more plausible. Microsoft, for example, could stand to gain a lot from absorbing Activision Blizzard to bolster its Xbox and PC gaming divisions. Think about how popular Call of Duty is, and now imagine that it’s an Xbox exclusive. That thought has got to be making some mouths water over at Xbox headquarters, and it’s not like Microsoft doesn’t have the money for it.

Of course, Vivendi doesn’t necessarily have to sell its stake all to the same company. Would Tencent be interested in buying a smaller stake in ActiBlizzard? I have no idea, but I suspect the answer is yes, and buying a smaller stake would make way more sense. It would give the company a window into this new market and allow Tencent to see the wheels in motion for a little while, so to speak, before they attempt to get behind the helm. (OK, that’s a bit of a mixed metaphor, but you get the idea).

For now, let’s leave it at that. This is, after all, really just a rumor at the moment. We’ll definitely be keeping an eye on it though. Will Tencent barrel its way into the Western gaming market? Stay tuned!