Michael Pachter, Wedbush managing director of equity research, joins Yahoo Finance Live to discuss Activision Blizzard's new Overwatch 2, the Activision-Microsoft merger, mobile gaming, and Netflix's upcoming gaming studio in Finland.
DAVE BRIGGS: Amateur and pro gamers alike, as well as developers, are elated as "Overwatch 2" has just been released within the last hour. Michael Pachter is the managing director of equity research at Wedbush. Nice to see you, sir. So how significant a release is this for a relatively struggling sector, as well as Activision, probably most importantly?
MICHAEL PACHTER: Well, Activision very likely isn't going to be a standalone company in another few months, so not significant for Microsoft. Pretty significant for Activision. I think what actually matters here is that they took the "Overwatch" brand, and they had previously issued it as a $60 purchase. And they've converted it into a free-to-play game. And we don't know if that's permanent, but we know that the launch right now is free.
It's a beta, and the servers are completely jammed. So there's a wait just to get into a queue to be matched up with somebody and get into a game. It's a several hour wait, it looks like. So I would guess at least 10 million people are trying to play right now and aren't being particularly successful. And the difference between a $60 game and a free-to-play game is you don't have to pony up the cash, which means instead of selling 10 million units or so, they'll probably end up with 100 million players who are going to check it out and try it.
And that speaks volumes about how Activision has evolved as a company. They used to want to charge you for everything. They saw the success of "Fortnite," which is free-to-play. They saw the success of "Apex Legends" from EA, which is free-to-play. And I think they're starting to think we can do this, too. They did it with "Call of Duty, Warzone." I think they're trying it now with "Overwatch." So it's a big deal. If Activision and Microsoft don't end up combined, it's going to probably drive incremental $400 or $500 million of revenue a year going forward. So it's a big deal.
DAVE BRIGGS: Michael, highly recommend you check out some of the memes and GIFs of those millions of people waiting to play. Twitter is entertaining right now, as far as "Overwatch 2." But I think you answered my question there about the future of this Activision merger, Microsoft acquisition. They launched a website yesterday just basically to PR the acquisition and what it does for the gaming community. That's not generally a good sign. Why is this taking so long? And when do you think it gets approved?
MICHAEL PACHTER: It warms my heart that you say GIF, which is the correct way to say it, by the way. You know, it's taking so long because the government is starting to actually do its job. And I think we had four years where government agencies got out of the way and let businesses do whatever the hell they wanted. We now have a different administration. I think the FTC is watching out for the consumer and making sure that if a combination goes through, that it doesn't result in a lowering of competition.
I don't think the FTC is going to block this. So I think ultimately, the deal is going to close. But I think that the FTC and the UK Competition and Markets Authority and the EU Competition Commission are going to have to be satisfied that under Microsoft's ownership, Activision will continue to put games on the PlayStation platform, for example. And I think Microsoft will agree to that.
So I think you can do things to make sure that the status quo isn't disrupted and keep consumers happy. Microsoft's not buying Activision to screw PlayStation. They're buying Activision to put Activision titles and Blizzard titles on Game Pass and drive subscriptions without requiring people to buy a console or PC. They have aspirations to be like Netflix. They're looking well beyond 25 million subscribers, and they're looking at 200 million households who can play games and pay them $15 a month. And I think it really has a chance of happening if they close the deal with Activision.
RACHELLE AKUFFO: So, Michael, as you look at what we're seeing with PC, with mobile, as well as console action here, who are the strongest performers? Who's in the best position to take advantage of the next generation of gaming?
MICHAEL PACHTER: The processing speeds on phones are getting kind of ridiculous. They're so fast. So mobile games are catching up. They're not there yet, but they're pretty good experiences. I think that most compelling is that a streaming service like a Game Pass, Google Stadia that closed down-- or was closing down at year end-- announced it last week-- and Amazon Luna, ultimately, you're not going to require any hardware. You're going to require an internet connection and a screen. You can play a console-quality game on your TV or your phone or your laptop without using the processor.
So it doesn't really matter. It's all going to kind of merge together. But as far as who's best positioned to make money, the mobile publishers right now because that's the biggest market by a lot, by literally five or 10-fold. There are 3 and 1/2 billion active mobile gamers. It's crazy. Half the planet plays mobile games. And easily, 10% of them spend money, more likely 20% over the course of a year. So you've got 600 or 700 million people spending money in mobile games, as opposed to a couple hundred million people who buy console or PC games.
RACHELLE AKUFFO: And as you speak about this merging, obviously, Google pulling back, as you mentioned there with Stadia, but you also have Netflix trying to step up its role here. As we're seeing some of these tech companies coming into the gaming space here, do you expect more perhaps consolidation in this space? And who will be some of the likely contenders?
MICHAEL PACHTER: I think that tech companies suffer from the delusion that if they're good at one thing, they can be good at everything. And so that's clearly-- that clearly was Google's problem. That's clearly Netflix's problem. Microsoft isn't quite as stupid. They failed pretty miserably with the Xbox in 2001. They did a little better with the Xbox 360 in 2005 and then a lot better with the Xbox 1 and the Xbox Series X.
But they figured out that they need to really own compelling content to be good. And it took them literally 15 years to have great content. And then they went on a buying spree. They've been buying up studios, six small ones, then Bethesda, and now Activision. Netflix isn't going to do it by building one game at a time. And they're not going to do it by buying little, tiny mobile game developers. Anybody who wants to be in this business is going to have to make a splash. So the answer to your question is, yes, consolidation is likely if a big tech company decides they want to be in this.
I don't think Netflix has the assets or the appetite to go spend $60, $70 billion. Amazon maybe, but they're pissing money down a hole trying to build games themselves. And they're doing a really miserable job at it. As you said, Google did a miserable job at it. So I think it's going to take a while before anybody really makes a big move.
And the gem of an asset out there is Warner Brothers Interactive. You know, it's owned by Warner Brothers Discovery, which is run by a very savvy business guy in David Zaslav, who is burdened by debt and needs to raise cash. And I think if any company wants to make a move in the games industry, buy Warner Brothers Interactive. Their CEO, David Haddad, is great and would run the business perfectly for you. And then make a big bet and license DC Warner Brothers content per games. I think that's the win. That's the next asset acquisition, if anybody is serious about being in this business.
DAVE BRIGGS: Keep your eye on that future acquisition. Excellent stuff from Michael Pachter from Wedbush. Thank you, sir.