I. Introduction
Activision Blizzard, Inc. (NASDAQ:ATVI) is a giant of the video game entertainment industry. As the publisher and owner of legendary IPs such as Starcraft, Diablo, Overwatch, World of Warcraft, Tony Hawk, and Call of Duty, Activision Blizzard’s influence over gaming history is immense. However, revelations of a questionable history and culture at Activision Blizzard have begun to sink its reputation and evaluation. At least, before Microsoft announced their intention to acquire Activision Blizzard at a price of 95 dollars per share, for a total of 68.7 billion dollars[1]. However, the acquisition must still obtain approval from various governmental agencies, and in the meantime, Activision Blizzard will remain on its previous course. A careful look at the ESG policies and realities at Activision Blizzard reveal a stunningly reprehensible workplace and management with far-reaching consequences. However, customers and investors are both cautiously optimistic that Microsoft can turn the ship around.
Q4 2021 hedge fund letters, conferences and more
II. ESG Criteria and Analysis
The SASB highlights six relevant issues under the Environmental, Social, and Governance (ESG) categories for Activision Blizzard, due to its general category of “Software and IT Services”. These are Energy Management, in the form of the environmental footprint of their hardware infrastructure; Customer Privacy in data privacy and freedom of expression; Data Security; Employee Engagement, Diversity, & Inclusion by recruiting and managing a global, diverse, and skilled workforce; Competitive Behavior of intellectual property collection and similar behavior; and Systemic Risk Management from technology disruptions[2]. Activision Blizzard’s first (and only) released 2020 ESG report in June 2021 addresses these topics[3].
A. Environmental
The Activision Blizzard report mentions that they have committed to setting quantitative targets such as “reducing packaging waste by 50% and achieving net zero greenhouse gas emissions by 2050.” They discuss plans to optimize packaging, transportation, and distribution to reduce waste. Furthermore, they’ve committed to using data centers that energy and water efficient, and/or run fully on renewables, while also working on environmentally friendly practices in offices. As Activision Blizzard themselves mention, they are largely a digital company, and their comparative environmental footprint are comparatively small. They are working to mitigate what footprint they do have, though, and have set achievable goals and policies.
B. Social
i. Workforce
Activision Blizzard in their social sections of the report focus largely on their workforce and community. Activision Blizzard champions their investment into minority groups with career preparation programs and support for college-age young adults. They also discuss hiring efforts towards women and other underrepresented groups in the video game industry. Specific initiatives include sponsoring women and non-binary developers to game development conferences, encouraging STEAM (science, technology, engineering, art, and math) learning initiatives in schools such as Girls who Code and Hour of Code, and partnering with non-profits with similar goals. They also highlight their employee diversity and equality training. Furthermore, they state a commitment to equal pay for equal work, and a company-wide analysis of pay by various metrics such as gender and non-binary groups. Activision Blizzard additionally emphasizes their parental benefits, especially for breastfeeding mothers.
However, the reality of Activision Blizzard’s workplace differs drastically for the marginalized groups they champion so fervently in their report. In August of 2021, California's Department of Fair Employment and Housing filed a lawsuit against Activision Blizzard after an investigation, alleging a “frat boy culture” rampant with discrimination against women. Examples include lower pay and starting job levels for female employees compared to male employees, harassment of female employees, both sexual and otherwise, and offload work onto female employees. The lawsuit in particular mentions one incident where a male supervisor’s unwanted sexual harassment drove a female employee to suicide[4]. Soon after, Blizzard president J. Allen Brack stepped down, and Activision Blizzard announced that there would be a male and female co-head of Blizzard to demonstrate improvement. However, in November, only three months later, Jen Oneal, the female cohead of Blizzard announced her resignation. She cited her pay difference compared to her male counterpart as a factor in her decision, among other reasons such as sexual harassment[5]. Activision Blizzard has also faced investigations from the EEOC for harassment and discrimination, as well as the NLRB over unfair labor practices and threatening employees[6] [7].
Activision Blizzard employees have also spoken out with their own stories and hosted walk outs in protest. One story shared included various complaints by breastfeeding mothers. Activision Blizzard employees had their breastmilk stolen, storage space taken by beer, and other subpar support[8]. In response to the series of events, both Blizzard employees and those at Raven Software, another Activision Blizzard subsidiary, have begun organizing unions and/or started striking[9] [10]. The Blizzard employees have received some concessions but are nowhere near appeased[11]. Overall employee morale at Activision Blizzard is low, and many employees have expressed a wish to leave, or announced that they are leaving.
ii. Community/Customer
Activision Blizzard in their ESG report notes the wealth of diversity in their game characters, including women, LGBTQ+ characters, and those on the autism spectrum. Activision also highlights initiatives to increase accessibility of its games and design them for all audiences, including those with disabilities. Activision Blizzard addresses players’ expressions in its games, punishing hateful and unacceptable speech. They also cover data privacy with standard disclosures and policies.
Despite these commitments, the community has been vocal about Activision Blizzard’s shortcomings during the company’s struggles. Developers made the decision to rename the Overwatch character McCree, originally named for a developer at Blizzard who was dismissed as part of the sexual harassment investigations[12]. World of Warcraft developers also moved to eliminate sexual references, mentions of employees involved in the allegations, and altered paintings sexualizing women[13].
C. Governance
Activision Blizzard’s ESG report mentions that their Board, alongside along with various committees that oversee the company’s employees, security, and other matters decide Activision Blizzard’s ESG strategy. They also describe their ethics program, the anti-corruption courses employees took, and various codes of conduct designed to maintain good corporate governance. However, they don’t discuss the board of the company much.
Upon reviewing the Board of Directors on the Activision Blizzard website, we can see that the majority have been on the Board for 8+ years, with two even more than two decades. Furthermore, there are only two women on the board, both recently added, there is CEO duality. Many of the directors also hold board positions on multiple other companies. All of these are indicators of lower annualized returns for the company and decreased flexibility[14].
III. Analysis
Two of Activision Blizzard’s anticipated flagship games—Diablo 4 and Overwatch 2—have been plagued with issues and delayed indefinitely. Fans of Overwatch have also been upset over lackluster communication and what appears to be “the same game.” A producer of the game blamed Bobby Kotick, the CEO of Activision Blizzard in part for the delays[15]. A closer look at the workplace culture and Activision Blizzard’s awful employee engagement would imply that similar delays are almost inevitable. How can an employee focus on her work when she’s worried about the next “cubicle crawl” or harassment from her supervisor?
Bobby Kotick, who also sits on the board, was reported to have known of rapes and other allegations brought to light by the California DFEH lawsuit but failed to report them to the board[16]. A look at the governance of Activision Blizzard, and the CEO duality would allow investors to see that this issue is due to the inability of the board to hold the CEO accountable, as Kotick was also part of the board.
The outcry among many of Activision Blizzard’s collaborators and peers was also fast and negative. Sony CEO Jim Ryan immediately condemned Activision Blizzard for both the allegations, and the poorly made statements addressing said allegations[17]. The CEO of Microsoft Gaming, Phil Spencer, followed suit in saying that they were evaluating their relationship with Activision Blizzard.
Although many investment outlooks remained “Buy” or “Hold” on Activision Blizzard stock at this point, some advised selling, such as MKM, slashed their target price to 54 dollars per share[18].
Many of Activision Blizzard’s other games also have negative outlooks. Overwatch’s players, both casual and hardcore had begun to move to Riot Games’ new tactical shooter, VALORANT. The Overwatch League faced a dwindling audience, and the Call of Duty League, Activision Blizzard’s other big esports venture being called out by esports organizations as not worth the price. World of Warcraft, Blizzard’s largest franchise, has begun to bleed subscribers as large content creators now output video after video lamenting about the state of the game, the developers, and the company. As large Youtubers and streamers move to WoW’s competitors, such as Guild Wars 2 and Final Fantasy XIV (which became so popular it had to temporarily halt sales), the player base of Wow followed. Call of Duty, Activision’s flagship franchise, has also had multiple lackluster releases in a row, which, coupled with the flailing esports scene, has raised a few red flags.
IV. Microsoft Acquisition
The Microsoft Corporation (NASDAQ:MSFT) acquisition of Activision Blizzard caused the share price of Activision Blizzard to rocket in premarket trading from 65 to 83 dollars a share[19]. Every analyst firm has also shifted their advice to Buy for Activision Blizzard[20]. As the largest acquisition of its kind in the gaming industry to date, the news caused shockwaves throughout the sector. Employees are optimistic that Microsoft, which has a history of better culture and low tolerance for the events at Activision Blizzard, will result in a better work environment. However, employees remain wary of Kotick possibly staying on and what that could mean for employees. A fireside chat designed to reassure workers did little.[21]
Phil Spencer has expressed enthusiasm for a variety of projects involving Microsoft’s new acquisition. He displayed interest in developing some of Activision Blizzard’s older IPs, such as Guitar Hero, and talked about letting subsidiary studios work on a variety of projects, rather than multiple iterations of Call of Duty. Spencer also left the door open to unionized workers and having Microsoft teams work with Activision Blizzard teams to resolve issues[22].
V. Final Evaluation
Activision Blizzard has a long, distinguished history, marred by recent scandal and turmoil. It has burned up hard-earned goodwill with its customers and player base. However, its acquisition by Microsoft brings new hope to employees and players both. Activision Blizzard has already made strides to right the wrongs it has perpetrated for so long, and with Microsoft’s assistance, perhaps it can reclaim its throne atop the industry.
About Ling (Egbert) Qin
Current undergraduate at Johns Hopkins University (double major in Physics and Economy). Diverse experiences in medical imaging, cosmic-ray observatories, and cultural heritage NGOs. Interested in astrophysics, preserving cultural heritage, and researching the interaction between scientific developments and the world economy. Can be reached at lqin8@jh.edu
Footnotes
[1] https://news.microsoft.com/2022/01/18/microsoft-to-acquire-activision-blizzard-to-bring-the-joy-and-community-of-gaming-to-everyone-across-every-device/
[2] https://www.sasb.org/standards/materiality-finder/find/?company[]=US00507V1098
[3] https://ourcommitments.activisionblizzard.com/content/dam/atvi/activisionblizzard/ab-touchui/our-commitments/FC_Activision_ESG_Report_2020_V27.pdf
[4] https://www.forbes.com/sites/paultassi/2021/07/22/activision-blizzard-lawsuit-alleges-horrific-mistreatment-of-women/?sh=2cfc24ca166c
[5] https://www.pcgamer.com/blizzard-boss-jen-oneal-was-paid-less-than-her-male-counterpart-prior-to-resigning/
[6] https://www.cnn.com/2021/09/27/tech/activision-blizzard-eeoc-harassment-settlement/index.html
[7] https://www.cnn.com/2021/09/14/tech/activision-blizzard-lawsuit-nlrb/index.html
[8] https://god.dailydot.com/activision-blizzard-breast-milk-theft/
[9] https://gameworkersalliance.com
[10] https://dotesports.com/business/news/report-activision-blizzard-employees-strike-july-28
[11] https://www.msn.com/en-us/sports/esports/abk-workers-alliance-scores-victory-for-activision-blizzard-contract-workers/ar-AAQvve0
[12] https://www.pcgamer.com/overwatch-mccree-new-name-cole-cassidy/
[13] https://www.pcgamer.com/world-of-warcraft-paintings/
[14] https://www.activisionblizzard.com/board-of-directors
[15] https://www.msn.com/en-us/entertainment/gaming/overwatch-2-delay-is-bobby-koticks-fault-says-producer/ar-AASYg4Z
[16] https://www.wsj.com/articles/activision-videogames-bobby-kotick-sexual-misconduct-allegations-11637075680
[17] https://www.kotaku.com.au/2021/11/playstation-boss-calls-out-activision-following-dire-kotick-revelations/
[18] https://www.thestreet.com/investing/activision-downgraded-to-sell-mkm-on-sexual-misconduct-matter
[19] https://finance.yahoo.com/quote/ATVI/profile/
[20] https://www.nasdaq.com/market-activity/stocks/atvi/analyst-research
[21] https://www.msn.com/en-us/money/companies/activision-blizzard-ceo-addresses-employees-on-layoffs-potential-departure-in-e2-80-98fireside-chat-e2-80-99/ar-AASYzUL
[22] https://www.washingtonpost.com/video-games/2022/01/20/xbox-activision-blizzard-phil-spencer/
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