Microsoft’s Activision Blizzard Deal to Power Its Netflix-of-Gaming Aspirations

Around a decade ago, Microsoft shifted to bringing its corporate clients to subscription-based cloud services. The move has helped lift its market value to $2 trillion and maintain its status as one of the world’s top tech companies. The Activision acquisition positions Microsoft to use the same tactic on consumers by persuading gamers to abandon their expensive hardware and play on the cloud.

“Together with Activision Blizzard, we have an incredible opportunity to invest and innovate, to create the best content, community and cloud for gamers to build substantial new value for our shareholders,” said Microsoft Chief Executive

Satya Nadella

on an investor and media call Tuesday.

With more gamers playing on smartphones rather than pricey game consoles and computers, companies around the world are racing to develop services for streaming high-end games to all kinds of devices the same way movies and TV shows are streamed.

Amazon.com Inc.,

Alphabet Inc.’s

Google,

Sony Group Corp.

and a host of smaller players are trying, but Microsoft has taken a large early lead in the emerging cloud-game space by spending billions of dollars on acquisitions and infrastructure, analysts said.

“Microsoft has big aspirations in gaming,” said

Mark Moerdler,

a Bernstein Research analyst. “Microsoft has been buying a number of studios because of what they’re trying to build with Game Pass and subscription gaming.”

If the company can convert some of Activision’s nearly 400 million monthly active users into subscribers, it could significantly bolster its cloud-game business, Mr. Moerdler said.

Cloud gaming is an emerging technology that allows people to stream games using nearly any internet-connected device with a screen, much as they stream videos on Netflix, Hulu and other platforms. Streaming games is more challenging, though, because games are interactive and require a lot more data to run smoothly. While Netflix moved into mobile games last year, it has so far offered only a handful of games that subscribers must download to an Android or iOS device—not games that can be streamed via the cloud.

Consumer spending on cloud-game services reached $3.7 billion last year, with Microsoft’s Game Pass accounting for 60%, according to research firm Omdia, which forecasts total cloud-game revenue will hit $12 billion by 2026.

Along with announcing its planned acquisition, Microsoft said Tuesday that subscribers to Game Pass—which includes cloud gaming, online multiplayer support and access to a large, rotating library of games—have increased 39% in the past year to 25 million.

Mr. Nadella said Microsoft plans to bring as many Activision games as it can to Game Pass. As it has done with games from developers it has acquired previously, Microsoft could make future games from Activision exclusive on Game Pass and Xbox consoles, analysts said.

“We do think our investment in cloud creates a unique capability for triple-A content to reach any screen on any device,” Microsoft game chief

Phil Spencer

said after the Activision deal was announced.

Growing its cloud-game business will help Microsoft diversify further into consumer-facing businesses. That…