'Call of Duty' maker buys 'Candy Crush' company for $5.9B

Associated Press

NEW YORK  — The company behind the hugely successful "Call of Duty" video games is launching an all-out attack on the mobile gaming market by shelling out $5.9 billion for the maker of "Candy Crush Saga."

Activision Blizzard's purchase of King Digital Entertainment will help it keep pace as video gaming continues to move away from TV-connected consoles to smartphones and tablets.

And it's bound to add new players to Activision's ranks, such as women, who haven't been especially interested in the company's violent games up to now.

But the move comes at a hefty price, especially for a company that has seen its sales and profit drop in recent years.

And while "Candy Crush" is notoriously addictive, it has waned in popularity for some time, and it's unclear when or if King Digital's next hit mobile game will come.

It's becoming increasingly important for video game companies to make their products accessible in both console and mobile formats, making Activision's move an expensive but necessary one, said David Lord, CEO of JumpStart, a Torrance, California, company focused on educational mobile games for kids.

"This gives them access to the mobile market at a time when the console market has had a tremendous year," Lord said, "but we're not sure where it's going to go."

And it's not just console games that are moving over to mobile devices; mobile games are being played on consoles, too. It's about being able to reach players wherever they may be, Lord said.

The takeover will create one of the world's biggest entertainment networks, with a combined total of more than a half-billion monthly active users in 196 countries, by Activision's count.

Activision said it sees tremendous potential in the mobile gaming market, predicting it will generate more than $36 billion in revenue by the end of 2015 and grow more than 50 percent by 2019.

But while people might not mind spending $60 for the latest "Call of Duty" game, many balk at the idea of handing over a few dollars on a game for their smartphone, making it tough to make money off such products.

Most people play "Candy Crush" for free. The company makes money by charging them for more lives or other extras that allow them to play more often.

"It's always harder to monetize on mobile, but on the same token you have many more people in mobile," Lord said. He said that if only a small fraction of the millions of people playing a hit game pay for extras, it can be a windfall for the game's owner.

Hits can be few and far between. None of King's other games have been able to replicate the success of "Candy Crush." King's adjusted profit fell 18 percent to $155 million in the second quarter.

Jefferies analysts Brian Pitz and Brian Fitzgerald said repeating the success of Candy Crush is a daunting task.

"We expect a heavy dose of skepticism from investors, especially given the large deal size," the analysts said in a research note.

Meanwhile, the deal will undoubtedly help Activision attract more women as customers.

Activision's fortunes tend to hinge on its latest "Call of Duty" game. Launched in 2003, the violent, first-person shooter games generated $11 billion in sales through the end of the 2014 fiscal year. Activision also makes the "World of Warcraft" and "Skylanders" games.

While those kinds of games don't traditionally appeal to women, Activision CEO Robert Kotick told CNBC on Tuesday that about 60 percent of King's audience is female.

"Attracting women to gaming is a really important part of our strategy," he said.

While Activision stock has tripled over the past three years, its profit has fallen from $1.15 billion in fiscal 2012 to $835 million in 2014. King's stock hasn't made much headway since the company went public in March 2014.

Activision, based in Santa Monica, California, will pay $18 in cash for each King share, 20 percent over its Friday closing price.

The boards of both companies have approved the deal, but King shareholders must still vote on it, and regulators in Ireland, where King is based, must also sign off.

King stock climbed 15 percent, or $2.31, to $17.85 Tuesday afternoon. Activision rose $1.25, or 3.6 percent, to $35.82.

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