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Will Microsoft, Time Warner, or Tencent buy Activision Blizzard?

Vivendi hasn’t entered the next phase of finding a buyer for its majority stake in video game business Activision Blizzard. Reports in April suggested that the company was looking to make the game publishing and development business its own independent entity, but Bloomberg reported on Jul. 2 that Vivendi was now looking for a buyer to drop $8.1 billion for its stake in Activision. Now reports claim that Vivendi is in active talks with a number of buyers including China Internet services player Tencent and, most significantly for gaming enthusiasts, Microsoft in a partnership with Time Warner.

Reuters reported on Sunday that five sources close to Vivendi’s negotiations said that while no formal processes are underway, Vivendi is actively looking for buyers. “It’s nothing official yet, but they’ve asked a bank to go and talk to possible buyers for Activision,” said one source.

Among those buyers are private-equity groups KKR and Blackstone, but the most interesting rumbling is that Time Warner and Microsoft are considering the acquisition.

Time Warner’s video game publishing and development subsidiary Warner Bros. Interactive Entertainment has had a string of great successes recently, with 2011’s Mortal Kombat and Batman: Arkham City amongst the year’s best-sellers. Titles like those have helped the company grow quarterly earnings to around $3 billion. Activision, fueled by deep revenue wells like Call of Duty and World of Warcraft, would make Time Warner an industry leader.

Microsoft meanwhile would benefit in a different way. By purchasing Activision Blizzard, the company would effectively reallocate all of its game development resources into that existing business and free up its Entertainment and Devices division, in charge of the Xbox brand and its associated devices and services, to foster the Xbox as entertainment platform instead of a gaming machine. All signs point to Microsoft’s next machine, the so-called Xbox 720, being less focussed on core gaming experiences like Halo and devoted instead to cable television and other services. By purchasing Activision though, Microsoft would retain prominence in the core gaming business. It would control Blizzard, maker of the fastest-selling PC games in the world like Diablo III, as well as renew its ties with studios like Bungie, who is already hard at work on a multi-game, multi-year project codenamed “Destiny” that figures prominently on the Xbox 720. The 60 percent stake in Activision Blizzard held by Vivendi could give Microsoft a stake in the broader gaming business beyond its own platform, giving it a presence on competitors’ machines.

Tencent meanwhile also stands much to gain from the purchase. The company announced a partnership with Activision on Jul. 3 that will see it release a free-to-play version of Call of Duty in China. Tencent has been spending a great deal on the core gaming market in 2012. In June, it become the first investor in Epic Games when it purchased a minority stake in the Gears of War studio. The company’s a behemoth compared to Activision with a market cap above $51.5 billion to Activision’s $13.1 billion, but does it have the $8 billion plus that Vivendi’s looking for?

Of those three, it would be Microsoft that could potentially have the greatest impact on Activision’s business as it is one of the world’s most prominent game platform holders. It’s not just Xbox, but the Windows operating system and Internet Explorer web browser as well. Activision Blizzard is a pricey investment at this point in time though, and the company’s future is hardly guaranteed given how it’s based in old sales models like physical disc sales (Call of Duty) and monthly fees (World of Warcraft) rather than in growing markets like mobile and social development.

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