Activision on the block: Assessing the potential buyers

Vivendi might be getting more serious about offloading Activision-Blizzard. Reuters reports the French conglomerate has been in talks with a number of video game (and mass media) companies about a potential sale of the industry's top seller. That makes for a good headline – and I have no doubt about Reuters' report, but as the industry works itself into a frenzy trying to guess whether Microsoft, Time Warner, or Tencent will be the new home of Call of Duty and Diablo, too many people are failing to scratch the surface. It's entirely possible those companies – and private equity firms like KKR, Providence and Blackstone – are kicking the tires and peeking at the books. Any company in its right mind would do so, if only to learn more about the strengths and weaknesses of the industry's largest third-party publisher. But to assume that talks mean a sale is imminent is a mistake. There is, of course, the fact that Vivendi has yet to officially announce that its 60 percent ownership stake in Activision is, in fact, for sale. Reuters reports the company is hoping to pocket somewhere in the neighborhood of $10 billion for the division – and if it finds there's little interest in paying that much, it could hold off on a sale until gaming stocks start to rebound (which almost certainly won't happen until the next generation is underway) or explore other options. Putting that aside, though, there are plenty of culture issues that could come into play with all of the companies mentioned that could scuttle the sale. Let's run 'em down. Microsoft: Admittedly, there's a lot that seemingly makes sense about a Microsoft buyout of Activision. Xbox exclusivity on Call of Duty? Suck it, Sony! An opportunity to revive Guitar Hero as a Kinect game? Get Rare on the horn! Blizzard console games boosting both the console and PC divisions? Steve Ballmer would be dancing for joy. But Microsoft has a lot on its plate already. It's trying to wrap up new hardware. And it's in the process of essentially relaunching the Halo franchise. More to the point, the company hasn't had tremendous luck when it comes to software. Bungie prospered, of course. And 343 Industries seems to be doing just fine. But Rare has yet to create a true blockbuster. And many internal studios were shut down after failing to produce a hit. Moreover, by bringing Activision's mega franchises in-house, the company could hurt its relations with third-party publishers, which are critical to the Xbox. And Activision's profitability would plummet as a Microsoft division, since there's no real chance the company would make games for the PlayStation or Nintendo platforms. Microsoft, at this point, seems more interested in focusing on cross-platform functionality, expanding the Xbox's entertainment options and internally focusing a very few key franchises. And, as we've seen over the past couple of years, that's a strategy that has worked well for the company. Tencent: Tencent is a company that's interested in expanding its presence in the U.S. market – and it's already partnering with Activision to bring Call of Duty Online to China, so of course it's going to be mentioned. The company, though, works on an entirely different business model than Activision – and the learning curve for retail games is a steep one (even with an accomplished executive team in place – and hate all you want on Bobby Kotick, the man knows how to make money). If this were five years or so in the future, it'd be easier, perhaps, to make a case for Tencent, but right now the company has its hands full. It recently bought a minority stake in Epic Games and a majority stake in League of Legends creator Riot Games. Those two acquisitions are said to have added up to a $1 billion cash outlay, far less than the price tag Activision will carry. Additionally, those purchases are going to keep it busy for a while, as it learns how the North American market works. And that alone could cause it to pass on Activision. Time Warner: The media giant certainly has an interest in the gaming world. Warner Bros. Interactive Entertainment is doing well -- so well, that it reportedly got into a bidding war with Tencent over that stake in Epic. Sure, there's some possible synergy between the companies. The film division would lick its chops at having Activision's IPs in its portfolio. But operating a video game unit at the size and scale of WBIE versus Activision is a jump that it's not ready to make. It has gone all-in with video game companies before, though, and it didn't work out well. And with the bitter aftertaste of the AOL merger still lingering after all these years, it's going to be hesitant to make any multi-billion dollar leaps into industries it doesn't fully understand. Just ask the boss. Time Warner's acquisitions of late have been in areas it's comfortable with – and most of those have been overseas. And last year, CEO Jeff Bewkes told attendees at a UBS investor conference that he plans to stay away from "strange conceptual diversification into areas that nobody understands". Time Warner understands games, but whether it understands where the gaming industry is going in the next five years is less certain. And the spotty track record of the video game industry could spook investors. As for those potential venture capitalists, they're likely to be interested, but rustling up $10 billion won't be easy, given the dearth of successful IPOs since 2008. In the long run, Wedbush analyst Michael Pachter may have called this one right earlier this month. Vivendi, he said, wouldn't have a lot of luck finding a buyer – and ultimately it's more likely to spin-off Activision as its own company.