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Why this company is spending billions to get parents to play more video games

A gamer plays "Candy Crush Saga" on an Apple iPad Mini. (EPA/MATT CAMPBELL)
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There are few kingdoms in video gaming that Activision Blizzard has not conquered. Publisher of blockbuster competitive computer-and-console franchises like "World of Warcraft," "Call of Duty" and "Destiny," the $26 billion giant has become one of the hardcore-gaming industry's most profitable and unavoidable names.

Yet on Tuesday, the California company announced a surprising mega-deal seeded far from its traditional gaming roots: It plans to spend nearly $6 billion —$2 billion more than Disney paid for "Star Wars" — to buy King Digital Entertainment, the small Dublin-based developer behind "Candy Crush," a simple, fluorescent puzzle game most anyone can play on an old iPhone.

In the age of the smartphone, few gamers are as heavily desired as the casual gamers, the masses once ridiculed as too unsophisticated for "real" games but whose involvement the industry increasingly adores. They may never touch a PlayStation 4, but they still spend millions of dollars a day on colorful goodies and extra content within a game — making mobile gaming one of modern entertainment's fastest-growing moneymakers.

“Our audience was always a middle-class customer in a developed country. In order to play games, you had to pay $300 for a console, or even more for a PC," Bobby Kotick, Activision Blizzard's chief executive, said in an interview. "We never were able to participate in entertaining the vast majority of people on the planet. Now (with King), we have 450 million monthly active users in 196 countries. That’s just a fundamentally different opportunity than we’ve ever had before.”

The Activision Blizzard deal marks an "aggressive shift in strategy" for a company that struck gold in hardcore gaming, analysts with Baird Equity Research said Tuesday, "moving from a somewhat dismissive view of the casual market to embracing it wholeheartedly."

Underlining that shift, analysts said, is a recognition of how deeply the gamer base has changed. The average gamer is now 35 years old, and 44 percent are girls or women, according to data from the Entertainment Software Association, the industry's trade group.

"The definition of a gamer continues to evolve and expand, and this deal is proof positive," said P.J. McNealy, chief executive of Digital World Research, a Boston gaming research firm. "Gamers are no longer just boys playing first-person shooters or sports on a console, or boys playing hours of PC gaming. Mobile gaming is expanding this definition by expanding to the female audience, and in a wide age range. King really understands this demographic."

[More women play video games than boys, and other surprising facts lost in the mess of Gamergate]

Activision, one of the world's first game developers, presides over hundreds of gaming franchises stretching back 35 years to its first days on the Atari 2600. Some of its biggest hits today include "Skylanders," "Tony Hawk's Pro Skater" and "Guitar Hero," that can perhaps now be ported to similar or simpler versions on iPhones, iPads and Android devices.

King runs two of the top five highest-grossing mobile games in America, "Candy Crush" and "Candy Crush Saga," matching games built on the sliding-around of colorful chocolates and baubles; another game, "Candy Crush Soda," has quickly joined the top ranks. The games' world-spanning audience of more than 300 million users (who play at least once a month) deliver incredible profits — almost $800 million last year — all of it spent on optional in-game goodies and upgrades.

But King, especially at a multi-billion dollar price tag, is no sure bet. Shortly after the company went public last year, at $22.50 a share, its stock dropped to about $18 a share, and it has traced a rocky path due to worries over financial fortitude: King’s profit fell to $119 million in the most recent quarter, down nearly 30 percent from a year ago. King's other non-candy games, like "Bubble Witch Saga" and "Pet Rescue Saga," have not proven as appetizing.

Rival mobile game studios, like "Clash of Clans" maker Supercell, have proven formidable adversaries for the attention of smartphone players, and the unsettled world of mobile gaming still remains strewn with one-hit wonders and collapsing brands. Rovio, maker of Angry Birds, slashed hundreds of jobs in August amid disappointing declines in toys and merchandise. An executive at Zynga, the maker of "FarmVille" and "Words with Friends," resigned Tuesday after the company announced its monthly active users had fallen 27 percent over the last year.

Critics say Activision is gambling it can buy its way to the top of mobile gaming via a single mobile game. But Activision's push appears to have more to do with growth than desperation. Two years after striking out as independent from under French media giant Vivendi, Activision has seen its stock soar more than 77 percent this year to become one of the best performers in the Standard & Poor's 500 Index. (King's stock bounced 15 percent on news of the deal Tuesday.)

Buying King could allow Activision Blizzard to draw in cash from outside their core business lines: About 80 percent of Activision's $4.7 billion in revenue over the last year came from PC or console games. And that's critical for keeping the companies' revenues from stagnating: In company projections, worldwide mobile gaming revenue is expected to climb from $36 billion this year to $55 billion by 2019, while console and PC gaming is projected to grow far more subtly, from $50 billion to $57 billion.

[Activision to buy maker of ‘Candy Crush’ for $5.9 billion]

It could also presage a shift in even how games are priced and sold. The traditional hardcore gaming model — paying $60 for a game, or $15 a month for a subscription to a massive multiplayer game like "World of Warcraft" —has increasingly ceded ground to "free-to-play" and "freemium" games that pull in revenue through cheaper "microtransactions" for cosmetic trimmings, virtual items or performance boosts.

Though Activision-King's combined company will count a player audience far larger than the user bases of Instagram or Twitter, much of the money will come from a small fraction of its casual gaming corps. The roughly 2 percent of players who spent any money on "Candy Crush Saga" last year handed over an average of $23 a month, a Guardian analysis found.

"We want to give our audiences flexibility in the way they're commercially engaged in the content," said Kotick, the Activision chief. "If it's compelling and engaging enough, customers will consider paying for it. If we don't deliver something that has value, we won't expect value in return."

The King deal comes one year after Microsoft spent $2.5 billion to buy Minecraft, the Lego-like world-building game popular with kids. Activision Blizzard last year also  found a smash hit in "Hearthstone: Heroes of Warcraft," a free-to-play online card game available on PCs, phones and tablets that has attracted more than 25 million players.

The deal cements Activision Blizzard's ambitions to become one of American entertainment's most reliable blockbuster factories, and many of its franchises now benefit from the spending more likely seen on a big-budget action flick. One recent shooter, "Call of Duty: Advanced Warfare," starred a computer-modeled Kevin Spacey; another shooter, "Call of Duty: Black Ops III," has been promoted with a live-action commercial starring actress Cara Delevingne and Seattle Seahawks running back Marshawn Lynch.

Last month, the company hired a former chief of ESPN and architect of SportsCenter to helm its new eSports division, hoping to spread some of the big-league grandeur accompanying primetime football to the growing realm of competitive gaming. When asked whether the company could really succeed in bringing video games to a wide scale, Kotick points out that more than 150 million people worldwide played Activision Blizzard games over the last year — compared to, say, the roughly 90 million subscribers of ESPN.

"Our responsibility is to deliver the most compelling content to our players. and if we do that, the audiences are there," Kotick said. As for how to bring all this stuff to a casual, mainstream gaming audience? Kotick laughs: "We're already mainstream."