Microsoft announced this week that it’s buying hugely popular game franchise Minecraft for $2.5 billion. For that money, Microsoft gets rights to the game and ownership of its Stockholm, Sweden-based development studio, Mojang. It doesn’t retain the company’s founders or Minecraft‘s infamously outspoken creator, Markus “Notch” Persson.
Does that sound like a lot, $2.5 billion? Well, it is in human dollars, but not so much when you’re Microsoft and you’ve got $85 billion in “cash, cash equivalents and short-term investments.” Regardless of the fact that this week’s deal only cost Microsoft around 3 percent of the money it has on-hand, here’s the real kicker (in the form of a statement from Microsoft): “Microsoft expects the acquisition to be break-even in FY15 on a GAAP basis.” Woof, that’s a doozy of a sentence right there.
Here’s the translation: Microsoft expects the purchase of Minecraft/Mojang to have made back the $2.5 billion it cost by July 1, 2015. And that is why Microsoft bought Minecraft.
Admittedly, that’s a rough translation of all that Microsoft’s saying in that jargon-filled sentence. And it’s a crucial statement in the several-paragraphs-long press release that announced the deal. So let’s break it down, piece by piece!
- “Microsoft expects the acquisition to be break-even …”
This one sounds simple, but there’s a lot of information in there. First and foremost, “Microsoft expects” is a heavily abridged way of saying, “Microsoft lawyers and accountants painstakingly went over the past financials of Mojang and projected earnings for the next two to five years. After doing that work, we expect these results.” Companies don’t “expect” anything they haven’t deliberately calculated. This is not a guess; it’s an equation.
The middle bit — “the acquisition” — is simply referring to the purchase of Minecraft and Mojang for $2.5 billion. Nothing hidden there.
The last bit, however, is especially important. “To be break-even” is to say, “Minecraft and Mojang will recoup the money Microsoft spent on them: $2.5 billion.” That’s a serious claim, and the seriousness is just getting started.
- “… in FY15 …”
Okay, bear with me — this isn’t as complex as it sounds. “In FY15″ directly translates to “in Fiscal Year 2015.” To understand what that means, we have to understand how Microsoft’s fiscal year works (surprise: It’s not the same as the calendar year the rest of us exist in). Microsoft’s fiscal year begins on July 1st and ends on June 30th, every year. Despite it being calendar year 2014, Microsoft’s in fiscal year 2015 right now. So!
“Minecraft and Mojang will recoup the money Microsoft spent on them: $2.5 billion.”
If Microsoft is in “FY15″ right now, and the company’s fiscal year ends on June 30th, Microsoft expects to recoup $2.5 billion solely from Minecraft/Mojang by June 30, 2015. That is a serious amount of money from a single property in a relatively short period. How short of a period? The deal is expected to close by the end of 2014; if I’m incredibly generous and say it theoretically closes tomorrow, that’s only nine months (between tomorrow and June 30, 2015).
- “… on a GAAP basis …”
This is perhaps the most jargon-y bit, but it’s another important component. “GAAP” is an acronym for “Generally Accepted Accounting Principles”, which means, “the federal standard for accounting.” It sets a baseline for consistency across industries in financial reporting. This modifier means that the $2.5 billion Microsoft expects to recoup by mid-2015 can’t include anything that isn’t directly accountable. Most importantly, it’s a measure of confidence — it means that Microsoft doesn’t need to couch any of its financial reporting around the purchase. It’s a way of reassuring investors that, hey, this is going to make money. Don’t worry, investment firm, if you don’t understand video games.
MORE THAN JUST GAMES
So, where’s that $2.5 billion going to come from? Mojang makes a few other games (Scrolls, for instance), but nothing anywhere near as significant (financially or otherwise) as Minecraft. That’s okay: Mojang’s gotten very good at expanding Minecraft into a franchise and property. The game itself is available virtually everywhere. Both Microsoft and Sony dedicated precious press conference time to say the game would arrive on their current game consoles. For a game that originally “launched” in 2011, that’s unheard of. It’s outright something that doesn’t happen.
In the last 24 hours, roughly 7,500 copies sold on PC/Mac: worth around $200,000.
There’s a mobile version on both iOS and Android. You can play it on Fire TV! Sure, why not. It is quite literally available on every major game platform, with the exception of Nintendo’s consoles and the PlayStation Vita (it’s in development). And yes, it is super, super weird that Microsoft will now be the publisher of a game on competing platforms. Head of Xbox Phil Spencer explicitly says in the acquisition announcement that, “We plan to continue to make Minecraft available across platforms — including iOS, Android and PlayStation, in addition to Xbox and PC.”
There aren’t accurate measurements for the game’s sales across all those platforms on an ongoing basis, but the official Minecraft site keeps a statistic of the game’s PC/Mac sales across the past 24 hours (in perpetuity). In the last 24 hours, roughly 7,500 copies sold on PC/Mac: worth around $200,000. That’s approximately $73 million across one year, on just PC/Mac. When I checked last Saturday, it had sold just shy of 15,000 copies in the previous 24 hours.
And that’s to say nothing of merchandising (which there is a considerable amount of), or licensing (also considerable), or the annual convention (appropriately titled MineCon). Also, bizarrely, Microsoft acquires all the financial assets of Mojang as well in the process — that’s to say Microsoft gets money from Mojang in the acquisition. Whatever money Mojang had on-hand goes to Microsoft, and that could be considerable. Considerable enough that it outright offsets the $2.5 billion? Perhaps. Mojang was a privately owned company, and none of those numbers are public.
MINECRAFT’S CULTURAL IMPACT
Anyone who’s been to a mall or walked down a touristy block in Manhattan lately knows the cultural impact of Minecraft: T-shirts and Creeper heads are commonplace at tchotchke stands the world over. More importantly, however, is that millions of children grew up with (and are still growing up with) Minecraft. Its iconic characters (main character/silent protagonist Steve and the hilariously explosive Creeper enemy), distinct visual style and — most of all — unlimited potential for creativity left a lasting impact on both the game industry and a generation of kids.
The next time you attend a Minecraft-themed kids birthday party, think about this acquisition. Minecraft is Mario for millions of kids, and that’s a very big deal. Microsoft stands to make many more billions, as the arbiter of a beloved franchise, than the $2.5 billion it’s shelling out this year.
[Image credit: Getty Images, Alan736/Flickr, Associated Press]
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