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Should Activision Blizzard Worry About Tencent's New "Overwatch" Competitor?

By John Ballard - Mar 6, 2020 at 10:08AM

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Tencent's Riot Games announced a summer release for "Valorant" -- a fresh take on the team-based shooter concept that "Overwatch" helped popularize.

Activision Blizzard's (ATVI 1.90%) Overwatch, released in 2016, has been one of the most popular first-person shooters on the market. Overwatch League is entertaining thousands in its current third season in esports, and as many as 50 million people have bought a copy of the game since its release nearly four years ago. 

But gamers can be fickle. On Monday, Tencent's (TCEHY 2.46%) Riot Games announced its first new franchise in more than a decade. It's called Valorant and is scheduled to be released this summer. Riot Games is well known for League of Legends, one of the most widely played PC games since it launched in 2009. 

It's possible Valorant could emerge as the Fortnite of 2020 and steal players away from Overwatch. But even if that happens, it may not impact Activision Blizzard that much. Here's why.

A young woman sitting at a PC and playing a video game.

Image source: Getty Images.

What is Valorant?

First, we need to understand what Valorant is and what the game offers that Overwatch doesn't.

Similar to Overwatch, Valorant is a team-based shooter that pits two teams of five players against each other on a virtual map to achieve certain objectives. Overwatch was a groundbreaking title for combining elements across different genres in a first-person shooter. Valorant is a variation on that formula of combining the role-playing character abilities from games like World of Warcraft and League of Legends with the tactical team-based shooter mechanics of Valve's Counter Strike: Global Offensive

It's the focus on tactical strategy that most differentiates Valorant from Overwatch, and it's one reason Riot's shooter could take players away from Blizzard's shooter. Blizzard designed Overwatch to be playable by everyone. No experience playing shooters like Call of Duty or Team Fortress 2 is required. A player can master Overwatch by playing intelligently. Blizzard's shooter features simple controls and a fun experience for all ages.

Overall, the gameplay of Valorant will appeal to those seasoned Overwatch players who are looking for more complexity and challenge in team strategy. Riot Games has been developing Valorant for six years, so the game should be very polished when it comes out. 

Overwatch has lost some players over the last few years, which leaves it vulnerable to a fresh shooter like Valorant.

Blizzard doesn't have a lot to lose

There are other things that will differentiate these two games and will appeal to different sets of players.

Playing online games with strangers is not always for the faint of heart. Riot Games' League of Legends has a big problem with disruptive player behavior. Riot has said it has developed a new way to handle toxicity with Valorant, but given that it will be free-to-play and that Blizzard's Overwatch hasn't had a toxicity problem to the same degree as League of Legends, there could be many players who will be skeptical to try Riot's new game.

However, millions of people will download Valorant when it releases, because, unlike Overwatch, it's free-to-play. This will give Valorant a huge advantage in winning a larger player base. Even though Overwatch has sold 50 million copies, nowhere close to that many actually play the game. In the fourth quarter, Blizzard's total monthly active users across all games, including Diablo, Overwatch, and World of Warcraft, were only 33 million.

From that perspective, Blizzard probably doesn't have a lot to lose. It's built a large audience for Overwatch League on the esports scene, and while Overwatch was one of four games comprising two-thirds of Activision Blizzard's revenue a few years ago, it's no longer on that list. That means as the player base has dwindled and sales have slowed, Activision Blizzard is likely not making a lot of money off of Overwatch right now.

Different games come in all flavors that appeal to all kinds of play styles, so investors should expect that Blizzard will lose some players to Tencent's new shooter.

But we should remember that in an industry that is valued at about $150 billion and continues to grow, there are going to be new games always entering the market. 

Activision Blizzard is likely not concerned about Valorant, because it just highlights the opportunity for companies to make new content and drive revenue growth.

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Tencent Holdings Limited Stock Quote
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