22 Jan, 2022
0Only weeks after Take-Two Interactive set headlines with the gaming industry’s biggest ever buyout in a $12.7 billion deal for mobile and social game developer Zynga, Microsoft has stepped in to wipe that record nearly six-fold with an unprecedented $68.7 billion acquisition of gaming goliath Activision Blizzard.
A sure-fire statement of intent for the planned dominance of Xbox’s Game Pass, the deal will allow Xbox to bring in Activision Blizzard’s extensive gaming portfolio into its catalogue, including the likes of Call of Duty,Overwatch, Diablo, Tony Hawk, Spyro, Crash Bandicoot, StarCraft, Guitar Hero, Hearthstone, and World of Warcraft. With Sony pushing forward its plans for “Spartacus”, a Game Pass-like model for its own exclusive titles, this latest coup from Xbox seems at first glance to be primarily intended to shatter its competition before it has even made it to the track, but the gargantuan $70 billion labelling indicates that this deal is worth so much more than one sole console rivalry to Microsoft and Xbox.
Games As A Service—And One Service Only
I wrote just over a year ago now about the importance that Game Pass was going to play for not only Xbox going forward, but also for the games industry at large. Since then that importance has grown even more than I thought in such a short period. Microsoft’s heavy play acquisition of ZeniMax media felt like a watershed moment at the time, allowing Xbox to push competition to the side by controlling one of the biggest, most popular game publishers in the market. The likes of Elder Scrolls, Doom, Wolfenstein are all gaming royalty, and Xbox’s explicit control of that catalogue would allow them to dictate the gaming landscape quite forcefully.
That was a deal worth $7.5 billion – a seemingly huge price at the time, but somehow one that now feels quite paltry alongside an acquisition worth nearly ten times its sum. If the ZeniMax acquisition was a forceful move on the gaming market, the Activision Blizzard deal is a near total obliteration of it. It is Thanos’ finger snap; Palpatine’s order 66; the activation of a Halo ring to end all as we currently know it. With such a sizeable price tag Xbox, with Microsoft behind it, has shown that it is simply playing an entirely different game to its competition. One that they [Nintendo and Sony] simply cannot compete with.
The accusations of toxicity and sexually abusive culture levelled at Activision Blizzard’s corporate structure may well have watered the publisher’s price down somewhat, but even still Microsoft being able to simply pluck the largest gaming publisher in America and Europe (in terms of market capital and revenue) for themselves would have, until yesterday, appeared completely unfathomable. Of the largest unbought publishers still standing, Microsoft has shown that it has the capital and gumption enough to buy any one of them tomorrow. Xbox and PlayStation have spent the last couple of years in an arms race for IP acquisitions, but little else could ever compare to this tonne brick dropped by Microsoft, and I doubt we’ll ever see anything like it again.
The franchise catalogue it gives Xbox alone is near unbeatable. Call of Duty now steps into line alongside Halo. Once famous rivals at the top of the FPS market – one of gaming’s most popular genres – now the two will share the same parent and allow Xbox to more or less run the roost on the FPS genre entirely. Bringing Call of Duty and Warzone into Game Pass and Xbox exclusivity is big enough on its own to be a damning bolster for the live service against its new PlayStation rival, but then you also have other behemoths such as World of Warcraft and StarCraft that may well be wrapped into Game Pass for PC, or gaming staples such as Spyro and Crash Bandicoot (once, ironically, part of PlayStation exclusivity) now under the all-possessing neon-green spectral umbrella.
Of the possibility of the Activision Blizzard catalogue joining Game Pass, head of Xbox Phil Spencer has said:
“Upon close [of the acquisition], we will offer as many Activision Blizzard games as we can within Xbox Game Pass and PC Game Pass, both new titles and games from Activision Blizzard’s incredible catalogue.”
It is however unclear quite what this will actually look like in practice. It would be hugely surprising for a game like Call of Duty to go entirely exclusive, but then we’re dealing with the biggest surprise acquisition ever in the industry so anything is up for grabs really. Plus, what better card to drive sales of Xbox’s and Game Pass than one of the largest franchises in gaming to be exclusive to one platform?
As a fan of Game Pass generally this deal does, at first, seem pretty positive at a consumer level seeing as now I’ll get “free” access to a wealth of big games for a relatively low price per month. It speaks to Xbox’s strategy over the last while to really plough everything into the “games as a service” model, and obviously they are confident in that model winning out ultimately. But reducing the pool of “independent” publishers (so far as a company like Activision Blizzard can be called independent, at least) is never going to be ultimately good for the consumer, nor the actual dev industry either. Xbox has purported itself as consumer first over the last few years, but a buyout like this is cause for suspicion.
For instance: with what feels like every game heading to Game Pass there is soon not much reason to ever be physically purchasing a game again. While that perhaps works at first for the individual consumer (low price of subscription, value for money etc), the industry might soon reach a point where devs are struggling to sell games at all, thus kicking off a pretty nasty and self-fulfilling cycle: Low sales turnout on launch -> game has to come to Game Pass to recoup some loss -> Game Pass further bolstered but the game’s developer are left with nowhere to go. Low sales on last game then means their next game probably has to go straight to Game Pass again at launch instead. Game Pass further bolstered.
This scenario would likely hurt the smaller publishers and devs most of all. Plus, once more and more studios are left with little choice than to put their titles on Game Pass to even have a chance at garnering an audience, Xbox can at that point easily push up their pricing for subscriptions since the consumer is left with little alternative anyway. An extreme, perhaps more apocalyptic view of this deal’s far-reaching implications? Perhaps. But we’ve already seen similar shifts happen in the western film industry and streaming market with Disney’s buyouts.
Competition is good and healthy for the consumer (it is also the bedrock of gaming as an entertainment after all); singular control via one mega-corp is not, and should be worrying to anyone paying the slightest bit of attention.
Where This Deal Goes Beyond Game Pass and Xbox
The deal will also give Xbox a huge share of the esports market with the likes of StarCraft, Overwatch, Call of Duty all being major players in the ever-growing competitive gaming market, while leading esports organization Major League Gaming (MLG) themselves also come into the Xbox umbrella having been acquired by Activision Blizzard in 2016. Esports is another market on the up, with global revenue apparently coming in at a little over $1 billion last year, with expectations for that number to rise year on year to about $1.6 billion by 2024. As of 2021 Esports was reaching an audience of 474 million worldwide with expectations of that number to rise to over half a billion by 2024 too. With sponsorships and advertising running rife in esports, accounting for the majority of its total revenue, it is certainly not a market to be disregarded and gives Microsoft yet more one stacked deck to hold.
The Activision Blizzard acquisition will also allow Microsoft to step more into the mobile gaming sphere – a market that they have so far lacked in, and one which brings in ridiculous profits year on year. King, the developer behind the ubiquitous Candy Crush mobile games, was acquired by Activision Blizzard in 2016 for $5.9 billion. Bringing in around $1 billion in revenue year on year alone, Candy Crush is a considerable asset for Microsoft to acquire, giving them a huge leg up in the casual, mobile and social gaming market. It allows the company to move to a huge market that hits upon those not typically embroiled within more “hardcore” gaming, giving Microsoft even great opportunity to work in its other mobile and tablet products to its market strategy too.
Under previous leadership Microsoft largely disregarded its gaming sector; Microsoft Office apps were far more the priority while Xbox was resigned to unimportant infantility. But as tech looks ever closer at the wealth of possibilities in the 3 billion consumer-strong gaming market, Microsoft are finally taking notice of the royal flush it already has in its back pocket. The likes of Amazon and Google have been circling the gaming market for a while now, starting up their own platforms and services to varying degrees of success, while Facebook has gone full steam ahead with the burgeoning “Metaverse” – which gaming’s adjacency to makes it a key instrument if the supposed virtual utopia of tomorrow does come through. To Microsoft, this deal not only knocks out its competitor in Sony (and everyone else in gaming), it also grants a protection and advantage for the future against the heavy weights of tech in whatever may lie ahead.
As terrifying and frankly ridiculous as it may sound, $70 billion on Activision Blizzard might well be the bargain of the century for Microsoft.
