Big dollar acquisitions aren’t new in the video game industry. Activision Blizzard itself became one of the largest video game companies in 2008, when Activision merged with Blizzard in a US$18.9 billion dollar deal. Microsoft and Sony regularly buy successful pre-existing development studios to take over their intellectual properties (IP) and make them available exclusively on their platforms.
But Microsoft has become particularly aggressive in its approach. In the last decade alone it has made a number of high-profile purchases, including Minecraft developer Mojang in 2014 for US$2.5 billion, and Elder Scrolls and Doom publisher ZeniMax in 2020 for US$7.5 billion. With the Activision Blizzard acquisition, Microsoft is now the third-largest company in the industry, behind TenCent and Sony.
This is all part of Microsoft’s current video game business strategy, which is less about selling game products and more about increasing subscriptions to its Game Pass service. Similar to services like Netflix and Spotify, Game Pass gives subscribers access to a massive digital catalogue of games in exchange for a monthly fee.
In its announcement of the Activision Blizzard purchase, Microsoft also boasted Game Pass has surpassed 25 million users. With each user paying US$16 a month, that’s about US$400 million (or A$556 million) in monthly revenue.
With Activision Blizzard, Microsoft now owns a huge new range of franchises it can make available through Game Pass, attracting even more users.
Gaming landlords
If it wanted, Microsoft might even make these franchises only available through Game Pass, forcing customers away from other consoles like PlayStation and distribution platforms like Steam. In other words, it could pull consumers into its own exclusive sphere.
This is now a common strategy. Now, through subscription-based digital platforms, we have all stopped being owners of product and instead have become renters.
This is also true of individual video games. Call of Duty, Hearthstone, Fortnite (and many others) are no longer games that players purchase once, but are instead their own ecosystems in which players are encouraged to continuously spend money on battle passes, cosmetics and access to new content.
Meanwhile, the companies that own these titles can constantly farm new data from their millions of players, further increasing their company value.
With the purchase of Activision Blizzard, Microsoft has effectively purchased a city of existing renters in the player ecosystems of Call of Duty, Hearthstone, World of Warcraft and many other titles.
That’s tens of millions of players already committed to closed ecosystems, including many in the difficult-to-penetrate Chinese market playing Blizzard titles Hearthstone and World of Warcraft. All of these players can be farmed for more personal data and more rent.
So what does it mean for players and developers?
In the short term, probably not a whole lot.
Over the coming years, however, Microsoft might decide to keep more of these newly acquired franchises for its own platforms. For a PC player, this might simply mean having to transition away from Steam to the Microsoft Game Store if they want to access the franchises: an inconvenience, but hardly a radical change.
For PlayStation and Mac players, the situation could be more dire, and they might find themselves having to purchase a PC or an Xbox if they want to play new entries to these franchises in the future.
Some are also worried ongoing giant mergers will stifle creativity and innovation across the video game industry. But this is unlikely since the bulk of the revenue generated by the industry has always been concentrated in a relatively small number of risk-adverse companies.
In her book Global Games, researcher Aphra Kerr estimated that in 2015, the top ten video game companies accounted for 49% of the entire industry’s revenue. In spite of this concentration of capital, the creativity and innovation that produces new genres almost always emerges at the periphery, in much smaller, independent groups working with far fewer resources.
The explosion of new and diverse genres we’ve seen over the past decade occurred, in large part, because independent creators are now able to access far more powerful tools, such as game engines Unity and Unreal, and greater audiences through digital marketplaces, such as Steam or Xbox Game Pass.
The situation is far from ideal, but the companies that control most of the capital in the video game industry – and the companies that are the most innovative – have rarely been the same. So this latest acquisition is unlikely to stifle creativity.
Perhaps this is the important question coming out of the recent sale: not which piece of hardware will have access to which games, but whether Microsoft will take responsibility for improving the work culture and working conditions for game developers? We’ll have to wait and see.
In the latest salvo of an almost two-decade console war between Microsoft and Sony, both Sony’s Playstation 5 and Microsoft’s Xbox Series S/X were launched last week.
With increased spending on videogames due to ongoing quarantine and travel restrictions, the launches have been described as historically significant. Head of Xbox Phil Spencer tweeted:
Thank you for supporting the largest launch in Xbox history. In 24 hrs more new consoles sold, in more countries, than ever before. We’re working with retail to resupply as quickly as possible. You continue to show us the connective power of play is more important than ever.
As is typical for a “next-generation” launch, both consoles sport significant boosts to computing power, support 4K graphics and offer faster performance and loading times. But unlike previous launches, they present starkly different visions for the future of video gaming.
Sony continues to focus on providing exclusive content. Meanwhile, Microsoft yesterday launched its Project xCloud game streaming service in Australia — the most recent step in a wider trend towards embracing a subscription-based business model.
Sony’s focus on exclusivity
For a long time, new consoles had been primarily marketed around “platform exclusive” titles available only for that console.
Sony and Microsoft have in the past paid millions to developers for exclusivity deals. In 2010, Microsoft paid Rockstar Games US$75,000,000 to stop Grand Theft Auto IV from becoming a Playstation 3 exclusive.
Sony’s recent PS5 launch carries on this tradition. The console is marketed in terms of first-party exclusives, such as those developed by Naughty Dog (Uncharted, The Last of Us) and Sony Computer Entertainment’s Santa Monica Studio (God of War).
Sony has also had great success selling hardware peripherals that make its consoles more attractive, evident in recent quarterly revenues. The PlayStation virtual reality headset sold more than five million units worldwide during the last generation.
In contrast, Microsoft quickly abandoned the Kinect. This motion-sensing device bundled with the Xbox One never won over its audience.
The rise of subscription gaming
That said, although Sony vastly outsold Microsoft with the PS4 last generation, it seems in 2020 Microsoft has shifted the goalposts of success.
As Phil Spencer notes, Microsoft’s aim is no longer to sell the most consoles, but to accumulate the most players, irrespective of where they’re playing. The console itself is now almost secondary.
For instance, Microsoft’s Game Pass subscription service, launched in 2017, provides access to Xbox titles across both Xbox consoles and PC. Game Pass follows a similar model to Netflix, wherein users pay a monthly fee to access a library of content.
And although having a Game Pass membership isn’t mandatory, Microsoft reports 70% of X/S console users do.
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