Updated: January 20, 2022 2:12:32 pm
Microsoft is buying video game publisher Activision Blizzard for almost $69 billion, the biggest deal ever in the tech industry. The Redmond giant is currently on a shopping spree, and scooping up one of the largest game publishers across consoles, mobile and PC, shows Microsoft’s ambition to become the dominant player in the video games market through its Xbox brand. At the same time, the acquisition raises concerns over Big Tech’s hold on the market, which is already on the radar of regulators. Many also believe the takeover of a publisher of this magnitude indicates Microsoft is trying to destroy the fabric of the video games industry that thrives on creativity and independence. We explain why this high-stake deal by Microsoft to acquire Activision Blizzard is raising concerns despite the substantial benefits the Satya Nadella-led company will get in the long term.
Activision Blizzard’s cult games franchises will now be owned by Microsoft
Activision Blizzard is behind one of the most popular games franchises including Call of Duty, Diablo, Overwatch and Warcraft, among others. The deal also includes King, the mobile gaming giant behind the Candy Crush franchise. Now all of these games and hit franchises will become a part of Microsoft’s Xbox brand. If the deal goes through, Microsoft will overnight become the third-largest gaming company by revenue, behind Tencent and Sony. Both companies are targeting to close the deal in 2023.
Microsoft’s acquisition spree
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Microsoft is paying Activision investors in cash, and although it’s not a small amount, the company can afford it. Microsoft has a valuation of $2.3 trillion, making it the second-most valuable tech company in the world just behind Apple. Going after a big publisher like Activision is an attempt to bolster its exclusive lineup of games designed to run on both Xbox game consoles and PCs. Exclusives and valuable IPs are critical to selling a console, and Microsoft never had these. Nintendo is so successful, because it has the world‘s most popular game franchises such as Mario and Zelda, something you won’t find on any other platform. Sony also owns classic game franchises that help differentiate the PlayStation brand from rivals. Microsoft knows it lacks successful game franchises, but under Phil Spencer, in charge of the Xbox brand, the company has been aggressively buying independent studios. Last year, it lapped ZeniMax Media, the parent company behind video game publisher Bethesda for $7.5 billion. With the Activision acquisition, Microsoft will have 30 studios under it.
A desperate move?
Companies of the stature of Microsoft always look for developers, publishers and independent studios that add value to the offerings in the long run. Sony, too, has been acquiring developers and publishers at a rapid pace but it doesn’t seem like the Japanese company is desperate to takeover studios.
When Microsoft bought Minecraft developer Mojang for $2.5 billion in 2014, it never felt as if the company made this move to have an exclusive game for its own platforms. Minecraft is quite popular and the game can be played on all big platforms, including smartphones. The takeover last year of Bethesda, the developer behind the Doom and Fallout series, raised a lot of concerns and confusion in the video games market.
Microsoft at one point in time made it clear that it’s not after exclusives but now suddenly the strategy is all about exclusive games. Future Bethesda titles such as Starfield and Elder Scrolls 6 will be Xbox exclusives. Expect the same with the Activation catalogue in the future, if not in the immediate term.
Historically, Activision Blizzard’s most popular and ambitious titles such as Call of Duty and Overwatch are available on all major platforms, but now that’s subject to change. This means the next game in the Call of Duty series will be an Xbox exclusive and might not be available on PlayStation 5 at all. Even if Microsoft’s many studios are still in contract to make PlayStation games, the future looks entirely different. The way Microsoft and Tencent are buying studios one after the other signals the end of independent studios and the collapse of third-party games as we know today. The fear with this consolidation is if Microsoft owns Activision Blizzard, the publisher and its studios lose independence and autonomy.
For instance, Blizzard has always been seen as a major third-party studio, but now suddenly it has to follow the guidelines laid out by Microsoft. The focus will start shifting to Xbox games. And if Sony considers buying a big studio, it will further impact the market. Electronic Arts (EA) and Take-Two are the two big American game studios that remain independent.
Game Pass is a priority for Microsoft
Since the debut of the first Xbox console, Microsoft has been unable to compete with Sony or Nintendo in the console market. While Nintendo mainly targets families and casual gamers with fun games and innovative hardware, the competition is between Sony and Microsoft to go after the hardcore gamers. But unlike Sony, which has got a massive user base thanks to the popularity of PlayStation consoles and innumerable hit game franchises, Microsoft never managed to make a hit console or a known game franchise with the exception of Halo and Gears of War. Cliff Bleszinski’s Gears of War franchise, for example, was owned by Epic Games until Microsoft bought the property in early 2014.
The buying spree that began with Mojang seems fuelled by Microsoft’s ultimate aim is to bring AAA titles to Xbox Game Pass, a cloud-based gaming service that has now over 25 million subscribers. For Microsoft, the future of video games is in the cloud, a new way to play games without needing a dedicated console. But to keep the Xbox Game Pass service up and running, it needs popular games, classic games from renowned franchises and future games that can be played on day one on the service.
“Access” and “Scale” are needed to make any subscription-based service work, and Microsoft is doing exactly that. The long-term goal is to create exclusive games that will be available on Xbox Game Pass, which can be accessed from a wide variety of platforms. With the major franchises and developers and the biggest names in the video games industry now a part of Microsoft, it’s going to be tough for the competition to catch up in cloud gaming.
The failure of Google’s Stadia and the lacklustre debut of Amazon’s Luna service shows that only those companies which will have access to the biggest and most popular game franchises will succeed in this space. But the hard truth is developing games takes years and setting up a new studio is an expensive investment.
…but Activision Blizzard is at the centre of a controversy
There is no doubt Activision Blizzard adds star power to the Xbox brand with its hit franchises such as Call of Duty, the most popular first-person shooter game on the planet. But the takeover of the largest US-based games publisher by Microsoft comes at a time when Activision has been subject to a series of scandals, highlighting a toxic culture at the workplace, allegations of sexual harassment and employment discrimination.
In July, the publisher was sued by California’s Department of Fair Employment and Housing (DFEH) in a suit that alleges widespread gender-based discrimination and sexual harassment at the company. Activision Blizzard also faces a U.S. Securities and Exchange Commission investigation, as well as a class-action lawsuit instigated by shareholders. All this led to a walkout of employees, esports sponsors withdrawing support, and several resignations and firings of high-profile employees from several different studios.
The removal of Activision Blizzard CEO Bobby Kotick, the most controversial figure in the gaming world, has only added to its misery even though he remains the CEO of Activision. Microsoft said Kotick will stay on, but he is expected to step down once the deal closes, several media outlets reported. Sure, Activision Blizzard may be the right fit for Microsoft and its Xbox brand in the long run but the troubled publisher comes with quite some baggage. The public perception of Activision is at an all-time low, therefore the cleaning up of the publisher is challenging and the responsibility solely falls on the shoulders of Microsoft.
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Another Big Tech monopoly
Given the size of the deal, both the US Federal Trade Commission and the EU might object to Activision Blizzard being handed over to Microsoft. If the handful of other large publishers also gets acquired, it would create a monopoly of sorts in the video games market. Regulators have only grown hostile towards Big Tech’s recent acquisition moves as many fear these companies could use their market power to muscle smaller competitors. Apple, Google, Amazon and Facebook are already on the radar of regulators but Microsoft has avoided scrutiny in recent years. But its $69 billion acquisition of Activision Blizzard will likely be under regulatory scanner. When a company is ready to pay this much amount for a business, and Microsoft has already expressed that the takeover of Blizzard will provide building blocks for the metaverse, it should be taken seriously.
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