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Why is Microsoft paying so much for Activision Blizzard?

Why is Microsoft paying so much for Activision Blizzard?

Russell Kidson

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Yesterday, we released the first article in our three-part series concerning Microsoft and its plans to acquire gaming giant Activision Blizzard. We covered the changes that could be coming to Activision’s gaming titles and what the acquisition would mean for gamers.

Today, we’re going to focus primarily on the business side of the coin. This article will explore the impact that this acquisition will mean on the gaming industry, as well as Microsoft’s slew of gaming behemoth acquisitions in recent years, and how they’ve affected the company and its competitors. We’ll also delve briefly into whether this veritable pantheon of game creators that Microsoft is building qualifies as a monopoly and what that means for the industry’s future. 

Note: The third article will cover the details of the EU regulators’ investigations at length, so we won’t be spending too much time on that today. Now that we’ve addressed the basics, let’s get into the details, shall we?

Is Microsoft building a monopoly over the gaming industry?

In business, monopoly is a very dangerous term, one that signifies one entity having near-full control over a particular industry. A clear-cut monopoly would be for every major video gaming franchise to hail from one company. So, to achieve a true monopoly, Microsoft would need to own a great deal more than just Activision Blizzard. 

Why is Microsoft paying so much for Activision Blizzard

The current situation within the gaming industry is not one where a monopoly is likely. Yes, Microsoft has acquired quite an enviable suite of game creators, but they are far from the biggest in the industry. That title still belongs to Sony and their PlayStation division, for now. 

What gaming companies does Microsoft own?

A little further down, we’ll discuss the companies listed below in more detail. For now, however, we’re merely listing the companies that Microsoft has acquired or established within recent years in order to bolster it’s foothold in the gaming market. Activision Blizzard is not going to appear on this list, as the acquisition is still pending. 

ZeniMax Media

In September 2021, Microsoft acquired ZeniMax Media for an extraordinary $7.5 billion. ZeniMax Media is a publisher with a host of game development houses within its stables. The acquisition became official on the 9th of March this year, and greatly increased the selection of games that Xbox Game Pass subscribers have access to.

ZeniMax Media encompasses prolific studios such as Bethesda Game Studios, Roundhouse Studios, and Tango Gameworks, among others. In total, Microsoft gained the IP of 8 game studios. The most popular titles that Microsoft now has near unbridled access to under this acquisition are titles such as the Fallout franchise, Quake, DOOM, and The Elder Scrolls franchise. 

In addition to the above-mentioned publisher, Microsoft has also acquired a number of developers not housed by publishing firms. The rest of this list will cover those formerly independent developers. 

343 Industries

Microsoft didn’t acquire 343 Industries but instead, created it in 2007, shortly after Bungie shipped Halo 3 to stores. In the same year, Bungie announced its intention to split from Microsoft, but the rights to the then-in-circulation Halo games remained with Microsoft. Bungie went on to develop Halo titles until 2010. 343 Industries was named after the Halo character 343 Guilty Spark. Microsoft created 343 Industries as the new steward for the Halo franchise, in response to losing Bungie. 

Rare

Microsoft acquired Rare on the 24th of September, 2002. This is one of the company’s first developer acquisitions and led to Rare becoming one of Xbox’s first first-party developers. Microsoft bought Rare for a measly by comparison $375 million. Because Rare is such an old developer, it has a well-stocked roster of games such as Sea of Thieves, GoldenEye 007, Banjo Kazooie, Battletoads, and Perfect Dark. The developer also has an upcoming game called Everwild. 

The Coalition

The Coalition is another Microsoft-created developer. The developer was initially known as Black Tusk but took the name The Coalition in 2012. The Coalition is most famous for the Gears of War franchise, but the developer has numerous other games such as the Relic Rescue Facebook game, Microsoft Flight, which was exclusive to Microsoft Windows, and The Matrix Awakens, which was developed in 2021. 

Mojang 

Mojang is one of Microsoft’s most famous acquisitions. Microsoft bought Mojang in November 2014 for $2.5 billion. Mojang is most famous for Minecraft and Minecraft Dungeons. However, the studio has released numerous other games under the stewardship of Markus Persson, such as Caller’s Bane and Crown and Council. Minecraft is one of the most successful games in the industry’s history, if not the most successful, and its popularity now boosts that of Microsoft and its Xbox Game Pass service. 

Playground Games

Microsoft acquired Playground Games in 2018 for an undisclosed amount. Playground Games is the powerhouse developer behind the Forza franchise, including Forza Horizon and Forza Motorsport.  Forza Horizon 5 is currently the highest-rated Xbox exclusive game on the market. The developer is also working on another game at present called Fable.

Ninja Theory

Ninja Theory joined Rare under the Xbox Game Studios banner in June, 2018. The amount that Microsoft paid for Ninja Theory is largely unknown, but the acquisition gave Microsoft access to an incredible roster of games. Among these are Hellblade: Senua’s Sacrifice, Heavenly Sword, Devil May Cry, and Disney Infinity. The studio is currently working on Hellblade 2: Senua’s Saga. 

Compulsion Games

Compulsion Games is another studio that was acquired by Microsoft in 2028 for an undisclosed amount. As far as its most famous games go, Compulsion Games has but two; Contrast and We Happy Few

Undead Labs

Microsoft was incredibly busy acquiring game studios in 2018, as you’ve seen above. Undead Labs is yet another studio that formed part of the mass 2018 acquisition. Undead Labs is known mainly for developing State of Decay, and the studio is currently working on State of Decay 3. 

Obsidian Entertainment 

You can probably guess by now what year Obsidian Entertainment became part of the Microsoft family; yes, 2018. This developer is well-known for numerous games and titles such as Fallout: New Vegas, The Outer Worlds, Pillars of Eternity, and Grounded. 

Double Fine

Here’s a change, Microsoft bought Double Fine in June of 2019. We don’t know how much Microsoft paid for Double Fine, but we do know the studio for games such as Broken Age, Psychonauts, and Grim Fandango Remastered

Why is Microsoft paying so much for Activision Blizzard?

In order for Activision Blizzard to make it onto the list above, Microsoft has to pay an astronomical $69 Billion. For reference, $69 Billion is higher than the GDP (Gross Domestic Product) of Costa Rica, Luxembourg, Panama,Bahrain, or Iceland. It’s a lot of money. Microsoft is ready and willing to shell this exorbitant number out on Activision Blizzard, but why?

Why is Microsoft paying so much for Activision Blizzard

Microsoft is willing to pay so much for a game publisher because of how it could affect the gaming industry in the future. It’s no secret that Microsoft isn’t the biggest player in the gaming industry. In fact, Microsoft accounts for only 20% of the console gaming market. That leaves a lot to be desired when you’re trying to build what will essentially be the Netflix of gaming. 

The only way for Microsoft to realistically drive up its console user base is to provide incentive for players to buy an Xbox over anything else. This is where console exclusives come in. A console exclusive is essentially a deal between a developer and a console manufacturer, such as Polyphony Digital and Sony.

This deal ensures that in order to play Polyphony Digital’s games, such as the Gran Turismo franchise, players would need to buy a Sony PlayStation, as this is the only platform where these games are available. You cannot play any of the Gran Turismo games on a PC or Xbox console. Therefore, Sony and its PlayStation platform have exclusive rights to the Gran Turismo game and exclusive access to its players. 

However, for other games, it isn’t entirely as cut and dried. Many people believe that Call of Duty, developed by Infinity Ward, is a PlayStation exclusive. But it hasn’t been for a long time. Right now, you can play Call of Duty: Ghost, Vanguard and Modern Warfare II on Xbox as well as PlayStation. Yet, there are certain in-game perks that are only available on PlayStation. Numerous other titles work this way too; even though they aren’t fully exclusive to one console or another, they provide perks for players on certain platforms and not for those on others. 

This dynamic that game developers and publishers have with console manufacturers is bound to change after the acquisition goes through and Microsoft officially owns Activision Blizzard. We’re bound to see a lot more games turn into Xbox and PC exclusives, and more games will likely be available on Xbox Game Pass than ever before. This means that more people than before will be buying PCs and Xbox consoles in order to enjoy the latest releases by developers housed within Activision Blizzard’s stables.

This is what Microsoft is paying $69 Billion for; not the company or its games, but the influence that those incredible titles have over consumers and the choices that they make when it comes to buying consoles and gaming systems. 

Why is Microsoft paying so much for Activision Blizzard

How will this acquisition affect Sony?

I want to interject here for a minute. We’ll cover what this means for Xbox in a bit, but I wanted to give Sony some love. Sony’s world is likely going to be very different after the acquisition goes through. Depending on the concessions that Microsoft is forced to make, Sony is likely going to lose a lot of its associated games and developers. 

See, publishers see what happens when you join the Microsoft family, especially now with Xbox Game Pass. This pass basically means that more people will be able to play your game for far cheaper than the full price they’d have to pay on PlayStation. Xbox Game Pass lets you pay a small fee each month and choose from a revolving roster of the most popular games. Around $10 a month to play any game you want, for as long as you want, as many times as you want, on PC or Xbox? That’s the benchmark for developers right now. More players mean a wider audience, which is bound to drive up game sales in the future. 

Why is Microsoft paying so much for Activision Blizzard

Sony doesn’t work the same way. Yes, it has a subscription service as well, but it’s complicated and far less enticing. Essentially, you now have three tiers, whereas you used just to have PlayStation Plus. Each tier comes with its own perks, unique titles, and features that you can choose. Sony claims that this lets users create the perfect package with only the features that they want. But Xbox Game Pass is so much easier. One pass, countless games. Even Electronic Arts’ EA Play is more straightforward and intuitive. 

Short of joining the needlessly complicated PlayStation subscription service, your only option is to pay full price for each game. Games are expensive. If PlayStation doesn’t create a more user-friendly and less intricate subscription system, it’s going to lose gamers to Microsoft and Xbox. The acquisition becoming finalized will mean far less PlayStation exclusive content, likely less PlayStation console sales, and might even lead to the decline of Sony’s 64.5% majority share in the console gaming market. 

How will this acquisition affect Xbox?

We’ve already touched on this a few times by now, but the acquisition will likely lead to a massive windfall for Xbox. To be clear, the acquisition being made official doesn’t mean that all of Activision Blizzard’s IP will become Xbox exclusives. In fact, Xbox has already confirmed that Call of Duty, in particular, will remain on PlayStation. 

Phil Spencer, CEO of Microsoft Gaming, recently stated in an interview that ‘As long as there’s a PlayStation out there to ship to, our intent is that we continue to ship Call of Duty on PlayStation, similar to what we’ve done with Minecraft. Since we’ve owned that, we’ve expanded the places people can play Minecraft. We haven’t reduced the places, and it’s been good for the Minecraft community, in my opinion, and I want to do the same as we think about where Call of Duty can go over the years.’

Why is Microsoft paying so much for Activision Blizzard

This statement actually changes the entire reality of the acquisition. Microsoft does not intend to take games away from platforms, but rather make them available on more platforms. This kind of business approach may seem counterintuitive. But you need to remember that while there may be a rivalry between Xbox and PlayStation, neither company is trying to decimate the other. However, the fact still remains that people aren’t likely to own more than one console at a time, and consumers are likely to opt for the console with the greatest choice and best service.

At the moment, the best service award goes to Xbox for its Xbox Game Pass, but PlayStation still has more games by AAA developers. The acquisition, while it may not take games from PlayStation, will certainly bring more games to Xbox and Xbox Game Pass. This is bound to make Xbox the more attractive option among the two consoles and drive up Xbox sales and Microsoft’s market share in the console gaming industry. 

To summarise

Microsoft could have done a heck of a lot with $96 Billion. But theorizing about how many islands, mansions, or yachts Microsoft execs could have bought for that money would be ignorant. That kind of line of commentary would be appropriate if the situation was that Microsoft found it had $69 Billion just lying around and wanted to blow it.

Then, we could theorize about all the other things that the company could have bought. However, the situation is that Microsoft doesn’t want anything else. Microsoft wants more relevance in the wider gaming industry. That is what Microsoft is paying for.

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