Microsoft announced plans to pick up ZeniMax and Bethesda in late 2020, in a deal worth $7.5 billion. Now, Microsoft has revealed another major gaming acquisition, worth almost ten times more. For almost $70 billion dollars, Microsoft is acquiring Activision Blizzard, onboarding franchises like Call of Duty, World of Warcraft, Candy Crush Saga, Diablo, and many, many more.
The deal is a blockbuster moment in the gaming industry, as companies like Netflix, Disney, PlayStation, Tencent, and many more compete for our free time with subscription services. Microsoft's big subscription service is, of course, Xbox Game Pass, and this deal is no doubt inspired to bolster the content therein.
With the dust settling, there are dozens upon dozens of questions about what this actually means. Here's my take on what Xbox fans can expect, and what fans of games like Call of Duty, Overwatch, and so on, can expect from Microsoft too.
Why is Xbox doing this?
Microsoft is on a mission to reach all of the world's 2 billion gamers. If nothing else, this acquisition shows that they are deadly serious about it. Activision is a company built almost entirely around monthly active user engagement, and much like many of Microsoft's main competitors, such as Tencent, this deal is designed wholly around boosting the number of users engaged in its ecosystem.
Activision has declined in recent years (even before you mention the wide-reaching lawsuit into its workplace practices), with Call of Duty selling less, World of Warcraft struggling, and Overwatch 2 nowhere to be seen. Activision has a very poor reputation inside and outside the industry. Their involvement in Blizzard has only accentuated their decline in the public eye, and franchises like Call of Duty have unmistakably started to stagnate. Joining Microsoft, which generally enjoys a high workplace satisfaction rating, should breathe new life into a company that is struggling to reconcile Activision's shareholder greed with the desire to make high-quality games people actually want to play.
Xbox Game Pass potentially gives developers a bit more breathing room. As a platform holder, the dynamic is a bit different for game production. I can see a world where Microsoft would allow a Call of Duty to be delayed for polish reasons, whereas Activision wouldn't, to ensure it hits shareholder goals. As part of Microsoft, whose growth is driven largely by Azure cloud services to business, Xbox is somewhat shielded from the same kind of shareholder scrutiny. This should lead to better experiences for gamers since Microsoft's main goal is to keep Xbox Game Pass subscribers engaged and interested in the service, which recently crossed 25 million paying customers.
Indeed, this is ultimately all about Xbox Game Pass. Being able to include games like Call of Duty, Diablo, Overwatch, and even perks for those games on other platforms, will drive engagement and subscriptions in the service. I suspect we'll see monthly rewards for Call of Duty in Xbox Game Pass, much like we've seen with Halo Infinite. We may even see them for mobile games like Hearthstone and Candy Crush, giving Microsoft ways to deliver value to gamers who aren't traditionally interested in consoles or even PC gaming. This also gives Microsoft a much bigger footprint in mobile in general, which is something they've traditionally struggled to achieve.
Speaking of engagement, what does this mean for exclusivity?
Will Call of Duty, etc. go exclusive to Xbox?
While we don't know for certain what Microsoft plans to do, it has hinted that it intends to keep some games exclusive, while others will remain multiplatform, during a call to investors earlier today. If I had to guess, I could foresee single-player games like any potential Sekiro follow-up going exclusive to Xbox, but games like Call of Duty and Overwatch, I feel, are far more likely to remain multiplatform.
Much like Minecraft, Call of Duty is a franchise that is far bigger than any single platform potentially. Removing it from PlayStation is a sure-fire way to generate a mountain of ill will. Call of Duty is also driven by microtransactions, earning itself millions of dollars from the PlayStation platform on a consistent basis. The entire business model of Call of Duty revolves around access, with games on mobile phones, PC, and every platform possible. It's for that reason I highly, highly doubt we'll see Call of Duty yanked from PlayStation on that basis. What I do expect to see is Call of Duty and similar games go straight into Xbox Game Pass at launch, giving Xbox consoles a value proposition that won't exist on PlayStation. I also expect Xbox Game Pass Ultimate subscribers to get special perks in Call of Duty, too, much like the exclusivity deals we've seen hit PlayStation in recent years.
However, I can see franchises like Diablo IV, which are cooperative, PvE-oriented, and less microtransaction driven, potentially go exclusive to Xbox.
These are games that may benefit Xbox the most driving engagement with Xbox Game Pass and the console ecosystem directly and don't necessarily depend on broad annualized appeal. I also suspect games that currently aren't on console, like World of Warcraft, potentially hit Xbox as exclusives too, especially given the fact PlayStation has Final Fantasy XIV as an exclusive on its platform. While, naturally, these online games would benefit from larger cross-platform audiences, Microsoft may seek to put the Xbox stamp on some games that have no footprint on PlayStation. This will create an association and elevate the Xbox platform's status as a place for high-quality exclusive games.
Ultimately, there's no way to know for sure which games will go exclusive or not. For now, I think it's best to work on the assumption that Call of Duty and Warzone will remain multiplatform for definite, while some of the smaller games could go fully Xbox and Windows exclusive. Either way, all of these games will definitely launch day one into Xbox Game Pass, which is currently exclusive to Xbox consoles, PC, the web, and Android.
Will regulators get mad?
Even with the acquisition, Xbox will still be third on the list for gaming revenue. Sony and Tencent are both far ahead of Microsoft, even with the combined revenues from Activision, Blizzard, and King. It's unlikely that regulators will step in to prevent Microsoft from being "third-placed," even if it seems like on the surface that this gives them a large share of the publisher output. They still don't have the largest gaming platform footprint by a longshot, especially when you factor in Apple's App Store and Google's Android Play Store, which boast truly absurd gaming revenues, which utterly dominate growth rates in the gaming sector.
Journalists and commentators who live inside the console industry bubble may be raising eyebrows, but Microsoft should find it fairly easy to argue that they still remain a fairly smaller part of the overall gaming pie. Regulators would be unlikely to stop Microsoft from competing with Apple and Google at the platform level, and Sony and Tencent at the publisher level, considering all of them remain far larger even after this acquisition. The fact Activision is a company arguably in decline will also help the argument, delivering an exit for shareholders who are probably happy to get rid of Activision from their portfolio, given the lawsuits the company is faced with, and the declining footprint of Call of Duty and World of Warcraft.
In a world where Disney was allowed to acquire basically everything this side of Warner Brothers, anti-trust arguments don't seem to hold any water — but anything can happen between now and 2023 when this deal is expected to close.
The deal isn't fully closed yet
Indeed, Microsoft and Activision expect the deal to finalize somewhere between June 2022 and July 2023, and many things can happen between now and then. Deals of this magnitude will undoubtedly rattle some politicians in the U.S. and EU, especially among those who are seeking to reign in "big tech." Microsoft's avoidance of social media and other more destructive and controversial forms of entertainment could help it here, given how Microsoft positions Xbox as a very sanitized and safe platform, devoid of the typical political discourse we often see across Facebook's services, for example. But indeed, until the deal is fully closed, we won't know for sure.
What I'm personally hoping above all else is that Microsoft can turn Activision around, not just for gamers, but for the employees that work there. Activision is notorious for treating its workers like garbage, with large and seemingly arbitrary layoff rounds to pad quarterly figures, unequal pay, and of course, widespread allegations of sexist workplace culture. Microsoft is by no means entirely innocent in this area either, but it seems to be in a far better place than Activision, and will likely move further, faster, to repair the damage and heal the issues Activision has faced in recent years.
We can also only hope this will lead to better games too. Activision has been notorious for shipping half-baked, low-quality titles in recent years. Call of Duty: Vanguard is one of the weakest entries in the series to date, seeing sales declines not seen for Call of Duty in years. World of Warcraft: Shadowlands has also been so ill-received by fans that it drove a mass player exodus to Final Fantasy 14 Realm Reborn, to the point where Square Enix had to shut down sales of the game.
Hopefully, Microsoft can give Activision's developers breathing space to focus on quality over quarterly earnings, like the Blizzard of old. There's a lot of speculation about how all of this may play out, and ultimately, we won't know how Microsoft's culture will impact Activision for years to come. For everybody involved, and gamers, I can only hope it all ends up being positive.
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Jez Corden a Managing Editor at Windows Central, focusing primarily on all things Xbox and gaming. Jez is known for breaking exclusive news and analysis as relates to the Microsoft ecosystem while being powered by caffeine. Follow on Twitter @JezCorden and listen to his Xbox Two podcast, all about, you guessed it, Xbox!
Excellent review Jez, and one of the few I've seen that isn't from within a bubble of either console or PC. I also noted that Phil got a new title. New for him and new for Microsoft. He is now CEO of Microsoft Gaming. None of the other big bosses at Microsoft, such as Panos at Windows or the Azure team lead have the CEO title. It may mean nothing, but corporations don't usually throw out titles without some thought about it. I suspect that they wanted to make sure everyone knows that Phil reports directly to Satya, which is another indicator of how serious they are about gaming.
Well, organizing gaming as a standalone operation makes it easier to argue there will be no competitive/antitrust issues in gaming because they're not dominant.
Also, it allows them to carry MSGAMING as a wholly owned "independent" company they can (if pressured) spinoff and IPO (keeping a controlling interest).
Could also contribute internal tactical and morale benefits that help with acquisitions: for the executive teams at acquired companies, it's more comfortable to report to the MS CEO of Gaming than being doubly demoted to having your whole team reporting to an EVP. This also shows just how important gaming is to MS, which is also a factor for acquired companies (if you're a game company, would you rather be bought by a company that you know understands gaming or by, say, CVS or Firestone Tires?). These are the subtle factors that contributes a positive perception during acquisition discussions, especially because it's often those senior executives who play a large role in the decision to endorse or fight the acquisition.
Would be great to be able to play World of Warcraft using my gamepass subscription...
I'm here for Diablo 4 on game pass. Also, can someone please resurrect Lost Vikings. My all time favorite Blizzard game as a kid.
Seconded. Isn't it available nowadays?
This helps explain the timing of the third party audit of Microsofts sexual harassment policies
Yes, and the very interesting comments about how Xbox has had to rethink their relationship with Activision. By rethink they meant we can't do business with them any longer unless we own them, I guess.
I wonder if they were trying to put financial pressure on Activision as a negotiating tactic. They may have really meant it: we won't work with Activision like we did in the past, with preferred placement and terms. This would devalue Activision, raise their desperation, and improve Microsoft's hand in acquisition negotiations. And it could also be sincere, regardless of the negotiation outcome. If the acquisition had fallen through, maybe they really wouldn't have kept working like Activision like in the old days (what we call a BATNA in negotiation: the Best Alternative To a Negotiated Agreement, or more commonly called the "walkaway position"). Just speculation inspired by your comment, CunningPig, but pretty standard fare in corporate M&A.
Yes definitely. There's reports coming out now that Kotick didn't want to sell but felt pressure from shareholders and couldn't find a higher bidder. I'm sure that some of that pressure came from Phil Spencer's comments directed at Activision, which has to hold more weight than all the public outcry. If I've learned anything, it's that Phil Spencer doesn't say anything publicly without a purpose.
These deals don't happen overnight.
When Spencer made those comments, the deal was almost certainly already done; the likeliest reasoning was establishing up front that MS did not condone the behavior at issue but wasn't going to shame them for it. (After all, most of Activision employees are innocent bystanders.)
Then they let that measured statement spread out and sink in before adding, in effect, "we'll fix it." This deal is textbook opportunistic.
Last summer Activision wasn't for sale and a takeover would've cost over $100B.
By last week the stock had lost a third of its market price and MS "kindly" offered pre-scandal money. Activision stockholders were looking at bigger drops to come and s long road back to last summer's valuation. MS offered all cash, in small unmarked bills. Not much choice left.😏 Nadella presents as mild and reasonable and might actually be a kind pe rson in private life but he 's also CEO of a $2T+ company. If anybody doubted it, he can go for the jugular like the fiercest execs.
My very thought. They're a sneaky bunch. 😆
Also if you look at the MSG leadership under Spencer the top gaming brass checks off all the right diversity ratios. And if you look below the photos thdy even list prefered pronouns.
Microsoft will need to make a ton of concessions for this to happen, but it will be worth it.
What are activision strengths? WOW, Candy Crush, COD.
They overlap with Halo a bit. And that's about it. With no significant overlap, this isn't so much about absorbing a competitor (a horizontal merger) as it is a vertical alignment of a distributor securing content.
Instead of looking at MS as a content creator, the deal presents them as a distributor. And the courts don't see much problem with those. C.f., DISNEY/FOX, ATT/WB, COMCAST/NBCUniversal. Look at it as Gamepass buying content just as Amazon bought MGM.
Gamepass is nowhere near a monopoly distributor.
Neither is MS GAMING as a creator. Don't forget, MS hires good lawyers. 😏
Sony would make CoD exclusive if they did this same move. Just saying.
I'm honestly impressed with the thoughtful insight provided here, Jez. Well done.
wow, Phil meant it when he said they were dealing differently with A/B
BOOM! That is pretty much the big takeaway. After the Stalker 2 delay, ppl where talking about how Xbox was on the ropes for having nothing in early 2022, ROTFLOL! Oh ye of little faith...I'll continue to place my trust in Phil aka God Emperor of Gaming!
Why do I get the feeling of impending doom ... Like Nokia 2.0
My second thought was about the timing: for the next few months it is going to suck all the air out of most gaming conversations. As in, "Spartacus? What is that?" 😆
Jez, this was the single-best write-up I've seen on this. Brilliant piece. Thank you!
thank you sir
The Xbox Series S is now really in a strong position to lead console sales with the strong additions to the Game Pass catalogue. That is if the deal can close this calendar year 🤞. With Sony struggling to get PS5 hardware out to market, Microsoft needs to bulk up all their efforts to secure more console sales. Yes, even before the holiday season.
The deal is projected to close *during* FY23, which ends next March.
The Bethesda deal closed in 9 months and *they* could afford to walk away.
Activision stockholders can't.
Biggdst obstacle are the bureaucrats but they won't find much precedent to object to as the alternati e is dismembering Activision which would *reduce* competition.
(Smaller studios are selling out because development is getting pricier and riskier by the day.) As for Series S, MS will sell as many as they can build. All-access aside, they can alsaus bundle three months of Gamepass with it.
Well Said Jez, well said. Xbox Games Streaming via the Cloud will truly be a showcase of what Azure can do. The obvious caveat applies, it solely depends on the users upload/download speeds too but that's on the internet service providers not Microsoft.
I think you’re dead wrong about CoD remaining multiplatform. I would bet seventy billion dollars CoD will be a Microsoft exclusive.
We should all probably get worried about all these game studios being consolidated under a single company. Microsoft is slowly but surely taking control of the gaming market and that will be bad news for everyone.
What about getting consolidated into ten competitive contenders? You do realize a lot of small and midsize studios are *asking* to be taken over? Consolidation isn't about hostile takeovers but about economics: development costs, do or die releases, meeting payroll. As OBSIDIAN's Urquhart said, it gets tiring living contract to contract, figuring out which of many projects to pursue, which good emp!oyees to kedp as temps and which to let go when you'd rather have them fulltime.
The days of coding a game saving in on a floppy and a baggie for mail order sales are long long gone. Gaming is BIG business.
Bigger than Hollywood.
It's evolving into a very different game but remaining as darwinian as ever.
Just remember how activision blizzard came to be, how EA, UBISOFT, TENCENT, Take2, and the rest came to be. Mergers have always been part of the landscape in *all* the content business, from books to comicx to movies to TV to gaming. This deal is big but nothing special once put into context.
If anything, it serves the public good by cleaning out a social mess. 😇
Well said. Spot on. One additional point in this same vein: acquisitions encourage new startups to form, because it tells investors (who fund the startups) that there is a likely exit strategy at the other end. Investors only put money behind an idea if they believe they will make a good profit on the other end. Acquisitions are the number 1 tool by which that happens. So when some star at the acquired company decides he or she doesn't want to be a cog in a big machine, it's that much easier to strike out on their own and start a new one. So indirectly, a hot acquisition market frequently increases innovation and competition at the entrepreneurial end of the market, even if the number of bigger players are shrinking. Some of those smaller players will remain independent and eventually some of those will become big competitors themselves.
After having some time to think about it, this deal seems monumental in the context of Sony Vs Xbox. But in the context of what Phil Spencer kept saying about their competition being Apple, Google, Amazon, it's like that other consideration of whether or not this hurts Sony is miniscule. It's an afterthought, or not even a consideration at all really. This is Microsoft saying "We are moving beyond the competition in the console space. We are now building a media empire to rival Disney, Amazon, Netflix etc etc." There is too much competition in movies/tv for Microsoft to even consider entering that market. It's already oversaturated with everyone wanting their own streaming service anyway. So they are just carving out their stake on the larger gaming market before those other mega corp media/tech companies can move in. If you look at it on that scale, it's another in a long line of giant acquisitions by these already giant corporations. Huge, but nothing special really. It's just a building block for Microsoft to create the essential core gaming platform for generations to come. Like Netflix, Amazon, HBO streaming, or Apple, Google, Tencent mobile gaming.
In terms of what it means to the global gaming market it is nothing special.
This isn't a vulture capitalist buying a consortium to sell it off piecemeal (which is tbe real world alternative).
It is business as usual.
So much for 'xbox has no games'. Guest_aotf must have cried in his sleep last night. Same with his bff avatar.
Thing is, XBOX already had a lot of those games.
The big change is control of the back catalog.
But for the fanboys it'll be this: https://mobile.twitter.com/MeAloneInMyMind/status/1483437007221104641
Game Pass will be the best deal going for a while. I'm sure they will pick up more subscribers after this acquisition, they are already at 25M subscribers.
I think Microsoft next big acquisition should be UBISoft or EA. Buying EA would bring Mass Effect back home not to mention filling gaps in sports and shooter games. UBISoft would bring stealth and open world games like Assassins Creed and Splinter Cell.
I doubt they'll buy anybody else outright *in gaminv* any time soon.
But I expect tbey'll be VERY active doing second party deals, like with SEGA. I'm still watching to see what they do in video.
My preference is for them to wait until the WB-Discovery deal is sorted out and then buy out ATT's controlling interest because it gets them Music, Video, *and* IP galore, plus WB Gaming.
Alternately, if they want to cheap out, wait a year for CBSViacom to run out of cash and get them cheap.a One thing that gets overlooked is MS *net* profits are growing 40% a year and 2021 brought in $61B.
They *have* to spend big.
And the only legal choice is to move into new areas.
Hence my expectation they'll go into the capital hungry IP heavy video world.
I agree in part. Nothing on this scale in gaming maybe ever again. They work closely with a few smaller studios I could see them trying to add to Xbox Game Studios. Asobo, Avalanche, Crystal Dynamics, IOI, maybe Moon. But yeah probably nothing until this deal goes through for sure. They don't want to give regulators anything extra to think about until this deal is done.
I agree however I do not think Microsoft wants to leave too much money in reserves with inflation going on. However, on the other hand I think this could be their last big purchase until the deal is closed. WB Gaming would be a big win if they got that which would be awesome.
Activision was in trouble looking for a buyer. I don't believe EA or Ubisoft are in anywhere near a situation.
For context, consider this:
- in calendar 2021 MS netted $61B+
- Nintendo is valued at... $61B (even if it were for sale that is a direct competidor so not an option)
- MS net grew 38% from calendar 2020 to calendar 2021
- If MS net stayed flat and the Activision deal closed in December, they could pay for it solely out of 2022 profits without dipping into their cash stash. If only grow by $35% and buy nobody else they'll have $40B leftover to add to the $130B the had last sept. Not many places left to put the money to work and dropping prices would be deemed predatory.
Giving it away would be a breach of fiduciary duty to stockholders.
If Azure and Gamepass keep growing they'll need to buy something somewhere or go into banking. 😂
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