The Microsoft-Activision Blizzard Deal: What Happens Next?
The long-awaited acquisition of Activision Blizzard by Microsoft has finally been completed, sparking discussions about what the future holds for the gaming industry. While some express concerns over market dominance and the potential impact on other gaming companies, others are more optimistic, seeing this as a transformative moment for Microsoft’s gaming division. Let’s delve into the various aspects of this deal and explore its potential implications.
Changing the Landscape of the Video Game Industry
Dr. Serkan Toto, CEO of Kantan Games, believes that the integration of Microsoft and Activision Blizzard will result in a significantly changed video game industry. With only two big publicly traded video game studios left in the US, the acquisition could potentially reshape the market. However, some remain wary of a company gaining too much dominance and influence in the industry.
Imre Jele, former co-founder of Bossa Studios, expresses his concerns about a company having a clear upper hand in the games market. He believes that it’s essential to observe how other gaming behemoths react to this outcome and what measures they might take to maintain their competitiveness.
Midia Research’s senior games analyst, Karol Severin, sees this as a potential “Big Bang” moment for Microsoft in the gaming industry. He predicts that the deal will not only boost Microsoft’s gaming revenues but also benefit consumers in the long run. However, he acknowledges that it might pose challenges for publishers and developers who aren’t part of Activision in the mid-to-long term.
The VP of Consulting at IDG Consulting, Emilie Avera, believes that this acquisition signals a promising future for the brands involved. She compares it to the combination of Marvel, Pixar, and Lucasfilm under Disney, emphasizing the potential for reviving franchises like Crash Bandicoot, Spyro, Guitar Hero, and Tony Hawk’s Pro Skater. Avera also highlights Microsoft’s strategy of transforming Xbox into a content-first platform that prioritizes player engagement over console sales.
The Impact on Cloud Gaming
One of the major concerns during the regulatory investigations was Microsoft’s potential dominance in cloud gaming. The sale of streaming rights of Activision Blizzard titles to Ubisoft helped address these concerns. However, the slow adoption of cloud gaming technology and the nascent nature of the market pose challenges for any potential regulatory impact.
Piers Harding-Rolls, Games Research Director at Ampere Analysis, believes that Microsoft’s focus will be on day-and-date releases of new Activision games through Xbox Game Pass, rather than making them exclusive to Xbox Cloud Gaming. While a competitor could invest heavily to gain access to games like Call of Duty at launch for their own subscription service, it might not be commercially sustainable due to the high costs involved. Harding-Rolls suggests that more retail, paid-for Activision games could be made available at launch through cloud gaming storefronts like Amazon Luna.
Senior Principal Analyst at Omdia, George Jijiashvili, expects the impact of Microsoft divesting streaming rights to be minimal due to the steady growth of cloud gaming. Currently, cloud gaming revenue represents only a small portion of the total spend on games, and its market share is forecasted to grow gradually over the next few years.
The Mobile Gaming Market
Microsoft has emphasized that this acquisition is a mobile play, as it includes the acquisition of King, the creator of Candy Crush. This move significantly enhances Microsoft’s presence in the mobile gaming market. IDG forecasts strong growth in mobile games revenues compared to console and PC games, making it an appealing sector for Microsoft to enter.
Serkan Toto raises doubts about the integration of Xbox properties into King’s future plans, suggesting that King will likely remain unchanged. Despite the talk of synergies and cross-pollination, the practicality of such integration is often limited in practice.
Piers Harding-Rolls believes that King’s inclusion in Microsoft’s portfolio will bolster its future mobile games business. However, he sees it having more relevance to Game Pass than to the expectation of launching a Microsoft-owned mobile app store. He believes that Microsoft will use Game Pass as a spearhead to attract new audiences, focusing on subscriptions rather than traditional app stores across platforms.
Mike Rose, founder and director of Descenders publisher No More Robots, questions whether Microsoft can leverage Candy Crush’s existing success and profitability to even greater heights. He wonders if Microsoft will make substantial investments to acquire more users and further increase profits. Rose considers this to be an interesting mathematical puzzle for Microsoft to solve.
Growing Xbox Game Pass
Analysts widely agree that Xbox Game Pass will be most impacted by Microsoft’s acquisition of Activision Blizzard. The inclusion of Activision Blizzard’s back catalog and future releases on Game Pass is expected to attract more subscribers to the service.
Omdia notes that while PlayStation Plus currently has more subscribers than Xbox (including Game Pass Core), Xbox Game Pass has a more diverse tier mix and pricing structure. They estimate that nearly half of Xbox Game Pass subscribers will be on the Ultimate tier by the end of 2023.
The acquisition is expected to have a positive impact on Game Pass subscriptions, making publishers more dependent on the Xbox ecosystem. With the rise of game subscriptions, players may purchase fewer individual high-priced games in the future. However, concerns arise about the visibility of indie games and the devaluation of games in general if blockbuster titles like Call of Duty are readily available on Game Pass.
Jörg Tittel, director of C-Smash VRS and The Last Worker, worries about the potential impact on indie games included in Game Pass. He questions why players would try out new indie titles when they can have access to popular AAA games like Call of Duty for “free” through Game Pass. He suggests that this might devalue indie games, especially considering the immense value of popular franchises like Call of Duty.
The Future Structure of Microsoft
Questions arise regarding the structure of Microsoft once Activision Blizzard is fully integrated. With ZeniMax Media already part of Microsoft due to the acquisition of Bethesda, Xbox will have three publishing divisions. However, analysts have different views on the level of integration and consolidation expected.
Serkan Toto believes that there won’t be a significant level of integration or consolidation. Piers Harding-Rolls predicts that Microsoft will maintain the status quo for the time being, although some integration and centralization may occur in the long run, particularly in areas where cost reduction and efficiency improvements are possible.
Emilie Avera suggests that Microsoft and the publishers it owns might focus on streamlining their technologies rather than reducing staff. She sees the potential for Battle.net to be absorbed into Game Pass, resulting in cross-educational enhancements and a smoother user experience. However, cultural integration remains a significant challenge, given the unique cultures of Microsoft, Activision Blizzard, and ZeniMax/Bethesda. Avera praises PlayStation’s track record in integrating new studios into its first-party portfolio, highlighting its successful integration of studios like Insomniac and Housemarque.
The Potential Response from Sony
Following this deal, speculation arises about Sony’s potential response. Karol Severin believes that Sony has an opportunity to go beyond what Microsoft is building by leveraging its operations in film, TV, music, and games to create a cross-entertainment proposition. He suggests that Sony’s impressive content catalog and a subscription offering could pose a solid competitive response to Xbox’s cross-platform efforts. However, Severin acknowledges that competing with Microsoft solely on games might be increasingly challenging for Sony, and suggests that acquiring a major player like Take-Two would be unlikely.
Piers Harding-Rolls predicts that Sony will remain active in mergers and acquisitions but maintain a strong position in the current console generation. Serkan Toto expects Sony to continue its product strategy of focusing on $70 blockbuster titles. He believes that Sony is likely under pressure to react to this acquisition, despite its recent acquisition of Bungie. Toto suggests that Sony may make further investments and acquisitions, including one that would significantly impact its future in a meaningful way.
The Future of the Gaming Industry
While the Microsoft-Activision Blizzard deal is a significant event, it remains uncertain if a true competitor to Activision’s market-leading franchises, like Call of Duty, can emerge. Analysts agree that it would be incredibly challenging to replicate the success of these franchises, emphasizing the importance of innovation and disruption in creating new hit IPs.
IDG Consulting expects further consolidation in the gaming industry, despite market volatility. They predict more industry players, including major AAA companies like EA, Take-Two, and Ubisoft, to be on the M&A table. This deal could set the stage for more consolidation and acquisition activity in the gaming industry in the near future.
Overall, analysts view this acquisition as a significant opportunity for Microsoft to shape the future of the games industry. While success is not guaranteed, the inclusion of globally popular franchises like Call of Duty positions Microsoft strategically better than ever before. The impact on competition, game subscriptions, and console ecosystems remains to be seen as the deal fully unfolds.