Video game

With the video game industry under new management, what will change?

In 1979, a group of disgruntled Atari employees decided to quit and start their own company. Activision was the world’s first “third-party” game development company, producing and publishing titles for other companies’ platforms.

Fast forward 43 years and the company that is now Activision Blizzard has been purchased by one of the industry’s leading platform owners, Microsoft, for a whopping US$68.7 billion (about US$95.6 billion). Australian dollars) – the biggest sale in the history of the video game industry.

This sale is also massive in terms of the game franchises Microsoft now controls; it now owns successful franchises such as Call of Duty, Diablo, Starcraft, Candy Crush and World of Warcraft. And tens of millions of fans of these titles will now be wondering: what does this change of ownership mean to them?

Why now?

Big dollar acquisitions are nothing new to the gaming industry. Activision Blizzard itself became one of the biggest video game companies in 2008, when Activision merged with Blizzard in a US$18.9 billion deal. Microsoft and Sony regularly buy successful pre-existing development studios to take over their intellectual property (IP) and make it available exclusively on their platforms.

But Microsoft has become particularly aggressive in its approach. In the past 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 7.5 billion US dollars. With the acquisition of Activision Blizzard, Microsoft is now the third largest company in the industry, behind TenCent and Sony.

It’s all part of Microsoft’s current gaming business strategy, which is less about selling gaming products and more about increasing subscriptions to its Game Pass service. Similar to services like Netflix and Spotify, Game Pass gives subscribers access to an extensive digital catalog of games in exchange for a monthly fee.

In its announcement of the Activision Blizzard purchase, Microsoft also boasted that Game Pass had surpassed 25 million users. With each user paying $16 per month, that’s about $400 million (or AUD 556 million) in monthly revenue.

With Activision Blizzard, Microsoft now has a huge new lineup of franchises it can make available through Game Pass, attracting even more users.

Although Microsoft owns Activision Blizzard, gamers can still play the company’s games on other consoles and platforms such as Sony’s PlayStation or Valve’s Steam, but whether that will continue remains to be seen.

Game owners

If it wanted to, Microsoft could even create these franchises alone available through Game Pass, forcing customers away from other consoles like PlayStation and distribution platforms like Steam. In other words, it could draw consumers into its own exclusive sphere.

It is now a common strategy. Now, thanks to subscription-based digital platforms, we have all ceased to be product owners and have become tenants.

This also goes for individual video games. Call of Duty, Hearthstone, Fortnite (and many more) are no longer games that players buy once, but rather their own ecosystems in which players are encouraged to continually spend money on battle passes, in cosmetics and access to new content.

Meanwhile, companies that own these titles can constantly mine new data from their millions of players, further increasing the value of their business.

With the purchase of Activision Blizzard, Microsoft has effectively purchased a city of existing tenants in the player ecosystems of Call of Duty, Hearthstone, World of Warcraft, and many other titles.

That’s tens of millions of gamers already engaged in closed ecosystems, many of them in the hard-to-break-in Chinese market playing Blizzard titles Hearthstone and World of Warcraft. All of these players can be farmed for more personal data and more rent.

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So what does this mean for gamers and developers?

In the short term, probably not much.

Over the next few years, however, Microsoft may decide to keep more of these newly acquired franchises for its own platforms. For a PC gamer, that might just mean having to switch from Steam to the Microsoft Game Store if they want to access the franchises: an inconvenience, but not a drastic change.

For PlayStation and Mac gamers, the situation could be more serious and they may find themselves forced to buy a PC or Xbox if they want to play new entries in these franchises in the future.

Some also fear that the giant mergers underway will stifle creativity and innovation in the video game industry. But this is unlikely since most of the revenue generated by the industry has historically been concentrated in a relatively small number of risk-averse companies.

In her book Global Games, researcher Aphra Kerr estimated that in 2015, the top ten video game companies accounted for 49% of overall industry revenue. Despite 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 has happened, in large part, because independent creators can now access much more powerful tools, such as the Unity game engines and Unreal, and to a wider audience through digital marketplaces, such as Steam or Xbox Game Pass.

The situation is far from ideal, but the companies that control most of the gaming industry’s capital – and the most innovative companies – have rarely been the same. It is therefore unlikely that this latest acquisition will stifle creativity.

But there is more at stake in this historic sale. Activision Blizzard has been facing charges and lawsuits for harassment, abuse and sexism across its offices, and CEO Bobby Kotick has been under intense pressure to step down for months. Kotick is now set to leave the company with US$400 million; allegations of a toxic workplace are now Microsoft’s responsibility to clean up.

This is perhaps the important question that emerges from the recent sale: not which hardware will have access to which games, but whether Microsoft will take responsibility for improving the work culture and working conditions of game developers? We will have to wait and see.

Read more: Activision Blizzard’s sexual harassment scandal is not an isolated case for the gaming industry