Microsoft’s bet on Activision will spark content wars in games

If the path to the metaverse passes through the video game industry today, the $75 billion deal Microsoft struck to acquire Activision Blizzard could prove to be one of the crucial deals for the next era of technology.

The acquisition paid in full in cash, announced on Tuesday (18), exploded like a bomb in the world of video games. By bringing together some 30 game studios under one roof, “the implications of this transaction will send shockwaves across the industry,” said Piers Harding-Rolls, games analyst at Ampere Analysis.

The reverberations echoed in the stock markets, Sony opened nearly 10% lower in Tokyo on Wednesday, and other game makers registered highs, in anticipation of a new round of mergers and acquisitions.

The major acquisition promises to transform Microsoft into one of the biggest creators of interactive entertainment, disrupt the existing networks of alliances and competitive rivalries that dictate the course of an industry that moves US$ 200 billion (R$ 1.1 trillion) a year, and help lay the foundations for the all-encompassing virtual worlds of the future – all at once.

“It’s a new content war, Web 3.0 style,” said Neil Campling of Mirabaud Securities. But the transaction is also likely to provoke intense scrutiny by antitrust authorities around the world, for whom any move by America’s biggest tech companies to reach the top of key new markets through acquisitions has become a concern.

It’s all very different from what investors expected when Satya Nadella took over as Microsoft’s chief executive in 2014. At the time, he faced calls to ditch the Xbox video game console division to focus all of the company’s resources on regaining lost ground. in cloud computing.

Instead, Nadella latched on to the idea of ​​building new audiences for Microsoft based on communities of people formed around games, and made the acquisition of the Minecraft producer his first transaction at the helm of the company.

Other attempts to acquire significant online communities — including Chinese video app TikTok and chat service Discord — came to nothing, prompting Nadella to focus on gaming as the best way to build a mass audience.

By extending Microsoft’s vertical integration into games, bolstering its content creation to supplement the game delivery systems of the Xbox console and its desktop games, Nadella set a stark contrast to the rest of the big tech companies.

Its closest rivals have chosen to create some of the most important platforms, networks and tolls in the gaming world.

These include Facebook’s Oculus VR division and Google’s Stadia cloud gaming division, each of which represents a new game distribution channel; the Apple and Google app stores for smartphones; and Amazon’s acquisition of the video game streaming network Twitch.

In the short term, as long as it is able to complete the transaction and successfully integrate the company it is acquiring, Microsoft will certainly extend its reach into new gaming markets, which will make it a stronger competitor to rival Sony in gaming consoles. video games, and mobile gaming giant Tencent. The inclusion of games like Candy Crush, in particular, will give the company a stronger presence in the mobile gaming market, which now moves as much money as PC and console games combined.

Bobby Kotick, the chief executive of Activision, said that with the increased interest in games from powerful tech companies like Apple and Google, the acquisition should not provoke resistance from regulatory authorities.

“There has never been more competition than there is today,” he said in an interview with the Financial Times. “This is a strong and important motivation for our transaction.”

The fragmentation of the video game industry into a large number of producers and platforms and the fact that Microsoft’s video game revenue is still likely to be below those recorded by Tencent, Sony and Apple also reduce regulatory risk, Campling added.

“Microsoft may have found one of the few areas in the digital universe where there is a possibility of escaping strong scrutiny from antitrust warriors,” he said.

But even if the slice of gaming revenue that Microsoft would snag isn’t big enough, on its own, to raise concerns, some analysts warned that the company’s attempt to deepen vertical integration could raise concerns. The company has yet to announce whether it would limit distribution of some Activision games to its platforms, which would create the kind of exclusive access that plays a major role in boosting sales for today’s video game consoles.

Securing the largest possible audience for Activision’s games would give Microsoft a strong incentive to maintain sales through platforms like PlayStation, some analysts said. But if the company reaches an even larger audience of its own through consoles, computers and smartphones, that calculation could start to change.

Nadella himself has hinted at such a future, pointing out that Microsoft wants to create a “Netflix of games” – a unified, subscription-based online service that would give access to a wide range of exclusive content.

Microsoft already has some head start, as its Game Pass gaming service has grown by nearly 30% in the last 12 months to 25 million paid subscribers. Activision would give Microsoft access to a huge new online audience to try to expand its subscriber base. One of Activision’s games registers online access by 400 million people a month.

Observers such as Harding-Rolls caution, however, against simplistic comparisons between the video game industry and the streaming wars that are changing the entertainment landscape. Projections from Jupiter Research indicate that, even in 2025, subscriptions will account for just US$11 billion in revenue for game companies, a drop of water in the ocean for an industry whose total sales already exceed US$ 200 billion.

But distributing video games via cloud computing could give Microsoft a gateway to significant new markets. Games accessible on any smartphone via Game Pass, for example, could help Microsoft tap into new “world markets where traditional PC and console games have long been a challenge,” Nadella said.

Going forward, he said, games will become an important ingredient in the creation of the metaverse. Seen from this perspective, the immersive virtual worlds of the future look like “a collection of communities and individual identities anchored in strong content franchises, and accessible on all devices,” said the Microsoft president.

Claims like this have become increasingly common in the tech world as companies like Meta Platforms (formerly Facebook) and Microsoft try to position themselves as leaders for the next era of online interaction.

But the gaming world won’t have to wait for vague visions like these to come to fruition to judge the impact of the Activision acquisition. If Microsoft manages to complete its disruptive acquisition, the shock waves it will produce will have a strong, loud and immediate impact.

Translation by Paulo Migliacci