The biggest acquisition in the gaming industry ever appears to be a fact. After more than a year of bitter row with competition authorities and arch-rival Sony (PlayStation), Microsoft is allowed to pay 61.5 billion euros for game publisher Activision Blizzard. An appeal from the US Federal Trade Commission (FTC) was unsuccessful, as was a request from a group of angry gamers to the US Supreme Court.
To the great fear that Microsoft would refuse Activision’s successful shooting game series call of Duty to ship for PlayStation was met with a deal that will keep the series on Sony’s game console for the next ten years. The remaining obstruction, the British competition authority, is back at the negotiating table and will probably no longer raise any major barriers. In the European Union, the acquisition was already approved in May.
The Dutch top game Horizon Forbidden West cost $212 million to make
It seems like the end of a crazy year for the gaming industry. A year in which the amiable gamer Phil Spencer, boss of Microsoft’s Xbox, had to trade in hoodies and nerdy gaming T-shirts for a tight suit and a good blue tie in court. A year in which game journalists such as those of the well-known game site IGN suddenly became court reporters. And a year in which both lawyers and competition authorities suddenly had to master the jargon of the game world (not always successfully).
The global game industry is huge, with a turnover of 165 billion euros last year, but it was far from being taken for granted by the outside world – and therefore also evaded critical glances. Suddenly that mysterious sector was in full daylight. Suddenly he had to blink against the sun.
This also provided interesting insights into dossiers that game companies normally prefer not to talk about in public. These are the most striking revelations from the legal battle between Microsoft and the US and UK competition authorities.
Making games costs hundreds of millions
At the top of the gaming industry hierarchy are the so-called blockbuster or AAA games, games with the largest budgets and widest reach. With every improvement in the power of gaming computers, they become more expensive to make, as more manpower must be hired to make the most of new capabilities.
But how much is the development now costing? Big game companies prefer not to talk about that. Unfortunately for Sony, which had to testify in court, it failed to paint the budgets well in publicly disclosed court documents. It read that blockbuster The Last of Us Part II (2020) had a production budget of 220 million dollars (195 million euros), while the Dutch Guerrilla received more than 212 million dollars (188 million euros) in budget for Horizon Forbidden West (2022). By comparison: Marvel hit The Avengers (2012) also cost $220 million. Black bookthe most expensive Dutch film production ever, had a budget of 18 million euros.
The income from blockbusters is also often treated as a mystery, and there too was poorly painted. As the operator of the digital PlayStation game store, Sony earned about $ 1.5 billion in 2021 from the call of Dutyseries, could be read – games that the company doesn’t even make itself.
Xbox itself thinks it has lost the game console war
In the games industry, sometimes jokingly, sometimes seriously, people talk about the ‘game computer war’: the battle between the three major game computer manufacturers Sony, Microsoft and Nintendo. In the American court, Xbox boss Spencer admitted that Microsoft has lost the war as far as he is concerned. According to him, only 16 percent of all game console owners owned an Xbox by 2021, putting the company third behind Sony and Nintendo. Even in Xbox’s home country of the United States, Sony would dominate the market.
Also listen to the NRC Today: Who will win the next round in the video game war?
Earlier this year, Phil Spencer dropped in a sensational honest interview hinting at what he thought had gone wrong. Gamers chose the PlayStation 4 over the Xbox One in 2013, after a dramatically poorly received press conference about the new game console in which Microsoft positioned the One as a ‘media box’ instead of a game console. That was the time when people started buying games digitally instead of physically, Spencer said in the interview Kinda Funny Games.
Digital games are linked to the player’s account. They can then always be downloaded in the future, often also on future game consoles from the same manufacturer. Spencer: “Of everyone who buys a gaming console today, 90 percent already have one at home.” If you’ve already collected $1,000 worth of digital PlayStation games, you’d rather not start all over again with Xbox games. So after that PlayStation 4, many people bought a PlayStation 5, and not the successor to the dramatically received Xbox One.
It became clear once again that Microsoft has been frantically looking for a way to increase its market share. In the court documents, journalists found a list of more than 100 game companies that Microsoft had an interest in, including leading studios like Sega (Sonic the Hedgehog), Square Enix (finalfantasy) and Bungie (Destiny), which just came into the hands of PlayStation last year. Ultimately, Activision Blizzard caught the eye for its successful smartphone game branch King, which is the popular game Candy Crush has at home. Smartphone games account for half of total international game sales, Microsoft is historically weak in this market.
‘Netflix for games’ isn’t the future after all
In Hollywood, subscription services such as Netflix now control a growing share of the film and series market. They do struggle with the relatively low subscription fees in combination with the high production costs of their own films and series. In the world of games, Microsoft is betting on a ‘Netflix-for-games’ model: it runs Game Pass, a large game library that includes both its own titles and games from other makers and publishers. Gamers can access this library for 13 euros per month on the Xbox and on PCs, and on TVs and smartphones via the cloud.
Read also this report at game conference Indigo
During the US lawsuit, Sony repeated concerns that have already been expressed by other game companies: a bundling would destroy the value of individual games. Individual games cost 20, 30, sometimes 70 euros. If a gamer subscribes to Game Pass for a month to complete one game, the publisher earns a fraction of what they would receive from standalone sales.
Microsoft has long maintained that gamers mainly ‘discovered’ games thanks to Game Pass. The resulting fast-growing player numbers would benefit single sales, as potential new gamers are attracted to games with many players that they can play together. Those who found this logic a bit warped finally received confirmation last year: Microsoft then admitted to the British competition authority that a game was indeed sold less separately after it became available on Game Pass. In addition, Microsoft’s high expectations for subscription sales have not yet been fulfilled. The company reported in its 2022 annual report that it hoped for 73 percent growth, it turned out to be 28 percent, news site discovered Axios. The number of subscribers is now around 25 million; Netflix has over 230 million.
Where insiders speculated three years ago that Microsoft would completely abandon the game computers and fully bet on game subscriptions, Phil Spencer announced during the lawsuit that the next (i.e. physical) Xbox will probably be released in 2028.
A version of this article also appeared in the newspaper on July 20, 2023.