I mean, that's only just over 5.5 Zyngas.

@oursin_360 said:

The thing is though Microsoft has always wanted a hardware play, just like Apple and Google. Xbox, mobile, Zune -- something beyond just their software business. Assuming they achieve their market share goals on the software services side, what's to stop them from leveraging the hardware side again? It's not like they don't already have the expertise in-house. And they're not going to go "Oh, we've made enough money, we'll stop there."

Think about it this way - they're willing to spend $70 billion of their war chest on Activision/Blizzard. That means, somewhere within Microsoft HQ, somebody decided that this use of $70 billion had the greatest value to the company - not an investment in OSes, Azure, Office 365, etc. Instead, they threw that investment into Xbox.

Now, that's a heck of a vote of confidence -- but if corporate is going to give you $70 billion, you better show a return on investment. And Nintendo shows that you can still sell like gangbusters with exclusives on your proprietary hardware - that you can get your cut both coming and going. If all of this works, out, of course they're going to go for it, maximize profit. And that means leveraging your control on both a software and hardware level.

@turtlefish: Nadella said that he got all in on games after Spencer convinced him that the future of gaming was in the cloud, which is where Nadella sees the company's future.

This is a Game Pass play pure and simple. Xbox is in a transitional phase where they are still making hardware, and they may never stop, but they want to sell Game Pass subscriptions. That's their core gaming business now. They are happy for people to play wherever; on Xbox, on PC, via mobile phones or on other machines if they can use Game Pass on them. They won't publish much directly on Sony or Nintendo's platforms because they don't want to pay the 30% to them and they don't want to support them, but if Sony or Nintendo will let them on with Game Pass for a smaller cut I'm sure they'll be happy to do it.

This is about building a Netflix for games. That's very close to Microsoft's core business model and they're pretty open about this. The announcement of the purchase came with discussion of playing anywhere via streaming and the fact that they have 25 million Game Pass subscribers. That stuff is in there for a reason.

@wacomole: I didn't know Microsoft was paying in cash. That seems absolutely insane. I feel like most times large acquisitions like this happen, they are largely financed by shares and stock options so the fact that this isn't happening here seems crazy to me.

Well, more like 17,5 Star Warses, but I get your point.

I also share the sentiment that this isn't good for market.

Also...this seems to me like a bad deal. Almost 10 times the price than what they payed for Bethesda? Ten times more for what? COD, Overwatch 2 and Diablo 3...in comparison with The Elder Scrolls, Fallout, Doom, Wolfenstein, Dishonored, Quake and developers in arguably better "shape" when looking at recent outputs?

I'm sure it makes sense to Microsoft, but it sure doesn't make sense to me.

@donutello: Don't forget King and Activision's other mobile stuff. That's a big, ridiculously lucrative market that Bethesda didn't have much exposure to.

@donutello: I'm not saying the deal is good or bad, but one thing to remember is that Activision has a massive back catalog and Xbox wants content for Game Pass. They've shown that they want to use back catalog as a way to beef up Game Pass's value (all the old Dooms are on Game Pass and Quake has been added too.) So it's not just those huge franchises it's everything. It's every Diablo. It's the best games of the Atari era (you may think there's not a big market for those but it's a value add.) It's World of Warcraft. It's all of it.

IP and content are in huge demand, not just the big current franchises.

@banefirelord: You are right, that is a big money-making area. It doesn't add anything to the game pass though. Unless...oh

@bigsocrates: That back catalog is kind of weird since most of it can't be played on Xbox consoles including WoW

I think you may be underestimating quite how big and recognisable the property of CoD is globally in the mainstream.

Even with the recent controversies, that IP is no doubt worth Billions on its own. There's a reason that on most of the mainstream tv news headlines it's been reported as "Microsoft buys Activision Blizzard -- maker of Call of Duty"

@donutello: PC Game Pass. The Cloud. Microsoft's best in industry port/backwards compatibility team.

If you're thinking "what's playable on Xbox today" then you're not thinking the way that Microsoft is about this.

For the few people i worked with at Microsoft Redmond, they seem like they have a open work culture and pretty diverse. I even spoke to someone who worked on a Linux machine at Microsoft which i thought was funny. Note these where all System Engineers so no people working for the game studio/studios. So i hope Acti/Blizz will get a more open and diverse work culture then the mess it's in now.

This deal is pure number crunching through and through. Hit the thing with the money stick and numbers pop out.

@wacomole: I guess i do. Those games are not my jam so I'm not "in the know" with how really big they are.

Maybe this my "You have no idea how big Roblox is" moment?

But i do see Bethesda games as so SO much more of a big deal if that makes sense.

@bigsocrates: I get it but even as a person who is actually using backwards compatibility on Xbox (playing Fallout 3 on Series X for the first time) i see myself as part of a niche audience. Like not many people go through game pass looking at games like Avengers and Fallout 3...and picking up F3 like me lol

Why don’t they just buy Sony at this point? I bet they tried.

@donutello: I think it's complicated but I also think Microsoft has the data. I'm sure that putting Doom and Quake up was in part intended to see whether there was interest. Microsoft has said that people who have Game Pass are willing to play more and different games than people who buy games so they may be finding that older titles are doing okay on Game Pass when there's no additional cost for them.

This is speculation to some degree but what's not speculation is that IP, even old IP, is seen as valuable right now. They made a Moon Knight movie. MOON KNIGHT. You're telling me we should be shocked that Microsoft sees value in Spyro and Crash Bandicoot along with COD and Diablo?

Maybe now Raven Soft can make games again that are not Call of Duty. One can dream.

Don’t forget about the extra 100 million dollars Microsoft will have to give Bobby Kotick to not work there anymore.

Microsoft and companies at its level have spent the last ~20 years making sure the kind of antitrust suits they were hit with in the '90s will NEVER HAPPEN AGAIN.

It's troubling for certain, but their PR and likely burying of Kotick under a rock (without firing him, of course, he's too rich for consequences) will already have a playbook to work from.

As a part of this, I really hope someone tries to figure out what the conversion rate on Game Pass games has been re: sales. As someone who doesn't own an XBox, I always figured that part of the business model (that I never see discussed so I could be totally off) is the hope that players will discover certain games through Game Pass but be unable to finish them before they come off Game Pass, then buy them with the 20% discount to finish them.

Like this month, games like Desperados III and Kingdom Hearts III - I don't know how long they've been on the service, but I'm sure a decent amount of people that played them on the subscription didn't reach the end. Does a reasonable amount of players - say, 15 or 20% - convert into purchases on the other end? On paper, that opportunity looks like a clear win for Microsoft and developers alike, as well as something that clearly distinguishes their service from Netflix and continues to value their storefront's digital game sales.

But maybe nobody does that, and if something falls off a service it's just, like, whatever?

I don't have much to add, but the thread title makes it sound like Activision Blizzard was moping around crying 'pleasseee, someone acquire us.. we are deep in the shitt... we need a new ownerr :(... And then Microsoft was like ugh.... okay... i'll check my pockets for some change and i guess you can hang out at my place.. ugh.. stop crying!

As a freedom loving Xbox owner I could not be happier. Micro$oft forever.

I do worry about the consolidation. I suspect Microsoft would initially leave well alone but Bethesda and Activision/Blizzard need their autonomy.

It's very crazy but my biggest concern is Microsoft establishing a de-facto monopoly across a large section of the video game business in a similar manner to what Disney have managed to achieve in the film industry. Sounds like Kotick will be stepping down once the merger is complete with a golden handshake, which is disgusting but at least he'll be gone.

Oh sure, I never said it wasn't. Like, it's obvious it's about locking up content. What I'm trying to get at is that there HAS to be more, somewhere, because of the money they're pouring into this.

Unfortunately, Microsoft doesn't break down their divisions specifically anymore, but reading between the lines of the 2021 annual report, it looks like the part of the Gaming division that Game Pass belongs too brings in about $8 billion in revenue, compared to the $54 billion in revenue for the entire "More Personal Computing" division. So, assuming equal profit ratio to the division as a whole, about $3.5 billion in profit annually. Not too shabby.

However, that also means it would take 25 years of profit (assuming no growth) to recoup just the Activision purchase price. Even if we assume best case and a consistent 20% growth rate (the same as this past year, which was a boom year for Microsoft), you're still looking at 17 years of profit before you break even - which will never happen because 20% growth rate also means that, at the end of 17 years, Microsoft will have around 554 million Game Pass subscribers. That so ain't happening unless something really crazy happens.

And that's not counting all the other studios Microsoft has purchased in the past couple of years, which probably tacks another $10 billion in investment cost. Then there's all the additional operating cost - Activision also has about $8 billion in revenue, but a profit of "only" $2 billion -- so, bringing them on board increases the charge to your bottom line, at least initially, since they're not as "efficient" as making money as existing Microsoft is.

So, Microsoft has spent billions on a division that, while poised for major growth, currently represents 5% of the total company profit and has a ROI horizon at least a decade down the road, which is way longer than most companies think.

Now, maybe Microsoft IS thinking that far down the road based on a rosy sales forecast -- if so, that would be the first indication I've ever seen of them doing anything like that. That's why I'm convinced there's something deeper that guarantees investment return on a shorter time scale. Like, something within the next 5 years.

I for one cannot wait until the CEO of Micro$oft is also president of the world and my M$/$am$ung dryer now incinerates my clothes because I was stupid enough to upgrade to the newest OS.

I wonder if this will make Microsoft re-evaluate the decision to not add any more games to backwards compatibility. All the old Call of Duty games are backwards compatible as far as I remember, but that large library of old Activision and Blizzard games must be tempting to bring over.

@sethmode: I think we can all be thankful that the console wars have finally been won and that this date will be written done in history and known as VCW day. Victory Console War Day

@turtlefish: Your numbers have some baked in assumptions that I think are probably wrong. Chief among them is that Xbox can't increase earnings per Game Pass subscriber. It's obvious that Game Pass won't stay at the same price forever, but even if it does game subscriptions are the kinds of things that scale really well as a product. You can increase subscribers without increasing the amount you spend on content, especially when that content is made in house so other companies can't hold you over a barrel (this is what Netflix learned and why it produces so much of its own content.)

I also wouldn't be surprised if Microsoft is thinking long term with this. Nadella said they were "all in on gaming" and I think he sees the market as growing and more importantly one of the best places to invest their excess cash ((the deal is clearly in part about getting rid of the stockpile.) If Game Pass were a start up company instead of a home grown one then it's one all the big tech companies would be trying to acquire right now, so instead of trying to acquire it he's pumping cash into it in the hopes of creating a long term cash cow for the company.

Obviously there could be some other play here but I don't think it's selling Xboxes. That's the kind of business Microsoft is moving away from, and the fact that they are putting all exclusives out on PC and PC game passes shows it can't be that big a priority. Heck you can play most of their big games in a web browser through streaming. The company is not focused on shifting hardware.

Obligatory "that's billion bucks"

@bigsocrates: Oh, I'm sure my numbers are wrong - like 15 minutes trying to parse earnings reports back of napkins late at night wrong. :) But think about it - even if they manage to increase ARPU 100% on subscribers (which, one again, is pretty much a miracle), you're still talking a decade before you break even.

The point I'm trying to make is that, even with the most optimistic tweaking of the numbers, they're not making their money back on this in 1 year, or 5 years, or even 10 years, solely based on GamePass revenue. That's why I keep thinking there's something else at play here. Long term thinking isn't typical Microsoft behaviour (or corporate behaviour in general.)

Remember, 7 years ago, Windows 10 was going to be the eternal Windows OS -- oh wait, Windows 11!

In a world where GamePass is a start-up, you're right that there would probably be some sort of outrageous bidding war -- but, you see those price premiums because people are trying to be first to the line and get maximum return on investment. It's not quite analogous to funding an established company with an established business model -- it's not like gaming subscription services are that disruptive at this point. They have a high potential ceiling, but they're pretty much a known quantity at this point. Microsoft's Game Pass is "winning" not because they're doing anything particularly different -- it's because they can leverage the fact that Windows rules the PC world to get the value proposition in front of more eyeballs.

Anyway, I guess we'll agree to disagree. Like I know this is all speculation anyway, the only people who really know won't say anything about it until their plans come to pass -- or don't.

I've been thinking some sort of hardware push, just because they have the expertise and both Apple and Nintendo are examples of how it could work. Maybe it's something else. I did read an article on Ars Technica that pointed out that everybody is forgetting about King is also a part of the deal and mobile market is 4 times the size of the "traditional" gaming market - so, maybe that's what they're really going after. *shrug*

@turtlefish: Game Pass right now is a good deal because Microsoft is practically giving it away. I was already concerned about how they're eventually going to make their money back before this acquisition, and even more so now. They'll obviously jack up the price, but right now even $20 seems too low, and I'm not sure the market will bear much more than that. All I can think of is a tiered service where Bethesda and Call of Duty go to some premium tier which is closer to $35 per month, even though they're spoken against doing tiers in the past.

I'm sure that Candy Crush and Hearthstone will continue to keep printing money for them as a cool passive income, but they do absolutely nothing for Microsoft in terms of corporate strategy, they have no synergy with any Microsoft product or service. You can't put games that are already free-to-play on Game Pass. Maybe GP subscribers will get a few Hearthstone packs free each month, but that game is supported by whales that already drop thousands a month so they're probably not interested in saving a buck or two.

I know GB is not a news site but I would love to see a special edition podcast on this news to hear everbodys take on this. Even Digital Foundry managed to get something out quickly.

This is bad news for absolutely everyone who has the faintest interest in gaming. It pisses me off.

Why? We got over an hour of it on yesterday's podcast. It's enough and we won't really know more until the deal is done.

I'm a PlayStation-only kind of girl, so this news makes me nervous as hell. I don't really care about any Activision games (I enjoyed the Spyro trilogy, but I'm not going to switch platforms for a new one), but this has serious ramifications for PS if they take CoD away. I've been reading that a sizable portion of PS owners basically just buy CoD + [insert EA sports game]. If all of those people jump ship to Xbox, it's a huge snowball effect. PS is gonna lose a lot console sales and a lot of revenue from those games, their microtransactions, and PS+ subs. Even people who buy other games would likely just go "where their friends are", and that means they're also leaving PS.

Aside from that, now I'm just nervous that Microsoft will try to acquire other publishers - especially Ubisoft, because they're also having legal trouble and could go up for sale. I love Assassin's Creed (yes, even the bloatfest that is Valhalla) and I'd hate to lose that franchise. I'd also be devastated if Microsoft managed to purchase Japanese companies like Square, Capcom, and Sega.

What do you think is going to happen exactly?

I think there will be a alot of second hand PS5's on the market for all those console gamers who play nothing but COD .Still if they sell quick they might make some money

Gaming consumers generally benefit from a competitive market. Sony being an effective competitor last gen put pressure on Xbox to abandon their focuses on Kinect and TV streaming and double down on working with indie developers and doing other things to establish and maintain good will among game developers and consumers.

One console maker owning Doom, The Elder Scrolls, Fallout, Call of Duty, Warcraft, Diablo, Forza, and Halo not only makes the future of the console market drastically less competitive, but it can also have (potentially negative) implications for the long-term creative directions of those franchises. Nobody knows exactly what will happen. That's impossible. But I think it's reasonable for people to suspect that such lopsided control over the console market could lead to undesirable outcomes in the mid and long term.

Yeah, the competition argument has me wondering. What's being consolidated at the moment is the AAA market. Outside of the Microsoft umbrella, you have EA, Square Enix and Ubisoft. It got me thinking, though. I now consider companies like From Software and CD Project Red as AAA. There are instances of companies scaling up and that's in-part due to the risk averse nature of the big companies.

That aversion to risk has also led to this consolidation. If the top table represented the industry at large, we'd be in bigger trouble. As it is, there's SEGA, THQ Nordic, the Embracer Group (ARGH!), Devolver. There's a lot and, if the Microsoft studios found themselves in a creative funk, there's a chance for that void to be filled. Or for them to be sold back (or given their independence like iO interactive or Insomniac.

What's being monopolised here are studios that, to be honest, haven't been prolific since the 360 era. If they're going to continue making the games they make - in the way they've made them, that will not change.

Another thing that contributed to this is the fact Microsoft have really, really struggled to provide their own games for their own platforms. Crackdown, Sea of Thieves, Scalebound, Quantum Break, Sunset Overdrive, they didn't have the impact to really drive units.

i try not to be judgmental before the ink on the deal is dry, or before this affects me directly.

however speaking as someone who isn't inherently interested in the gamepass model (i don't consume enough to merit an all-you-can-eat option; i'm also not a grazer...i tend to buy a small amount of titles and invest larger sums of time)- if i end up a gamepass customer- it'll likely be due to microsoft strong-arming me by locking-up something i'm interested in. and that doesn't feel great- would have preferred them developing some compelling in-house content. however business is business, so it goes.

I haven't had time to read or listen to much analysis on this yet, but I've been mulling it over for a few days now.

Mostly I'm quite excited for the future of Activision Blizzard's franchises for the first time in a long time, especially so for Call of Duty. Modern Warfare (2019) was a wonderful fluke, but otherwise the Call of Duty franchise hasn't really been exciting or innovative for over a decade now. Hopefully this new dynamic will let them try some new things.

Speaking of Call of Duty, I can now see more clearly why the hefty investment was worth it in Microsoft's eyes. There are so many people out there who buy those 1 or 2 games a year and more often than not one of those games seems to be Call of Duty. In the past Activision was able to squeeze out 70 dollars or so from these customers. If the game gets added on Game Pass and customers see that as the "cheaper" and easier way to play the game, Microsoft will able to charge them 180 dollars per year in Game Pass Ultimate subscriptions.

Microsoft seems really interested in gathering up these games that are not games as a service games but still function like one for most people. I'm talking about Minecraft, Skyrim and Call of Duty. There are a lot of people out there who only buy those games once and play them for months or years on end. Microsoft surely sees the benefit of charging people 15 dollars a month to play "Skyrim 2" instead of getting that single 70 dollar chunk of change.

What other similar franchises are out there that Microsoft might be looking at? Well looking at this recent tweet from Geoff Keighley made me ponder some options.

EA is probably a tough buy because of multi-platform clauses involving their sports franchises. Getting people to pay 15 dollars a month for FIFA or Madden would surely be appealing, but seems like a tough get. Take Two however looks cheaper than I'd expected and that GTA game sure keeps selling well years after their release. If Microsoft grabbed Take Two, they could not only keep charging players for for future GTA and Red Dead releases, but also appeal to the crowd who spend hundreds of hours in Civilization games. Take Two also has sports studios and franchises which Microsoft could attempt to build as competitors to the stagnated FIFA, NHL, Madden and NBA games.

I didn't really think about it before, but Microsoft basically owns AAA first-person shooters now, huh? Franchise-wise at least they now have Halo, Doom, CoD, and even Overwatch.

It's not really my genre, but Battlefield/front at EA is basically the only thing left that's regularly putting out games, I think.

@lab392: Warcraft and Diablo have always been predominantly PC games and Forza and Halo were always Xbox exclusive. So what we are seeing here is that Microsoft has gained Call of Duty and Elder Scrolls within the "console market." It remains to be seen if Microsoft will even make Call of Duty an exclusive title because it really would make much more sense for them to continue releasing it on both platforms but prioritizing content drops on their own box while also advertising that you can play the newest COD on Game Pass day one for $15 instead of $65 on Playstation. Regardless, this isn't really turning the tables in the market space all that much. Sony retains a plethora of unique IP's under it's umbrella and they have a rich back catalogue that they are doing nothing with at the moment. If anything this move might finally be enough to get Sony to start acting more competitive this generation. Microsoft took a beating during the Xbox One era and have now prioritized consumer friendliness and smart business moves in order to become relevant in the market space. Sony coasted all through last gen on amazing exclusives and a strong console. They have continued coasting into current times without paying heed to small things like backwards compatibility or smart delivery and they still don't appear to be doing that much about it. Sony needed this harsh reality check.

Maybe this will finally motivate Sony to do something with Killzone, Resistance and SOCOM. Heck, maybe someone might even think of a new FPS game.

Tencent buys Disney and Xbox in ten years and all we'll get is Disney's Call of Marvel: Overwatch ODST lol.

I don't like this because it removes competition. It removes variability (different companies has different goals, missions, wishes) and making them work under the same company will kill this. Maybe not the first year, but over time. Also, see what's happening with the movies. You'll get a AAA game very three month, the one more and more like the last. For the sake of everything do we as consumers wand more different companies, not just a few big ones.

Its a tax dodge. Yup, add that to the list of why this is troubling for every day people. This will result in Microsoft writing off hundreds of millions in US Federal taxes.

@monkeyking1969: it is in part motivated by tax concerns (though it is clearly not intended purely as a tax “dodge” and is primarily focused on actual business purposes) but I find it funny that you said hundreds of millions of dollars, because the size of the deal is so big it’s hard to even think about.

Hundreds of millions is pocket change in a deal this big.

That’s like spending $70 to save a few dimes.

I think its going to be a real test for Game Pass, seeing how many COD players or likewise WoW players sub, most are one and done gamers.