As time marches on, the gaming audience is witnessing more and more cases of large companies and platform-holders consuming smaller studios that previously operated independently. The teams of staff and the lucrative IP owned by the studios before these deals being made are now the property of huge corporations. The War Of Acquisitions is coming.
At first glance, this may seem like an initially exciting prospect within the echo chamber of gamers still embroiled in the ‘console war.’ It is undoubtedly interesting to speculate on who will be bought up next. With that said though, the fact that the discussion has shifted from a matter of if to a matter of when is something that should concern any fan of gaming.
The constantly increasing frequency of these multi-billion dollar deals could potentially have a drastically negative effect on video game development on an industry-wide scale.
So far in 2022, we have witnessed three separate announcements of monumental, industry-shaking deals. Gaming industry analysts are currently predicting that we are imminently due to see another one of these announcements. This has led many to believe that a fully-fledged war of acquisitions is right around the corner.
Prior to breaking down the detrimental implications of the deals announced so far this year, as well as the other unavoidable deals which have yet to emerge, it is important to understand just where this trend came from.
The Genesis of the War of Acquisitions
The year is one of the greatest years for gaming in recent memory; 2017. The mere thought of a war of acquisitions is entirely non-existent. It is profusely obvious to anyone who is into console gaming that Microsoft is on the back foot. The company has no significant first-party IP to its name and is dead last in the console race.
It was an embarrassing time to own one of these.
The two major Japanese platform holders, – Nintendo and Sony, – are totally cake walking this generation. It is abundantly clear that something drastic has to be done at Microsoft to correct the course of the Xbox ship before it crashes into a metaphorical iceberg in the shape of Crash Bandicoot.
By the end of 2017, Xbox announces the sad news that two of their internal teams are shutting down and ceasing production. Those teams in question being Lionhead and Press Play respectively.
By the time the Xbox conference at E3 2018 rolls around, every gamer and their mother is watching on tenterhooks. The entire industry is anticipating Phil Spencer’s presentation on the edge of their collective seats, dying to know how he plans to fix this mess.
Scalebound, – the long-in-development exclusive IP from Platinum Games, – has been cancelled for the time since the previous year’s E3 conference. Everyone is expecting the new consoles to be announced in a couple of short years; however, Xbox doesn’t seem to have much at all to look forward to in terms of exciting exclusive software. For Xbox fans around the world, hope feels almost entirely lost.
Thankfully, when Phil Spencer strolls out onto the stage at the LA Convention Centre, distressed Xbox fans are permitted to breathe one big collective sigh of relief. Xbox proudly makes the announcement that they have brokered five significant deals. These deals mean that Microsoft will acquire five notably capable studios; The Initiative, Compulsion Games, Undead Labs, Playground Games, and Ninja Theory.
This triumphant presentation was one of the first significant public showings which showed that Xbox was intent on getting things back on track. It truly felt as though Microsoft was giving vindication to its global supporters. Justifying those who had decided to invest a portion of their hard-earned income into an Xbox console.
From memory, there was no negativity being thrown Xbox’s way in the aftermath of that years E3. Instead, public sentiment was generally positive towards Microsoft. Many were thanking the company for the persistence and resilience that they displayed when faced with the jaws of almost certain defeat.
As of February 2018, there were a total of 13 studios under the Xbox Game Studios banner.
The First Bombshell Drops
As we move forward through to September 2020, the current-generation consoles are due to release in just a couple of months. Seemingly out of nowhere, Microsoft drops a bombshell announcement that rocks the entire gaming industry. Zenimax Media, – encompassing studios such as; Tango Gameworks, Arkane Studios, id Software, and Bethesda, – is being acquired by Microsoft. This move could be considered the catalyst which leads to the war of acquisitions.
Suddenly, the future of beloved and highly anticipated franchises such as; Elder Scrolls, Starfield, Deathloop, Dishonored, Fallout, Doom, and Tokyo: Ghostwire, is thrown into question.
Xbox purchased Bethesda in an industry-shaking move.
Currently, The Elder Scrolls VI and Starfield are arguably two of the most hotly anticipated upcoming games that we are aware of at the time of writing. And now, there is a very strong chance that PlayStation fans may not get to experience them.
With that being said, (besides a portion of concerned Sony fans), the gaming community at large welcomed this announcement. The hype behind the then-upcoming Xbox Series X was undeniably fuelled by the acquisition. The majority of gamers applauded the fact that Microsoft, – a company that was on the brink of an embarrassing defeat just a few years prior, – was now making power moves like this. A war of acquisitions suddenly seemed more likely.
The Ripple Effect
In March of 2021, the acquisition deal was finalized. Microsoft had officially acquired Zenimax Media along with all of its valuable IP. The first trailer for Starfield dropped in June 2021 giving confirmation that the sci-fi RPG would indeed be exclusive to Xbox consoles and PC. A release date was given as November 11th, 2022.
Phil Spencer gave an interview to CQ in November of 2021. During the interview, he spoke about how he believed that the Xbox ecosystem is the ideal place for all of the IPs in the platform holder’s repertoire to thrive, – including The Elder Scrolls VI.
The Elder Scrolls VI is one of the biggest examples of a casualty lost to the war of acquisitions.
The following statement all but confirmed that the upcoming Elder Scrolls titles would in fact be made exclusive to Xbox players, leaving PlayStation gamers out in the cold;
It’s not about punishing any other platform, like I fundamentally believe all of the platforms can continue to grow. But in order to be on Xbox, I want us to be able to bring the full complete package of what we have. And that would be true when I think about Elder Scrolls VI. That would be true when I think about any of our franchises.
The Acquisitions Become Increasingly Frequent
January of 2022 was a record-breaking month in terms of large-scale gaming company acquisitions. The first merger of the year took place on January 10th. This $12.7 billion dollar deal saw Take-Two acquire mobile developer Zynga. At the time, it was the biggest acquisition deal that the industry had seen to date. The war of acquisitions was heating up.
However, it did not take very long for that record to be completely blown out of the water.
This is the biggest acquisition deal ever made in gaming thus far.
Just eight days after the Zynga takeover was announced, (on January 18th,) Microsoft announced that they have made a deal to acquire the behemoth that is Activision Blizzard for the price of $68.7 billion. This would also mean that some highly sought-after IP would be added to the Microsoft roster including; Tony Hawk’s Pro Skater, Call Of Duty, Candy Crush, Overwatch, Diablo, and Warcraft.
Although it has since been reported that the Federal Trade Commission does plan to review the monumental deal before giving the green light for the merger to be finalized, it is expected that the deal will be completed at some point in 2023. By then, the war of acquisitions will likely be in full swing.
Then, just when it was thought that there were no more acquisition deals to be announced in January 2022, Sony sneaked in at the last minute, (on the 31st,) to announce that they will be acquiring Bungie for $3.6 billion. It is also confirmed almost immediately that future Destiny games will continue to be playable on other platforms besides Sony consoles.
Bringing Things up to Date
The reason for reiterating where the acquisition trend began was to make it clear just how vastly the time between these hugely significant buyout deals has decreased over the last four years. Although no other significant takeovers have been announced since January, this pattern is showing no signs whatsoever of easing up. This has also been echoed by several expert analysts within the video game industry.
As the value of the gaming market increases, so does the stakes.
Daniel Ahmad is the Senior Analyst for the Middle East, North Africa, and Asia at Niko Partners; a market intelligence company. When he was asked by the BBC about the eye-watering amount of cash that has changed hands in recent times between the major players in the gaming industry, this is what he had to say;
These three deals alone surpass the 2021 M&A deal value of $85bn, which had already been an annual record. Technology and media companies in particular are viewing the game publisher and developer companies to have valuable IP, talent and content. This leads us to consider not ‘Will there be another acquisition?’ but rather ‘Who is next?’
The fact that more money was exchanged between large gaming companies in the first month of 2022 than in the entirety of 2021 is nothing short of mind-blowing. That comparison exemplifies just how much the frequency of these acquisitions has increased.
What Does This Mean for the Gaming Market Going Forward?
As much as the sheer boldness of Microsoft announcing the acquisition of Zenimax in 2020 was largely applauded by the gaming community, there were some quiet concerns raised in certain circles. The biggest of these concerns is; what sort of precedent does this set going forward? Could this lead to every noteworthy studio that previously operated independently being gobbled up by a platform-holder? Could this lead to a war of acquisitions?
Two years on from the first public announcement of that deal and numerous significant acquisitions later, those hypothetical concerns are becoming more and more of a reality. Specifically concerning the huge scale of the Activision Blizzard deal.
The Activision Blizzard deal is a game-changer and is the clearest sign so far that a war of acquisitions is on the horizon.
The enormity of that specific deal signifies a dire acceleration in Microsoft’s plans coming to fruition. This acceleration has escalated the situation and could theoretically mark a turning point in how video game companies are run.
This turning point could result in adverse consequences for both smaller independent studios and consumers alike. In the months since the Activision Blizzard deal was announced, the video game community’s response has been somewhat varied. This mixed reaction is perfectly understandable when the aspects of the deal are taken into account.
First of all; the sheer size of Activision Blizzard is nothing less than intimidating. This takeover deal embodies more than just capital and clout. This single deal dwarfs all of Microsoft’s preceding acquisitions deals combined. This transaction sends a daunting message to the rest of the video game industry.
Activision Blizzard is an enormous company.
Secondly, there is still a tragically black cloud hanging over Activision Blizzard with regards to the multiple sexual harassment inquiries still ongoing within the company. This is not a thing that can just be swept under the rug due to a big corporation buying out the studio in question and nor should it be. For a lot of gamers, a black mark against the company name will rightfully persist until some serious form of justice is carried out.
Another interesting fact to consider is how Microsoft’s past acquisitions have always gone down well with the gaming community online. This latest deal marks the first time where Microsoft has seen a varying response to news of an acquisition deal. That must have been fairly jarring to a company who are used to a purely positive response from its audience.
The reason for all of this uncertainty is primarily owed to the fact that the Activision Blizzard deal is much more than a mere ordinary transaction between two establishments. Instead, it is the clearest signal given thus far that the video game industry is headed directly into an era of consolidation.
Why Is This a Bad Thing?
A war of acquisitions has the potential to be disastrous for both video game developers and fans alike. Historically, there are no examples of higher calibre titles being developed by a studio as a direct consequence of being taken over by a large corporation.
There is a chance this banner could be absent in the future.
Console exclusivity deals are also an important element to factor in when considering consolidation across the industry. Whilst many have their innate issues with exclusivity, it is an aspect of the market which is, unfortunately, a necessary evil.
In an ideal world, every gamer would be able to experience every title, regardless of the console that they happen to own. However in actuality, exclusives aid development costs and help to encourage competition and therefore creativity within the marketplace.
For years now, exclusivity deals have provided a foundation for competition within video game development. As a result of these lucrative agreements, independent developers are afforded the luxury of championing their games without ever having to feel obligated to any platform holder in particular.
Is Phil Spencer a man of his word?
Phil Spencer made some comments while speaking to Bloomberg in the wake of the Activision Blizzard deal, which is somewhat telling with regards to Xbox’s plans for their newly acquired IP. Whilst he failed to explicitly state whether or not the franchises in question would become platform-exclusive or remain multi-platform, the insinuation is that the latter could be the case:
Activision Blizzard games are enjoyed on a variety of platforms and we plan to continue to support those communities moving forward.
Upon the first read, that statement may come as somewhat of a relief and alleviate some of the concerns held by non-Xbox-owners. At least until Spencer’s statement is compared to Todd Howard’s initial comments immediately following the Zenimax acquisition when he was asked by gamesindustry.biz about where Elder Scrolls VI will be available, (a game which we now know to be exclusive to Microsoft devices.)
I would agree that is hard to imagine.
The Cost of This War
When they operated as a self-governing third-party studio, Activision Blizzard retained the ability to negotiate with the platform holders in any way they saw fit. They could broker deals with Sony and Microsoft to allow their games to be made available on the respective consoles of their choosing.
Other than the odd piece of inconsequential console-exclusive DLC over the years, maintaining this range of availability has aided Activision Blizzard in ensuring that their products can reach gamers on multiple platforms across the globe.
The situation starts to change when all of a sudden one of the biggest platform holders also morphs into one of the biggest game publishers in the world. After this $69 billion deal goes through, the IP owned by Activision Blizzard will become IP owned by Microsoft and a future of exclusivity could potentially be on the horizon.
Call Of Duty has always made for an interesting bargaining chip in the console race.
Call Of Duty is a good example to illustrate just how much the landscape could change because of this transaction. Up until now, COD has been the property of Activision and under that umbrella, it has thrived as an enormously successful FPS. A new title in the franchise has been released every year as an annual instalment and it has always been accessible via any given gaming platform.
As of 2022, the Call Of Duty series is 19 years old. Throughout its tenure as the most popular FPS game on the market, the franchise has switched its allegiance between Sony and Microsoft as Activision has seen fit. One year, Microsoft would be winning the console race and Xbox gamers would receive early access to certain multiplayer maps, and the next, PlayStation players would get to enjoy an exclusive weapon skin.
This is just one of example of console-exclusive COD content. The war of acquisitions could mean that deals like these become a thing of the past.
Irrespective of whatever else has been taking place across the gaming landscape, Activision has always reserved the privilege to distribute its product in whichever way they like at any given time. It was the publishers who held the ability to decide where the fruits of their labor will be enjoyed, not one of the platform holders. Theoretically, this meant any decisions made would be based on whatever is best for the game, rather than allowing any petty-minded bad blood to cloud judgement.
In the aftermath of the Microsoft acquisition, this decision process will essentially be entirely non-existent. As the proud vendor of the leading FPS war franchise in gaming, there will be no reason for Microsoft to permit any bonus benefits to Sony players. Frankly, it would not be out of the question for Microsoft to tell Sony to screw off entirely, keeping the series exclusive to Xbox consoles and PC.
It should be noted that this is only an example of one single IP. Consider all of the combined bonus content that will undoubtedly be absent from the additional massive multi-platform franchises, (that is presuming that they continue to be made accessible cross-platform.) The result is an overwhelming volume of content lost to the War of Acquisitions.
Following Suit
Microsoft is not the only party guilty of propelling this trend of acquisition. Throughout 2021, Sony acquired five new studios to add to their first-party roster. The developers acquired were; Valkyrie Entertainment, Housemarque, Bluepoint, Firesprite, and Nixxes. These five, along with the aforementioned Bungie purchase give Sony a total of 17 internal studios.
It was initially thought that this deal was a direct response to the Microsoft/Activision deal. Although, it couldn’t have been given how long these agreements take to set up.
Many are still wondering exactly why Sony spent a mammoth $3.6 billion to buy out a company that only possesses one single known IP. Whilst the argument can be made that Sony does not have a significant first-party first-person shooter in their stable and Destiny will fill that void, it still seems like somewhat of an odd choice.
Before the announcement of the Bungie takeover, the rumour mill was claiming that Sony was interesting in purchasing EA. This would have made more sense given that it would have meant that Sony would acquire a surplus of the desired IP. The decision to buy Bungie, – while still noteworthy, – is simply not on the same level, as an EA buyout would have been.
Closing Thoughts
Even though Sony’s procurement of Bungie does not stack up to Microsoft purchasing Activision, those two transactions combined result in a huge push into the era of consolidation. There is no doubt that more acquisition deals between Microsoft, Sony, and other companies of significance are on the horizon. The scale of the publishers involved and the amount of money changing hands will only increase over time.
This infographic is already out of date, but it gives some idea of which publishers own which studios. The war of acquisitions would change the landscape entirely.
Whilst the most likely short-term casualty of the war of acquisitions is the death of the big console-exclusivity deal for developers, the long-term effects are more disconcerting. If a handful of major companies are allowed to regulate a significant amount of game development across the industry, it will likely result in the loss of any originality left in gaming.
Even if the large companies still claim to support; “creative freedom amongst their respective teams,” in reality, declarations like these ring out as little more than buzzwords to keep the audience purchasing games. If all of these studios are using the same budget agreements, QA testers, management styles, and marketing strategies, then there cannot be any true “creative freedom,” left within the company.
Regardless of the feigned innovation which figureheads of these companies try to feed their audience, it is clear that this is not the truth. The truth is that every one of these studios will be run by the same management with the same target in their mind; to make a profit. This solitary capital-based viewpoint will inevitably result in stale, unoriginal content being churned out.
Disregarding any conjecture or hyperbole, it is undeniable that these recent merger deals signify a sharp escalation of consolidation across the industry. The way that business is conducted within the video game marketplace will unavoidably be affected by that escalation.
No matter the outcome, one thing is for sure concerning the upcoming gaming generation; partnerships will be crucial to companies looking to get ahead of their competition.
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