ActiVisioning an Industry: Gaming History, Microsoft and redefining the Power Balance.

Dawn rises on 2022 with Bang. As the earth starts its journey on yet another circle around the shining ball of Death and Life at the centre of our galaxy, we become witness to not only the highest acquisition of a History in Gaming but also one of the highest Cash (!!!) Transactions overall, as Microsoft gobbles up Activision for breakfast like a hungry Snake in one whole bite. In fact, after this deal Microsoft has moved up to Rank 3 of the largest gaming companies in the world, after Tencent and Sony – a stark contrast from the rollercoaster-like past two decades of Microsoft Gaming. Moves on such a scale are guaranteed to not only impact gaming but the global tech scene overall, evidenced by its widespread news coverage. In this Article, let us take a closer look at what is ahead in the gaming sphere and beyond in the post "Micro-vision" world. But first let us set some context and where does context start if not in the dusty old pages of a history lesson!

Gaming History 101: Activision

Activision has been around since arguably some of the earlier days of the video game industry, created from disgruntled former developers of one of the former titans of gaming itself: Atari. What however started as one new, fairly successful company rising out of the ashes of another’s diminishing glory turned into a whole wave of new kids on the block gaming companies. 6 years after Activision’s founding in 1983 the great video game crash or recession, born out of an oversaturation of low-quality games and publishers uprooted the industry. Indirectly and with no fault to bear Activision almost activated the kill switch on the entire industry (at least in North America) as dozens of companies went into bankruptcy and it is only largely thanks to Nintendo systems, that some eventually managed to rise out of its ashes. Notably around the same period the satanic panic swept through the United States causing a definite rift between youngsters of the time invested in and curious about new forms of entertainment and older generations caught in a tidal wave of biblical fear – it is quite likely that these two phenomena heavily fuelled the fire under each other’s herds and kept the flames burning much stronger than they would have on their own. Although the Industry eventually recovered the sphere of gaming had changed. Fear of a similar oversaturation grappled both bigger studios and console providers such as Nintendo with new licensing systems and guidelines heavily regulating third party content. One might argue that in the gaming sphere at least it was here that the first embers of an evolving landscape full of intellectual property wars, industry espionage, technological arms races, and giant gaming conglomerates took its first swipes with the brush.

Activison survived the crash by branching out into home and computer games (previously they had only focused on consoles) and business software applications. Whilst the former seemed to work the latter went haywire and Activision went into debt, until they were bought up by Bobby Kotick and a few other investors in 1991. After the hostile takeover, Kotick assumed the position of CEO. This, Ladies and Gentlemen, is where Activision’s story truly starts up to the point of Microsoft’s acquisition this year.

Within the next four years Kotick completely restructured the company, went public and managed to continuously break-even, whilst evening out the losses of the past and bringing out several successful titles and garnering profit up until 1997, most notably Battlezone.

Amid the Dot-com bubble, Activision shifted focus from publishing games themselves to aggressively eating up other game studios and publishers to acquire their skills, manpower, and most importantly IPs. Games produced by these other studious included the TonyHawks series, Guitar Hero, Spyro, and most notably Call of Duty. At the height of all these acquisitions, however, was when in 2008 Activison merged with Vivendi Games, owner of Games studio Blizzard, in turn owner of the highly popular MMORP World of Warcraft, to form Activision Blizzard.

As of today Activison Blizzard has five business units:

• Activision Publishing

• Blizzard Entertainment

• King

• Major League Gaming

• Activision Blizzard Studios

Next to the already aforementioned titles the company also owns the Intellectual Property on games such as Starcraft, one of the founding elements to eSports but more on that later, Diablo, Heroes of the Storm, Overwatch, and Candy Crush Saga.

After the merge and several veeery successful years together, Kotick eventually had AB (Activision Blizzard) buy itself out of Vivendi Games and continue as an independent company. Of its various titles Blizzard may arguably have become the most famous in terms of reputation alone in the MMORP and PC Gaming sphere, whilst the Call of Duty brand held a strong foothold on both PC and Console Gaming. The acquisition of King in 2015 proved another crucial component, as by that time it was becoming increasingly clear just how much potential and importance the mobile gaming market was rapidly amassing, a trend that many other large gaming companies failed to jump on, leading to an over distribution of Chinese-small studio and low quality produced mobile games on android and apple.

Ultimately despite its seemingly repetitive successes AB not only repeatedly struggled from various controversies among the years, but also from failed titles. Many of these stemmed from short-sightedness by the studio and a lack of proper due diligence. Promising new titles such as Destiny, a joint production of AB and Bungie initially promised high income, but its success for Destiny 2 quickly lost interest. World of Warcraft, whilst still holding an avid fanbase as one of the largest MMOs is openly also lauded as one of the most outdated games in terms of visual appeal and game engine. In a manner typical for the gaming communities, players unanimously express dislike for the practices of AB as a company, yet continue to play their games, with slowly decreasing interest.

Up Next: eSports, the era of COVID, and controversies

In recent years, AB has continuously struggled to outright failed to truly appease its increasingly discontent fans: buggy, lacking, failed releases of major franchises threw new shade at the brand, coupled with allegations about workplace misconduct and sexual harassment. Coupled with the success of eSports by Riot Games League of Legends, and other major titles led to a major shift in focus on developing said industry. AB wants to be the new centre of eSports with Overwatch and Call of Duty at its forefront.

With Kotick as the proverbial nucleus of all, AB doubles down on Overwatch to create the next era of eSports. Kotick manages to convince several big-time investors to put their money into the Overwatch league – quite possibly incentivised by the viral rise of eSports in the mid 2010s - whilst SOMEHOW also managing to convince Steam to pay 100M USD to Activision for Streaming Rights on the Overwatch league. Only, the deal doesn’t go up – In-Game Issues, Buggy Services, a highly unbalanced Meta, bad marketing, and AGAIN a barrage of controversies surrounding AB, NOT TO MENTION the highly successful market dominant League of Legends by Riot Games end up causing a 100M USD loss for Twitch due to no Overwatch streaming success, no uber success for AB, and no renewal of the deal. Overwatch entered the stage as a bright shining star, but it seems like so often, it was of the sort that burns up quick and fast. During this whole time, and in previous years building up to it, numerous harassment reports, claims of a frat boy culture, gender inequality, overworking employees that go on strikes and/or quit in flocks continuously frame the company’s picture.

AB looses brand reputation, loyalty, is smeared to dust on online discussion boards, and stock prices hit rock bottom.

So, what’s the deal all about?

With its continuously falling stock, AB was acquired at 95 USD a share for a total of 68.7 billion USD in CASH! Not only is this one of the biggest CASH acquisitions/overtakes in Gaming but one of the biggest in general for the last couple of decades. Whilst value-wise Microsoft’s Gaming department is now technically the third largest in the world after Tencent and Sony, it really is far more than that, when looked at from the sheer number of possibilities and market implications that rise from this merger.

To put things into perspective. Sony’s total net worth is evaluated at 143 billion USD. Microsoft acquired AB IN CASH for half of that, as if it was buying a pack of lemon drops with some leftover bills on the side. The only other deal in entertainment that is somewhat comparable is Walt Disney Co. Buying up Twenty-First Century Fox for 84.8 billion USD- a deal that is still pending! Now if we talk about Market Cap, then one should mention Microsoft’s Market Cap for fairness's sake, evaluated at 2.3 trillion USD, a number that frankly dwarves any gaming related cash-buy outs.

Far more threatening than anything else however are possibilities and for this we need to talk about Microsoft for a bit.

What’s in it for Microsoft?

It can be said that Gaming is currently roughly divided in three sectors (Console, Computer, Mobile) with a fourth newer and smaller sector working its way to its older brothers up (VR).

For the past two decades Microsoft and Sony have been tight locked in a diarchy of Console domination, not only through said consoles but also their in house published games. Whereas Sony has repeatedly shown success as both console and game developer, Microsoft has always been considered to trail slightly behind. Microsoft’s truly successful IP franchises, in both console and PC gaming are staggeringly limited. Quality over Quantity seems to be the ethos, however the quick-paced demand for new games demands both, something Microsoft answered to by rereleasing the same titles over and over again, leaving audiences frustrated (see Age of Empires franchise, Tomb Raider franchise, Forza franchise). In addition, after the failed stint of Microsoft phones, it has become clear that Microsoft and Smartphones were not going to happen again for a while.

Controversially, and from an outsider’s perspective, it seems quite obvious that Microsoft is desperate to move up its operations within the Gaming Sphere. Years of being referred to as Number 2, a series of successful, but slowly getting washed out franchises, NO eSports references and a disability to enter the by now biggest market of Mobile scream: “I need more from you, you old scoundrel” at the company. Microsoft answered this by developing GamePass, a move that essentially is a smart, but stupidly simple CTRL C + V of Netflix, Disney+, and Prime Video as a “Gaming all-in-one subscription platform” of sorts.

Now, we’ll talk about GamePass more a bit later, but for now let’s focus on how Microsoft thinks it can make GamePass successful: Again, by smartly taking a page out of another book and acquiring as much IP as possible to mirror Steam as the world’s largest games library.

So, to summarize Microsoft wants to expand its gaming capabilities, is aware of Mobile, wants eSports, needs every scrap of IP it can get and clearly has too much Cash on the side – what better solution than to buy up a struggling company that can provide it all? And that’s by far not the limit of Considerations!

The Gaming industry has had times of early giants, that broke down into dozens of SME studios and again has since been moving towards a unification towards few supergiants. Even outside of Gaming Blue Chip Companies the likes of Google, Apple, Amazon, etc. Are now reaching sizes and scopes of influence, that far outreach any singular sector. In addition, with Facebook turning into Meta and pronouncing the Metaverse it is becoming clear, that these supergiants now recognize gaming as an integral part in the modern world’s entertainment industry. Especially considering the potential of this latest thread makes upgrading your facilities from Microsoft’s perspective a very logical choice.

What does it mean?

Before Activison, Microsoft had already acquired Bethesda recently, if only for a measly 7.5 billion USD – in other words Activison is simply a major steppingstone in a much grand trend of gobbling up businesses in gaming. And the industry still has other easy to catch fish in its pond, such as EA, notoriously known for struggling with its reputation and strategic decisions over the last or so decade. Interestingly it seems that Sony in a bid to balance the status quo in their favour once again have found interest in acquiring EA according to sources. This is understandable as Sony is facing serious threats in the form of multiplatform games by Activision such as Call of Duty or Minecraft (acquired by Microsoft for 2.4 billion USD a couple years ago) that could cost them valuable customer groups.

Implications for the industry

Currently, Mobile is the largest segment in Gaming – and it is projected to keep in growing with 95% off all players enjoying games mobile. Microsoft and Activision promise to continue expanding existing franchise into the mobile sector such as “Halo” or “Warcraft” and by doing so essentially jump on the Bandwagon that Riot Games had already set a while ago with League of Legends – Wildrift, a mobile variant to popular Moba Game League of Legends and voted Number 1 Game in the app Store at the end of 2021, and Number 1 in the PlayStore for tabloids (not overall).

It is quite reasonable to assume that Microsoft will boost developments in this direction through enhanced Cloud Computing and Edge Technology, hot irons in tech, that will fundamentally increase mobile gaming standards, provided the internet connection is stable enough of course. We can also expect a huge increase in Microsoft’s GamePass portfolio. Whether this move is smart or not is to be seen. On one hand GamePass could work as a cheap gateway drug and easier entry to games like Overwatch and Starcraft, whose numbers have been dwindling in recent times. Reversely, Gamepass with its increasing portfolio takes away Prestige Value and Branding Power of individual Game titles by amassing them under a single, massive everything at once cart. Whilst Gamepass proves to grow and be successful, the long-term ramifications of a service that diminishes the value of individual games might have impacts on the way titles are produced, developed and published in the first place. By looking at the Nintendo Store, we can already observe an amassment of low production indie and Mini Games and less and less focus on (admittedly also overpriced) AAA-titles that could really carry the game forward. In a way one could argue that these developments show a perspective that focuses more on the past and recycling, rather than projecting forward and creating truly unique new experiences – understandably so as recycling software is always cheaper than writing new lines of code, especially in a time where nostalgia and retro are high in demand.

Finally, a market consolidation of an industry always comes with a loss of creativity and diversity – not to mention a world in which money and corporate regulations have priority over unique storytelling and entertainment experiences. In such a world it becomes increasingly hard for small studios to establish themselves, or if they do, easier to enter another great video game crash. In addition, Microsoft’s GamePass, whilst an exciting model at first glance, ultimately is a model of recycling and looking towards the past. Regurgitating old titles for little money, offering multigame solutions and taking the value out of individual titles may very well heavily impact the industry’s creative lust for new and how gamers interact with AAA-titles, the powerhouses of pc and console gaming. Similarities to this can already be observed. Ultimately, Microsoft has won on almost all accounts with this transaction, were it not for one risky component – that is a bet on that it can fix Activion’s messy corporate culture and advance the brand past controversies, lawsuits, and CEO Kotick’s questionable business management style, that kept aggregating financial losses for multiple involved parties, whilst still exiting on a strong note himself.

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