Entertainment

Why Microsoft needs to drag Call of Duty into the future

Microsoft’s biggest challenge with Call of Duty has nothing to do with Sony. It’s about modernizing the franchise for a cross-platform and subscription future.

Why Microsoft needs to drag Call of Duty into the future

Call of Duty: Modern Warfare II premiered the biggest entertainment advertisement ever at the port of Los Angeles in May 2022.

Photo: Jerod Harris/Getty Images for Activision

Microsoft and Sony have been waging an increasingly bitter battle over Call of Duty. Over the past two weeks, the feud has spilled out into the public through regulatory filings in countries like Brazil and New Zealand, which, unlike the U.S., publish such documents for all to see.

Microsoft’s goal is to convince regulators worldwide that its landmark acquisition of Call of Duty parent Activision Blizzard for close to $70 billion should get the greenlight. Sony's goal, on the other hand, is to raise the alarm about its primary gaming rival owning one of its biggest cash cows, and whether the PlayStation playbook of platform exclusivity might be turned against Sony if Microsoft decides to make Call of Duty exclusive in some way to Xbox or its Game Pass subscription service.

Microsoft’s potential ownership of the series presents a particularly thorny set of problems for Sony, which has for the last decade been the primary platform on which players have purchased and played Call of Duty games. As of this year, Sony has sold 117 million PS4s, making it one of the most successful consoles and by extension most successful Call of Duty distribution platforms ever. Sony has said in its regulatory filings that Call of Duty is an unrivaled and even “essential” video game “so popular that it influences users’ choice of console.”

But the debate over Call of Duty is about much more than whether the game will be an Xbox exclusive. It’s about whether Call of Duty as we know it — as one of the oldest, most resilient and also conservative blockbuster game franchises — will change with the times.

“The notion of a console war or rivalry for Microsoft and Sony as a polarized dichotomy is outdated,” said Joost van Dreunen, a former game analyst and professor at New York University who studies the game market. Instead, it's all about pointing the series in the right direction for the future. “As gaming gets mainstream, these classic franchises like Call of Duty hit these midlife crises and try to figure out how to reinvent themselves and stay fresh and have pull with audiences,” he said.

Could Microsoft help Call of Duty meet the current moment of the game industry as it undergoes major changes to its primary business models and digital distribution strategies? If Microsoft succeeds, it wouldn’t matter which platform you use to play Call of Duty, because Call of Duty would be available everywhere: on phones, web browsers and, yes, even still on PlayStation.

Call of Duty is caught between generations

Call of Duty has become, for better and worse, the epitome of the hardcore military gun game. It started on its modern trajectory with the aptly titled launch of 2007’s Modern Warfare, which marked a gradual drift away from gritty wartime realism and began fusing the franchise with blockbuster action movie bombast. As the bestselling shooter of all time, Call of Duty has become the benchmark against which the industry’s old guard judges success — culturally and financially. That’s also made it a coveted bargaining chip in the console market.

In the U.S., where console gaming reigns supreme, “through the end of 2021, Call of Duty has been the bestselling video game franchise in premium game sales … for 13 consecutive years,” NPD game director Mat Piscatella told Protocol. Every fall, a new entry of Call of Duty is released like clockwork, helping boost holiday console sales.

“It’s one of the kids that sits in between this custody battle between Xbox and Sony,” van Dreunen said. “Call of Duty is one of the key franchises that is closely associated with the console market, and for a lot of observers it serves as a proxy for the overall health of the ecosystem.”

While Call of Duty has never before been exclusive to one console platform, Microsoft and Sony have for many years engaged in a bidding war with Activision to secure coveted marketing deals and other exclusives, from the right to show the PlayStation or Xbox logo during a televised trailer to specific in-game benefits like early access to beta releases. “There’s a history of Microsoft and Sony fencing with ownership and exclusivity rights around the Call of Duty franchise,” van Dreunen said.

In many ways, the debate around Call of Duty exclusivity, and the franchise’s power to drive console choice and retail sales, is rooted in a perception of the game industry that’s fast becoming an anachronism. The assumption is that Microsoft and Sony are primarily motivated by rewarding their fans for their loyalty while also harming rivals, and by extension players of those competing ecosystems.

But that clashes with the direction of the modern game industry and the strategic vision Microsoft has laid out for the future of the Xbox business. The last few years have resulted in the erosion of major barriers to cross-platform play, cloud streaming and subscription bundling. Many gamers today enjoy premium, console-quality games on a variety of devices, including smartphones, and the most popular games — like Fortnite, Roblox and Genshin Impact — tend to be free-to-play live service titles that are updated regularly over the course of many years. Game Pass, because it lets consumers take their games across platforms and even stream them from the cloud, is central to Microsoft’s success in such a world.

Call of Duty, on the other hand, exists with one foot firmly planted in the past and another attempting to drag the franchise forward. The game is still released annually as a premium product costing between $60 and $70. When one entry flops, as last year’s Vanguard did (for a variety of reasons), it sinks the whole business as sales plunge and players flock to other games in droves. Activision Blizzard’s abysmal second-quarter earnings announcement earlier this month showed a $271 million year-over-year decline in profit and 33 million fewer monthly active players compared to last year. Company executives point to Vanguard’s lackluster performance as the culprit.

Activision has been working to diversify the Call of Duty business so that it’s not so dependent on the success of each year’s fall release. Call of Duty Mobile, a standalone smartphone version of the game developed by Tencent’s TiMi Studio Group, has earned more than $1.5 billion as of February of this year. In May, the game clocked more than 650 million downloads.

The free-to-play Call of Duty: Warzone battle royale, released in 2020, has been a hit as well, amassing more than 125 million players and helping the franchise as a whole surpass $30 billion in lifetime revenue through a microtransaction-heavy business model inspired by Fortnite. But Activision is still reliant each year on releasing a new entry in the franchise, and the success of Warzone is intrinsically tied to each new mainline Call of Duty entry because the games have a unified pool of cosmetics, unlockable guns and a shared look and feel.

When Vanguard flopped, Warzone suffered, too, as players felt less compelled to spend money on in-game cosmetics. The problem grew so dire — compounded by ballooning file sizes and bloat from juggling multiple games’ worth of content — that Activision announced a full reboot of Warzone to launch alongside this fall’s new Call of Duty entry.

This blending of business models may have seemed forward-thinking a few years ago, but it’s quickly become a double-edged sword for Call of Duty as Activision struggles to innovate without disrupting its primary revenue source and alienating fans. “[Activision] haven’t really done much with it. They’ve been very conservative in terms of adapting to new market circumstances,” van Dreunen said. “I think long term that’s going to erode their financial capabilities. They’re going to have to do something about a service model that is more focused on where the market is headed. [Call of Duty] needs an overhaul.”

The closest analog in the console gaming space is Electronic Arts’ FIFA, which also gets a new entry year after year. Yet unlike Activision, which struggles to keep Call of Duty fresh by changing up each game’s setting and creating convoluted narratives that span multiple entries, EA releases a largely identical version of its soccer game with updated rosters, while a live service component called Ultimate Team makes the bulk of the money and persists from one entry to the next.

“FIFA is the closest comparison,” van Dreunen said. “It’s not doubling its user base year after year, but it manages to monetize more aggressively on the back end. The question for Call of Duty is: How do you transition away from [boxed] products and toward live service, and what is the Ultimate Team answer for Call of Duty?”

Microsoft’s potential ownership of Call of Duty presents a particularly thorny set of problems for Sony. Photo: Dave Hogan/Getty Images

An evolving Call of Duty

Microsoft has gone to great lengths to dispel the notion that it might do something anti-consumer with Call of Duty. The company said in January it would honor its existing Call of Duty agreements with Sony if the deal went through, and that includes publishing the next three major entries for PlayStation. Microsoft president Brad Smith said a month later that Microsoft had “committed to Sony that we will also make them available on PlayStation beyond the existing agreement and into the future.”

In a filing with Brazil’s regulatory body published this past week, Microsoft flat out said Call of Duty exclusivity would harm its business. “The reality is that the strategy of retaining Activision Blizzard’s games by not distributing them in rival console shops would simply not be profitable for Microsoft,” the company wrote. Many of Activision’s titles are multiplayer games with cross-platform support, meaning revoking access to large swaths of the player base would be nothing short of a disaster.

“They would shoot themselves in the foot making it an exclusive. We’re past that point,” van Dreunen said. “Microsoft’s tenet here is, ‘We need to be cross-platform,’” he added. "They're not going to cut out 100 million console players — that would be the dumbest thing they could do.”

“Microsoft isn't as interested in the battle of the console boxes. It believes the future of games is going to be through streaming and subscriptions,” argued GamesIndustry.biz editor Christopher Dring in a recent opinion piece. “Call of Duty isn't so much a reason to buy an Xbox console, but a reason to subscribe to the Game Pass subscription service.”

Still, Microsoft has tough choices to make about how it incorporates Call of Duty into its increasingly complex gaming ecosystem. Microsoft now releases its first-party games directly onto Game Pass on release day to help boost subscriptions and keep players signed up. But it may not make sense for a new premium Call of Duty to be on Game Pass unless Microsoft decides to split it into pieces: for instance, separating the campaign mode from the multiplayer.

“You have to come up with a logical tier model,” van Dreunen said. “The way Microsoft treated Halo, they did make their success much larger by saying, ‘Hey, we’re going to give the multiplayer component for free and then we’ll sell you the premium one.’ That’s a more layered approach.”

Part of the concern for Call of Duty is that any such bold experimentation or catering to a broader, more mainstream audience — the likes of which Microsoft hopes to reach with Game Pass — might dilute the franchise’s identity. That in turn might drive away the fans who show up every year with money in hand expecting a hardcore shooter that caters to their tastes.

“You can’t really make drastic changes without eating your profits and revenues. The moment they give it away for free, sure, they’ll attract lots of new free players. At the same time, the existing user base will be far less interested,” van Dreunen said. “They like that it’s premium.”

Part of this debate is already playing out inside of Warzone. “Call of Duty is one of those franchises that is relentlessly focused on hardcore games in a classic sense. As it tries to become more like Fortnite, it’s kind of selling out,” van Dreunen said. “Epic, in the same way Apple does for consumer electronics, has set the aesthetic tone; you see it suddenly show up everywhere else. Everything is really brightly colored, pink camouflage pants and yellow rifles. Call of Duty followed this trend.”

But it’s not always well received — just look at the recent uproar over a bright purple assault rifle skin to get a sense of the current fandom squabbling. The fear — and in this case, that fear seems rather founded — is that Call of Duty looks like the “guy in a midlife crisis buying a red convertible,” van Dreunen said.

There are signs Activision is already preparing for a potential future under Microsoft that could involve major shakeups. Bloomberg reported earlier this year that next year’s planned Call of Duty game had been delayed to 2024, creating the first yearly gap in the franchise’s publishing history since 2005. That could give this year’s entry more breathing room and give Activision and Microsoft time to create a clear, concise strategy for updating Call of Duty for a true cross-platform, subscription future.

“It’s a common and timeless question: How do we continue to innovate and adapt to new technologies and audiences without alienating your hardcore player base? Same for film as it is for sports as it is for video games,” van Dreunen said. The same question applies to the game industry's ever-changing money-making mechanisms: “How do you transition a franchise that is born in a product-based business model into a service-based marketplace? Can you do that well? How do you do that well?”

If the acquisition is approved, Activision will be turning to Microsoft for those answers.

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