Entertainment

Microsoft’s Activision Blizzard acquisition will reshape the game industry

Microsoft just bought one of the world’s largest third-party game publishers. What now?

Squares from Microsoft games

The nearly $70 billion acquisition gives Microsoft access to some of the most valuable brands in gaming.

Image: Microsoft Gaming

Just one week after Take-Two took the crown for biggest-ever industry acquisition, Microsoft strolled in Tuesday morning and dropped arguably the most monumental gaming news bombshell in years with its purchase of Activision Blizzard. The deal, at nearly $70 billion in all cash, dwarfs Take-Two’s purchase of Zynga, and it stands to reshape gaming as we know it.

The deal raises a number of pressing questions about the future of Activision Blizzard’s workplace culture issues, exclusivity in the game industry and whether such massive consolidation may trigger a regulatory response. None of these may be easily answered anytime soon, as the deal could take up to 18 months to close. But the question marks hanging over Activision Blizzard will loom large in the industry for the foreseeable future as Microsoft navigates its new role as one of the three largest game makers on the planet.

What happens to Bobby Kotick and Activision’s labor movement? Microsoft’s announcement this morning explicitly says Bobby Kotick will remain Activision Blizzard CEO during the transition period and after the deal closes. You can, however, read a bit between the lines here.

  • The embattled Kotick has been fighting to keep his job for the last six months, since California’s explosive sexual discrimination lawsuit blew the doors wide open on Activision Blizzard’s horrendous workplace culture.
  • His refusal to step down has led to employee protests and unionization efforts, and the company has tried to placate employees by firing more than three dozen people and reprimanding more than 40 others. But nothing short of Kotick’s removal may help turn around the company’s reputational issues and extreme internal dysfunction.
  • Kotick will now report to Xbox chief Phil Spencer, who is officially in charge of Activision Blizzard as the newly appointed CEO of Microsoft Gaming. Whether Kotick departs quietly with a hefty severance package or stays on at the company is a central question that speaks to Microsoft’s apparent commitment to a "culture of proactive inclusion,” as Spencer put it.
  • Kotick declined to tell The New York Times whether he’ll stay on as CEO after the deal closes, but sources told The Wall Street Journal that he would in fact step down. Even Kotick’s message to employees is full of ambiguity about his future at the company.

Will Call of Duty become an Xbox exclusive? A chief question in conversations about game industry consolidation is how this affects players and the products they can or cannot buy. Game makers, like media streaming services, increasingly acquire content to drive ecosystem growth and deprive their competitors of access, and that’s especially true for Microsoft, given Xbox Game Pass.

  • Microsoft’s acquisition of Bethesda parent company ZeniMax raised a similar question, and we now know a large majority, if not all, of ZeniMax’s properties will indeed become Xbox exclusives. It’s not immediately clear whether that’s the case here.
  • Call of Duty is far and away the biggest and most lucrative Activision franchise, but it holds a unique position in the game industry as an annually updated series now equipped with a free-to-play companion game.
  • Depriving PlayStation fans of the ability to play Call of Duty may cause more harm than it’s worth, especially considering Warzone and new mainline entries in the franchise are closely intertwined.
  • Bloomberg reported Tuesday that Microsoft “plans to keep making some of Activision’s games for PlayStation consoles but will also keep some content exclusive to Xbox,” though it may likely be months before the company feels compelled to reveal which ones.

What will this mean for Xbox Game Pass? Microsoft’s most defining strategic goal for the future of its gaming business is driving subscriptions to Game Pass, which now has 25 million monthly customers.

  • Those subscriber numbers are only up 7 million from last year, so big acquisitions are clearly designed to help boost the value of Game Pass and drive more signups. And the only way Microsoft can do this without demanding its studios crunch to produce faster is to increase the overall size of its studio organization.
  • Microsoft now has 30 internal studios with tens of thousands of employees, nearly all of which will be pumping out new games that will be added to Game Pass the day they release.
  • Adding more titles to Game Pass makes it more attractive as a cloud gaming service, while also expanding Microsoft’s presence on mobile.
  • “The fantastic franchises across Activision Blizzard will also accelerate our plans for Cloud Gaming,” Spencer wrote Tuesday morning, “allowing more people in more places around the world to participate in the Xbox community using phones, tablets, laptops and other devices you already own.”

What might Microsoft buy next, and how will regulators react? Microsoft has shown its willingness to buy its way to more exclusive games and a larger and more diverse customer base. With the purchase of ZeniMax in 2020 and now Activision Blizzard, this may not be the end of the company’s acquisition ambitions.

  • With Activision Blizzard and Zynga out of the picture and M&A in the game industry reaching record levels of activity, the market for independent game makers is dwindling fast.
  • Tencent remains the world’s largest, and that is unlikely to change. But Electronic Arts and Ubisoft now seem like potential targets, as do Epic Games and engine competitor Unity.
  • Regulators have been putting pressure on Big Tech for the past few years, though Microsoft and the broader gaming industry have escaped scrutiny. As some astute observers have said online, a deal like this may not raise red flags because Microsoft will still only be the third-largest game maker by revenue after Tencent and Sony.
  • But it still may involve concessions from Microsoft, like releasing some games on PlayStation, to get the deal closed in a timely fashion.

How will Sony and the rest of the industry respond? Microsoft’s rival in the game industry won the last decade of console gaming by focusing on first-party exclusive games. And with the PS5 and a stronger focus on building out a services business, the PlayStation platform is stronger than ever.

  • Yet Sony now faces substantial competition from this new generation of Xbox, as well as serious complications to its third-party library now that Microsoft owns not one, but two of the largest formerly independent publishers.
  • The PlayStation maker is working on its own Game Pass competitor, and it also has a cloud gaming service and virtual reality business, too. The question now for Sony is whether it has to acquire a major publisher of its own to execute on its ecosystem vision.
  • Sony has close ties to Fortnite maker Epic Games, including two major rounds of investment totaling nearly half a billion dollars in recent years. But few game makers may be as willing to become PlayStation exclusive developers, whereas Microsoft releases all of its first-party titles on PC in addition to console. Sony is now following suit, but at a much slower clip to avoid undermining hardware sales.
  • Other small to medium-sized game developers may now be eyeing the market with trepidation, wondering whether a sale to one of the large console makers or acquisition-hungry conglomerates like Tencent, NetEase or Embracer Group may be the only way to survive a future dominated by subscription platforms, cloud gaming and an increased focus on mobile.
Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

Keep Reading Show less
Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

The financial technology transformation is driving competition, creating consumer choice, and shaping the future of finance. Hear from seven fintech leaders who are reshaping the future of finance, and join the inaugural Financial Technology Association Fintech Summit to learn more.

Keep Reading Show less
FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

It will be the second re:Invent with CEO Adam Selipsky as leader of the industry’s largest cloud provider after his return last year to AWS from data visualization company Tableau Software.

Keep Reading Show less
Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

As of today, we will not publish any more stories. All of our newsletters, apart from our flagship, Source Code, will no longer be sent. Source Code will be published and sent for the next few weeks, but it will also close down in December.

Keep Reading Show less
Bennett Richardson

Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

Keep Reading Show less
Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

Latest Stories
Bulletins