Microsoft’s big bet on the future of gaming
Good morning! Microsoft surprised everyone with its nearly $70 billion Activision Blizzard acquisition yesterday, but questions remain about what this means for the rest of the game industry. I’m Nick Statt, and I'm petrified every week this year will have a record-breaking video game acquisition.
The new gaming landscape
Microsoft dropped arguably the most monumental gaming news bombshell in years with its purchase of Activision Blizzard yesterday. The deal, at nearly $70 billion in all cash, dwarfs Take-Two’s purchase of Zynga last week, and it stands to reshape gaming as we know it.
The acquisition also 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 could trigger a U.S. regulatory response.
What happens to Bobby Kotick? Microsoft’s announcement yesterday morning explicitly said Kotick would remain as Activision Blizzard CEO during the transition period, but his future at the company seems uncertain.
- 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.
- In fact, the allegations about the workplace may have played a role in making the Microsoft acquisition possible, The Wall Street Journal reported, with Activision Blizzard's board beginning to get nervous about the company's future.
- Kotick will now report to Xbox chief Phil Spencer, who is officially in charge of Activision Blizzard as the CEO of the newly formed Microsoft Gaming division.
- 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 central question in conversations about game industry consolidation is how this affects players and the products they can or cannot buy.
- 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. With Activision, it’s more complex.
- For instance, Call of Duty is routinely the best-selling console game every year, and it’s now intertwined with the free-to-play companion Warzone. Depriving PlayStation fans of the ability to access all of these features in full may cause more harm than the benefit it provides Xbox.
- Bloomberg reported yesterday 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? The future of the Xbox business depends on 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.
- Microsoft now has 30 internal studios with tens of thousands of employees, nearly all of which will be pumping out new games for Game Pass. Adding more titles also makes the service more attractive as a cloud platform while also expanding Microsoft’s presence on mobile.
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 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. Electronic Arts and Ubisoft now seem like potential targets, as do Epic Games and Unity.
- Regulators have been putting pressure on Big Tech for the past few years, though Microsoft and the broader gaming industry have escaped scrutiny.
- The deal may involve concessions from Microsoft, like releasing some games on PlayStation, to get it closed in a timely fashion.
How will Sony respond? Microsoft’s rival in the game industry won the last decade of console gaming by focusing on first-party exclusive games. Sony now faces substantial competition from this new generation of Xbox and serious complications to its third-party library now that Microsoft owns not one, but two of the largest formerly independent publishers. Sony's shares fell almost 10% yesterday.
- 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 willing to limit their audience to just PlayStation owners, while Microsoft releases all of its first-party titles on PC.
None of these questions 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 largest game-makers on the planet.
A version of this story first appeared on Protocol.com. Read it here.
On the calendar
Low-code/no-code and the changing developer
As organizations endeavor to become more tech literate from top to bottom, the race to get low-code and no-code tools in the hands of more and more employees has forced tech executives to set up new strategies and infrastructures to ensure that the company can make full use of the software.
Join Protocol's Kevin McAllister, Nutanix's Wendy M. Pfeiffer and Pegasystems' Kerim Akgonul for a discussion on the underlying tech in low-code and no-code tools at 10 a.m. PT today. RSVP here.
A MESSAGE FROM APPIAN
Businesses need applications faster than ever before, and they need them to solve increasingly complex, sophisticated problems. This means IT teams need a more efficient way to quickly deliver powerful software and a better way to partner with their business counterparts. That’s where low-code comes in.
People are talking
BlackRock’s Larry Fink thinks companies need to adapt to the new world of work:
- “Companies not adjusting to this new reality and responding to their workers do so at their own peril.”
More than 40 startups signed a letter attacking Apple and Google and supporting the American Innovation and Choice Online Act:
- "Dominant technologies companies’ ability to give their own products and services preferential placement, access, and data on online platforms and operating systems prevents companies like us from competing on the merits."
#AppleToo leader Cher Scarlett testified in support of an anti-NDA bill yesterday, and talked about her own experience:
- “Some managers and other departments claimed I was violating the NDA we signed and reported me to global security for leaking confidential information.”
Coinbase and Mastercard are working together on NFTs, with the aim of making it easier for people to buy them.
OpenSea acquired Dharma Labs, which makes a crypto wallet app. Dharma Labs CEO Nadav Hollander will become OpenSea’s CTO in the deal.
TikTok’s global marketing lead, Nick Tran, was pushed out of the company, sources told The Information. Tran had been with the company since 2020.
Carla Piñeyro Sublett is out as IBM's CMO. Jonathan Adashek will take over as the new CMO and SVP of marketing and communications.
Claire Hughes Johnson joined Aurora’s board. Johnson is a corporate officer and adviser at Stripe.
Lori Castillo Martinez is Salesforce's new EVP and chief equality officer. She’s been the company’s interim chief equality officer for six months.
In other news
The White House’s COVID-19 testing site went up a day early. The test version of COVIDTests.gov attracted tons of visitors yesterday, although some people had trouble placing orders. The website is officially live today.
The 5G rollout marches on. AT&T and Verizon are turning on major parts of their 5G network today, though both carriers are delaying turning on some towers near airports over concerns that the wireless signal would get in the way of aircraft radio equipment.
YouTube is shutting down most of the YouTube Originals program. It will still fund YouTube Shorts and its Black Voices and YouTube Kids projects, but it turns out there's already plenty of original content on YouTube without the platform's help.
Antitrust enforcers are eyeing M&As. The FTC and Justice Department’s antitrust division said they’re reviewing policies on deals and want the public’s input on how to modernize the enforcement of antitrust laws on mergers.
A Tesla owner was charged for a deadly crash in 2019. The driver was charged with vehicular manslaughter, marking the first person in the U.S. to be charged with a felony for a fatal crash involving Autopilot.
Lawmakers want to stop “surveillance advertising.” Senate Democrats introduced a bill yesterday that would ban digital advertisers from targeting ads to users, with some minor exceptions.
Peloton might cut jobs. Execs are talking about laying off over 40% of the sales and marketing teams, and the company is working with McKinsey to examine its cost structure.
The Winter Olympics app has some flaws. Citizen Lab researchers said the app MY2022, which is used for COVID-19 tracking and other purposes, has several security issues that could let hackers intercept data.
Brian Chesky’s Airbnb adventure
Brian Chesky said one in five people booked stays for a month or longer on Airbnb last year. So Chesky decided to dogfood the idea himself: He said yesterday that he’s decided to start living on his own service.
Chesky said every couple of weeks, he’ll venture to a new town or city and stay in an Airbnb. This week he’s in Atlanta, and every so often he’ll head back to San Francisco. Chesky said he predicts people will start to stay in places around the world for months or even seasons at a time in 2022, so why not try it out himself?
Thoughts, questions, tips? Send them to email@example.com, or our tips line, firstname.lastname@example.org. Enjoy your day, see you tomorrow.
Correction: This newsletter was updated Jan. 19 to clarify that Carla Piñeyro Sublett did not leave IBM.