Are We Entering A Period In The Video Game Industry Of Hyper-Consolidation?

from the bigger-and-bigger-and-bigger dept

You will recall that we had several posts covering when Microsoft acquired Zenimax Media for $7 billion, as well as some of the potential fallout from that acquisition. Much of the focus was on what the purchase of Zenimax and its child studios, such as Bethesda, would mean for long-running game franchises from those studios going exclusive to PC and/or Xbox. Microsoft made a bunch of vague, lightly-conflicting statements on the topic before ripping the bandaid off by making the next Elder Scrolls game an Xbox/PC exclusive.

Most folks in the gaming community are either agnostic about exclusives, or decidedly hate them. There are very few cheerleaders for exclusives in other words, which is why most news about larger publishers acquiring small or mid-sized publishers is greeted with very narrow eyes.

That being said, there are acquisitions, and then there are acquisitions.

You might have heard the news: Microsoft has announced plans to acquire gaming behemoth Activision Blizzard King (ABK) and its subsidiary development studios. The deal is valued at $68.7 billion—or roughly 17 acquisitions of the Star Wars franchise—and that kind of money isn’t spent without an expectation of major moves (and revenue) going forward.

From there, the ArsTechnica post digs into some predictions as to what those moves will be: more games going into Xbox’s Game Pass, more mobile games spun out through the King studio, and, of course, the potential for franchises like World of Warcraft going exclusive. A good portion of the reaction to this deal being announced is focused on what titles will go exclusive.

But this deal is much, much bigger than that. It is the largest acquisition in the gaming space by Microsoft and the read on it in the financial space is that this is the real start to a much larger trend of consolidation in the industry.

“It’s going to start a major ripple effect in terms of consolidation for other videogame publishers,” said Wedbush Securities analyst Dan Ives.

Microsoft’s purchase of Activision will accelerate more deals in the industry, analysts said, as big tech companies seek to broaden their consumer offerings by acquiring game publishers and developers that attracted players during the pandemic. Microsoft’s purchase of Activision, which owns the Call of Duty, World of Warcraft and Candy Crush franchises, would also help the company edge into the streaming and metaverse spaces, they added.

Notably, once news of this deal broke, stocks for publishers like EA, Ubisoft, and Nintendo all rose significantly. That’s the market buying this as a trend and trying to get out ahead of the eventual stock climb when future deals are announced.

So, what does this mean for the industry? It doesn’t have to be bad, so long as these large acquisitions are backfilled by new entrants from smaller players. But there are a lot of ways for this consolidation to go wrong. Kotaku’s writeup is a bit over the top for my taste, but there are some valid points to consider in there.

This is the future. There is zero chance that boardrooms everywhere from EA to Ubisoft to Sony aren’t going to be full this week with panicked executives talking about their options for something similar, because their only instinct will be to match this. To keep up, keep those share prices growing, until there are only 2-3 companies left at the top of the food chain, and things are just a little worse still for the rest of us. Because they know nothing else.

We’re unlikely to reach a reality in which there are 3 parent gaming companies out there. If we did, yeah, that would be bad. Instead, I think the real danger in all of this could be the coordinated fragmentation of the gaming industry along platform lines. If the same companies that make the platforms (PCs, Playstations, Xboxs, etc) also makes some sizable plurality or majority of the games, that absolutely will lead to more exclusivity, more walled gardens, more hoarding of the culture that is games.

And that would ultimately be bad for the industry, no matter how many billions of dollars are exchanged in these acquisitions.

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Companies: activision blizzard, microsoft

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Comments on “Are We Entering A Period In The Video Game Industry Of Hyper-Consolidation?”

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35 Comments
bt says:

something new under the sun?

Oh my. Industrial consolidation leading to monopoly / duopoly / non-competition?

techdirt of all places should understand that this is the natural outcome of a typical market. Like the board game, it always ends this way.

If you want it to have a different ending, the rules of the game need to be modified. One way or the other.

Paul B says:

Re: something new under the sun?

Triple A studios are becoming expensive to run and operate. Those near AAA status are going to be gobbled up for there IP now a days.

But in the weeds there are hundreds of games released monthly. So it’s not like other markets where you can only get a game from the 3 to 5 main players. To get a monopoly here only means you own some IP in a game series but people can for the most part copy your systems and refine them.

Anonymous Coward says:

Re: Re: something new under the sun?

people can for the most part copy your systems and refine them.

Nope. Remember the phrase "Software Patent." You can’t copy anything in this industry.

I forget which company it was, but one of them recently just got another patent for "grass in a computer generated field." Another just got a 20 year monopoly on "retaining a user made object in a multiplayer world at the coordinates it was placed."

You should also remember that all of these franchises have no real competitors beyond their own previous entries. Not even free ones. Just ask any Nintendo fan if you want confirmation on that one. (AM2R, Pokemon Uranium, etc.)

Those two combined mean that any game on the market has to be drastically different than others to avoid the IP cartels that own them. You effectively cannot find a true competitor to most AAA games that has similar game play or assets / story.

That also means that most of the consumers are a captive market. If they want to play a certain type of game, for example a dollhouse simulator, they often have no real choice but to either pay the one publisher that owns it, or do without. There is no competitor for them to run to. No way to vote with their wallet. Why else is EA still around? They own so many of the franchises that people want to play, it doesn’t matter how many times they screw up or wind up on the most hated company in the country list.

Triple A studios are becoming expensive to run and operate.

I forget which publisher and series it was (EA and Dead Space?) but I remember reading somewhere that a AAA publisher greenlit a development budget that would require over a billion sales to break even at the $60.00 price point. Expensive doesn’t even begin to describe their operations. Maybe excessive would be a better term. As in: I would love to know what investor looked at that budget proposal and didn’t think it was excessive.

At this point it would be better for the industry to have these publishers broken up. Before their excessive spending and no-fs-given towards the customers additude causes another industry collapse.

Drew Wilson (user link) says:

Nintendo from the 80's and 90's

I remember back in the 90’s where Nintendo was pretty much the only game in town from a console gaming perspective. Did you want to make a console game that reached millions of gamers? Go with Nintendo. The NES and the SNES was what so many played. Yes, there were other consoles like the Sega Genesis that tried to compete, but the monstrous library of both Nintendo consoles pretty much meant that fewer gamers were exclusively non-Nintendo console fans.

This, of course, continues to be controversial. Nintendo wielding so much power in that sector that it made it difficult to compete in the market. It was effectively a monopoly of sorts.

In order for a console to compete, it needed serious backing. That’s where Sony came in. They already had power in other big markets like electronics and music, so it made sense that they could actually be a competitor to Nintendo. So, they made the Sony Playstation to compete against the N64. The games, in my opinion, were still better on N64, but the lasting impact was that Nintendo’s monopoly-like dominance was over.

Microsoft, of course, joined the club around the GameCube/PS2 era with the original XBox, but their console line really began taking off with the XBox360 as they competed with the Nintendo Wii and the PS3. Again, we saw a corporate powerhouse that had power from the personal computers market to break into the scene, making it a comparatively crowded three big console market.

Of course, the ongoing theme throughout this is that two of the big players have significant roots in other sectors. They continue to be large giants as they (Sony and Microsoft) try and dominate other tech markets as well. It’s less of a gaming industry problem that is consolidation, but more of a corporate consolidation problem we are witnessing that spans multiple sectors.

We, of course, are seeing this in other areas such as ISPs effectively becoming conglomerate companies as they buy up other parts of the entertainment chain (or the ISPs get bought up and have a similar effect).

So, when we look at the consolidation of the gaming industry, it is, indeed, noticeable, but I think it’s a symptom of a much larger problem that spans many different markets. How many corporate entities now straddle several markets and are dominant players in said markets?

Anonymous Coward says:

There have also been speculation that PC players will be the winners in all this, since console exclusives still often get PC releases. Especially on the Microsoft side, for obvious reasons.

A scenario well supported by the console platforms’ hard work at pissing away the biggest advantage they’ve had since time immemorial: hardware price. Exclusives were an annoyance at most back when you could get both an Xbox and a Playstation for less than even a passing gaming PC, but now…

Anonymous Coward says:

Re: Re:

Another example is the fact that modern consoles are effectively locked down PCs with custom firmware. Even the chips on the boards are PC parts. In Nintendo’s case, it’s Android parts.

Want more? Most consoles today have lost the original reason people preferred them over PCs: Ease of use. It used to be you could buy the game, plug it in, and it Just Works(TM). Today, it’s no different than your average PC title. Buy the game, make sure the OS is updated (and update if it isn’t), wait for the game to download, then wait for the game to update, then try to wade through the initial bugs, before you can (hopefully) play it.

About the only thing that doesn’t make gamers jump back to PCs at this point is the PC unique driver issues, but even that is something that console manufacturers are desperately trying to replicate what with the multiple hardware iterations per console generation thing they have going on. It’s to the point now that most games only target the lowest common denominator out of the feature set that the targeted platforms support. Further reducing the reason for people to buy other consoles, and driving up the cost of hardware development.

If this crap doesn’t make PCs the kings of gaming again I don’t know what will.

PaulT (profile) says:

Re: Re: Re:

"In Nintendo’s case, it’s Android parts."

What’s an "Android part"?

"About the only thing that doesn’t make gamers jump back to PCs at this point is the PC unique driver issues"

No, the reasons are ease of use (despite your rambling nonsense above, you don’t have to do anything with a console that you don’t also have to do on a PC), the games actually do just work after you install whatever updates are needed, prices are way lower, you don’t have to worry about upgrades within a generation, etc.

There’s plenty of reasons why consoles are still better than PCs for a lot of gamers, no matter how hurt your butt is over the fact.

PaulT (profile) says:

Re: Re: Re:2 Re:

I don’t own a gaming rig, have zero interest in getting one for the handful of games that I can’t play on a console or my Mac/Linux setup, and I’m happy to upgrade every 5 years or so for a new console that separates my gaming from my work and other leisure activities.

Each to their own, but I’m very happy to use consoles as my gaming venue for a large number of reasons. If you don’t agree, that’s fine as personal subjective taste is a major factor, just don’t lie to me about the benefits of the option I prefer.

This comment has been deemed insightful by the community.
Anonymous Coward says:

"We’re unlikely to reach a reality in which there are 3 parent gaming companies out there."

The real money is in the sales platforms taking their 20% cut, and those are already effectively consolidated around a few players. Microsoft doesn’t have to buy up all the parent companies, they just have to make XBox gamepass big enough that other publishers are willing to sign exclusive deals with them.

This move will kill GOG in the long run, unless CDPR becomes another Microsoft target. But the real wild-card in this space is Steam. Gabe Newell declared this war years ago trying to put games on Linux, but Microsoft is playing for keeps. Microsoft’s buying spree attacks Steam in the storefront space in two ways: The more games that are available by subscription on XBox Gamepass, the more "whales" will get peeled off from Steam. The people who spend $500 or more a year on the latest games will surely pay $20 a month to Microsoft if even half of those games are available on GamePass.

A few hold-outs who haven’t read the Steam ToS and want to "own" their games will stay with the platform where they can purchase the games, but this leads to the second attack.
Steam can’t win if half the games being released are only available on the XBox storefront. This isn’t something Microsoft has rolled out yet, but making the next Elder Scrolls game available on PC is not saying that the game will be available on Steam. And no one seems to have asked that question yet.

On a side note, the financial folks love subscription services and micro-transactions so much because they smooth out the revenue streams compared with the boom and bust cycles of blockbuster AAA releases every 2 to 10 years. And that assumes that your blockbuster actually sells blockbuster numbers. Wall Street doesn’t reward that kind of business model — they like incremental earnings growth quarter to quarter and year to year. Microsoft migrated their business software to Office 365 and Azure for exactly this reason. My bet is that they are intent on doing the same thing in the gaming space.

Anonymous Coward says:

Re: Re:

This move will kill GOG in the long run, unless CDPR becomes another Microsoft target.

GOG isn’t even in the market you’re talking about. GOG is for DRM free buy once, play forever games. XBox GamePass is a subscription (i.e. Rent Seeking) service. There’s no comparison to be made here.

Microsoft’s buying spree attacks Steam in the storefront space in two ways: The more games that are available by subscription on XBox Gamepass, the more "whales" will get peeled off from Steam. The people who spend $500 or more a year on the latest games will surely pay $20 a month to Microsoft if even half of those games are available on GamePass.

Rent Seeking Microsoft never learns, but Steam isn’t going anywhere anytime soon. Titles will be available on both for quite a while. If they weren’t, their absence would draw attention towards Microsoft’s rent seeking in an Anti-Trust suit. Given the current regulatory conditions that’s not a very wise move for Microsoft to make right now.

On a side note, the financial folks love subscription services and micro-transactions so much because they smooth out the revenue streams compared with the boom and bust cycles of blockbuster AAA releases every 2 to 10 years. And that assumes that your blockbuster actually sells blockbuster numbers. Wall Street doesn’t reward that kind of business model — they like incremental earnings growth quarter to quarter and year to year. Microsoft migrated their business software to Office 365 and Azure for exactly this reason. My bet is that they are intent on doing the same thing in the gaming space.

That’s Capitalism in a nutshell. Rent Seeking is the end game as it’s the most effective means to buy for nothing and sell for as much as you can get. (The ultimate goal of Buy low, Sell high: No expenses, Just profit.) However that model means that all of the money winds up in the hands of people unwilling to part with it, and an economy requires money to move to other people. There is no such thing as "an economy of one person." You cannot run a country on lack of compensation for very long.

Microsoft may think they will be the exception here, but I think the whole IT industry is about to be shaken real bad. The Business Software Alliances’ members made a big push toward SaaS (Software as a Service, aka. Rent Seeking) a few years ago for a reason. They knew their products had reached functional maturity and they had nothing in the pipe to push moving forward. They also knew that with all of the IP law changes that they had bought over the previous years, downsizing and innovating their way out of the problem was a no-go from the start. So they moved everyone over to rent seeking subscription models, branded it SaaS, and marketed it as the second coming. All while desperately hoping that no-one would catch on for a few more years. Well, guess what? People have caught on. They hate it, and the companies that pushed this crap are going to have some very tough questions to find different answers for real fast. Or else finally suffer the long over due consequences of their past decisions.

JustAName says:

ThinkSmaller

You’re missing the smaller picture here.

Activision isn’t just about AAA games. There are many smaller games that can be updated and re-released and help to fill out the XBox store roster. Guitar Hero, Skylanders, Tony Hawk, Crash Bandicoot plus many more can find updated homes.

From the developer perspective, buying the game company also means more game developers and their methods of writing code which probably has more weight than having the actual games.

Bruce C. says:

Agreed that AAA isn’t the only thing involved here. My main point is that Microsoft doesn’t really need or want to own game development. They want to own game sales and subscriptions, whether for AAA, legacy titles or smaller projects.

This isn’t to deny the synergies they get from owning multiple studios. I’m not sure how much benefit they’ll actually get from sharing talent across game studios — that never seemed to work out for other companies that owned multiple dev teams: look at Bethesda itself for an example. The experience from TES Online clearly wasn’t shared with the dev team for Fallout 76.

On the other hand, when you have dozens of games in development at any given time, you’re always releasing something new. This keeps the Wall Street types happy with steadier earnings and keeps the hype running with your customers.

In the mobile space, MS has a much longer road to travel before its strategy becomes clear. Right now they’re just trying to get back into the market, and it’s probably going to be almost impossible to break the walled gardens of Google Play and the Apple Store for quite a while.

Anonymous Coward says:

Re: Re:

"… But mobile platforms have always been a weak spot for the company, and gaming is no exception.

Phil Spencer, the newly named CEO of Microsoft Gaming, made it clear this week that King was one of the most compelling parts of the deal for that reason."

[Link] (https://www.geekwire.com/2022/microsofts-candy-crush-madronas-hope-cochran-former-king-cfo-on-the-blockbuster-activision-deal/)

PaulT (profile) says:

Re: A prediction

Generally speaking, this is kind of doubtful in terms of Activision, at least. Jobs being lost? Sure, that’s inevitable since by definition when you combine 2 companies there will be a lot of duplication and people won’t be needed any more. But, Activision are notorious for production line product that never seems to go down in price and are almost as bad as EA’s annual sports titles in some ways. If CoD and other games go to Game Pass, and Phil Spencer holds true to his promise to resurrect some older IPs that Activision has let die over recent years, this could actually lead to more product for less money for customers.

We’ll see how this plays out, but I don’t think that getting rid of Bobby Kotick and focussing more on what long term fans want will be a bad thing.

Anonymous Coward says:

Re: Re:

Yeah, I’ve always stuck with buying my XBox games. While a subscription that gives temporary access to a hundred games seems good short-term, in the long-run I have probably spent the same amount every year as I would have on Game Pass, but own about five times as many games which I can play whenever I like, without worrying about losing access to them.

PaulT (profile) says:

Re: Re: Re:

Game Pass is either great value or a silly waste depending on how you personally use it. If you’re signed up to play through a wide range of games you might never have bought, or maybe even heard of, were they not on Game Pass, it’s incredible value. If you signed up and play Halo and Forza the same as you used to, you’re just paying a monthly sub to access games you could buy outright and you’ve overspent by the end of the year.

Anonymous Coward says:

If you can’t compete, buy up the competition.

XBox’s philosophy is quite simple: just as the company introduced a steady stream of revenue with its XBox Live subscription, now it’s trying the same thing with its game library, and idiot gamers are now invested in this bullshit at the tune of 25 million subscribers.

To put this into perspective, at a base price of $10, that’s $250M per month. In 4 months, it’s $1B dollars.

$3B annually.

In 2.5 years, XBox will have paid off the Zenimax purchase. It’s going to take 24 years to pay off the $70B price tag of this recent purchase, but don’t worry, XBox will beat this time.

None of this includes the $15/mo for XBox Live.

Nor does it take into consideration these subscription prices are going to go up at some point. It’s just a matter of time. Can’t wait for the introduction of contracts. Will be streaming silos or XBox to fire the first salvo. Any bets?

Want to know what won’t change? Idiot gamers. They’ll just pay the increase, justifying it to themselves they’re still paying less than purchasing games individually.

The truly stupid gamer, however, doesn’t do math very well since the majority of those idiots are playing mindless "services" instead of games, and many into years.

Why pay $60 once + $15/mo when you can pay $25/mo for years.
This, of course, not taking into consideration of any additional purchases such as DLC and my ultimate favorite ruined by gamers: microtransactions.

Today’s gamers are truly the most stupid people on the planet, and XBox is going to prove it can very easily separate fools from their money.

Then, the rest of the industry will follow suit, just as PlayStation did with their online service, and now Nintendo.

Dam it to hell, now Nintendo charges for online access.

Every damn one of you idiot gamers who screamed "DRM! DRM!" during the 2013 E3 of XBox One now get to see everything Microsoft intended to do: control your damn money.

This includes you too, Mr. Geigner. How you’ve gone from "DRM!" to "Oh, my! The acquisitions and exclusive titles!" is just the best damn outcome and I definitely have your plate of crow anytime you’re ready to eat it.

Bon appetite.

PaulT (profile) says:

Re: Re:

"None of this includes the $15/mo for XBox Live."

Because the $15/month Game Pass option already has that included?

"Nor does it take into consideration these subscription prices are going to go up at some point"

…and if you have a problem with that price rise, you can opt to reject the rental of hundreds of games that you can’t buy for close to the annual cost of Game Pass even if you stick to a couple of AAA games per year?

"Why pay $60 once + $15/mo when you can pay $25/mo for years."

Because the price includes hundreds of additional games you wouldn’t get at the lower price – if you choose that option instead of sticking with the one you prefer?

Anonymous Coward says:

Problem seems kind of limited in scope

I fail to see how this is a problem for the video game industry at large. Sure it can lead to a problem for games that need the kind of money a major publishing house can front and it’s a problem for consoles (and maybe mobile to a lesser extent), but as a person who only really plays game on the PC so long as there is a cheap and easy means to develop and release games what does it matter if eventually just a few big name publishers exist?

That is a problem in other industries where a physical presence is a key part of success but if you can release your product entirely digitally and without a publisher to millions of people then…?

Discovery is an issue in this case, but that issue exists now, it existed before this merger, and it will exist if we ever reach a publisher duopoly or whatever.

I’ll laugh at the doom and gloom until this starts impacting the ability for games to get published outside of the big publishing houses or if the cost of developing a game to a reasonable standard exceeds what can be self-funded or supported through community support/early access/pre-sales.

Leo Phillip (profile) says:

Consolidation seems like a win-win

Sellers can guarantee themselves stability, while buyers get more content to serve a fanbase that’s hungry for new games. But there are also costs. An industry dominated by a handful of big companies could eventually lead to creative stagnation and other symptoms of monopolization, like limited choices and higher prices. But I do hope good independent games like Lost Ark won’t disappear: https://www.buylostarkgold.com

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