Microsoft's Xbox Long-Game Surges with Bethesda Purchase

Monday, Sept 21st, the eve of Xbox next-gen console pre-order saw the second-biggest acquisition in the history of the gaming industry. Microsoft’s Xbox Game Studios announced it will purchase the parent company of Bethesda Game Studios, ZeniMax Media Inc, which also owns Arkane Studios, Tango Gameworks and ID Software. The $7.5 Billion agreement is expected to be completed by mid 2021. The price, almost double what Disney paid for the Star Wars franchise ($4 Billion) illustrates how far Hollywood has descended from the top of the entertainment-industry food chain. Included with the network of studios under ZeniMax are thousands of talented developers, designers and other gaming industry professionals at offices around the world and a boat-load of intellectual property that includes more beloved franchises than you can shake a BFG 9000 at.

What Was The Biggest-Ever Gaming Acquisition?

Yes, you read that right. Xbox/ZeniMax was only the second biggest gaming industry acquisition on record. The biggest was the $8.6 billion dollar sale of Finish mobile game company Supercell to Chinese digital giant Tencent back in 2016. Triple-A gaming is big, but casual mobile gaming money is insane. At its 2015 peak, Supercell’s popular Clash of Clans mobile game was raking in $5.5-million per-day from casual gamers on a game developed on a relatively modest budget compared to big titles for hardcore gamers. It’s no wonder microtransactions in triple-A gaming have become inescapable, real game developers want just a taste of that mobile gaming revenue.

The Microsoft/ZeniMax deal is literally a game changer for the next-gen console war. Xbox Game Studios has exercised the nuclear option and its shockwaves will ripple beyond any conception we’ve had of “consoles wars” for the last 20+ years. A deal this big, at this particular time will cause exclusivity-stress among PlayStation and PC gamers as Xbox Game Pass now has significant leverage against rival consoles and even PC games distributors like Steam over some of the most hotly anticipated future games. Even die-hard PC gamers accustomed to day-one access to the latest titles may have to consider putting a little X into their future gaming budget, Microsoft may be taking over gaming.

Console Wars No More

Sony’s Playstation has been able to consistently outsell Microsoft’s Xbox through a combination of hit exclusive franchises and its focus on pure gaming, with Microsoft able to stay competitive with its hit-or-miss innovations, and a decidedly second-tier stable of exclusives. Of course, Nintendo is a third-rail in the game console market that has dominated sales with innovations aimed at casual gamers and its own stable of intellectual property that it’s brilliantly kept fresh for decades. But Sony and Microsoft are aimed at a unique, hardcore console-gaming audience, even if “hardocre gaming” and “console” sounds like an oxy-moron to PC gamers. But Microsoft’s history with Xbox has been a long, but steady march toward bringing a more nimble, PC-like, connected gaming experience to what was normally viewed as an entertainment appliance. The long-game Microsoft is playing hasn’t always gone its way, but now there can be no doubt, Microsoft is building a gaming empire.

Xbox Hits

Original Halo in 2001 (by Bungie) wasn’t the first first-person shooter attempted on a console, but it revolutionized the “feel” of gameplay. All you needed was a LAN and a few original Xboxes to give console-users the same lan-party experience PC gamers had been enjoying for years. Even in its first iteration, Microsoft established its vision of a more connected, PC-like experience for the console.

Then, not long after the 2005 release of Microsoft’s new Internet-ready Xbox 360 and Xbox Live, Halo 2 wasn’t the first first-person shooter to offer online play, but it revolutionized the experience for the console. It refined so much of what we take for granted today with the lobby and global matchmaking that let players quickly jump into a game matched with total strangers or teamed-up with friends over its new Xbox Live service. Microsoft’s Xbox 360 and Live made online gaming more social.

Xbox Misses

Last generation’s reveal ceremony of Xbox One in 2013 saw Microsoft jump the gun on attempting to deliver an always-on multimedia entertainment device. The launch strategy was ill-conceived, attempting to turn a hardcore gaming machine into an online gateway to all things entertainment, with Kinect and loads of TV features clinging like a dog turd to the treads of your shoe. Sony didn’t suffer those problems that year because Sony kept things simple with PS4 and did what it always did, gave hardcore console gamers a set-top-box that plays games.

After much protest, Microsoft walked back many of the missteps that almost destroyed Xbox One before it even launched. Gamers saw the most grievous missteps as anti-consumer practices, like restrictions on trading and used games and the persistent Internet connection in the service of digital rights management rather than gamers. But somewhere buried underneath some of those missteps was a unique vision for the future of gaming that paved the way for Xbox Game Pass.

Traditional Consumer Electronics Vs. Computing

Sony is a hardware manufacturer that’s been making TVs since Microsoft founder Bill Gates was a preschooler. As a conventional consumer electronics company, Sony has a long history of making great TVs and the shiny little boxes that hook up to them, so as long as there’s a market for a shiny little box that plays games - Sony’s there! At its heart, Sony wants to make technology appliances.

Microsoft on the other hand, comes from the “disruption culture” of a modern tech company, it wants to make the software and cloud services that revolutionize those appliances, possibly even rendering them obsolete. The two companies represent very different industries with competing visions for the entertainment device that should be the centerpiece of your family-room, the two industries have been locking horns for decades. Traditional consumer electronics vs. computing has given us everything from prefab HTPCs and Philips CDi to the HD DVD vs. Blu-ray “disc format war”. Xbox Game Studios has been playing the long game as technology and audiences caught up with the company’s vision for always-on, Internet-connected gaming. History may one day look back at PlayStation vs Xbox as a last stand for traditional consumer electronics but today, both Microsoft and Sony are already looking beyond it. This may not be the last generation of a so-called “game console war”, but it’s certainly the last generation Microsoft and Sony are seen as equal competitors.

Imperial Microsoft vs. Sony

Gaming for Microsoft is a side-show that doesn’t even make an appearance as one of its major business segments. According to Investopedia, Microsoft’s value lay in three interconnecting cornerstones: Cloud, Personal Computing and Productivity/Business Processes. Xbox Game Studios is only a small subset of Personal Computing, as well as a likely inhibitor of Business Productivity around the world. Xbox Game Pass lines up nicely with Microsoft’s cloud service, Azure. But Azure has another major gaming platform as a customer in Sony. Last spring it was announced that the two companies are working on a strategic partnership involving Sony processor technology and Microsoft’s cloud. Sony uses Azure for delivery of PlayStation Now gaming and video on-demand services. Microsoft has little incentive to bury Sony.

So, while many console gaming fanboys on both sides see the two as mortal enemies in a life-and-death struggle for their attention, the two have been quietly forging an alliance. Which brings us back to the big news of Xbox Game Studio’s acquisition of ZeniMax.

Microsoft Takes Over Gaming

It’s no surprise that the holy grail for tech companies in 2020 is the recurring revenue model. Everyone wants to be the Netflix of their respective industry and it looks like Xbox Game Pass will be the closest thing to the Netflix of gaming on the planet. The big winner of the deal for ZeniMax will be Game Pass, just imagine the library of games that Game Pass will hold. Xbox Game Studios chief Phil Spencer even said about the purchase of ZeniMax:

“... Microsoft's intent (is) to bring Bethesda's future games into Xbox Game Pass the same day they launch on Xbox or PC, like Starfield, the highly anticipated, new space epic currently in development by Bethesda Game Studios."

But, the biggest question on everyone’s mind upon hearing about the Xbox/ZeniMax deal is…Will Xbox make Elder Scrolls 6 into an Xbox/Game Pass exclusive?

My humble opinion is no, because to do so would be a regression of the forward-thinking vision Microsoft has had for gaming since it developed Xbox. If Sony had scored Bethesda, it might be a different story. Sony wants to sell shiny boxes that attach to your TV so you can play Spider-man games or stream its Spider-Man movies, while Microsoft is building a streaming/cloud gaming empire. Xbox Game Studios makes no bones about it, it really wants to sell Game Pass subscriptions, the hardware is incidental.

Xbox boss, Phil Spencer’s recent messaging remains consistent with last summer’s blog post on overall strategy for Xbox:

"As a player you are the center of our strategy… Our device is not the center of our strategy, our game is not the center of the strategy. We want to enable you to play the games you want to play, with the friends you want to play with, on any device. On TV, the Xbox console is going to be the best way to play console games."

Future games, like Starfield, will be available for Xbox, PC and Microsoft’s Game Pass. “We’ll take other consoles on a case-by-case basis,” - Phil Spencer to Bloomberg.

So, it looks like future Bethesda titles will be available to download on PC, and since other Microsoft games are already available through Steam, things aren’t likely to change much for PC gamers, many of whom already play games on Microsoft’s biggest platform, Windows 10. But things don’t look as clear for PS5, the PlayStation faithful can only wait for their favorite Bethesda game’s “case by case basis” to come up.

What Microsoft Owns, Sony Cannot Get

One of the more alarming rumors for those who already ordered a PS5, dreaming of one day playing Elder Scrolls 6 or Fallout New Vegas 2, is an out-of-context fragment of a quote from one of Bethesda’s original founders, Christopher Weaver. “What Microsoft owns, Sony cannot get.”

The quote began circulating soon after the deal was announced, part of an Inverse interview with Weaver who founded Bethesda back in 1986. Although Weaver left the company in 2002, he still owns shares. When taken in proper context, Weaver wasn’t talking specifically about platform exclusivity for any particular game, but rather the overall strategy behind acquiring top game developers and the talent pool it brings to the buyer while depriving the competition. The full quote from Weaver looks a little less foreboding for a PS5 Elder Scrolls 6 release:

“There are only a limited number of proven creators of AAA. What Microsoft owns, Sony cannot get.” - Christopher Weaver, Bethesda Founder 1986  

If Bethesda is expected to achieve independent profitability under Microsoft, PS5 game sales are likely a huge revenue source for the company, even if they make PS5 users wait a year before launching in a timed exclusive arrangement with Game Pass and Xbox. It doesn’t look like Microsoft bought Zenimax to make a lot of changes to its business. Phil Spencer made this clear in the announcement, saying:

“Our plan is to leave it alone. ZeniMax has an amazing track record of building great games,”  - Phil Spencer

Hands-off autonomy is a more modern approach to acquisitions than the slash and burn hostile takeovers of the Gordon Gekko era. It’s proved successful in creative markets where company culture can make or break that creative spark. Audioholics have seen this in the audio-empire-in-the-making, Sound United. The audio conglomerate has been known to acquire smaller cottage hi-fi brands, granting them a certain amount of autonomy with minimal interference. Although, it’s probably also true that large companies nearly always state a “hands off” intention after acquiring a smaller company, just before they start imposing new policies and deep-shuffling the org chart.

On the exclusivity question, all we can really do now is just wait and see what happens on a case-by-case basis, as Microsoft’s strategy to takeover gaming has caught the notice of the industry. But one thing’s for sure, PlayStation fans will think twice about haranguing the Xbox faithful about their notoriously poor selection of exclusive titles, because karma just ran over their dogma.