LOS ANGELES, CA - JUNE 10:  Phil Spencer, Executive President of Gaming at Microsoft, speaks during the Microsoft xBox E3 briefing at the Microsoft Theater on June 10, 2018 in Los Angeles, California. The E3 Game Conference begins on Tuesday June 12.  (Photo by Christian Petersen/Getty Images)
Christian Petersen via Getty Images

Microsoft consolidating the video game industry is bad for everyone

Well, except Microsoft and its shareholders.

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It was cute at first. When Xbox head Phil Spencer took the stage at E3 2018 and announced the acquisition of five notable studios – Undead Labs, Playground Games, Ninja Theory, Compulsion Games and The Initiative – the air inside the Microsoft Theater turned electric. It felt like the company was righting a wrong in its business plan and finally building an internal roster of exciting games that it could offer exclusively on Xbox platforms. You know, a few friends to keep Master Chief company.

Tuesday’s announcement that Microsoft is buying Activision Blizzard, the largest third-party publisher in the video game industry, doesn’t feel as harmless. Four years on and numerous acquisitions later, the Activision Blizzard deal feels like an extreme escalation of Microsoft’s plans, and it could mark a turning point in the video game industry as a whole, with negative consequences for both players and developers.

So far, public reaction to the acquisition has been mixed, which makes sense for a few reasons: first, Activision Blizzard's sheer size is daunting, and this purchase represents more money and industry power than Microsoft's previous gaming acquisitions combined. Second, Activision Blizzard is currently the subject of multiple investigations into allegations of sexual harassment and gender discrimination at the studio, where CEO Bobby Kotick has been in charge and largely unchecked for the past 30 years. The Wall Street Journal is reporting that Kotick is poised to leave the company in a golden parachute once the Microsoft deal goes through.

This is the first time Microsoft has received a confused response to acquisition news, rather than outright praise, and that's because this isn't a standard transaction. It's the clearest sign yet that we're in the video game industry's era of consolidation.

Back in 2017, Microsoft was badly losing the first-party IP fight to Sony and Nintendo. By the end of that year, Xbox had shut down two of its internal studios, Lionhead and Press Play, it had killed a few hotly anticipated projects, and even with the Xbox Series X right around the corner, there wasn’t much to look forward to in the company’s software reserves. The acquisition announcement at E3 2018 was a sigh of relief for anxious Xbox fans.

By February 2019, Microsoft had 13 studios and publishing organizations under the banner of Xbox Game Studios.

Xbox acquires Bethesda
Microsoft

And then in September 2020, Microsoft revealed it was buying ZeniMax Media, the parent company of Bethesda, id Software, Arkane Studios and Tango Gameworks. The gaming world generally rejoiced, but a few folks also started glancing around, suspicious. These studios were a big deal – the stewards of Fallout, Doom, Dishonored, Wolfenstein, Deathloop, Starfield and Elder Scrolls – and they were being added to Microsoft’s substantial pile of medium-sized companies, more names in a growing list. That alone was cause for pause.

For most fans, the main question was, what did the acquisition mean for games like The Elder Scrolls VI, which was part of a series that historically hit PlayStation and Xbox platforms alike? Basically, would Elder Scrolls VI come to PS4 and PS5?

Turns out, probably not.

One year after Microsoft’s purchase of Bethesda, Spencer told GQ that he believed the Xbox ecosystem was the best place for all of the franchises in the studio’s repertoire, including The Elder Scrolls VI. He all but confirmed it would be exclusive to Xbox.

“It’s not about punishing any other platform, like I fundamentally believe all of the platforms can continue to grow,” Spencer told GQ. “But in order to be on Xbox, I want us to be able to bring the full complete package of what we have. And that would be true when I think about Elder Scrolls VI. That would be true when I think about any of our franchises.”

Starfield, Bethesda’s sci-fi RPG built for the ninth console generation, will definitely be exclusive to Xbox Series X/S and PC, skipping PS5 entirely. Spencer’s comments make it clear that Xbox is eyeing exclusivity for its franchises, and after this $69 billion deal goes through, that’s going to include Activision Blizzard games.

Xbox acquires Activision
Microsoft

Activision Blizzard is the largest third-party publisher in gaming, and it’s the owner of massive franchises including Call of Duty, Overwatch, Diablo, World of Warcraft, Hearthstone and Candy Crush. As a third-party studio, Activision Blizzard has been able to negotiate with the main platform holders to get its software on the consoles and devices it wants. This doesn’t always equate to same-day launches or in-game item equity, but generally speaking, this position has helped ensure Activision Blizzard games reach as many players on as many platforms as possible. Exclusivity agreements and distribution deals are the main source of competition in the industry at this point, allowing outside developers to advocate for their games without feeling beholden to any console owner in particular.

When a platform holder becomes the largest publisher in gaming, it flips the script completely. It jams the script into a shredder, burns the scraps to ash, condenses the ash into stone, and then throws that to the bottom of the Mariana Trench.

Let’s take Call of Duty, a series with predictable annual installments, for example. Over the years, Activision has shifted allegiances between Microsoft and Sony, offering early access and exclusive game modes to Xbox platforms, then PlayStation, and mixing it up along the way. Among all the backroom talks, bad blood and better offers, it’s always been up to Activision to cut the best deal for Call of Duty, console holders be damned.

After the acquisition, that negotiation looks entirely different, if it even exists at all. As the owner of Call of Duty, Microsoft can tell Sony to screw off, keeping one of the industry’s biggest franchises exclusive to Xbox platforms.

This likely won’t happen right away, but it’s certainly a possibility down the line. In his blog post about the acquisition, Xbox’s Spencer didn’t address Sony or Nintendo platforms specifically, but he alluded to the possibility of cross-platform support for Activision Blizzard’s franchises. 

“Activision Blizzard games are enjoyed on a variety of platforms and we plan to continue to support those communities moving forward,” he said, without detailing what he meant by “platforms” or “support.” Keep in mind, this was the messaging around Elder Scrolls VI at first, too.

Microsoft isn’t the only company in the midst of a studio-hoarding spree: Sony picked up its 13th internal studio, Housemarque, in June 2021, while Tencent is chugging along with ownership of Riot Games, financial stakes in a handful of massive studios, and the purchase of LittleBigPlanet 3 developer Sumo Group in July 2021. Even Valve has scooped up a handful of independent creators in recent years, including the team behind Firewatch and some members of Kerbal Space Program.

The crowd and stage for Microsoft Xbox at their press event ahead of the E3 gaming convention in Los Angeles on June 9, 2019. (Photo by Mark RALSTON / AFP)        (Photo credit should read MARK RALSTON/AFP via Getty Images)
MARK RALSTON via Getty Images

Microsoft’s purchase of Activision Blizzard simply feels like the final push into a new era for the video game industry: consolidation.

While exclusivity deals may be the short-term concern, this trend has a longer and more tragic tail. It’s highly likely that there will be more acquisitions by Microsoft, Sony and other major names in gaming, and these deals and subsequent companies will only get bigger with time. With just a few massive studios controlling a huge chunk of the software pipeline, it could instill a sense of homogeneity among new titles, killing innovation as each developer attempts to conform to the corporate environment around them, actively or subconsciously.

Even with “creative freedom” built into their contracts, the acquired studios will all use the same QA process, funding arrangement, marketing plan, management structure and editing cycle; they’ll have the same bosses and face the same oversight. And when all new products are the result of a singular perspective, they’re bound to feel familiar. Stale, even. Boring.

Microsoft’s acquisition of Activision Blizzard is an escalation of the exclusivity scheme, and it represents a new way of doing business. Now and for years to come, consolidation is the name of the game.

Maybe one day we’ll get Consolidation 2: Blow It All Up And Make Everything Indie Again, but that one might have trouble finding a publisher.

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