Why Did Microsoft Spend $7.5 Billion On A Gaming Studio?

Gaming and esports are rapidly emerging to be huge money-spinners. With the deeper penetration of smartphones, high speed internet connectivity, and rise in the number of youths buying gaming consoles, online gaming has become a lucrative business. Many game developers and companies like Microsoft and Sony sponsor huge gaming events each year, with teams competing for the ultimate prize. Esports betting too has become popular among punters. There are various dedicated websites which allow bettors to place wagers on games of their choice. League of legends betting sites are some of the most visited by those looking to bet, along with DOTA 2 and CS:GO.

Home gaming consoles were first popularized by Atari, which was followed by Nintendo and Sega. The late 80’s and early 90’s saw both these companies dominate the gaming market. With the introduction of higher capacity CD’s Sony introduced its PlayStation line of gaming consoles, which became wildly popular. Fearing that the popularity of PlayStation might affect the sale of PC’s, Microsoft introduced its own line of gaming consoles, called the Xbox, in 2001. Ever since then, both Sony and Microsoft have been the major players in the gaming hardware market, with other developers gradually fading away.

As their dominance on the hardware markets continue, the eyes of these two giants is now on the game developers, and Microsoft made a huge splash by splurging 7.5 billion dollars on the Bethesda Studios’ parent company, Zenimax Media. Bethesda has developed some historic games, like Doom, Elder Scrolls, Fallout and Wolfenstein. The buy-out will give Microsoft complete control over the studio and it’s games, just in time for the launch of their next-gen consoles. Along with Bethesda studios, Microsoft will also gain control of iD software, Arkane, Machinegames etc. which belongs to ZeniMax.

Historically, Xbox has always lagged behind the PlayStation in terms of exclusive games. But now with the buying of ZeniMax, Microsoft now owns 23 leading game developer studios. The buy comes just in time for the launch of new Xbox consoles, the series X and series S. While it is not necessary that Microsoft will keep all future Bethesda games Xbox exclusives, it might offer some of the biggest titles like DOOM or ELDER SCROLLS as exclusive Xbox titles, greatly boosting it’s demand.

The final goal of Microsoft might not just be to offer exclusive titles, but could be to manage the releases, sharing resources with game engines, managing budgets, and most importantly, to manage the distribution of future games.

The games are distributed over Xbox Game Pass, a subscription-based model, described as `Netflix for gaming´, and grants the users access to a catalog of games via a monthly subscription model. Currently, there are approximately 15 million Game Pass subscribers which translates into a revenue of around 1 billion dollars a year for Microsoft. By buying the studio, Microsoft will be able to offer all the current and future games on their catalog for no additional cost.

And now, for an even more seamless gaming experience, Microsoft has launched its cloud-based gaming service, the xCloud, by which gamers can play their games on any Android device from anywhere.

With this latest acquisition, Microsoft has shown that rather than trying to dominate the hardware market, it now wants to actively focus more on the distribution and gaming experience. The Xbox Game Pass seems theoretically much more profitable, at least on paper, compared to the sale of consoles, and with the lure of Bethesda games available on the subscription on day and date of retail release, many more gamers are expected to subscribe to the service.

Although risky, it is a daring strategy on the part of Microsoft, in order to differentiate itself from the competition.

This is a paid post.