On the 18th of January 2022, Microsoft announced its plans to acquire video game holding company Activision Blizzard under the Microsoft Gaming division. With a cost of $68.7bn, this was and still is the largest acquisition in the gaming industry. The deal was part of a plan by the CEO of Xbox Studios, Phil Spencer, to breathe life into the Xbox console division again and to help improve its standing in the ‘console wars’. The acquisition was finally completed roughly a year ago, on the 13th of October 2023, and there isn’t a better time to review the collaboration of two of the gaming industry’s titans.
To provide some background, Activision Blizzard is one of the largest publishers in the world, responsible for multinational franchises such as Call of Duty, World of Warcraft, Overwatch and Crash Bandicoot, spanning all consoles available in the market. Additionally, they dominate the mobile gaming market, owning Candy Crush and Hearthstone. In 2021 alone, they reported a profit of roughly $8.8bn, although the rise in popularity of the gaming industry during the COVID-19 pandemic heavily boosted this.
Meanwhile, Xbox, which Microsoft Gaming handles, is responsible for the Xbox line of consoles and for developing and publishing various games. This ranges from properties such as Minecraft, which Microsoft bought out from the creator Markus “Notch” Persson in 2014 for $2.5 bn in an all-cash deal, to their original IP Halo, developed originally by Bungie studios, who later left the project to 343 Industries (recently rebranded as Halo Studios).
Looking into the Xbox brand further, it is evident why Microsoft was willing to take this leap of faith, with the new generation of Xbox consoles losing out against Sony’s PlayStation 5 and Nintendo’s Switch system. The Nintendo Switch is the third highest-selling console of all time (143.42 million units), with the PlayStation 2 and Nintendo DS in first and second place respectively, making it the bestselling current generation console. Behind the Switch sits the PS5 with 61.7 million units; well below that is the Xbox Series X/S, which has only sold 28.3 million units.
Microsoft and Sony’s consoles were released around the same period in 2020 when gaming peaked due to the lockdowns during the COVID-19 pandemic. Initially, both firms faced the same production problems due to the halting of manufacturing, leading to constant shortages of systems. However, in early 2021, Microsoft was able to put more of the S model on the shelf, thanks to it being a budget option for consumers. Despite the ready availability, there was still more demand for the PS5, with communities coming together on social media platforms to track when the console was available at specific retailers.
This made it evident to Microsoft that they did not stand out enough in the gaming market and needed a console seller, such as Sony’s exclusive Spiderman series developed in cooperation with Marvel, which may have driven their push to purchase Activision Blizzard.
Returning to the acquisition, Goldman Sachs served as an advisor to Microsoft, while Allen & Company served Activision. The deal was set to make Microsoft the third-largest company behind the Chinese firm Tencent and Sony. Microsoft was under heavy scrutiny over this deal for several reasons.
Regulatory boards held concerns that the deal would only reduce competition in an industry that is very toxic to new independent developers, and by allowing the transaction to go ahead, Microsoft would hold monopoly power in the industry. Microsoft pledged to offer some of their Xbox exclusive games on other platforms to ensure the industry remained competitive. This promise was successfully followed through with Sea of Thieves, developed and released in 2018 by Rare and Xbox Game Studios, being ported over to the PlayStation 5 in April of 2024. Hi-Fi Rush, developed and released by Tango Gameworks in 2023 for Xbox and Windows, was also ported to the PS5 earlier this year.
This was not the first time Microsoft had done so, with them forming a partnership with Nintendo in 2019 to bring over their platformer Cuphead to the Nintendo Switch and further collaborations in Nintendo’s Super Smash Bros series. This deal worked out in both firm’s interests, with Cuphead winning several prestigious awards, an additional expansion, and a Netflix original cartoon series, both released in 2022.
However, concerns over the acquisition primarily came from Microsoft becoming the owner of the Call of Duty series, which in 2021 reportedly generated $5.2 million from its free-to-play battle royale, Warzone. The primary regulatory boards blocking the deal were the Federal Trade Commission, the European Commission, and the UK Competition and Markets Authority. So, to appease them, Microsoft pledged they would keep Call of Duty available on all platforms it was previously on for the next ten years rather than making it an exclusive.
Despite criticism that the deal was a form of cover-up on Activision's end to reduce the spotlight on their ongoing Workplace misconduct lawsuit from 2021, it was finally allowed and completed late last year.
Since then, the major releases for Activision have been Call of Duty Modern Warfare 3, which saw a lot of criticism over its single-player components but still fostered a healthy community online, and Black Ops 6. This title was released on the 25th of October in the UK to high praise regarding all three core modes. Gaming outlet IGN rated the game’s story campaign a 9/10. At the same time, communities for the Multiplayer and zombie modes have expressed a largely positive response to the polish and overall feel of the game. Microsoft CEO Satya Nadella recently revealed in the firm’s Q1 press release that this was the most successful launch for the series, even with the game being free for Xbox Game Pass subscribers. Player counts show that the title exceeds 306,000 concurrent players on launch on PC, surpassing Modern Warfare 3’s peak of 190,273 as per SteamDB.
Additionally, Microsoft’s focus on accessibility within gaming has been maintained, focusing on cloud gaming for those with less-than-ideal hardware. As a part of the acquisition, Microsoft had to relinquish the cloud gaming rights of an Activision property to Ubisoft, another developer in the industry.
While the long-term effects of this deal are difficult to predict, the industry has already seen some recent developments and adaptions to the agreement. Ubisoft developed and published their competitor to Call of Duty, XDefiant, earlier this year. While the launch and early months of release were successful, generating $316.5 million from a free-to-play title, players slowly dropped the game due to a lack of updates and staleness with the game.
In a more extreme fashion, Sony recently experienced a rapid crash and burn of their IP Concord, a third-person shooter game developed by Firewalk Studios. The title was released on the 20th of August 2024, to almost 100 negative receptions, reaching a peak player count of 697 concurrent players on PC. The game was quickly pulled from storefronts and shut down on the 6th of September, and only a week or so ago, on the 29th of October, Sony announced their plans to close the studio permanently.
Looking forward, it seems optimistic for Microsoft and Activision with their recent success with Call of Duty while competitors fumble, trying to fight against them. The deal is a defining moment for the industry and should only lead to more rapid innovation per consumer expectations. Under Microsoft’s leadership, Activision Blizzard has seen strides toward cultural reform, but the integration process is ongoing, with the full impact yet to be realised. Ultimately, Microsoft’s acquisition of Activision Blizzard will be remembered as a pivotal shift that reshaped expectations, tested the boundaries of competition, and left an indelible mark on the gaming world while helping to cover up Microsoft’s Microsoft’s blunder-filled acquisition of ZeniMax