[What does Microsoft's $7.5 billion acquisition of Bethesda parent company Zenimax mean for the video game ecosystem in general, and regular publisher/devs in particular? In this extract from his game discovery newsletter, Simon Carless takes a look.]
There's a lot to say about Microsoft’s announcement that it’s buying ZeniMax Media (and therefore Bethesda) for $7.5 billion. In cash. But to start off, I don’t think I need to talk that much about the IPs involved in this deal. You can just scan the above image, really.
As noted on Twitter, the company gets 2,300 talented devs (!), across studios such as Bethesda Studios itself, id Software, ZeniMax Online, Arkane, Machine Games, Tango Gameworks, mobile-first studio Alphadog Games, and ex-Human Head staffers at Roundhouse Studios. This is... impressive.
This multi-billion dollar investment is going directly into the ‘content wars.’ Specifically into the game subscription wars that Microsoft is intent on being ahead of Google Stadia and others (particularly Sony) on.
Should you need confirmation that this deal is mainly about subscriptions, the Microsoft PR notes an “intent to bring Bethesda’s future games into Xbox Game Pass the same day they launch on Xbox or PC.” This is a continuation of the play I was talking about in a recent newsletter. As I noted:
“Ultimately, the Game Pass subscription plan (software as a service) is the ‘center of the offering’ for Microsoft, not a piece of hardware. This is incredibly relevant for game discoverability, since it shifts the lens from an ‘evaluate and buy’ to a ‘subscribe and try’ mode. So all eyes should be on this as it continues to roll out.”
Although Bethesda’s games won’t be removed from other devices, it seems unlikely that the biggest upcoming games will also launch on PlayStation, unless already contracted, as per Bloomberg’s Dina Bass talking to Xbox’s Phil Spencer:
Microsoft will deliver Deathloop and Ghostwire: Tokyo as PlayStation timed exclusives as Bethesda agreed. After that, games will be on Xbox, PC, Game Pass and other consoles will be considered on a case by case basis, @XboxP3 tells me https://t.co/kNGt0u8Pn3— Dina Bass (@dinabass) September 21, 2020
This doesn’t mean new games won’t make it to Steam or Switch, but mainly as teasers for the Game Pass ecosystem, in my view. Selling a game for $60 on Steam, when you know you can get a $10 a month subscription that gets you access to it and hundreds of other games? That’s upsell in the long term, folks.
Let’s take a quick inventory on the subscription wars. Nintendo isn’t interested in fighting on that playing field, and possibly never will be. Same for Steam, of course - besides hosting subscription services like EA Play on its platform, and taking a cut.
And Xbox’s true rival PlayStation would prefer not to, but can probably feel itself getting dragged inexorably into the fray. (Apple and Google are doing ‘things’ in the space with Apple Arcade and Stadia, too - just underdeveloped currently.)
So maybe there’s all kinds of people out there, and maybe game subscriptions aren’t going to dominate in the future.
And for Sony, I’ve got to believe that they’ve been internally quoting the movie War Games, where "the only winning move is not to play." (I think ‘mutually assured destruction’ was involved too somewhere.)
But when companies like Netflix are getting away with this graph, albeit for filmed content:
…why aren’t we going to see more massive (FAANG?) companies use loss-leading tactics to get ahead? Xbox Game Pass now has 15 million subscribers as of today, an impressive rise, and Microsoft has over $100 billion of cash in hand.
On the other hand, I believe Sony’s future success is hinging on PlayStation being a profit center, not paying billions for devs and publishers. So.. maybe it’s looking like the classic ‘monopolist as disruptor’ situation - at the expense of Company X.
I’m not sure who Company or Companies X is, though. Is it Sony, or is it regular devs and publishers? It's not yet clear how some of these transitions could affect those used to selling their game at regular price on regular stores, not dealing with platform holders for timed subscription deals.
And could there be some surprising upsides in here for devs or publishers in Company Y who can get on the subscription train at the right station? (There already was, for the devs bought by Microsoft!)
Guess we’re going to find out. And the true ramification here is that Microsoft is making multi-billion dollar acquisitions because it wants to accelerate the subscription transformation in the game biz. And we’re all along for the ride.