Microsoft to buy Activision Blizzard for ~£70bn - will Call of Duty become Xbox exclusive and Xbox Games Pass become OP?

Microsoft has announced that it is acquiring Activision Blizzard, surprising almost everyone in the games industry. The news was met with a mixture of excitement by Xbox fans, trepidation by many PlayStation gamers, and some raised eyebrows as to potential competition issues. To understand why the news is so shocking it's important to understand the role of these two key players in the industry. 

In the video games world, Microsoft is best known as the owner of the Xbox brand and is:

• the developer of the Xbox consoles - the Series X and S being Microsoft's latest generation offerings;
• the owner of the Xbox Games Studios - 23 game development studios which, unsurprisingly, develop video games, sometimes exclusive to the Xbox consoles/PC; and
• the creator of the Xbox Games Pass service for Xbox and PC - a subscription-based service that allows for access to a plethora of games at a monthly cost (think Netflix but for gaming) currently available for Xbox or PC gamers.

Activision Blizzard is a US-based games studio, which develops and publishes video games such as World of Warcraft and Call of Duty: Warzone, esports titles such as Call of Duty (in its Call of Duty League form) and Overwatch, and mobile games, through its King division, such as the incredibly popular Candy Crush.  These aren't just any video games though, they're the biggest and most popular games in their respective categories.

Why is this such a big deal to the gaming industry?  

The "console wars" between Xbox and PlayStation have been raging on for some time now, with the latest iteration pitting the new gen console from Microsoft, the Xbox Series X, against Sony's PlayStation 5.  Since the last generation of consoles, Sony has been releasing some of the best, most universally-popular, story-driven games from its studios exclusively on the PlayStation console (The Last of Us, Spider-Man, God of War, Ghost of Tsushima to name just a few of the big hitters). Therefore, one of the reasons gamers choose to buy a PlayStation is to play those games. Aside from a few exclusive IPs (such as Halo, Gears of War and Forza, which are arguably less universally popular) Microsoft hasn't previously been able to provide a competing reason for gamers to buy an Xbox... cue the expansion of the Xbox Games Studios and the creation of the Xbox Games Pass.

Xbox Games Studios = Xbox exclusives?

The first big question is: will Activision Blizzard games become Xbox exclusives? Could Call of Duty no longer be available to play on a PlayStation? 

The idea seems absurd given how popular Activision Blizzard's games are across all platforms. Despite only releasing in November, Call of Duty: Vanguard outsold all other games on both PlayStation and Xbox, with the number two most popular game across the consoles being... 2020's Call of Duty: Black Ops Cold War. However, if Microsoft is paying $70bn for Activision Blizzard it seems highly likely that exclusives from that studio will be coming to Xbox. If it's any indication, last year Microsoft acquired ZeniMax Media for about $7.5bn (the owner of both the publishing and development arm of Bethesda, best known for Elder Scrolls and Fallout) and already we're seeing ZeniMax's upcoming games, Redfall and Starfield, going Xbox-exclusive. 

Xbox Games Pass: "Discover your next favourite game"

Even if we don't see Call of Duty and the other Activision Blizzard titles become Xbox-exclusive, we can certainly expect to see those games become part of Xbox Games Pass, which will be a huge boost to that offering. Those games will likely be available to subscribers on day one of release, with perhaps additional content available through that platform. Expanding the quantity and quality of the games available on the platform makes entering into the Xbox ecosystem a more enticing value proposition.

Competition concerns?

This deal is another in a series of big acquisitions recently from a select few players in the market and, given the sums involved, we expect that regulators in both the EU and the US will be reviewing the transaction. The key question in both jurisdictions is similar: will the transaction substantially lessen competition in the market? Microsoft will point to the fact that following this transaction it will only be the third biggest player in the video games market by revenue (behind Tencent and Sony), but currently it's the only one offering a games subscription service. Look out for a post from my colleague Matt Hunt from our competition team who will be doing a deeper dive on the competition and regulatory issues that could arise from this transaction.

The deal won't close for some time yet, and Microsoft will first have to navigate the relevant regulatory hurdles, but it's no surprise that this transaction is being viewed as one of the biggest moves in the gaming industry perhaps ever.