Mergers and takeovers are hardly news in the tech industry. Indeed in any industry with strong competition and great economic opportunities, the prospect of mergers every now and then is more or less a foregone conclusion. However, all mergers are not the same, some are minor with little or no impact in the industry, and some are major with great implications within the industry.
The takeover of ZeniMax Media Inc by Microsoft is unlike most takeovers. It is a monumental one that will greatly impact the industry. It is one that could completely topple the power equation in the industry. For context, ZeniMax is one of the largest game developers in the world with different subsidiaries such as Bethesda Game Studios, ZeniMax Online Studios, Tango Gameworks, Arkane and MachineGames. The company has a large retinue of games designed to be played on consoles, handheld devices and PC.
The deal, which is worth a whopping $7.5 billion dollars and due to be completed by 2021, will see Microsoft secure ownership of ZeniMax popular games such as:
- Wolfenstein
- DOOM
- Fallout
- Quake
- Dishonored
- The Elder Scrolls
- Starfield
A Potential Knockout Punch to Sony
Most industries comprise different categories of stakeholders spread across various tiers. This categorization is usually determined based on the size, commercial success and financial clout of the companies involved. Even for a company the size of Microsoft, this deal automatically becomes the biggest acquisition in its gaming section. This is because it dwarfs the $2.5 billion paid for the acquisition of Mojang, the Swedish company that developed Minecraft.
This deal was a masterstroke for Microsoft because Minecraft was popular prior to taking over their parent company. This popularity hasn’t reduced even after the takeover as the game eventually sold over 200 million copies, thereby sealing its place as the best selling game ever produced.
There is no doubt that ZeniMax’s takeover will produce a similar result in terms of commercial success for Microsoft both in the short and long term. This perhaps explains their willingness to shell out 7.5 billion dollars in cash for the deal. It may not be common practice for deals of that magnitude to be completed with all the monetary value of the transaction paid upfront.
Microsoft vs Sony Studios
As implied above, this deal is a major power move by Microsoft as it gives them the outright advantage over Sony and automatically crowns them as the reigning king of the gaming industry. Prior to this takeover agreement, for quite a while, Sony had positioned itself as the overall king of the gaming industry due to its possession of 14 studios with a retinue of popular games under its umbrella.
This dynamic was changed last year when Microsoft increased the number of its studios to 15, thereby overtaking Sony. Whereas Microsoft’s initial 15 studio teams were already higher than Sony’s 14, the takeover of ZeniMax will further bring about an additional 8 studio teams which will increase Microsoft’s creative studio teams to a whopping 23! Hence, with the magnitude of the ZeniMax deal and considering the popular titles that will be coming under Microsoft control, it is hard to see any commensurate response from Sony in the nearest future. For a start, it doesn’t possess the financial war chest at the behest of Microsoft. Hence, taking over a big studio similar to ZeniMax would have been a credible option, but they are likely to be priced out of the deal for most of the big studios available.
Another sweetener to the deal is the report that Bethesda has started working on two exclusive games by GhostWire: Tokyo and Deathloop. Prior to the announcement of the Microsoft ZeniMax deal, it was touted that these two console games could be featured under Sony console games, now with the latest development, all of this has changed. Quite literally, Microsoft will potentially become the new fixation of gamers worldwide due to the release of two of the most anticipated games for next year.
Microsoft and the Future of Gaming
The symbolism of this deal would not be enough without paying homage to the success of Microsoft Xbox Game Pass, which would now be able to include the lineup of games previously under Bethesda among its vast gaming options. In takeovers such as this, the projection is not always about immediate results. The future projections are another key determinant. Just as in investment, the immediate value of the stock is not the major motivating factor behind the purchase; it is more about the potential future value. The projection of Microsoft is that Xbox unit subscriptions will increase further this year.
Xbox Game Pass, which has already proven to be a more valuable alternative to Sony’s Playstation now, is also primed for a steep rise in subscriptions. Already, it offers players the option of downloading titles directly on the Xbox one as against Sony’s option of streaming PS3 games via different servers available on the network. The disadvantage with Sony’s offering is that streaming bandwidth and the strength of internet connectivity would impact gameplay, and this could be a turn-off for gamers willing to indulge their passion for gaming uninhibited.
Additionally, players on Xbox Game Pass could purchase their preferred games when their subscription expires in order to enjoy unfettered access to it.
Interestingly, this deal was sealed at a time the coronavirus pandemic started ravaging the world. As lockdowns and social distancing measures are being implemented, social contact reduction can only spell more time for gaming enthusiasts. Microsoft has leveraged this to boost its impressive customer base further.
Autonomy to ZeniMax?
More impressive is the fact that Microsoft plans to grant autonomy to ZeniMax to continue operating independently. This move is designed to help sustain their creative impetus rather than bringing them under undue influence and control by Microsoft. So they get to continue to produce their games under the platform of Microsoft.
Bethesda will come with significant experience garnered over the 34 years the company has been operational. Cloud gaming service seems to be the future of gaming, and Microsoft has already positioned itself strongly in that field. With Xbox Game Pass options gaining more titles, subscribers to Microsoft gaming services are only likely to increase further. With a staggering 15 million subscribers already, the sky appears to be the limit for Microsoft as their upward progression seems sealed, at least for the time being.
Growth Opportunities for Microsoft’s Competitors
As massive as it is, this acquisition is not a death knell for others in the industry. Gaming is a quite expansive industry with abundant opportunities for growth. It is also an industry where innovation is a survival skill; hence, without a steady flow of new titles with exciting and innovative features, the stock and value of a company may dwindle significantly within a short time. Therefore with more efforts, Microsoft’s main competitors can also grow and develop. The industry is big enough for everyone. However, presently, Microsoft is the pathfinder and the top dog in the industry as they have just upped the ante and further distanced themselves from the rest of the competition.
It is highly unlikely that the ZeniMax acquisition would be last by Microsoft. Within the next few years, Microsoft is believed to also acquire or collaborate with online casino software developers in a bid to unify their gaming collection. Can you imagine some new types of slot games like MegaWays slots developed by Big Time Gaming or NetEnt in collaboration with Microsoft? Would it be possible to get to play Spartacus or Ted Megaways demo on Microsoft official site? Who knows. By virtue of acquiring more studios and gaining more exclusives, an average gamer may have no choice than to either subscribe to Xbox Game Pass for easy access to some of the AAA titles or be forced to make a one-off sum for access to a particular game.
All in all, gamers are the winner in all these as they will continually be regaled with new products. This is a clarion call for the other stakeholders in the industry to work towards maintaining their market share.