In today's Finshots we talk about the biggest deal in gaming ever, once again

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The Story

This Monday we talked about how the video game landscape was changing right in front of our eyes. We looked at the rise of mobile gaming and why Take-Two Interactive paid $12.7 billion to acquire Zynga — the famed maker of FarmVille. We dubbed it “The biggest deal in gaming, ever” — and then almost instantly, we get bombarded by emails talking about how grossly misleading the title was.

Not necessarily because we were wrong. But because the very next day, Microsoft went on to acquire gaming giant Activision Blizzard (ATVI), for $68.7 billion. Activision, for the uninitiated, is the company behind blockbuster games such as Call of Duty and World of Warcraft. And since this new deal was roughly five times the size of the Zynga deal it was effectively the new biggest deal in the gaming industry, ever.

But that aside, it is an extremely interesting development, considering the sizeable investment Microsoft is willing to make. It seems Microsoft has come to realise the true potential of content. Content that it monetizes by way of a subscription service titled the Xbox Game Pass. If you are a bonafide gamer you probably already know what Game Pass is, but in case you don’t, think of it as something like Netflix for gaming. All you have to do is pay Microsoft a steady monthly fee, and it will let you discover and play hundreds of games on your Xbox or PC without ever having to buy any of them.

It’s that easy.

However much like Netflix, Microsoft also has the daunting task of creating a mammoth content library. Netflix needs movies and TV shows. Microsoft needs games. And it can source these games by purchasing rights to third party titles or by producing them in-house. Both are very expensive affairs. But Microsoft has money. What it doesn’t have is time. In an ever-changing landscape, the company needs to move quickly and so if they’re constantly trying to negotiate with third parties or waiting to produce the next blockbuster, that’s an opportunity wasted. So they need a different strategy. A strategy that involves acquiring companies that already own a bunch of games.

In fact, Microsoft has been following this playbook since the 2000s. They acquired British developer Rare in 2002. They followed it up by acquiring Mojang — brains behind the wildly popular game Minecraft — for $2.5 billion in 2014. By 2018 the company had turned it up a notch acquiring six studios in the process. The shopping spree continued well into 2019 when Microsoft bought Psychonauts 2 developer Double Fine Productions. And last year, they pulled another rabbit out of the hat by acquiring Bethesda Softworks — the behemoth behind Elder Scrolls and Fallout franchises — for $7.5 billion. So with Activision Blizzard now in their stable, they could add nine more studios to that tally, along with a huge catalogue of blockbuster games and nearly 400 million monthly active players.

And that could be massive for Microsoft. Right now, Game Pass has around 25 million monthly subscribers. A figure that could grow exponentially if Microsoft manages to retain Activision Blizzard’s loyal gamer base. At $10 per month, Microsoft may be pulling in ~$250 million every month or roughly $3–4 billion every year. Except things get better for Microsoft, because, unlike Netflix, a company that is perpetually at war with Disney, Apple and Amazon, Gamepass doesn’t have a direct rival just yet.

Sure, there are reports of Sony launching its own “Game Pass” alternative with an overhaul of the existing “PlayStation Plus” subscription, but yeah, as of today, there’s nothing like Game Pass yet. And if they continue to build on this lead, this could be a gamechanger for the company. In fact, they are betting on this thing with so much conviction that they’re paying Activision $68.7 billion in cash.

In CASH!!! And they are even willing to pay a termination fee of $2.5 billion, in case they fail to close the deal.

So yeah, it truly feels like the gaming industry has assumed a life of its own and we are excited to see what the future has in store for us.

Until then…

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