The path to finalization for Microsoft’s (MSFT) acquisition of Activision-Blizzard (ATVI) has been a bumpy one to say the least.
Regulators in the United States and abroad have pushed back against the deal with many having fears over dominant competitive advantages in the gaming and entertainment industry. However, things look to be turning around slightly with the European Union expected to give antitrust approval as Microsoft has offered licensing deals to competitors to help clear through regulations.
Just this week Microsoft even announced a licensing deal agreement with Boosteroid to provide its Xbox PC games to the independent cloud-gaming provider. The deal will allow Boosteroid customers to stream Activision games for 10 years if the acquisition goes through. Meanwhile, Sony (SONY) has naturally pushed back against the deal for Microsoft as it is concerned over Microsoft making Activision games exclusive and giving an unfair competitive advantage.
Now this is something that Sony has no issues doing itself with its first party studios and acquisitions. But it's no surprise that either company would make this complaint if they thought it would block a deal like this for the rival. The really interesting part about the exclusivity discussion that is heavily focused on the Call of Duty franchise right now, is that both companies probably already know that Microsoft doesn’t want to make that franchise exclusive anyway.
The Xbox Business Model
Historically having the best library of games with exclusive options for the console was a phenomenal way to sell Xbox or Playstation systems. Customers want to play the best games and will largely make console decisions based on what games they can play and what consoles their friends buy. However, console sales don’t actually make Microsoft any money, it's the cut from game sales, advertising, and subscriptions that drive profits.
Microsoft wants to sell as many consoles as possible so it has a larger user base to sell its other products to, such as the Xbox Game Pass and Xbox Live subscription services, advertising space, and game sales on their Xbox platform from first and third-party studios. Game Pass has been Microsoft’s biggest push over the last few years as it looks to merge its PC and console user base into one community that it can sell games to and reach the largest possible audience.
Microsoft still has to entice players to game on Xbox and PC instead of Playstation so they offer the Game Pass at a great value to customers and have some exclusive titles. But it doesn’t make every game exclusive because Playstation and Nintendo do have their own massive user bases. So, a flagship title that’s always only been on Xbox, such as Halo might stay a Microsoft exclusive, but a game that has a dedicated fanbase on competitor systems is a different situation.
What’s This Have to Do with Call of Duty?
Call of Duty was the best selling U.S. game in 2022 and managed to reach over $1 billion in sales in just 10 days. No exact numbers are given for the split between Xbox and Playstation sales but the PS5 has sold more than the Xbox Series X since its release and the previous generation was dominated by Playstation with the PS4 where the new Call of Duty is available as well. A conservative estimate would be one-third of those sales coming on the Playstation network which would be $333 million in sales in 10 days. Meanwhile, that number has only grown since then and gamers can also make additional payments through the game on new content and cosmetic items.
The point being, that’s a truckload of money Microsoft would be throwing away if it made Call of Duty an exclusive title. Sure, some gamers might switch to an Xbox console to continue playing but many would not as the console or gaming computer is still very expensive and many wouldn’t want to abandon the plethora of exclusive games offered on Playstation.
There have already been conversations about Microsoft making an offer to regulators to not allow Call of Duty to become exclusive in order to help the deal go through. Of course they will offer that, exclusivity could cost the company anywhere from $3.3 billion to more likely near $10 billion in revenue over that time period if Call of Duty remains a top franchise, where it has been for 16 years.
The gaming landscape has changed dramatically over the last 20 plus years and it's not just about selling as many consoles as possible. The subscription model for software is quickly becoming the new trend with Microsoft trying to keep its entire user base together on various different platforms and transition the brand of Xbox from a particular console to instead the entertainment branch of Microsoft itself.
Many parallels could be made but a particularly relevant one is Roku’s transition from selling its televisions and set-top boxes with the streaming service to instead just focusing on making money through its streaming service by reaching as many TVs and users as possible. Sure Roku would love to have everyone buy their hardware and use their services, but as long as consumers are watching Roku, the company is making money, whether it sells them a device or not.