How Microsoft is thinking outside the Xbox

The console wars are back, with a new twist.
article cover

Francis Scialabba

· 3 min read

Microsoft is spending a pretty penny to buy gaming behemoth Activision Blizzard, and if it gets approval from the feds, it plans to share a little with the competition. Microsoft announced in February that it signed a 10-year binding agreement to bring the best-selling Call of Duty series to Nintendo for the first time in nearly a decade—if the merger with Activision Blizzard is approved.

The gaming industry has been dominated by console sales and first-party, exclusively licensed, or in-house developed games for decades, but Microsoft’s recent deal seeks to upend some of the industry’s conventional wisdom. Instead of limiting access to its games, Microsoft appears to be accelerating a licensing-first strategy—while fully embracing the cloud through its Game Pass subscription service—enabling non-Xbox gamers to play on phones, PCs, and TVs.

“As long as they’re the company that’s delivering the service, facilitating a service from some other development studio, or it’s a first-party studio coupled with Xbox services, they’re happy either way, because they’re making money off both those slices of the pie,” Lewis Ward, research director of gaming, esports and VR/AR at IDC, told Tech Brew.

The $68.7 billion proposed acquisition, which Microsoft first announced in January 2022, would be the company’s largest-ever acquisition and mean a colossal reordering of the gaming industry. If the deal goes through, Microsoft claims it would become the third-largest gaming company in the world, leapfrogging Nintendo. But that might be a big if: The deal is contingent on approval from regulators like the FTC—which is seeking to block the merger—along with its European counterparts in the UK’s Competition and Markets Authority (CMA), and in the EU, which issued challenges in late 2022, questioning whether the acquisition could create a gaming monopoly. According to Reuters, the EU is now expected to approve the merger in April, partially as a result of Microsoft’s licensing offers.

Stay up to date on tech

Drones, automation, AI, and more. The technologies that will shape the future of business, all in one newsletter.

This isn’t the only (or first) step Microsoft has taken to get ahead in the gaming world. In 2021, Microsoft acquired ZeniMax Media, the parent company of Bethesda Softworks, in a $7.5 billion deal with rumors of potential exclusive access to popular franchises like Fallout and The Elder Scrolls. ZeniMax Media marked Microsoft’s 23rd first-party studio, compared to Sony’s 13 PlayStation Studios, according to The Verge. Microsoft also announced a 10-year partnership with Nvidia last month, expanding access to Xbox games to Nvidia’s GeForce Now cloud gaming service.

Michiel Buijsman, senior market analyst at Newzoo, told Tech Brew that Microsoft, Sony, and Nintendo’s gaming strategies differ from each other, and in Microsoft’s case, its reputation as being a “monster at subscriptions” helps explain its focus on Game Pass.

“Nintendo was always a little bit off; they’re following their own strategy. For them, hardware sales and first IP are the biggest focus. If you look at Sony, they also want to sell hardware units. They also have a very strong lineup of first-party titles, mostly single-player titles,” Buijsman said. “Whereas, if you zoom in on Microsoft, they started to switch because admittedly, they lost against Sony in the previous console cycles.”

Stay up to date on tech

Drones, automation, AI, and more. The technologies that will shape the future of business, all in one newsletter.