Microsoft has acquired video game holding company ZeniMax Media and its publisher Bethesda Softworks for US$7.5 billion in its ‘biggest gaming acquisition ever’.
The move continues the tech giant’s fierce battle for video gaming dominance against industry rival Sony.
“Gaming is the most expansive category in the entertainment industry, as people everywhere turn to gaming to connect, socialise and play with their friends,” said Satya Nadella, the CEO of Microsoft.
The Elder Scrolls belongs to Xbox
The deal will see Microsoft gaining control of best-selling gaming titles by Bethesda, including The Elder Scrolls, Fallout, and Doom. The games will be brought to Microsoft’s cloud gaming service Xbox Game Pass, reported Reuters.
GlobalData predicts that Sony could miss out on future hit Bethesda titles, as the games could become Microsoft Xbox exclusives, despite Deathloop and GhostWire: Tokyo being announced as PS5 exclusives.
“Quality differentiated content is the engine behind the growth and value of Xbox Game Pass,” added Mr. Nadella.
With the addition of Bethesda, Microsoft will grow from 15 to 23 creative studio teams, ahead of Sony’s 15.
“As a proven game developer and publisher, Bethesda has seen success across every category of games, and together, we will further our ambition to empower the more than three billion gamers worldwide,” said Mr. Nadella.
The planned acquisition includes publishing offices and development studios spanning the globe with over 2,300 employees, including Bethesda Softworks, Bethesda Game Studios, id Software, ZeniMax Online Studios, Arkane, MachineGames, Tango Gameworks, Alpha Dog, and Roundhouse Studios.
“The deal’s inclusion of several prominent game studios will give Microsoft a powerful boost in its battle with Sony in the next-generation consoles market,” said Rupantar Guha, Associate Project Manager for Thematic Research at GlobalData.
In May 2016, ZeniMax was valued at $2.5 billion, and has raised over $600 million from investors, according to PitchBook data.
“Microsoft recognises its need for consumer based revenue growth, which we believe this deal will directly help drive along,” brokerage Wedbush Securities said in a note.
The deal between Microsoft, ZeniMax and Bethesda is expected to close in the second half of 2021.
Bethesda’s structure and leadership will remain in place
“The big winners today are our fans. We are continuing to develop our slate of AAA games, but now with Microsoft’s scale and entire game stack, our games can only get better,” said Chairman and CEO of ZeniMax Media, Robert Altman.
Microsoft’s move to deepen its game catalog and improve on its offerings comes right at the heels of the launch of its Xbox cloud gaming service offering, Xbox Game Pass Ultimate. The service offers subscribers more than 150 games via cloud on Xbox consoles, Android devices and PCs, including hit titles like Sea of Thieves, Gears 5 and more.
“This is an awesome time to be an Xbox fan. Now we’re making another investment in the most critical part of our strategy: the games,” said Phil Spencer, the Executive Vice President of Gaming at Microsoft.
Competition with Sony is expected to heat up further, as both tech giants are gearing up to release their new generation of gaming consoles at a matched price, Microsoft’s Xbox Series X and Sony’s PlayStation 5, at the end of the year.
The acquisition of ZeniMax and Bethesda demonstrates how Microsoft wants to dominate the games console market and is determined to outpace Sony, which will be worth $60bn by 2025, according to GlobalData forecasts.
2021 set to be landmark year for cloud gaming
Gaming has become one of the biggest global entertainment industries as demand surged significantly during the pandemic.
“As household entertainment budgets are squeezed, partly as a result of the ongoing Covid-19 pandemic, cloud gaming and game subscription services will prove to be an attractive route to premium titles for more price-conscious consumers who will hold off from purchasing the latest consoles or upgrading PCs,” according to George Jijiashvili, Senior Analyst at Omdia.
In its latest Cloud Gaming and Subscription Revenue Forecast 2020-2025 report, Omdia has predicted that cloud gaming revenues are set to hit $12 billion by 2025. In 2021 alone, revenues generated from cloud gaming is predicted to hit $4 billion, at a growth rate of 188% compared to 2020.
“2021 will be a landmark year for cloud gaming, with most of the vital pieces finally coming together to make it a viable option for both serious and casual gamers,” Mr. Jijiashvili added.
The report highlighted the launch of subscription services such as Xbox Game Pass Ultimate and PlayStation Now as key drivers for the growth in cloud gaming revenue. Microsoft’s inclusion of xCloud in the Xbox Game Pass Ultimate service has allowed millions of existing subscribers to stream games on a variety of devices.
New console launches in November are also set to further boost adoption of cloud gaming services, with cloud gaming-capable services expected to provide a complementary experience to console gaming.
Although largely seen as a business technology company, focusing on productivity and communications software, and cloud computing services, Microsoft’s foray into the online gaming business has proved largely successful. It reported a gaming revenue jump of 64% in the second quarter of 2020, up $1.3 billion from the same period in 2019.
Omdia has predicted that Microsoft’s focused xCloud strategy, as well as its technical capabilities and games ecosystem, means the company will emerge as the clear leader in the cloud gaming category in 2021.
It will, however, face stiff competition from Sony and Google, as well as upcoming entrants such as Amazon, and Tencent in Asia.
The deal comes more than a week after Microsoft’s failed bid for TikTok’s US assets. TikTok’s Chinese owner ByteDance has structured a deal in partnership with Oracle and Walmart, rather than an outright sale.