Microsoft, Activision Blizzard, and the Gaming Industry

Software, Media & Technology


Video games – once the domain of the oft-maligned nerd – have now truly reached the point of cultural ubiquity. The industry, since its humble beginnings in the 60s and early 70s, has grown to become a world-wide behemoth, eclipsing in size both the film and music industries combined with an estimated valuation of $184.4bn in 2021. Since then, fuelled by a pandemic, the industry has gone from strength to strength, but now its own success presents a challenge to continued growth – let’s see what’s been happening in the gaming industry.



Gaming’s evolution

Since its infancy in the 70s, the gaming industry has come a long way indeed. Starting in the arcades on monolithic, coin-operated arcade machines, gaming then moved into the home with the release of the first home consoles in the 80s.

From here, the industry’s fate was sealed – gaming was in the home, as it wasn’t about to leave any time soon. Home consoles continued to evolve over the coming decades, and sales increased alongside them, with some 50% of UK households owning a gaming console today.

Since then, advancements in technology and processing power have greatly improved the performance, complexity, and fidelity of games, as well as increasing accessibility through cheaper and more widely available platforms.


Candy Crush: a merging of worlds

While traditional gaming is as strong as it’s ever been, perhaps one of the most influential segments within the market is the rise of mobile gaming. Mobile gaming represents half of the total revenue generated in the wider gaming industry, which speaks to the enhanced accessibility it brings along with it.

Because mobile games don’t require the purchase of an expensive console to run – just a mobile phone which user probably already own – the bar to entry is significantly lower than with conventional gaming. Because of this, apps like Candy Crush boast users of a demographics largely unrepresented in gaming – middle-aged women and people over the age of 65.

Most mobile games’ revenue mobile function slightly differently to the more conventional format. Instead of consisting of the one-time purchase of a game, most mobile games are free, and feature a smorgasboard of ‘microtransactions’ for users to buy instead.

Microtransactions – defined as ‘very small financial transactions conducted online – refer to optional perks, workarounds, and time-saving tricks that are available in many mobile games. They might, for instance, speed up a certain in-game task, or you might be able to buy in-game currency to buy different in-game cosmetics with.

This canny source of revenue represents one of the most pervasive yet widely criticised evolutions in gaming’s recent history. Now, games can be designed as to coerce users into buying these microtransactions through deliberately hostile game design. Yes, you could wait 24hrs to complete the next in-game task, or you could spend just 90p to speed up the process now and do away with all that horrible waiting time.


Revenue, revenue, revenue

If you thought game design was all about fun and immersion, then think again. The proliferation of mobile gaming – and its runaway success with microtransactions – has led to the practice being implemented across the entire gaming landscape.

Epic games, creators of the ubiquitous Unreal Engine and Fortnite, are a classic case study of this method’s success. Their flagship title, Fortnite, is entirely free, and can be played as such without ever having to spend a penny. Yet, the game generated $5.8bn in 2021 and is projected to make well over $6.5bn in 2023. All this revenue – every penny – is because of in-game microtransactions.

Players can buy outfits for their avatar to wear, as well as special ‘passes’ that allow them to complete in-game missions for additional outfits. You can’t buy anything that makes the game any easier or different, all purchase are merely aesthetic. And yet, this approach has seen Epic Games become one of the most profitable companies in the industry.

And it is a slice of this huge, seemingly endless pie that other players in the space have been making moves to acquire.



Microsoft, Activision, Blizzard: a tale of titans

Call of Duty. World of Warcraft. These are games that most people (and I’d wager even non-gamers) would know. Call of Duty, produced by Activision; World of Warcraft, developed by Blizzard. The titles used to be owned by these two disparate companies, until the two merged in an Activision-led takeover in 2008.

Activision Blizzard is, by a long way, the most valuable video game developer in the world, with a market cap of c.$67bn in 2023, nearly double that of EA in second place. It is somewhat unsurprising then, that Microsoft – the most valuable video game company – set its sights on an acquisition of Activision Blizzard and its associated IP.

This move, incredibly, was blocked by the Competition and Markets Authority (CMA) in the UK, with Europe deciding on May 22.

The acquisition was blocked on the grounds that Microsoft already owns 60%-70% of the global cloud gaming space, and adding this amount of IP to its stockpile would not help the situation. The cloud gaming market is forecast to be worth £11bn by 2026, so keeping the space competitive is crucial if we want to see more players enter the game.



Investment and the future of gaming

Investment in gaming remains strong, with companies employing buzzy technology such as AI and metaverse implementation receiving the highest sums.

Investing in game development itself can be a risky venture. Games can cost upwards of £100m to develop, and usually have equally stratospheric marketing budgets with no guarantee of success. The games that sell well can go on to make billions, but it’s not a given.

Investment in infrastructure might be the safer bet for many. While trends see genres of games ebb and flow in and out of fashion, the infrastructure needed to develop, distribute, and maintain these games remains essential.

The gaming industry is one wholly dependent upon technological innovation. For companies at the bleeding edge of this, huge gains could be waiting around the corner – think of Nintendo when they released the Wii in 2006 – novel experiences sell. This said, novel experiences need to be both enjoyable and accessible.

At the other end of the spectrum to the Nintendo Wii we have the Oculus rift. This headset really kickstarted the current VR craze all the way back in 2016, promising the most realistic virtual reality yet produced. Seven years on, the fact remains, however, that VR headsets require expensive PCs to run them, as well as lots of physical space to allow for the movements required in their operation. Innovative technology is great, but knowing when the deploy it is key.


In conclusion

The gaming industry represents both a cultural and financial behemoth. Eclipsing all other legacy media offerings, gaming has cemented itself as an immovable pillar of innovation, investment, and popularity.

In light of Microsoft’s latest Activision Blizzard folly, it will be interesting to see the verdicts of both the EU and the US on the same proposal, and the precedents these will set up for the future of the industry. Will we live to see a future of warring titans? Or will legislation successfully make room for more smaller players?

By Rebecca Garland on 15/05/2023