Microsoft Wants to Dominate the Games Industry

Rob Zacny


Paris Marx is joined by Rob Zacny to discuss the potential consequences of Xbox’s acquisition of Activision Blizzard, and what subscriptions and consolidation might mean for the future of games and the industry.


Rob Zacny is a senior editor at Waypoint and co-host of Waypoint Radio. Follow Rob on Twitter at @RobZacny.

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Paris Marx: Rob, welcome to Tech Won’t Save Us.

Rob Zacny: Thanks for having me!

PM: This news about Microsoft buying Activision Blizzard came out last week. I’m really looking forward to digging into that with you to find out what the implications of this massive deal is going to be for games but potentially even broader than that as well. I wanted to start by giving the listeners a foundation, in terms of, what this actually is. With Microsoft buying Activision Blizzard, what are they actually getting? What is the significance of an acquisition of this size for the games industry?

RZ: It’s hard to overstate how significant this acquisition is — even if you’re passingly familiar with games — I suspect that a lot of the things that Activision owns would end up surprising you. Microsoft, at one stroke, has purchased it. If you like World of Warcraft, that is a Blizzard property because Blizzard was bought by Activision ages ago — also Ditto, Diablo, StarCraft, Hearthstone — but on top of that Activision has winnowed down their offerings as they just focus on reliable profit centers. But Activision is synonymous with Call of Duty, one of the annual powerhouse shooter franchises in the game space. I’m less familiar with this side of things because I’ve just never been as interested in mobile gaming, but Activision did also own King Games, which is a really important and powerful company in the mobile game space.

Microsoft bought a ton of really valuable going concerns with this — they also buy all the studios that Activision owns — again, that Blizzard campus out in Irvine. Activision has turned most of its studios into Call of Duty support centers, basically. Shat’s still a lot of development talent in an era where, as I’m sure you’re following the story, hiring everywhere is getting hard, there are not enough people for the amount of work there is to do. Microsoft is getting all those development hubs. Plus because Activision has been buying up companies for years and years. Activision does own a lot of intellectual property —that they probably let lie fallow because it’s not Call of Duty and it’s always more profitable to make another Call of Duty — nevertheless, that probably is of interest Microsoft as well, where there’s a lot of things with name recognition that they have access to that they didn’t before.

PM: Your discussion of how Activision has been focusing on big franchises also seems indicative of the larger entertainment space. When we look at Disney, and these other major entertainment companies as well, focusing on reliable IP, and now Microsoft also gets a ton of that with this acquisition.

RZ: This is where things already begin to get complicated and how we assess this, because that was one reason that people were excited to see maybe the back of Activision and its leadership team. Setting aside for a moment labor issues at the company, which we’ll get to in a moment. Activision’s path through the 2000s-up to today, has been to focus on blockbuster games — games that command more market share games with more profit potential — and as part of that process, with every generation, they reduce the diversity of their offerings. They turn more studios, that used to be known for making different types of games, into studios that churn out content for Call of Duty. Activision, while if you looked at the things that it owns would have a very deep bench of properties and franchises, they don’t really use any of that. The CEO, Bobby Kotick, is the arch cynic whose philosophy of making games is to just make the thing that is going to be reliably most profitable, market the shit out of it, call it a day.

Microsoft has not taken that approach yet, and there’s a couple things behind this. One is that the Executive Vice President running Microsoft’s gaming division right now, Phil Spencer, is authentically a games person. This is somebody in interviews when games come up, he doesn’t make obvious references, he starts referencing back catalogs and such. There is an element of: This as somebody who does come from a place of like interest in games and passion for games, and has an inclination to greenlight lower percentage plays that are just more interesting. I’ll give you an example, two years ago or maybe three at this point, Microsoft acquired a studio called Double Fine, which is helmed by a guy named Tim Schafer. They have reputation, Shaffer’s whole career has been making really interesting, kooky, oddball games — like Full Throttle back in the LucasArts days orGrim Fandango — and he made a game called Psychonauts years ago. It is this platform where you go inside people’s minds, it’s a lot of fun.

Tim Shafer is also, famously, unreliable at the marketplace, he probably has more misses than hits on his record. When Microsoft bought Double Fine, they basically injected that company with the funds and resources to finish Psychonauts 2, which just came out last year. It was really good, delivered on a lot of its promises. But this was a game that I don’t think any other publisher makes these days, it’s the type of project that gets cancelled, right and left. Microsoft does back these things and give these studios the space to finish them. So this is, I think, one reason why people were excited about the idea of an acquisition like this because if you like at what Microsoft is doing right now, they are supporting weird, interesting stuff in a way that a lot of the incumbent publishers, like Activision or Ubisoft, really are not.

PM: It’s interesting, you say that because one of the reactions that I saw from gamers once this acquisition was announced was okay: Phil Spencer is a good guy. Phil Spencer likes games, so we can trust him to do the right thing with Activision Blizzard. Are you worried that perspective also misses out the potential larger structural implications of a merger of this size? And what that might mean for the games industry down the road, as things start to change because there’s so much consolidation going on?

RZ: I think in every enthusiast space, the structural conversation almost never happens. It’s starting to, but in general, I was listening to your show about the iPhone with Brian Merchant, basically talking about the cult of personality that exists in tech. Something similar happens in games. The major games trade shows have always been increasingly like major keynotes, like little mini Apple keynotes. For years people have been invested in these narratives of corporate combat and the different rise of personalities who head up these companies, or divisions within them. There’s a predisposition to focus on a lot of the stuff in these personal terms, these individual terms, and these really immediate terms. Thinking about what has come out recently, what is coming down the pipe? What gets missed in that is while the industry runs on a quarterly schedule, a yearly schedule, when we talk about these things, companies like Microsoft really don’t, neither do major companies like Activision. In some ways, it feels like the bigger the company, the farther out their planning horizon can be, and it extends way beyond what those of us in the cheap seats can actually perceive.

I understand where the excitement comes from, because you really couldn’t imagine a more cynical and more boring CEO than Bobby Kotick. Getting someone like that out of the picture is almost certainly a good for games as a creative form. When you look beyond that, and you think about: Well, here’s a couple things, if Spencer is building a machine, what could that machine do in the future, especially when it is no longer under his control? I think if you look at the arc of a lot of industries — certainly United States, maybe the world — in general, they are built by people who are coming from within those industries and understand the craft and the trade. Then over time, they’re sort of taken over by finance and management types, who don’t really have any inherent interest in the good that the industry produces. It’s all just a vessel for making money.

There’s this this trend toward the financialization of everything. I don’t think Spencer fits that mold, but it’s easy to imagine — down the road when either Spencer is gone, or Microsoft’s priorities change —some of these things that we’re celebrating today could come back on us. I think this is where — I don’t know how intensely concerned Microsoft should be about getting merger approval for this and the antitrust implications around it — but I think this is why this conversation ends up being important because if we’re just looking at: Do I trust Phil Spencer to run a cool and dynamic games publisher? Yeah, probably. Do I trust Microsoft to do that for the remainder of my life? Not at all.

PM: Yeah, I want to come back to more of those structural questions, but I think before we get too far from Activision Blizzard, we do need to discuss what has been going on there recently. I had Gita Jackson on from Motherboard on recently discussing what was going on at Activision Blizzard, and the ongoing unionization discussions in the games industry. In November, we saw Xbox Head, Phil Spencer, say that he was disturbed and deeply troubled by the horrific events and actions at Activision Blizzard. It was reevaluating, Xbox’s relationship with it, but then obviously came out last week and announced an acquisition of the company. Where do you see these issues of sexual harassment and the culture at Activision Blizzard going under Xbox.

RZ: When you’re looking at Activision, it’s hard to imagine it being worse under new ownership, almost any change has to be for the good. But there’s two things: one is these issues are pervasive across the industry. To a degree, what’s remarkable about the Activision story is that it’s happening in such a widespread fashion at such a large company. In general, there’s a presumption, not without reason, that large companies get good at being boring, inoffensive corporate places to work. That hasn’t happened as much in the games industry. Ubisoft, the French publisher, that operates massive development campuses across Canada, they had similar stories breakout into the open over stuff like this. Again, really permissive cultures of abuse.

But if you drill down into what happens at smaller studios, these stories, pervasive across the industry. I would not be surprised if a year from now we’re hearing more about culture of silence or abuse at Microsoft, for instance. You don’t know until you know. With Activision, it is such a mess. It’s like a nesting doll of trash. You actually have two toxic cultures that co-habit in Activision. One is that Activision when they bought Blizzard bought this really corporate cult around this company and a lot of the managers at Blizzard really took advantage of the relationship fans had with the studio, the fact that they tended to recruit staff from among those fans. People were desperate to work at Blizzard. Even setting aside the sexual harassment which was endemic there, Blizzard was notorious for paying poorly because you’re getting to work at Blizzard.

Alongside that, we also learned that Activision’s own studios, the ones that they oversee directly because their reputation was always that they left Blizzard alone, but Activision’s owns stable of studios were also rife with these issues. What made this one distinct was, it really did go all the way to the tops of these studios and that it was Bobby Kotick, who, when faced with the fact that there were studio heads, and leads, involved in harassing and abusing employees, he made the call to basically hush this stuff up and refused to deal with it. Part of that is with Activision in particular, you always have to look at it in two ways.

Activision is very cynical bottom line company, where why rock the boat? Just keep the trains on the rails, don’t worry about what the lead engineer on the locomotive is doing. Also, Kotick has a track record of being an abusive employer himself. There’s very publicized allegations there. When I look at these things, I often feel like there’s an ideological component in the refusal to address misconduct to a degree. I mean Kotick fits the mold of a boardroom jerk who views all of this as, to some degree, the right of people in these positions. Just the cost of doing business with people like that and employees just have to pay those dues.

PM: As a result of all of those issues that have been going on. Obviously, workers at Activision Blizzard, have been protesting this, have been walking out, have been talking about unionization. Last week, there was a survey from GDC that showed that 55% of game developers in the industry think that the industry should unionize. We also heard that Raven Software, which is an Activision studio, asked for voluntary recognition of their union by the company. Do you think that this is going to continue under Xbox or what will that mean for unionization attempts and what the workers are up to right now?

RZ: There’s a few things, it’s important to note that at Raven we’re talking about a subset of employees who are unionizing. That is an exciting development, but also, we’ve seen how these things tend to play out, which is that all the anti-union firepower comes to bear. Before this deal closes Activision is going to have to put out some of these fires or they will try to. I am not sure that it might not be for the best that the unionization drive picks up Steam after the acquisition closes, if indeed it goes through. Because then you’re dealing with Microsoft and there’s no chance for nonsense in the terms of the deal. I don’t know how these things are structured, I’m just thinking about, I recently was party to a union negotiation, where successorship clauses were a huge concern. If a company changes hands, does the new owner have to honor this union? Suddenly, this all gets really pointed at a place like Activision.

The other obstacle that tends to exist in games is that while those surveys indicate growing interest in unionization — and there is a growing understanding that labor conditions are bad — there is such a inertia around organizing in the game space that it feels like there are so many ways for Activision or Microsoft to find an exit ramp from this path. Because right now a lot of this has been driven by like extreme exploitation, and then extreme misconduct at the top. But labor conditions have been bad in the games industry for ages and we haven’t seen a ton of really large union drives.

We were talking with us on Waypoint Radio, where my colleague, Patrick Klepek, had a suspicion that just the notion of a change in ownership, a change in management, might diminish some of the urgency around these issues. I hope that’s not the case, I think there’s probably also a generational component of twenty years ago, people were saying things seem pretty screwed up, but we can grin and bear it. Twenty years later, things are worse, and it is harder to grin and bear it and so I’m hoping things change there, but just as an industry, I feel like there is a lot of reticence to unionize.

A friend of mine in the games industry once joked that game development is like working on those old Roman warships where it’s all oarsmen — that scene from Ben-Hurm — a bunch of people chained to the oars, chained to the benches. The way it works is that everyone thinks they’re going to be captaining the ship at some point. The first step in forming that class awareness and solidarity is that very few of you are ever going to be captaining the ship or even calling the tempo, like in a lot of industries most of us are going to be sitting on the bench pulling the oars. You better think about what is in the interest of the person on the bench.

PM: It reminds me of the broader discussion of people not wanting to raise taxes.

RZ: The temporarily embarrassed millionaires thing.

PM: I totally understand that, and especially in an industry like this that has been traditionally less unionized not unionized. There are a bunch of roadblocks that especially these employers can make use of to try to hold those things from happening. I want to switch back the larger industry wide implications of this deal. I think most people would associate Xbox with consoles, with the console wars, with the competition against PlayStation in particular. New consoles came out in November of 2020, the new Xboxes and the PlayStation 5. Obviously, they have been constrained because of supply-chain issues that many different sectors are dealing with, but what is the implication of Xbox buying a major third party developer mean for console gaming and for PlayStation?

RZ: In the old paradigm, you would have a ton of reaction to this being like: Man, Microsoft has just struck a real blow against PlayStation. I’m not sure that matters as much anymore. Like there’s a point in industry consolidation, where the major players are no longer playing for keeps against each othe, like Verizon and Comcast aren’t trying to kill each other. It’s the Godfather Part II where the carving up the cake with Cuba on it. That is how the consolidated economy tends to work. So I am less convinced that Microsoft is doing this to take dead aim on Sony and try and once and for all when the console war. In part because that was bring back a lot of the narrative big scary Microsoft taking on a beloved, and Sony still is a beloved games company.

I think more importantly, Microsoft has made it very clear, the Xbox, the little box that is sitting here beneath my TV is less important to them than it’s been in the past. In fact, those boxes in general, the physical consoles themselves, might be less and less important. This is why Xbox increasingly is becoming a brand apart from the physical console. In 2017, Microsoft unveiled Xbox Game Pass, and that is a subscription service. Initially, it was just for the Xbox One. In short order, they expanded it without changing the name to Game Pass for PC, but the idea is that Xbox is now a Microsoft gaming ecosystem.

One of the other things that Microsoft is really going in on is streaming games, from the cloud. They have competitors in the space. Interestingly enough, by all accounts, Google was running one called Stadia, that became a bit of a joke for a lot of reasons. They lacked content was basically the issue Stadia ran into. They really began cutting their investment, according to some reports in 2021, right after Microsoft acquired the last sort of blockbuster acquisition when they bought ZeniMax, which owns Bethesda, The Elder Scrolls games, etc. Google saw that and began to cut investment in the stadia program. Microsoft, just by doing this acquisition, was able to mark out territory and back off one of their tech giant rivals. Maybe the biggest rival in game streaming might be Nvidia, which is the company that makes like the video cards that run all the consoles and games.

Microsoft looks at this and it’s been undeniable that there are people who buy video game consoles, that audience hasn’t really grown tremendously in twnety years. To a degree, maybe I’ve seen arguments, that’s actually more of a generational blip, that people in my age bracket tended to be all in on PC gaming and video game consoles, but younger kids a little more inclined to mobile or less invested in the specifics of what hardware you’re running. The future of that might be, you can just open up your laptop and somewhere there’ll be a remote machine letting you play all this and you’re just playing the game. I think there’s a lot of indications that that is the future that Microsoft is building for. It’ll always be nice to have the physical console business going, but the thing that has like the greatest potential for untapped growth is probably streaming. Where you just reduce that barrier to entry and now you get to people paying subscription fees for access to a games library.

PM: I’m happy that you turn that console question into where things are going because that’s essential. We’ve already been seeing the shift away from the console and toward the streaming server, or the subscription games library, and the combination of both of those things. The consoles are becoming less generational amd that is something that Microsoft and Xbox have been very explicit about. That Sony has had to buy into as well as a result and now there’s indications that Sony is planning its own subscription and streaming service to rival what Xbox is doing because it has to compete in this space. Then at the same time the subscription model indicates a big change in how games are consumed and how people think about games.

Now you’re paying one fee instead of buying a box product or a digital download every single time that you want to play something. As we can see in film and television, subscription services right now are generally not profitable. There’s something that these companies are losing money on to bring people in. To encourage people to think about consuming content in the subscription way, instead of this more individual way, I guess. What is the implication of this shift for the industry, but for gamers, in particular? Also for the developers who are making those games and who, I’m sure, are going to need some business model that actually works to continue doing this?

RZ: This is the multibillion dollar question. The implications change a lot depending on who you ask and depending on what you foresee. Let’s go back actually a little bit to 2013. To a degree, you have to look at this to make sense of what Microsoft is doing now. In 2013 — this is before Phil Spencer was Mr. Xbox, basically, it was it was under another executive — but they had this really troubled console rollout, the Xbox One. One of the things that got them into massive trouble was that they were proposing a lot of convenience, in exchange for a lot of control. In particular, they made this pledge that like all games will be available digitally day one, in the world of 2013, that mattered. It’s laughable now, of course, it’s all available, I saw The Matrix on my TV, like that’s the world we live in. But in 2013, they were pledging that the era of box retail, timed exclusives was ending.

They also proposed this idea of digital loaning, they didn’t flush this out very well, but the idea might be that you could maybe rent games from people or loan them to friends. The one thing that we’re very specific about was that if you had a game disk you could, one time only, loan that game to a friend. By the way, that friend had to have been on your Steam friends list for 30 days or longer, i.e., don’t just sell this on the market. What’s more free than that is being able to loan a physical good once before the digital license is revoked. People lost their minds over this. I always felt like it dealt a gutshot to the Xbox during its marketing window that Sony really exploited. We were so thrilled with Sony, we didn’t even notice that Sony was matching Microsoft in terms of instituting a fee to play multiplayer games. At a stroke, suddenly, the industry was a lot more rent seeking, but compared to what Microsoft was trying to do, Sony seemed positively pro-consumer.

The lesson that Microsoft took from this was that they’d gotten the messaging wrong, it was all about figuring what is the spoonful of sugar to make the medicine of giving up any digital rights go down. They back away from a lot of this stuff and the next time we hear about game rentals or game streaming is really in 2017 when they roll out Game Pass. Now here is a thing that nobody had any objections to, because for a pretty small amount of money, you got access to a really strong library of games. Play any of it, if you wanted to buy it, they would give you a hefty discount on those games. By 2017, the conversation about “what resale rights do I still have?” had been mooted, they had succeeded to a degree in killing off a lot of the used games after market and creating a lot of funnels to get people back into the ecosystem where they’re spending money directly on games through Microsoft or through publishers.

I think that’s where a lot of this has been headed is that the idea has always been you don’t want people to be running around up there with control over their own games, you want them to stay in your ecosystem and play within the library you were offering. Microsoft offers a very good library, but this whole notion of having a Games Collection like maybe you did when you were a kid but that’s not part of the future they’re building. It’s something they’re actively interested in killing off. That’s where if you’re a player, there should be some concerns because right now, Game Pass, again, really cool service. It’s a couple things to think about. Games aren’t like movies where you can like binge tons in a month and get a bunch of content out of your Netflix subscription, or HBO subscription. Games take a long time, you probably are not playing through more than a game or two a month on game paths.

The old paradigm used to be that a lot of people would only buy one or two or three games a year. Now a $15 a month subscription for PC and Xbox games, that suddenly a lot more money that people are spending thoughtlessly about what they’re getting. The other thing that they are really leveraging here is the fact that so many of the Game Pass offerings are either being subsidized directly by Microsoft — which is they are paying people to license these games and put them on game paths— or they’re being offered up by Microsoft directly as first party games. Like, this initiative that Microsoft started in 2018 where Halo, Gears of War, or any new Microsoft Game, day one would be on Game Pass, you don’t even have to buy it. All this stuff is built on the foundations of a more vibrant and competitive games industry.

If you think about like: Well, what would happen if we witnessed the triumph of Game Pass, that this becomes the standard model? In 10 years do we see as many games coming to market, especially if Microsoft successfully conditions people to view this as: this is where you go to play games. This is where the best deal is, you’re a sucker if you’re out there buying games at retail, or buying them individually on a digital storefront. This is obviously the best value in games. That’s going to change the decision making of other publishers in the space. I shudder to what it means for smaller players. This is an ongoing crisis. I was reading back at the Game Developers Conference in 2008; GDC every year would have a rant session, where leaders in the space would start talking about what’s what’s really bothering them.

At this one you had Warren Spector, Greg Costikyan, Chris Hecker, and Will Wright, so that’s The Sims, Deus Ex, they’re all there. This is back in 2008 and this is where Greg Costikyan gives the “my friends we are fucked” speech saying: We are utterly and truly fucked. His argument being there is that the amount of money that’s going to require to produce games in the HD-era is just going to discourage any risk taking. By the way, he said it’s going to be 80-hour workweeks for the rest of our lives or until our jobs are outsourced to Asia. What’s very funny about this is they weren’t really wrong. There’s a tendency to look at people who are doom-saying about shifts in the industry and say: See, we were fine. But that’s survivorship bias. They weren’t wrong, the amount of diversity in the space did go down, working conditions in many places did decline.

I think you’ve imagined, what does a victory for Game Pass on Microsoft look like? It starts to look a lot like Microsoft is the market maker. Through Game Pass, they are the ones that decide: Well, what do we even put in front of gamers because they’re no longer looking. They’re no longer browsing store shelves at Walmart. They’re not delving deeply into Steam new releases lists, why would you? tThat storefront is chaos. Microsoft ends up being in this really privileged position, through Game Pass, they can set the menu for what gamers are involved with. Anyone involved in making games has to start factoring that in. Right now, the deal is very good because Microsoft is happy to run this at a loss to get more people on board with the system. In 10 years, we already see Netflix raises its rates annually, twice annually. What’s going to happen in terms of that subscription fee? What’s gonna happen in terms of what’s offered on the service and what kind of deals are the people making games getting?

PM: I think those are all essential points. You’re talking about there, how Microsoft is carving out this space through Game Pass, if it’s able to ensure that this subscription model becomes the future of what’s happening. Naturally, that makes me think about what we’re seeing in film and television and streaming over in that space. It’s far more advanced than it is in games, games is getting started, whereas, that’s been the model and has been cemented as the model in recent years. What we see there is that it’s a few major companies that are able to stake out the space and a few of the tech companies that are using their money from the highly profitable industries that they’re are already involved in to then get involved in the space. They are controlling it.

You have a few major cable or broadcast companies that already were really dominant and large, but even then they’ve had to consolidate and merge to reach the level of these tech companies that have all this money. Then Amazon, Apple and Netflix are also able to have their own silos, effectively, of content. This is your choice and to be involved in that you have to work with one of these really major companies or be acquired by them or consolidate to be a large enough company to try to compete in this space. Then, is that where you see it going in games as well? The entry of Google, and maybe Amazon, along with Microsoft and Sony is able to stick around as well, and nintendo because they’re so large. Then there’s this push to consolidate, to be able to compete in this new space that is highly consolidated around a few major silos of game streaming services.

RZ: An acquisition like this, if it goes through Microsoft, becomes an incredibly powerful incumbent. Amazon has tried for years to get into the game space, and it’s sort of famously been inept at it. Now, this is not new. I’ve heard their approach to solving problems is a bit like, they will just beat their head against the wall until eventually through sheer force of will, and limitless resources and a lot of fractured skull. They will eventually cause that wall to come down. It’s a very determined company, but it’s rare that they come into a space and work smarter, not harder. They will just keep throwing money at a problem. That’s been their approach to games, but the result for that has been, what their most successful thing right now is a middling MMO called New World.

Amazon has the resources, certainly, but that’s not everything here. Like you have to have some of the connections, some of the literacy in the space. Microsoft does, they do enjoy that position. I think Google, through Stadia, they got very fixated on the tech side of things, but the problem was that Stadia is window of opportunity, where their approach too, like low latency streaming was cutting edge for a heartbeat, and then it got matched by a lot of other people. Suddenly, there was no longer that value. I don’t know that Microsoft is on track here for effectively a monopoly in the space, I think it was more likely that it ends up being carved up by a couple of incumbents and I think Sony is very well positioned to do that.

I am actually less convinced that we would see even the diversity of what you see in this in the streaming TV space, everyone having their own streaming platform. I don’t think there’s enough people with a viable libraries of content to make that feasible. EA has tried, EA has EA Pass, but because of choices EA made. Mostly that means that you have access to some racing games and annual sports games and battlefield games because EA, like Activision, really narrowed its focus on major profit centers. This is a key difference. If you think about how Netflix, or HBO Max or Paramount+, has been marketed — Netflix is increasingly reliant on their new material, their new content — you might even be able to argue that wasn’t necessarily smart of them to completely privilege that, because what a lot of companies have been able to do is lean on back catalogue. What can we what can we bring out and offer up?

Who currently has Friends becomes a hugely important thing. There’s no equivalent to that in games, when Friends was airing look at what games were contemporaneous with friends. Nobody is making a $15 a month subscription decision based on that. I really need to play Ultimate 5 or something like that. Nobody is doing that, I might, but most people are not. I really do think that Microsoft’s ability here to just have an absolutely gargantuan pipeline of games is a huge competitive advantage here. It’s not like starting a game studio is easy at this point, so there’s a high barrier to entry Microsoft is buying up a lot of prime real estate and proven companies and anyone else who sees the opportunity like: Hey, you could be the Netflix of games or something. Okay, but there are far fewer equivalent properties to build off of, to rival the ones Microsoft has. It’s less the case in film, or it was I mean, consolidation in film is also rapidly changing that landscape.

PM: The natural question that arises from what you’ve been discussing there, and what you’ve mentioned a few times through this interview, is will this acquisition be able to go through because it is Microsoft, Xbox’s master company acquiring a major third party developer, Activision Blizzard? In recent years, we have seen growing consolidation. Xbox, as you said, bought Bethesda, or Zenimax, which owns Bethesda. Sony has bought a number of smaller studios in recent years to build up its first party game studios. But as you mentioned in an article that was published on Waypoint last week, the same day that this acquisition was announced, the federal trade commission in the United States released new merger guidelines and there have also been increasing focus on competition and competition policy by a number of regulators, like in the UK and the EU. Do you think that such a major acquisition will be able to get through? Or will it face difficulty in doing that?

RZ: It’s tough to forecast for one thing, the announcement that the FTC and DOJ made last week wasn’t really a specific announcement it was, they are beginning the process of creating new guidelines. It’s a call for submissions as to thoughts about what current merger and antitrust guidelines are. So it is a work in progress. The track record is certainly that by and large, what corporate America wants corporate America ge. It is hard to imagine, all these years of precedent turning on a dime on the backs of a couple individuals in a weakening Biden administration. On the other hand, though, it does feel like there has been a bit of a sea change in terms of how people talk about tech in particular, Lina Khan, obviously, made her reputation analyzing the ways in which Amazon — without breaching Robert Bork’s consumer welfare standard for approving mergers — still ends up harming competitive spaces.

Khan’s main framework on all of this is how do we protect healthy, vibrant, competitive markets? If you just look at what’s going to drive cost down, consolidation is probably it. If you’re thinking about what is going to offer lower prices, in addition to higher quality of service, or greater diversity of choice, it’s probably not consolidation. Maybe these are things that are worth considering. In their remarks last week, though, Jonathan Kanter, who’s the head of the Department of Justice antitrust division. He posts a series of questions that if you are a tech company, they’re worrying. Basically, he’s asking the question: Well, there’s the old framework of vertical or horizontal mergers really make sense anymore. This notion that there will be concerns of company bought out of competitor, and there’ll be concerns of company bought out somebody in the supply chain, from the production of raw materials, somewhere in that chain, out to the sale of goods to market.

Kanter is pointing out that doesn’t really make sense in the era of platform capitalism, that we need to think about the unique qualities of the platform’s themselves and the different interests they have. The fact that vertical or horizontal doesn’t really encompass it. We also need to think about what changes does the fact of the platform wreak on a competitive space? These are areas where, for years, tech benefited from the fact that it wasn’t well understood, particularly on Capitol Hill. I think that has changed, they can no longer be the bright young things who sayL Don’t worry about it regulators, we’re smart, we’ll figure it out. It’s pretty clear now that, increasingly, people are cottoning on to what platform capitalism looks like, and how it can distort the space for other people trying to work within it.

The thing I’ll say is, if you are looking to prove a point — if you are looking for a fairly low stakes test case of some of these ideas — Microsoft’s acquisition of Activision really fits the bill, because you’re frustrating Microsoft, but this is not a deal that Microsoft. It’s a $70 billion acquisition, which a lot in games, it’s not a lot from Microsoft. It’s not a hyper-politically influential lobby. For comparison, a lot of people have been frustrated with the fact that antitrust, in the agricultural sector under Biden, has done nothing. Part of that is because like Tom Vilsack is sort of a bought out, he’s the definition of regulatory capture, where it’s like: I think it’s great that all chicken sold in America are produced by the same four companies.

The Biden Administration, is a land of contrasts in that way, where there’s places where they they have no interest in walking the walk. Where some of the people involved are pretty ideologically committed to being on the side of big business. I don’t think that applies to games and I think there’s enough tech skepticism that umbrella might not apply. It’s an interesting opportunity to create a test case. Although, I think what’s going to be frustrating is in a normal environment, you will see companies like Sony, yeh, Ubisoft, they will all be very concerned about this, there’ll be an idea of like: Well, how do we compete with this? Is this fair? I think, to the point we’re talking about earlier, where it’s sort of the financialization of everything. The people running, most of these companies now are not games, people, they don’t care about these things in that way and they’re committed to the idea of bringing their products to market or pushing the specific visions they want to bring into reality.

I think Spencer’s probably more authentic than any of them, just about. Most of the people behind these companies are probably hoping that consolidation continues, because this is your last chance to get a huge payday. The number of viable buyers for companies of the scale is diminishing. Even though there’s a lot of companies that could probably be looking at this and saying: This is anti-competitive, we can’t sell our retail product when Microsoft is giving some of the games away for free. We can’t sell our flagship franchises, when Microsoft has given away all the most popular ones, once again, for free. You expect those arguments to be made? I don’t think they will because I think a lot of the people who should be concerned about this, their priority is going to be: How do I hit the exit? How do I cash out this company in this wave of consolidation, and leave a billionaire?

PM: I completely agree with everything that you just said. It does really illustrate both the opportunity, how this could happen, but also at the same time, how there’s a lot of interest and incentive to not have this roll up of these companies into these larger consolidated companies to continue. But on that point of financialization, and of a lot of these companies being run by numbers people that are interested in what is going to make the most money, I wanted to end on this question of where you potentially see things going. Especially, in the sense of what it is going to mean for games?

I think that there has been a lot of frustration in recent years with how the focus doesn’t seem to be on making good games and having great gameplay, but on how can these games make the most possible money for these publishers and games companies with the move to Service Games, always on kind of games. With the implementation of loot boxes, and microtransactions, and now this shift to subscription services, and potentially streaming is going to mean for the future of these. Where do you see the future of the industry going in this direction in terms of the games that are going to be made? How does these larger changes to the business model in the structure of the industry affect that?

RZ: There’s a few directions things can go real quick. I’m gonna cite something here that I think was just in the news the other day, the fact that old music is selling better than new music. The fact that, we’ve known this for years that it’s harder and harder to be a musician in the age of music platforms being the predominant way that people consume music. This is completely unsurprising. What’s very clear is that what places like Spotify have done to music is they did commodify it and it is just a giant warehouse where people can listen to whatever they want. If it’s what you already know, who cares. Like we’ll serve that up as much as anything. There’s no incentive for them to promote or nurture young talent or emerging artists. Ultimately, if people are happy paying $10 a month to listen to The who, or The Rolling Stones, or Louis Armstrong doesn’t matter, people people can do that. This feels a body blow to the vibrancy of a major, creative form, should be concerning to everyone. But in the music industry that we’ve sorted a lot to be built by Spotify. It just doesn’t matter.

The cultivation of new talent, new artists, new forms is just sort of a casualty of turning music into a cash cow for investors. That is the road we are probably on with games if things do not change course. I say that because when I talked about survivorship bias a few minutes ago, I am now just old enough that I’m starting to realize that: Well, I have a lot of frame of reference that other people don’t have and I don’t say that to mean that I have a better frame of reference. What I mean is, for me when I was most excited about games, and where it was the greatest sense of discovery and evolution, year to year, it’s probably the 1990s. If you look at like what happens to games across the 90s It’s incredible and it’s not just the technological advancements. It’s also the fact that new genres emerge and are iterated at a really rapid rate. In the mid-90s there’s this incredible diversity of offerings before consolidation begins to happen and certain genres fall out of favor. They attract less investment, it gets whittled down.

A lot of people don’t have that frame of reference, so it’s very easy to look at the game space and say: Well, it’s as competitive and vibrant as ever. No, it’s not and to a degree, that’s understandable, because to hit the quality bars people expect, it’s just harder to do that now without huge budgets, which involves getting investor backing. Or there’s the lower barrier to entry, but it just becomes a question of are you lucky enough to win the lottery of discovery. But by and large, the track we are on is a little closer to that Spotify model, where if you’re playing games in 10 years, and say largely happening through Game Pass in some form or another, chances are you’ll be playing a lot of shooters, that look an awful lot like what you have today. Probably with more in-app purchases, people get nostalgic for like Halo 1 and 2.

That didn’t have in-app purchases, you weren’t sitting there being like: I need a new skin for my masterchief. But this is what every game turns into now: stay in our ecosystem, buy the little tchotchkes in our theme park. I think with greater consolidation, you will see even fewer offerings in that space because why compete with one another? Why build products that compete with yourself? I think in terms of the diversity of offering, you would see it decline, and a lot of people would be discouraged from coming in because the barrier to entry is high, and the odds of success are low. Even if you manage to break in, increasingly, you have to do business with a few incumbents, a few major stakeholders. I think the track we’re on is probably pretty bad over time because it accelerates a lot of the trends we’ve already seen, embodied by Activision over the years. Now, it weds that to the cash cow nature of platform capitalism.

To escape that future, you probably have to see deals like this stop. I’m not saying that game-streaming is inherently bad — this is one of the conundrums of attack — a lot of these innovations are not inherently bad, a lot of them are really cool ideas. It is the fact that every advancement, immediately, gets monopolized by the same three or four players that makes it all turn to ash. I think this is where the interest in hamstringing deals like this comes from, because I don’t oppose Game Pass ideologically so much, but I would like there to be other offerings and maybe other ways to bring other types of game to market and help them find their market. If you just allow consolidation to happen unchecked — especially in the hands of companies like Microsoft that can operate a scale that nobody else can — inevitably, you are going to turn a really vibrant industry into a cash cow for a tech giant that’s indifferent to its greater output.

PM: That last point is an essential one as well. It’s a dim future that you’ve outlined for us, but it’s completely what I observed as well looking at streaming music, streaming TV, and things like that. Rob, I really appreciate you bringing your knowledge of the history of this space and laying out the implications of, not only this deal, but the broader consolidation that’s happening. I thank you so much for taking the time.

RZ: That was great. Thank you.