By now, most people will have heard about Microsoft Corporation’s intension to purchase gaming giant and interactive content publisher Activision Blizzard Inc. in what is already being called the largest tech deal ever. While some may have concerns about the size of the merger, the deal could well be a major victory for consumers and gamers alike, who are likely to benefit from expanded access, a greater selection of games, and lower prices.
In late January, Microsoft announced its’ plan to acquire Activision as part of an ambitious plan to further expand its operations into the gaming market. The landmark deal, which is priced at a staggering $68.7 billion, will make Microsoft the third-largest gaming company in the world by revenue, behind only Tencent and Sony.
Based on our analysis of the acquisition, we find that consumers are likely to see a range of new benefits.
For instance, the merger will greatly expand consumer access to content by consolidating popular Xbox and Activision games in one place under Microsoft’s subscription streaming service. At present, consumers must choose between several gaming consoles when purchasing a game due to the high unit price associated with each. This limits their access to just a handful of titles, and acts as an unnecessary barrier to consumer choice. Microsoft’s subscription streaming service, made possible by this deal, changes this calculus and opens up a host of new possibilities.
Microsoft’s subscription streaming service is a multi-tiered system that allows consumers to purchase one of three subscription packages. These include the standard “Game Pass,” which provides access to hundreds of popular downloadable games for Xbox, the “Game Pass for PC,” which provides the same package of games for Windows PC, and the more expansive “Game Pass Ultimate,” which includes all of the benefits of the Xbox and PC passes, as well as the ability to stream all of these games via the cloud. All three option greatly expand consumer choice by allowing gamers to access a much larger range of games than would otherwise be possible.
Microsoft’s long-term plan is to build a space where consumers can, at the price of a small subscription fee, join a vast online gaming network. This network, or community of gamers, will be made possible by a sophisticated cloud software system that allows users to access games on a variety of consumer devices, including phones, tablets, and laptops.
All of these benefits come with considerable cost savings to consumers. For instance, most console games currently retail for about $60 a piece. In contrast, the “Game Pass” for Xbox and “Game Pass PC” can be purchased for $9.99 a month, while the “Game Pass Ultimate” can be purchased for $14.00 a month. All three are comparatively affordable options that offer access to a much greater array of games.
Each option also has the added benefit of allowing consumers to save money on game console purchases. For instance, the Xbox Series X game console currently retails for $499.99, while Sony’s PlayStation 5 retails for the same. Prior to the availability of “Game Pass,” consumers may have needed to purchase both game consoles in order to play their favorite games. This is no longer the case due to the wide variety of games available under each of the three options.
Economies of scale reduce costs and can allow for a much more efficient use of resources. Even so, Microsoft is far from dominant in the gaming market. For instance, if this deal is approved, as is expected by the end of fiscal year 2023, Microsoft would only control 10.7% of the gaming market as a publisher. Microsoft remains, first and foremost, a technology company that sells a large range of products including computers, electronics, cloud services, and computer software. This deal would not change that, but it would clearly benefit consumers.
It would be unfortunate if the Department of Justice prevented Microsoft from acquiring Activision, as some critics have urged. If this were to occur, consumers would never have the opportunity to realize the gains that the merger would provide them, such as the benefit of lower prices, expanded access, and more games to choose from.
Will regulators really stand in the way of these benefits?
This article was published in The Economic Standard.