Research Summary
The report discusses recent developments in Microsoft’s gaming business, including the closure of four ZeniMax studios, the establishment of Elsewhere Entertainment by Activision Blizzard, and the potential addition of Call of Duty to Game Pass. It also explores the broader context of Microsoft’s gaming strategy, its focus on AI, and the tension between subscription services and traditional hardware.
Key Takeaways
Studio Closures and New Establishments
- ZeniMax Studio Closures: Microsoft closed four ZeniMax studios: Arkane Austin, Tango Gameworks, Alpha Dog Games, and Roundhouse Games. Roundhouse Games will be absorbed into ZeniMax Online Studios to support Elder Scrolls Online.
- Elsewhere Entertainment Establishment: Activision Blizzard announced the creation of a new AAA studio, Elsewhere Entertainment, based in Poland.
Microsoft’s Gaming Strategy
- Reassessment of Priorities: Following the acquisition of Activision Blizzard, Microsoft now owns major franchises like Call of Duty, Warcraft, and Candy Crush, leading to a reassessment of priorities. Despite billions of dollars invested in Game Pass content, subscriber growth has stalled, increasing pressure to cut costs.
- Focus on AI: Microsoft has shifted its focus towards AI, which has significantly impacted its gaming business. The company’s direction has changed drastically since the announcement of the MSFT-ATVI acquisition in January 2022.
Future of Microsoft Gaming
- Potential Layoffs: Following the layoffs of approximately 1,900 Activision Blizzard employees in January, further layoffs at Microsoft Gaming, and specifically Xbox Studios, would not be unexpected.
- Strategic Tension: Microsoft is caught between focusing on blockbuster franchises and indie games, while also balancing the demands of subscription services and traditional hardware. This tension may necessitate larger shake-ups in the future.
Actionable Insights
- Monitor Microsoft’s Gaming Strategy: Given the recent studio closures and the establishment of Elsewhere Entertainment, it would be beneficial to keep a close eye on Microsoft’s gaming strategy and its impact on the broader gaming industry.
- Assess the Impact of AI Focus: With Microsoft’s shift towards AI, it’s crucial to assess how this focus will affect its gaming business and the potential opportunities and challenges it may present.
- Understand the Subscription vs. Hardware Dilemma: Understanding the tension between subscription services and traditional hardware in Microsoft’s strategy could provide insights into future trends and developments in the gaming industry.
