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Microsoft may be known as a business software giant, powering most of the world’s PCs and building backroom technology and tools. But it’s also spent more than $10 billion buying development studios behind some of the most popular video games in the world. To Microsoft CEO Satya Nadella, it’s all about the future of software.
Though not known as a gamer himself, Nadella’s made big bets on the video game industry, buying Minecraft maker Mojang for $2.5 billion shortly after he was named CEO in 2014. Then he bought five more studios in 2018, including role-playing game maker Obsidian, known for the space adventure The Outer Worlds and the well-received South Park: The Stick of Truth. In 2019, it bought Double Fine, maker of adventure game Psychonauts.
What’s driven him is a belief that interactive entertainment will be a key technology in the next 10 years and that gamers who use Microsoft products expect the company to make titles like those made by the studios he’s bought.
“You can’t wake up one day and say, ‘Let me build a game studio,'” Nadella said in an interview after the company announced its $7.5 billion cash purchase of ZeniMax Media, which owns several industry-leading game developers, including Bethesda Softworks and Id Software. “The idea of having content is so we can reach larger communities.”
That’s why Microsoft will consider buying even more video game companies in the future, he said, and why it continues to invest in its Xbox Game Pass subscription service.
“Content is just the incredible ingredient to our platform that we continue to invest in,” Xbox head Phil Spencer said in that same interview. “This doubles the size of our creative organization.”
Microsoft’s purchases mark the most dramatic ways the company is looking to build up its Xbox brand. They also give the company more games to field in what’s increasingly become a hits-driven business.
Competitor Sony is known for a range of homegrown series, from the post-apocalyptic thriller The Last of Us to the treasure-hunting game Uncharted to the action series God of War. Its upcoming game Marvel’s Spider-Man: Miles Morales will headline the November launch of the PlayStation 5, priced up to $500.
The Xbox team, meanwhile, is best known for its Halo and Gears of War space war series, and its Forza racing games, none of which will headline the launch of its $500 Xbox Series X.
“Microsoft now doesn’t need another major content/IP acquisition,” wrote analysts at Cowen in a Monday note to investors.
While Microsoft may be home to some big hit titles, many gamers have said the company needed to up its game, particularly when compared with Sony. “A look at the two companies’ 2018 exclusives roster makes for grim reading, at least for Xbox fans,” gaming site Polygon wrote in 2018.
Gamers will see a noticeable difference with Bethesda, Spencer said in the interview Monday, noting that the company’s games will be offered on Microsoft’s Xbox Game Pass subscription service the same time they hit store shelves. They’ll also be available through Microsoft’s xCloud video game streaming service, which allows people to play games over the internet similar to the way they stream movies from Netflix.
“This is a huge investment in games that they’re going to get to play,” he said.
Spencer also said Bethesda will run semi-independently, in an effort to keep the company building the games that brought it success in the first place. “It is about the culture of those teams,” he said. “They’re not about becoming us.”
It’s also why game companies will continue to be on Microsoft’s radar. “We’ll always look for places where there is that commonality of purpose, mission and culture,” Nadella said, noting that the Xbox team has worked with ZeniMax companies including Bethesda since the first Xbox was released in 2001. “We will always look to grow inorganically where it makes sense.”
Bethesda isn’t the only consumer product acquisition Microsoft’s been involved in over the past couple months. The company also made a bid to buy TikTok, the rapidly growing China-based social network built on memes and short videos. The app, which has been downloaded more than 2 billion times around the world and counts more than 100 million users in the US, is at the center of a political battle between the Chinese government and President Donald Trump.
Nadella said TikTok’s parent company, ByteDance, approached Microsoft to attempt to create a company that would be fully owned by Microsoft. Over the course of the past few weeks, the company was part of a shifting public acquisition process, dictated at times by Trump, who threatened to ban TikTok from US app stores over undefined national security concerns.
Trump said he wouldn’t ban the app if it’s purchased by a US company, and for a while it seemed Microsoft would be the one. On Sunday, though, Trump announced that he’s approved a deal in which it appeared business software maker Oracle and retailer Walmart would take stakes in a new company, called TikTok Global, though some uncertainty remains.
“It’s not something I recognize, and it’s definitely not the deal I bid on,” Nadella said. “The deal has obviously changed a lot since then.”
But if Microsoft had won the acquisition, Nadella said, it would have been part of what he sees as the company’s efforts to expand its software. “I don’t start each day thinking I want to become somebody else,” he said. “I start each day by saying, ‘How can I do a better job of doing things that come to us naturally?'”
And that’s why he tried to buy TikTok and why he did buy Bethesda.