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Microsoft makes huge bet on gaming IP

January 18, 2022, 6:12 PM UTC

The Netflix-ization of the video game industry took a massive leap forward Tuesday.

Xbox parent Microsoft announced plans to acquire video game developer Activision Blizzard for a staggering $68.7 billion, bringing some of the gaming world’s biggest titles—Call of Duty, Warcraft, Candy Crush, Diablo—under its umbrella. The deal marks Microsoft’s biggest purchase in company history, dwarfing its $26.2 billion acquisition of LinkedIn.

With the acquisition, Microsoft could take Activision Blizzard’s extensive game library and put it on the fast-growing Xbox Game Pass and PC Game Pass subscription services—as well as any future virtual reality and metaverse platforms. Microsoft’s two game pass offerings, which cost $10 to $15 monthly, already boast about 25 million subscribers combined, Microsoft officials said Tuesday when announcing the merger.

Microsoft also could make those games exclusive to its own platforms, squeezing out its primary domestic competitor, Sony PlayStation. Xbox’s gaming chief, Phil Spencer, didn’t make any comments about game exclusivity, but the prospect of Call of Duty leaving the PlayStation console quickly sent some gamers into a tizzy.

If that strategy sounds familiar, look no further than the video streaming wars of the past decade.

After years of offering television shows and movies made by other companies, Netflix decided in the early 2010s to develop its own content. 

When its own productions gained critical and commercial acclaim—House of Cards, Orange Is The New Black, Stranger Things—subscriptions took off and Netflix reduced its reliance on outside producers that could shop their product around.

Soon, competitors such as Disney, WarnerMedia, and NBCUniversal, developed their own exclusive content and streaming platforms, while also bringing their libraries in-house.

The lesson: intellectual property—not hardware—is king.

Microsoft, best known as the producer of the Xbox console, has been moving in this direction for several years now by investing in gaming studios. 

After more than a decade of modest success at developing games internally—notable titles include Halo, Gears of War, and Age of Empires—Microsoft made its first big splash by spending $2.5 billion to acquire Minecraft developer Mojang in 2014.  

Microsoft gobbled up several smaller studios in 2018, then laid down $7.5 billion for ZeniMax Media, the parent company behind the Doom, Fallout, and The Elder Scrolls titles. 

While the Activision Blizzard acquisition comes at a premium price, Microsoft would take control of even more premium content that it can spin onto its platforms for years to come. 

“We know that a thriving entertainment service needs a consistent and exciting flow of new content,” Microsoft Xbox Game Studios head Matt Booty said in June. “So our portfolio will continue to grow as our service grows.”

The deal also helps solidify Microsoft’s subscription advantage over Sony, which hasn’t yet launched a Game Pass competitor; Apple, which remains largely focused on mobile gaming through its Arcade offering; and Electronic Arts, which offers far fewer titles on its subscription service.

One big caveat for the deal: regulators in the U.S. and European Union, who are increasingly targeting large mergers for anti-competitive scrutiny, could still quash the purchase. Notably, the EU scrutinized Microsoft’s 2018 deal for ZeniMax Media before ultimately signing off on it.

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Jacob Carpenter

NEWSWORTHY

A failure to launch? The leaders of several major airlines complained Monday that thousands of flights could be canceled starting this week if federal authorities allow AT&T and Verizon to debut their new 5G service, The Wall Street Journal reported. Top executives for American Airlines, Delta Air Lines, United Airlines, and others all warned in a letter to Federal Aviation Administration officials that “the vast majority of the traveling and shipping public will essentially be grounded” barring federal intervention ahead of Wednesday’s scheduled 5G launch. AT&T and Verizon officials have denied that the new service will cause safety hazards, such as disrupting devices that give pilots information needed to land planes in poor weather conditions. The FAA has not yet responded to the airlines’ letter.

No gold for Olympic app. Researchers at a top cybersecurity lab said they have discovered encryption flaws in an app that Olympians must use while in China, potentially putting personal and health data at risk, The New York Times reported Tuesday. The University of Toronto’s Citizen Lab said information such as coronavirus test results and travel plans could be hacked through the app, developed by Chinese officials ahead of next month’s Winter Games. The app is designed to streamline COVID-19 contact tracing and protocols, though security experts worry about potential misuse by Chinese surveillance officials.

Bad ads in crypto? The U.K.’s financial regulator plans to impose tighter controls over cryptocurrency ads amid concerns about “misleading” claims and failures to warn about associated risks, CNBC reported Tuesday. The U.K. government will introduce legislation that mandates cryptocurrency advertisers must follow the same rules as financial institutions, which currently receive greater regulatory scrutiny. The announcement comes as the value of top cryptocurrencies, including Bitcoin, have fallen in recent weeks after peaking in the fall.

Big Brother spies on little kids. The video game arm of Chinese tech giant Tencent will start using facial recognition technology to enforce restrictions on the amount of time that children spend on its games, Insider reported Tuesday. The plan marks a new frontier in the use of facial recognition technology to enforce laws implemented by China’s ruling party. The scans will occur on devices using accounts that appear to be managed by minors, as well as accounts with users active on multiple devices.

FOOD FOR THOUGHT

Watching your every move. Dozens of patents recently filed by Facebook parent Meta suggest that the company could track your eyes, nose, and posture to tailor your metaverse experience, The Financial Times said Tuesday in a pretty creepy report. While the patents don’t necessarily mean Meta will implement each idea, the documents offer a remarkable view into the potential for intricate technology that could be used on targeted advertising and suggested content.

From the article:

Some of the patents relate to eye and face tracking technology, typically collected in a headset via tiny cameras or sensors, which may be used to enhance a user’s virtual or augmented reality experience. For example, a person will be shown brighter graphics where their gaze falls, or ensuring their avatar mirrors what they are doing in real life.

One Meta patent, granted on Jan. 4, lays out a system for tracking a user’s facial expressions through a headset that will then “adapt media content” based on those responses.

There is a “wearable magnetic sensor system” to be placed around a torso for “body pose tracking.” The patent includes sketches of a user wearing the device but appearing in virtual reality as a soldier complete with a sword and armor.

IN CASE YOU MISSED IT

Netflix hikes monthly subscription prices as much as $2, by Lucas Shaw and Bloomberg

Coinbase explains why it gave employees a month of ‘recharge time’ in addition to Flexible Time Off, by Amiah Taylor

Elon Musk and the rest of the world’s 10 richest doubled their wealth during the pandemic, but 99% of humanity is worse off, by David Meyer

When it comes to buying things with crypto, Ether, stablecoins and Dogecoin are starting to encroach on Bitcoin’s turf, by Olga Kharif and Bloomberg

It’s time for Big Tech to play fair on IP, by Drew Johnson

A quantum failure, by Miles Taylor and Daria Bahrami

BEFORE YOU GO

Save Crypto. Live Better. The nation’s largest company is on the blockchain bandwagon. Walmart recently filed patents en route to creating its own cryptocurrency and non-fungible tokens, part of the retailer’s foray into the metaverse. No plans are officially in the works, and Walmart officials aren’t scrambling yet to integrate crypto into their brick-and-mortar operations. But as Walmart goes, so goes America.

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