Microsoft’s video game segment is not in a very good position, and the acquisition of Activision’s Blizzard King did not help.

The $68.7 billion deal was not cheap (the largest acquisition in the gaming industry), and it has to be recouped in profits somehow. Meanwhile, the industry itself has stagnated in the aftermath (and impact) of the pandemic, and AAA games in general have become more expensive ($70 instead of $60). Not for nothing has Xbox VP Sarah Bond said that Xbox is exploring untapped areas outside the traditional games business.

In addition to new hardware, Microsoft is focusing on Xbox-exclusive titles and Xbox Game Pass subscriptions. The latter has been the main focus, but it has also meant sacrifices, with 2,650 people laid off this year. While the Redmond company believes the ActiBlizz acquisition will benefit it in the long run, Xbox has many revenue and profit goals to meet in the meantime. Shortly after Bond joined Microsoft, it launched Game Pass, which the company spends $1 billion a year on.

Most of Microsoft’s profits come from other areas (Windows, Office, Azure…), and while its executives don’t know much about the gaming industry, they all believe that Xbox could be much bigger than it is today. Game Pass subscribers spend 50% more on games than those who don’t subscribe, and Bond believes that Microsoft is making decisions that will live with them for the next decade in an industry that is quite promiscuous and ever-changing.

So the fact is that Microsoft has overspent, and right now it doesn’t look like they’re going to get much more out of acquiring the publisher of Call of Duty in the short term. Maybe Call of Duty: Black Ops 6 can show what could happen (it will be available in the Game Pass offer on launch day). And what hardware Microsoft might make is something we’ll discuss separately later today.

Source: WCCFTech, Bloomberg