(Bloomberg) — With Microsoft Corp.’s $7.5 billion purchase of ZeniMax Media Inc., gamers’ long-awaited fantasy about a “Netflix for gaming” took a step closer to reality.
The ZeniMax acquisition gives Microsoft Bethesda Softworks, the popular publishing label behind some of the world’s best-selling titles, such as The Elder Scrolls series. Microsoft aims to use that draw, along with other popular Bethesda titles like Doom and Fallout to attract subscribers to Xbox Game Pass, its $10-a-month library of hundreds of video games for Xbox and personal computers. Microsoft said the service has 15 million subscribers now, up from 10 million in April. Netflix, which has revolutionized the entertainment business, finished the second quarter with almost 193 million subscribers. Key to that success is a steady stream of exclusive shows that viewers can only watch if they sign up for a monthly subscription.
Some of the games in Bethesda’s portfolio are already on Game Pass, but the all-cash acquisition gives Microsoft three big advantages. First and foremost, it allows Microsoft to put future games from Bethesda’s franchises on Xbox Game Pass as soon as they’re released, giving players a choice of paying $60 for the single title or locking into a monthly $10 subscription for more access. Secondly, it gives Microsoft control of Bethesda’s vast and lucrative catalog, which includes hundreds of classic games like like Fallout 3 and Dishonored, for Xbox Game Pass. It also puts Microsoft in a position to withhold future Bethesda games from competitors such as Sony Corp.’s PlayStation Now and Google’s Stadia, a streaming video game service run by the search giant.
Having access to Bethesda’s games on Xbox Game Pass as soon as they launch makes for a considerable boost to the service’s value. “This isn’t about financial accretion for Microsoft,” said Doug Creutz, an analyst at Cowen & Co. “This is about them making Game Pass a much more compelling alternative.”
Game Pass has become the core of Microsoft’s strategy as it prepares to release two new Xbox consoles in November. While Sony has spent big money to get games exclusive to its PlayStation consoles, Microsoft is taking a broader approach, focusing on services and subscriptions.
“We are really seeing a pivot in the gaming industry from a device-centric industry to a player-centric industry,” said Phil Spencer, Microsoft’s executive vice president of gaming, in an interview.
ZeniMax is Microsoft’s biggest acquisition in gaming to date. The price tag is three times what Microsoft spent to buy Mojang AB and the popular Minecraft franchise in 2014. Some experts suspect Microsoft could use the opportunity to deprive rival PlayStation of mega-popular games like the upcoming fantasy role-playing game The Elder Scrolls VI. The previous game in the series has sold more than 20 million copies across multiple platforms, including PlayStation 3 and PlayStation 4.
Spencer said in an interview that the company will release future ZeniMax games on Xbox and PC while taking a “case by case approach” with other consoles.
But it may not matter very much if future ZeniMax games are released on the PlayStation or other devices, such as Nintendo Co.’s Switch. What’s far more important to Microsoft is having all the best games on Xbox Game Pass. While the company hasn’t yet come close to Netflix’s subscriber haul, Xbox Game Pass is looking far more valuable after the acquisition.
“This is all about Game Pass,” said Matthew Kanterman, an analyst with Bloomberg Intelligence. “Microsoft wants Game Pass to be the one-stop-shop for gamers, regardless which hardware platform you’re on. This acquisition gives them a much bigger catalog of marquee titles and future new releases to bring into the service to drive more customer adoption. The deal can likely pay for itself quite quickly just by signing up more Game Pass subscribers.”
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