An audience at Xbox's Electronic Entertainment Expo (E3) showcase. Courtesy of John McCarthy

The Consolidation of the video game industry

The video game industry is currently in a very unique point in its history. Microsoft announced plans to acquire Activision Blizzard for $68.7 billion, Jan. 18.  After Activision’s numerous lawsuits and struggles, Microsoft hopes to save the company from its own internal turmoil. The deal will “play a key role in the development of metaverse platforms,” according to Microsoft CEO Satya Nadella. 


While Microsoft says it plans to use its publishing expertise to accelerate growth in its gaming businesses across all gaming platforms, many are wondering what this means for Activision’s games across Playstation platforms. This acquisition could give Xbox better competition within its gaming libraries. 


Sony has since followed suit in acquiring Bungie, the developers behind Destiny and Halo. This is, in part, to compete against games like Fortnite, owned by Epic Games.  


It’s been a pretty big month in terms of gaming acquisitions, consolidating the industry to even fewer owners of AAA studios. 


These acquisitions haven’t yet been set in stone, as the Federal Trade Commission (FTC) is currently investigating Microsoft’s acquisition of Activision-Blizzard—during a time where the FTC is being far more aggressive against big tech’s unobstructed market powers. However, there seems to be little reason to assume the acquisition won’t be accepted.


Nintendo seemed to be the odd one out, promising fans that it won’t compete in the acquisitions arms race. 


“Our brand was built upon products crafted with dedication by our employees,” explained Shuntaro Furukawa, president of Nintendo. “Having a large number of people who don’t possess Nintendo DNA in our group would not be a plus to the company.” 


This should come as no surprise, as Nintendo often sticks to the same intellectual properties—as it mostly has since its entrance to the industry in the ‘80s. 


The video game industry is changing, and it’s changing fast. Hardware is still plagued by supply chain woes, making consoles and PC hardware inaccessible. The avid gamer has felt the severe impacts, but video game developers are struggling to find the sweet spot between exclusivity in a much smaller market and catering towards last-gen hardware that significantly hinders development progress. 


It’s not just hardware, but the nature of gaming itself that has been upended. Xbox Game Pass, known as the Netflix of gaming, changes how players can access video games. Instead of the standard premium business model—where a player purchases a video game for a one-time fee—players instead pay a subscription to have access to a library full of video games at their disposal, with new games constantly being added to the repertoire. Sony has a similar, though smaller, service known as Playstation Now


While Sony is by no means unsuccessful, their development model has become increasingly dated. The era of AAA titles flooded with millions—now billions—of dollars in development money to be sold for a $50–70 premium is increasingly unsustainable. 


During the Playstation and Playstation 2 generations, games could be developed with a fraction of a team required to build graphic-intensive titles now, and $50 went a lot further then.


This can best be exemplified with Final Fantasy XIV’s success. Square Enix was one of many companies that poured money into games to be sold individually like books. Titles such as Final Fantasy VII, Final Fantasy X and Kingdom Hearts propelled the company forward through their respective console generations. 


However, as graphics became more demanding, more time and money was required to produce visually appealing games. Quickly, Final Fantasy XIV soon became the darling that held Square Enix afloat with financial success—not because of graphics, but because of its subscription model as an online game. At a certain point, premium sales drop to near nothing, whereas subscriptions create a consistent income flow that can better fund more creative titles.


Both Activision and Bungie hold some of the most popular subscription-based video games in circulation. These games provide income flow that keep these companies alive in the market—and seems to be why these video game acquisitions are so important. 


However, small, independent game studios and startups are often left with table scraps to produce quality games, if they can get the funding at all. While the premium model is falling apart, these indie studios have few choices, as they cannot afford rooms full of servers and the specialized teams to build online games—which may or may not succeed. Even New World, Amazon’s attempt at an online video game, has had a rocky start. 


Ultimately, the AAA studio acquisitions may satisfy fans in the long run, but it is also indicative of a shift in the market that can make it even harder for the new creatives to bring something fun and unique out into the world. 


Everyone needs to start somewhere, and if there isn’t a field to let that happen, what will that mean for the future of video games?