Microsoft gives market share against PlayStation

[DonFerrari]

Machiavellian said:

I see statements about MS could be using that money to build up their current studios. My question is why do you believe MS is not doing this. A number of MS studios have been hiring developers. I believe there is this perception that their is this huge pool of talented seasoned developers just sitting out their waiting to get hired but the reality is that its hard to staff up companies with quality experienced talent. It take years to accomplish that task and the two situations do not equal the same thing. Meaning that MS can still be hiring for certain studios and also seek acquisitions to build up their AAA content.

So when people say that MS can use that 70b to build up their current studios it really does not work out that way. MS as a company has pools of money for multiple different purpose. The acquisition of ABK/Blizz is not just considered a Xbox game deal but instead a company wide deal. What this deal does is give MS a huge money maker in COD, it gives them seasoned experienced developers who know how to create successful AAA games and it gives them a host of popular IPs they can dip into for continued growth.

I am not going to question if ABK/Blizz is worth 70b, as I really do not care, its not my money. I will say, that the deal does give MS a lot of very successful IP and seasoned developers and studios which is hard to achieve without a lot of time. I do not believe this deal actually makes any real difference in the current period and will not change MS position against Sony but then again, I already feel MS has lost that battle a long time ago. MS is looking at the future and have given up the console war, so why play to the strength of your competitor instead of leveraging what you do best.

To start I would point that they hadn't increased number of internal teams on their existing studios to any relevant amount, plus had a big number of firing of existing employees, some working on gaming for Microsoft for over 10 years.

Second that there is a lot of countries that it is possible to build studios from scratch that they didn't go to.

I dunno why so many try to put the purchase of ABK as a matter of hiring personnel. MS intent is buying IPs and in second or third priority the expertise of the team. Just see that after MS said CoD isn't relevant now they say the purchase wouldn't work without CoD.

And yes of course ABK isn't an investment from Xbox.

EpicRandy said:

DonFerrari said:

I fail to see how ABK deal would benefit Sony and PS gamers.

it's not that the ABK deal benefits Sony his saying that the drawback of this deal for Sony might be less than those caused by other possible action by MS for this amount of money.

The most likely though is that investor won't make the $69B available for Xbox to use right away for many reasons and Xbox will need to fight for this amount to be converted into others Xbox investment.

That's said lets entertain the idea that MS is fully committed to Xbox because they have a lot of faith in GamePass and see an urgency to act fast and secure this market and so they actually make the whole $69B available. Which you know ain't out of the realm of possible.

There's a lot of way that Xbox may use this amount of money that will end up impacting Sony a lot more than the ABK transaction directly or indirectly. In fact there not much Xbox can do besides organic growth, acquisitions, contracted development and hat deals and all have there impact on Sony and others. Anyway here what I find to be realist in this hypothetical scenario.

Organic growth: ($10B over 10 years)
Because talent acquisition is hard and creating studios from scratch is even harder and takes a lot of times and MS should already have budget for there existing studios expansions it is not realistic to use $69B in this manner. Both Sony and Microsoft have only build 2 new studios in the last 10 years (Team Asobi, Pixelopus, The Initiative and World's Edge) none over 100 employees today. $10B over 10 years may be used on this and even then it's seems like a stretch. 

Impact on Sony:
MS would likely be Poaching talent left and right to grow it's internal studios/build new one. This may result in a talent drain for Sony and force them to raise salaries across the board causing both delays and increasing development cost for their own titles.

Studios acquisitions:(~$15B over 10 years)
No description needed but this is probably a low end figure, MS already stated they weren't done with acquisition despite de $69B deals so you would have to add to this figure the investment they were still going to make anyway. So in reality you need to probably double this to $30B/10 years.

Impact on Sony:
Reduce output and revenue from 3rdparties, reduced capacity to make deal with 3rd parties

Increase in 2nd party 3rd party Dev contract:(~$24B over 10 years)
This is not about money hat just fully contracted game dev to 2nb/3rd parties like Sunset Overdrive. AAA budget typically range from 30m to 300m+ nowadays but the later has more to do with sequels of popular Ips that bare low to no risk. When contracting though it will cost you more than inhouse dev so let's say an average of $150M/ titles that's 130+ titles over 10-15 years which can literally saturate this market.

Impact on Sony:
Reduce output and revenue from 3rd parties, reduced capacity to make deal with 3rd parties

Hat deals:(~$20B over 10 years)
The last know big hat from MS was Tomb raider for $100M I believe. This is a great example cause it highlights a deal on a very popular franchise witch Sony did let go. I'm sure game like Ghostwire Tokyo and Deathloop being new Ips would not have have been as expensive to MS and were probably even less expensive to Sony but let's just use the $100M as average. That's 200 AAA third party hats /10 years

Impact on Sony:
Reduce output and revenue from 3rdparties, reduced capacity to make deal with 3rd parties

Now Sony would not be standing by doing nothing, they would need to react and make investment own there own to keep there position but this would mean Increase spending and reduced profits margins.

Now compare those impacts vs simply allow MS to acquire ABK and sign the 10 years CoD deals. Furthermore, I believe if Sony was willing to sit with MS they could use the challenge regulator pose to MS to make a 10 years deal not only CoD but every ABK franchise worth mentioning (Diablo, overwatch etc...) witch I fully believe MS would be forced to accept.

So Sony could almost completely negate direct impact of the deal to themselves and the only impact the would still exist are:

• No more CoD marketing deal. This is mitigated though by the fact the 10 years deals completely remove such practice from the franchise so it's not like MS is gaining this back
• No More New Ips game from ABK. But ABK isn't known to produce new Ips and it will be many years before such impact manifest itself
• GamePass may become a juggernaut. This is probably the single most significant reasons Sony try to stop the deals but that ship has already sailed IMO. if the deals fails that's not a blow to GamePass/Xbox ambition only a short term slowdown.

I do see your point and can agree that MS could take these actions and they could impact Sony, but hardly would say it would be less detrimental than loss of the benefits it have on ABK being independent.

Machiavellian said:

Investors have no say in how MS spends their money. They have never had a say in how MS spends their money.

Also in the bigger picture, there is nothing in the short term that MS can do that will impact Sony. Sony dominance is there because they have successfully made much better decisions than MS over the years and their brand loyalty around the world. Sony would need to severely screw up in order for MS to make any real penetration in Sony market dominance. MS always have the option to spend as much money as they want to secure developers out their so this belief that this will make a real dent I do not believe is will happen. MS best bet has always been to shake up the industry and carve out their own section instead of fighting a losing battle to out muscle Sony.

Of course investors have a say on how MS uses the money, first being very obvious on if investors disagree and decide to desinvest/sell that impacts shareprice and not to forget obligation of leadership is returning value to shareholders. The second one is that major investors have positions in the board and discussion and must approve purchases of this size as far as I know.