CD Projekt RED has no reason to sell to Microsoft

Rumor has it Microsoft wants to buy CD Projekt RED. This won't happen, and here's why.

| Dec 20, 2019 at 10:39 am CST

There's a rumor floating around that Microsoft wants to buy CD Projekt RED. That's not going to happen for one simple reason: CDPR literally has no reason to sell.

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Microsoft is buying up studios left and right to fill out its internal first-party brand. By picking up studios like inExile, Obsidian, and Ninja Theory, it's sent a clear message that it wants to prep its game-making foundries for its next-gen Xbox Series X console, and rightly so, because games sell consoles. In particular Microsoft wants to build up its RPG focus, and there's a rumor going around that it could buy some of the best RPG-makers on the planet at CD Projekt RED.

This isn't going to happen, and I'll break down some of the main reasons why. But the short gist is that CD Projekt RED is doing well and it has absolutely no reason to sell to Microsoft.

Before we get into it, we need to mention that Microsoft already confirmed its studio acquisitions will slow down as it ramps up Xbox Series X games.

With that out of the way, let's talk about CD Projekt RED and why it won't sell to Microsoft.

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CDPR currently has next-gen games engine tech powering Cyberpunk 2077, including real-time AI, flying cars, atmospheric weather and lighting effects, and reactive worlds.

CDPR is doing fantastic, no reason to sell to anyone

CD Projekt RED is the game-development subsidiary of CD Projekt Capital Group. The Group (and CDPR) are both doing extremely well right now.

Indie studios typically agree to acquisitions so they don't have to worry about funding. Independent games development is very insecure and many studios, like Remedy Entertainment for example, survive on a project-to-project basis similar to how many Americans go from paycheck-to-paycheck.

Studios like Obsidian were on the brink of financial ruin if they couldn't broker a publishing deal. Crowdfunding helped, but still nothing was guaranteed. Being owned by Microsoft is a guaranteed paycheck with freedom tossed in.

CD Projekt RED already has that kind of freedom and security. CDPR simply isn't attracted to a buyout the same way Microsoft's other acquisitions are.

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CDPR consistently makes profits even as it injects tens of millions into new projects like Cyberpunk 2077.

The Group has over 1,000 employees, it owns its own digital storefront, it develops and even publishes its own games, and wholly-owns the rights to its games IPs. CDPR has the framework for success that's been built over many years of successful planning and execution.

CD Projekt RED hasn't shipped a new game in over four years, and it's still making profits (it made $3.8 million in profit last quarter) even as it injects tens of millions of dollars into Cyberpunk 2077 and new projects. That pretty much says everything you need to know about CDPR's success.

To date, CDPR has spent more than $82 million on the development of Cyberpunk 2077. Few independent companies can afford to do something like this without completely buckling.

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CDPR has spent over $82 million on new games like Cyberpunk 2077 without going under.

We also have to consider Microsoft's business model and why it's not attractive to CD Projekt RED. Xbox is very service-oriented, and Microsoft mandates that all first-party games have to come to Game Pass at launch.

CDPR, who spends half-decades working on big sprawling singleplayer RPGs, wouldn't like that. They rely on full game sales and their games are made accordingly as huge experiences that can be purchased (and re-purchased) over 5+ years. Pushing them into the Game Pass model would effectively neuter their prowess and relegate them towards more service-based content.

Even after four years, The Witcher 3 is still selling strong. That's a testament to the staying power of CD Projekt RED's video games. And yes, The Witcher 3 is on Game Pass, but that's only years after release. That timing is important.

There's also the worry CDPR would be pressured to make "Game Pass filler," or smaller-scale live games released in between major titles.

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Even with the Xbox Series X on the way, gaming is still only a small sliver of Microsoft's total focus and earnings.

Microsoft won't spend big on CDPR

Now that we've gotten that out of the way, let's talk about the converse: Why Microsoft won't spend big to buy CD Projekt RED.

Let's just say Microsoft did want to buy CD Projekt RED, just the development studio for the Group. If the Group sold CDPR, it'd completely disrupt its entire business model--the company's entire raison d'etre is to fuel, sell, and monetize CDPR's games. There'd be no reason for the Group to exist and everything would fall apart. Microsoft would effectively have to buy the entire CD Projekt Group and all of its subsidiaries to maintain the effectiveness and prowess of CDPR's games.

That'd require some serious cash. Right now CD Projekt Group has an asset worth of $314.6 million.

Microsoft typically doesn't spend big on acquisitions. Minecraft's $2.5 billion purchase was a big exception, but that purchase was the best property Xbox ever bought. Microsoft rightly bet on Minecraft's long-term appeal for all ages, and it's paid off big-time.

Microsoft isn't that committed to games. Xbox routinely makes less than 10% of its total yearly billion-dollar revenues.

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Xbox makes less than 10% of quarterly earnings. It's ancillary, an extension of Microsoft's service-first structure.

Xbox exists as an extension of its service-oriented business, which is why we've seen so many successful over-arching and synergistic services weave their way into the now-multifaceted hardware ecosystem. Xbox isn't a console, it's a brand and a service that bridges PC, Xbox One, and soon mobile phones. It's potent and powerful, but it exists as a supplement to Microsoft's core enterprise business.

The truth is CD Projekt RED isn't a good fit for Microsoft. CDPR makes games that're decidedly singleplayer-driven and don't fit well into the engagement-based ecosystem that represents Xbox. Microsoft would have to pay quite a bit to even get CDPR to consider selling, and even then, they'd have to make a convincing case on why it's worth it for the Group.

CDPR simply has too many roots to sell. It owns its own game storefront, it has some of the most powerful games-making engines on the planet, and it is orbited by a huge international business that's predicated on its games.

No, Microsoft is more content with hosting CDPR's games on its massively powerful Xbox Series X console. It'll leave first-party games development to its stable of devs, which includes AA studios like Obsidian and inExile alongside AAA groups like 343 Industries.

Last updated: Jun 16, 2020 at 04:29 pm CDT

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ABOUT THE AUTHOR -

Derek is absorbed with the intersection of technology and gaming, and is always looking forward to new advancements. With over six years in games journalism under his belt, Derek aims to further engage the gaming sector while taking a peek under the tech that powers it. He hopes to one day explore the stars in No Man's Sky with the magic of VR.

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