Microsoft's latest pro-merger argument doesn't seem entirely accurate

Microsoft executive Brad Smith argues that Xbox needs more first-party content to stay competitive, however it has done a great job with what it has.

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Microsoft executive Brad Smith makes the case that Xbox needs more first-party content in order to stay competitive, but that isn't exactly true--Microsoft just needs more games.

Microsoft's latest pro-merger argument doesn't seem entirely accurate 31

In a recent interview with Bloomberg Technology, Microsoft President Brad Smith laid out more reasons why the company should be able to buy Activision for $68.7 billion. Smith argues that Xbox needs more first-party IPs so that they can adequately compete against Sony's PlayStation brand,

"We're the small entrant. They have 286 exclusive titles. We have 59. We need some more first-party games in order to be a healthier and stronger competitor, and we need to do it in course in a way that doesn't impede competition along the way," Smith said.

As is usually the case with Microsoft's public-facing merger comments, a bit of context is needed here.

Key Points

  • Microsoft says that Sony has 286 exclusives and it only has 59. This figure includes third-party PlayStation platform exclusivity deals for timed and console exclusives.
  • Microsoft already owns rights to some of the most popular video game franchises in the games industry, including Halo (81 million units sold), The Elder Scrolls (Skyrim alone has sold over 30 million copies as of 2016), Fallout (over 25 million sales)
  • The Xbox games business has competed quite well even with Sony dominating the market, with Xbox Game Pass disrupting the video games industry and as publishers and platform-holders shift towards subscriptions
  • Xbox gaming revenues are not that far behind PlayStation's, with Xbox generating $16.2 billion in 2021 compared to Sony's $23.4 billion

The 286 exclusives figure includes third-party content from non-PlayStation studios. In Page 10 of Microsoft's Phase 2 response to the CMA, the company mentions this exact exclusivity figure while directly referencing third-party PlayStation exclusives like Forspoken and Final Fantasy XVI, both of which are not developed or published by Sony.

Microsoft's latest pro-merger argument doesn't seem entirely accurate 23

Sony does own dozens of valuable IP and franchises including Uncharted (40 million+), The Last of Us (30 million), Gran Turismo (over 80 million sales), and the newer God of War rebooted series (28 million+), but the 286 exclusive figure is not completely made up of first-party titles.

It is worth noting that no first-party PlayStation franchise has come close to selling as many copies as the Call of Duty franchise, which has sold over 425 million copies--and that's before Modern Warfare II sold $1 billion worth of full games in October.

On the exclusivity front, Sony does indeed make lucrative multi-year deals for PlayStation exclusives, including a big licensing deal with Activision that has culminated in years' worth of exclusive Call of Duty content.

However, many of these deals are only for timed exclusivity. The two examples given above--Final Fantasy XVI and Forspoken--are only timed exclusive on PlayStation.

Furthermore, Microsoft's own games business has proven that the volume of IP and studios aren't as important as what you do with them. Sony might own a tremendous amount of IP but they do not capitalize on a lot of old-school franchises (SOCOM, Sly Cooper, Jak and Daxter, MediEvil, Resistance, and many others have not been rebooted or touched for many years).

Preliminary research shows that Sony Interactive Entertainment owns the rights to approximately 132 games, which includes publishing and/or IP rights.

Sony also has less actual studios than Xbox; PlayStation currently has 19 game development studios, which some being assist studios, and Xbox has 24 studios on a pre-merger basis.

Microsoft is also capable of buying video games IPs and franchises outside of Activision-Blizzard's games, and does not need to buy the largest independent third-party games publisher in order to add more value to its Xbox business. The Embracer Group, for example, has spent a fraction of the Activision merger costs acquiring studios and IP; Embracer now has access to over 825 franchises.

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The reality is that Xbox has been able to compete just fine without Activision-Blizzard properties. Xbox is far from the underdog in gaming. It may release and publish less games as compared to Nintendo and PlayStation, but that's because Microsoft has put services first above most other things--even Microsoft's new Xbox games hardware, the Xbox Series S, was built with subscriptions and digital gaming as a core part of the device.

Taking a look at Xbox gaming revenues for 2021 and we see that Microsoft actually beat Nintendo, despite Microsoft saying that Nintendo is the "largest video games publisher in the world." In 2021, Xbox generated $16.22 billion as compared to Nintendo's $14.08 billion. This is only revenues and does not include profit, but it's also worth noting that Xbox Game Pass made $2.9 billion in 2021 from consoles alone, according to data from CADE.

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Current trends show that Microsoft does not necessarily need more video games IPs to stay competitive, and it does not need Activision-Blizzard's slate of eight separate billion-dollar IPs to be competitive.

Microsoft could use more games, though. Microsoft has really tried to portray itself in many different lights to regulators: One face shows distributor and partner of big-name publishers and even competitors like Sony, Nintendo, and Valve, all of which sell Microsoft games ranging from Minecraft (NSW & PS) to mainline Halo games (Steam). Another face is the supposed underdog in the games industry in terms of market share and being beaten by console installed bases--even still, Microsoft has indeed stayed competitive and managed to actually beat Nintendo's revenues.

Then there's this current face which argues that Microsoft needs more gaming IPs to stay competitive and potentially break Google's and Apple's duopoly hold on the mobile market. Microsoft wants to use Activision-Blizzard IPs to supercharge its so-called Universal App Store, a kind of storefront that will unify consoles, PC, and mobile devices together using content, services, and apps.

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Derek joined the TweakTown team in 2015 and has since reviewed and played 1000s of hours of new games. 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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