Microsoft acquires ZeniMax for $7.5 bn, grabs some of world's biggest games

Microsoft landed a major blow in its decades-long battle with its video game industry rival Sony on Monday, announcing the $7.5 billion acquisition of a video game company that narrowed the gap between the two tech giants’ offerings.

By buying the game maker ZeniMax Media, the parent company of gaming studios like Bethesda, Microsoft gained control of major gaming titles like The Elder Scrolls, Fallout, Doom, Quake and Wolfenstein. The deal allows Microsoft to counter criticism that it lags behind Sony in the quality of its games while deepening its game catalog seven weeks before both Microsoft and Sony release a new generation of gaming consoles.

Gamers have long complained that Microsoft’s Xbox consoles lacked the type of exclusive, high-quality games that Sony promotes as a major selling point for its PlayStation consoles. For years, Sony owned more games studios than Microsoft. But last year, Microsoft passed Sony, owning 15 studios to Sony’s 14. The deal announced on Monday increased Microsoft’s lead to 23 game studios, and gives it control over some of the world’s most popular franchises. Sony declined to comment on Microsoft’s purchase.

Microsoft did not say how many of its newly acquired games would be exclusive to the Xbox, but pointed to the remarks of Phil Spencer, the company’s executive vice president of gaming, who said in an interview with Bloomberg that games would be available to other consoles on a “case-by-case basis.”

Analysts and gamers praised the deal and said it demonstrated the company’s commitment to improving its game options for Xbox users.

The acquisition was a “major coup” for Microsoft, said Piers Harding-Rolls, a research director at Ampere Analysis, an analytics firm in London. “This deal catapults Microsoft’s games portfolio into a much stronger position,” he said.

The video game industry is exploding in popularity, helped in large part by the coronavirus pandemic, which has forced much of the world to remain indoors and find online entertainment. About 2.7 billion people are projected to play a game this year, according to the gaming market researcher Newzoo, and gamers worldwide are expected to spend nearly $160 billion in 2020.

The deal represents a shift in focus for Microsoft, which is mainly a business technology company, with most of its revenue coming from productivity and communications software, and cloud computing services sold over the internet. But its online gaming business and Xbox sales are growing rapidly. In the quarter that ended in June, Microsoft’s gaming revenue jumped by 64 percent, to $1.3 billion from the year-ago quarter.

The company has avoided the intense antitrust scrutiny that other big tech companies like Apple and Amazon have faced. It recently lost out in the corporate scramble for TikTok, the popular social media app, but might have found a better use for its money by sticking to gaming, some analysts said.

“This really does align much more with what they’re doing,” said Rod Breslau, a former ESPN reporter who now covers esports and video games as a consultant. “If you try to compare how the TikTok deal ended up with Oracle with how Microsoft ended up here, this is way better of an approach.”

Carolina Milanesi, a technology analyst for the research firm Creative Strategies, said that people “thought Microsoft was crazy when they invested in Minecraft” for $2.5 billion in 2014, “but that turned out to return both on revenue and brand awareness among Gen Zers.”

Microsoft, which will release its Xbox Series X on Nov. 10, has long trailed Sony in total console sales — Sony has produced the three best-selling individual home consoles in the original PlayStation released in 1994, the PlayStation 2 and the PlayStation 4. To better compete, Microsoft has highlighted the flexibility that it offers users to play games across devices and on-the-go with features like Xbox Game Pass, a Netflix-style subscription service for games, and xCloud, a new service that lets people play Xbox games on Android phones. It said future Bethesda games would be available on Game Pass the same day that they are released on computers and Xbox consoles.

Mr. Spencer framed the acquisition of ZeniMax in similar terms in a blog post Monday, saying the move was part of a plan “to deliver the most performant, immersive and compatible next-generation gaming experiences, and the freedom to play blockbuster games with your friends, anytime, anywhere.”

Now, Mr. Breslau said, the onus is on Sony to respond. Two new games now owned by Microsoft, Deathloop and Ghostwire: Tokyo, were supposed to be released initially as exclusives on Sony’s upcoming PlayStation 5. Mr. Spencer told Bloomberg that Xbox would still honor that deal, but the issue shows how deeply Microsoft has cut into the slate of games Sony values.

“This really is going to put some pressure on Sony,” Mr. Breslau said. “Pay up, get your money out, get your wallet out, start spending billions of dollars.”