And how do you make money in games? If you are a platform holder the main ways are avoiding the 30% cut on all your own software sales and service (Nintendo's main model) or the 30% fee on all third party sales and MTX (Sony and Xbox main model).
The point of investing in exclusives is to lure consumers over from Steam/PS so that you get that 30% on all their COD,FIFA, etc MTX. The problem is that Sony has been executing this strategy and MS has faltered. We are 3 and a half years into this gen and what games have they published? Flight Sim, Forza Horizons 5, Halo Infinite, Grounded, Pentiment, Hi-Fi Rush, Redfall, Starfield, and Forza Motorsport. That's about it. 3 games a year if that? Look at the switch 2017 lineup and compare.
Edit: In fact just look at the 360 in the same timeframe! Gears of war, Perfect dark zero, Viva Pinata, Mass Effect, Blue Dragon, Lost Odyssey, Halo 3, Forza 2, Fable 2, Braid, Halo Wars, Ninja Gaiden 2, Banjo nuts and bolts. And a ton of other smaller games and 3rd party exclusives too. MS used to do this and they saw great success from it!
Ultimately, the issue with the platform holder method being where the money is becomes self-evident: consumers have to use and engage with the platform for that to be a viable strategy. When hardware is involved, that becomes a tricky proposition if your hardware isn’t selling. It is, like most markets, as much a volume business as it is a revenue maximization business. You can maximize your take-home all you want, and it‘s a smart idea to do so, but you still need a volume of consumers to spend on your product. To simplify, $20 net profit from 2 million people is not better than even $5 net profit from 10 million people unless you can grow that audience of 2mil to 3mil or more. But the Xbox platform is not growing and their competitors for consumers are not backing down.
Starting with Xbox One, Microsoft realized that the idea of the platform needed to expand and started offering Xbox titles on PC, because Xbox One was an utter collapse of their single-cycle market advantage in hardware. One can say this has had a negative impact on Xbox hardware, but if the software profit is better as a result than it otherwise would be, so be it. Minecraft (following the Mojang acquisition around the same time as the Xbox One launch) demonstrated the value in wider software availability if you cannot grow your hardware position. This likely also motivated the creation of Game Pass, but that’s likely been counterintuitive to growth of profit generation across their entire business, with Game Pass cannibalizing profits made elsewhere. But so long as it isn’t shrinking their profits and is just shuffling them around, so be it, it furthers the expansion of the platform beyond hardware.
Xbox Series was a further dismantling of their hardware sales, so Game Pass goes front and centre. And along comes the ABK acquisition, and here we are now.
The truth is that betting on platform in a hardware context is almost assuredly something that would have led to the closure of the hardware division at Xbox regardless, the only thing that might change is the circumstances and timing. I can’t fault them for laying ground work for that now by expanding their platform beyond the boundaries of their hardware ahead of time, as if they exit hardware now, they can spin it away from being a failure and more as dropping dead weight from their overall business strategy that they’ve been setting up since 2014.
Isn't the biggest part of the acquisition the mobile department? Feel like that's what will benefit them as a publisher in the long run than anything to entire people into their console ecosystem.
Maybe you wouldnt, but id argue MS turning into the publisher of CoD and Candy Crush serves the the overall company well. It mirrors their service strategy elsewhere much more closely.
This is precisely the reason for the ABK acquisition: even if it takes them a decade to make back the money spent on the acquisition (which, really, doubt.jpg), the 11th year has them making bank on a few IPs that have few rivals for consumer spending, which they will earn for as long as those IPs are still relevant. But the likelihood is that they will make their money back far quicker than that, especially as they are taking the opportunity to expand into new sales opportunities (like CoD on Nintendo platforms, as the first and likely most immediate example).
ABK was notorious for having more value in its IPs than they ever actually used. And when it did use an IP's value, it did so by hyper-extraction to the detriment of any other, like with annualization of CoD (EA does this too, yes, but it's crap that they do it, as well); instead of getting a solid 2 years of sales out of one game, ABK was drying up sales after 9 months because consumers
know a new CoD is coming anyways, so even a bi-annual release pattern means more money for less labour investment and only the absolute more-money-than-sense diehard CoD fanboys will be upset about that. On the Blizzard side, the over-reliance on live service money cows like Overwatch and WoW became their entire brand, which led to much of the same.
So there are huge gaps and profit-generating opportunities being unexplored at ABK, and MS likely saw the same when the acquisition was considered and identified these unexplored profit-making ideas would accelerate the ROI on the acquisition. There is, of course, a chance they screw it all up, but I can at least identify the intention.
