Destructoid Checkpoint: The Consolidation Game

It’s a week where there is a lot to write about, and settling on a single topic has been tough. As such, I am not going to. Let’s round up all the garbage industry news that has been occurring and tie it all together in a neat little bow.

Microsoft continues to gobble

Microsoft is testing the idea of customer churn right now with the Xbox brand. From their second hardware price hike in the American market in eight months to a 50% increase in the cost of the most expensive tier of Game Pass, they are figuring out exactly what people are willing to pay. Worst of all, they are not even doing this testing for applicable data for this generation; it’s for the next one. 

While the macroeconomic environment of the good old US of A might be driving their reasoning, they will be watching closely as to how this all impacts their consumer base. Will the purchase rates of consoles drop off? What do customer satisfaction surveys say? How many people sit on social media and swear that they have dropped Game Pass, versus how many really do? Who is trapped in the environment, and while they drop Ultimate, they stick with the service overall?

There is a lot of data that Microsoft will use to dictate the next generation of Xbox pricing, but there is no reason to think anything is going to get cheaper. As a company, Microsoft continues to slowly drift out of touch with what its players want, which is branded hardware that they have been conditioned to feel loyal to, and actual ownership of their games. Instead, they are offered cloud services, a brief window to play software, increasing prices, and a never-ending list of canceled games, fired developers, and shuttered studios. 

Basically, all the stuff that the upper management team pinkie-promised wouldn’t happen when they bought Activision Blizzard is happening because it was always going to happen. In much the same way that you don’t do business in America without feeling the pinch of governmental trade warring, you also don’t blow up your budget by $65 billion and not suddenly find yourself in need of replicating the returns of the more profitable ends of Microsoft's business ventures. 

Speaking of which…

EA is going private. The corporate equivalent of closing the curtains and taking the phone off the hook means that they just won’t even need to tell anyone how much money they make, ever again. It’s a neat trick. 

The deal is worth $55 billion, and the company will be owned by Saudi Arabia’s sovereign wealth fund, Affinity Partners, probably most famous for the Jared Kushner connection and receiving $2 billion of investment from the Saudi sovereign wealth fund itself. Finally, we have Silver Lake, a private equity firm established during the 90s tech boom. Silver Lake has investments in the likes of Dell, Unity, WP Engine, AMC, and Endeavour.

Mostly, you can expect a repeat of the Microsoft deal. Games will be cancelled, developers will be fired, and studios will be shuttered. We might see some IP sales, if the new owners decided to strip some assets early to make back some of the sales, or you might see some licensing of the rights for things to other devs for percentages, which is usually a smart way to make cash from IP with value, that you don’t want to work with yourself. 

The bigger concern is the appearance of two deals of this size so close together. As wealth is consolidated, it tends to need things to do. Outside of gaming, we have deals like the purchase of the UFC and WWE for roughly $4 and $10 billion each. They were purchased by Endeavor, which we mentioned already in connection with Silver Lake. 

This is all about cross-market consolidation and owning the whole entertainment pipeline. You own the sports (oh yeah, lots of these funds and investors also own sports teams, if not whole leagues), you won the papers and websites that report on those sports, you won the games that are made, and the streaming services. You need to own the social media platforms where all this is talked about. Eventually, the plan is to just own everything. 

The reason for this is two-fold. From a sheer capital point of view, the world is changing, and we are firmly into the entertainment economy. It’s never been more important to get ads, products, and ideas in front of people. The last part is the most important. Ideas are essentially the root of soft power. 

There is a reason why people get so passionate about what ideas you are exposed to, and it’s because ideas, things we see, subtle or not, change us. That brings us to part two, which is Saudi Arabia. The country has been investing in anything that isn’t oil for some time now, but it is really going after soft power angles. 

Sports and entertainment are key, with everything from pet footballers to boxing dream fights being put on. The country recently ordered up a handpicked list of comedians to come on over and perform at what it decided to call the biggest and best comedy festival in history. There have been no reports yet of anyone laughing, but boy, those comics got paid.

Sadly, this is likely not the last of these acquisitions that we will see. As the global economy squeezes harder and harder, it gives the folks at the top more room to play. Gaming has proven itself to be valuable not just for the money it generates, but for the cultural, social, and political impact it can have.

The consolidation has only just begun.