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Evaluation: Microsoft’s plans to launch cellular sport app retailer reframes Activision-Blizzard deal

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As Microsoft’s pending $68.7 billion-dollar acquisition of Activision Blizzard continues to undergo investigation in the UK, new filings reveal Microsoft’s plans for a next-generation app store that will let it break into the $85 billion mobile gaming market.

Microsoft is currently in the middle of a Phase 2 investigation from the UK’s Competition and Markets Authority, as announced in early September, over concerns regarding Activision Blizzard’s prominence in the international video game industry.

In its initial Phase 2 submission earlier this month, as reported by The Verge, Microsoft laid out several benefits it receives from the Activision Blizzard acquisition. This included the reveal that it plans to build a “new Xbox Mobile Platform” with the “Open App Store Principles” it announced in February.

That “Xbox Store” will then use “well-known and popular content” to draw people into its standalone Xbox Store and away from competitors such as Apple and Google.

That “popular content” would include Activision Blizzard’s multiple popular mobile titles, primarily Candy Crush Saga (CCS), which is noted elsewhere in the same submission as one of Activision Blizzard’s three main franchises, alongside Call of Duty and World of Warcraft. Between them, CCS, CoD, and WoW are said to make up over three-quarters of Activision Blizzard’s net revenue.

Since its launch in 2012, CCS has consistently been one of the highest-grossing mobile games on the market, with $1.2 billion in revenue in 2021. Its publisher, the Maltese mobile developer King, was acquired by Activision Blizzard in 2016.

This is a bit of a swerve in a couple of different ways. For one thing, much of the conversation around the acquisition has been focused on Activision Blizzard’s PC and console titles, particularly with regard to issues of Call of Duty’s console exclusivity.

CoD had been a major point of contention in the CMA’s first round of investigation, particularly Microsoft’s highly-lampooned argument that CoD — a series with annual releases that are typically every year’s No. 1 best-seller across PC and console — is not an irreplaceable, “must-have” game.1

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The disclosure of an upcoming “Xbox Store” changes the math considerably, however. Mobile games are significantly less publicized than console or PC gaming, but it represents around half of the total games market. Some forecasters have predicted that more than half of the revenue for the entire sector for 2022 will come from mobile gaming.2

Microsoft itself estimates that mobile gaming makes up 51% of the games market, at $85 billion, while other analysts will rate it at significantly higher than that. This figure is driven by widespread smartphone adoption in developing countries, as well as multi-billion-dollar success stories like Pokemon Go or TiMi Studio Group’s Honor of Kings.

One of Microsoft’s big marketing phrases in the last couple of years has been “play anywhere,” as embodied by initiatives such as Xbox Cloud Gaming. The company’s ninth-generation gaming strategy has been less about traditional strategies like console exclusivity and, as Nintendo did with the Wii in the 2000s, doing more to reach out to an audience that wouldn’t typically buy a console.

Against that backdrop, it’d be more surprising if there wasn’t some kind of Xbox mobile plan in the works. Going all in on a competitive app store, however, is a bigger move than expected, and paints the Activision Blizzard acquisition in a distinctly different light.

It was already a big deal when it “just” looked like Microsoft would own the single biggest action franchise in the games industry, but now, it also seems to be planning to disrupt mobile gaming.

Footnotes:

1: On some level, that argument by Microsoft makes sense, in that there are never exactly a shortage of pseudo-realistic, military-themed shooters on the market. That said, CoD’s market dominance didn’t just happen because of institutional momentum; many of the games are genuinely popular and influential. It’s like if Disney were to argue that Star Wars just isn’t a big deal because other space operas exist.

2: There’s a lot of ink that you could spill over that mismatch–mobile’s relative lack of press coverage vs. its actual market share–but the easiest explanation is that much of mobile is devoted to what’s typically called “casual” play. It’s a few hundred million people playing puzzle games on their phone while they’re waiting for their bus, many of whom will never spend a dime on it. It doesn’t inspire the kind of die-hard hobbyist market that justifies a dedicated press environment.

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