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“Microsoft’s mission is to empower every person and organization on the planet to achieve more,” explained Sarah Bond, Microsoft’s corporate vice president for game creator experience and ecosystem at Xbox.
Bond was speaking with McKinsey in January 2022 while explaining the technology company’s interest in the video gaming sector. She said the tech giant’s direct relationship with Cloud tech, which Microsoft has been developing for years, can power gaming titles to create almost infinite worlds that can save seamlessly save the player’s progress. The more advanced games become, the more cloud capacity they will need.
And as the producer of the Xbox console since 2001, Microsoft will now take its relationship with the gaming community to a new level, having closed its $69 billion acquisition of Activision Blizzard (AB), the developer behind some of the biggest gaming IPs in history, including Call of Duty, Overwatch and World of Warcraft. AB also owns mobile publisher King.com, the maker of Candy Crush. Each title enjoys a loyal playing audience of millions of people around the world. With its scale of influence upon gamers worldwide, it is sure to heighten interest in the sector from advertisers.
In announcing its second-quarter results in July, Activision Blizzard revealed that its H1 net revenue had increased by 34% to reach $4.6 billion, with 73.5% generated through in-game spending, subscriptions and other revenues.
“This is the biggest acquisition in video game history and a landmark moment for the entire gaming community. It’s a trifecta of an opportunity for Xbox and advertisers alike and brings together a diverse and unparalleled portfolio of games,” said Brent Koning, executive vice president of global gaming lead for Dentsu, which works with Microsoft.
The lure of the deal
Last year, Newzoo forecast that revenue from cloud gaming across the whole sector would reach $8,170 billion in 2025 alone, with the overall games market having hit $92.2 billion, half of which was accounted for by mobile gaming.
The deal, originally announced at the beginning of 2022, was initially blocked by the U.K.’s competition watchdog over the Xbox owner’s strong position around cloud gaming, which led to an 18-month-long battle. This was overcome with the sale of Activision’s’ cloud streaming rights to Ubisoft, which will mean that Microsoft will not control the distribution of the gaming titles.
Martin Coleman, chair of the Independent Panel who reviewed the original Microsoft offer, explained cloud gaming was how gamers were now accessing titles, and without that concession to Ubisoft on the streaming rights, it felt that Microsoft would have had too much control of the market.
“We now have a new transaction in which the cloud distribution of Activision games, old and new, is taken away from Microsoft and put into the hands of Ubisoft, an independent party who is committed to widening access to the games,” said Coleman.
Gamers are no longer a targeted niche. These are now mainstream consumers we are addressing as a marketing industry, spread across a wealth of demographics.
—Giles Fitzgerald, senior planner, FRUKT
According to trading app StockApps.com, global video gaming revenue will surpass $300 billion in the next three years, with a compound annual growth rate of 8.4%.
“The expected growth will certainly lure more investors to the industry, possibly increasing job opportunities and open doors to higher returns in the future,” explained the site’s financial analyst, Edith Reads.
Tapping into the advertising potential of tomorrow
One element still on the rise is the role brands and advertisers play in tapping gaming environments. Activision Blizzard is one of the largest players with its own in-house offer Activision Blizzard Media. And according to documents inadvertently made public in September, Microsoft executives have predicted that gaming growth will come from advertising and mobile purchases over the coming years.
“Enabling brands to bring these much-coveted games to life for their avid fan communities in ways that take the game beyond the confines of mere gameplay is going to be the new sponsor battleground post-2024,” stated Giles Fitzgerald, a senior planner for entertainment specialist creative agency FRUKT.
Such is the love for these games, brand associations with each gaming IP alone will be worth millions of dollars through partnerships and esports tournaments. For example, Monster Energy agreed a deal to sponsor Call of Duty League in April while Overwatch League has held sponsorship from companies such as Coca-Cola and State Farm.
The money gaming is already bringing in for the company prior to the merger is eye-watering. According to Statista, between July 2022 and June 2023, Microsoft’s gaming revenue reached $15.47 billion, a surprising decline from the $16.23 billion generated during the previous year.
Gaming offers mainly brand safe environments, meaning that advertisers usually know what they are going to get from placing their brands within these digital worlds, which as audiences continue to grow in number, will only increase the attraction of gaming as an advertising channel, explained Brad Manuel, co-founder and CEO of Livewire Group.
Manuel went on to explain that by potentially adding all the AB games to Xbox Gamepass, it would give Microsoft “a truly unique view of the player and gaming audience across all channels”, offering brands access to when a player wakes up playing a mobile game, through to ends their day on a PC and console.
“The continual global marketing narrative about gaming as a high-attention user base of 3.2 billion, the addition of a Cannes Lion award dedicated to gaming marketing and a new generation of digital native marketers who are interested in gaming, this will continue to drive brand adoption in the sector,” Manuel predicted.
Ultimately, this deal positions Microsoft as potentially the single most powerful player in gaming today, and it is likely to result in competitors seeking to match its scale somehow through similar merger deals as they seek to retain gamer and brand dollars generated by an ever-evolving entertainment industry made up of varying generations with money to spend.
