Tech Won't Save Us - Microsoft Wants to Dominate the Games Industry w/ Rob Zacny

Episode Date: January 27, 2022

Paris Marx is joined by Rob Zacny to discuss the potential consequences of Xbox’s acquisition of Activision Blizzard, and what subscriptions and consolidation might mean for the future of games and the industry.Rob Zacny is a senior editor at Waypoint and co-host of Waypoint Radio. Follow Rob on Twitter at @RobZacny.Tech Won’t Save Us offers a critical perspective on tech, its worldview, and wider society with the goal of inspiring people to demand better tech and a better world. Follow the podcast (@techwontsaveus) and host Paris Marx (@parismarx) on Twitter, and support the show on Patreon.Find out more about Harbinger Media Network at harbingermedianetwork.com.Also mentioned in this episode:Rob discussed the consequences of the proposed acquisition with his colleague Patrick Klepek.Microsoft plans to buy Activision Blizzard for $68.7 billion.In November, Phil Spencer said he was troubled by the harassment and abuse at Activision Blizzard.QA workers at Activision’s Raven Software are seeking to unionize. The company said it won’t recognize the union, and is reorganizing the division.A new Game Developers Conference found 55% think the industry should unionize.On January 18, the US Federal Trade Commission began a process to rewrite its merger guidelines.Google shut down its Stadia game studios at least in part due to Microsoft’s acquisition of Zenimax.At GDC in 2005, a developer rant session featuring Warren Spector, Jason Della Rocca, Greg Costikyan, Brenda Laurel, and Chris Hecke presented a grim picture of where the industry was going.Support the show

What does a victory for Game Pass and Microsoft look like? Microsoft is the market maker. Through Game Pass, they are the ones that decide, well, what do we even put in front of gamers? Hello and welcome to Tech Won't Save Us. I'm your host, Paris Marks, and this week my guest is Rob Zachney. Rob is a senior editor at Waypoint and a co-host of Waypoint Radio. You might have seen that last week Xbox, or Microsoft, which owns it, announced that it was acquiring Activision Blizzard for $68.7 billion. This is a major gaming company and console maker acquiring one of the

biggest third-party game publishers in the industry. And if it goes through, it would have really serious consequences, not just for the future of the games industry itself, but potentially also for the types of games that get made and the kind of business models that the industry depends on. There's been a lot of discussion about whether this is a good move, whether Phil Spencer, who heads up ExoVox, can be trusted, whether there's going to be antitrust considerations with this move. In this discussion, Rob and I discuss all of those things, but in particular, we take a more historical view as well

to look back at what has been happening over the past decade or so to see how this fits into a broader trend and to think about if this acquisition goes through, what it's going to mean for the future of the games industry as it becomes more dependent on a subscription-based model. And we see the intensification of existing trends toward microtransactions and always-on games and things like that that a lot of gamers are complaining about and say are changing the types of games that get made and are making them worse. So there are a ton of structural factors to consider here that I think are really fascinating and Rob digs into them in a really effective and detailed way that I think you are really going to

appreciate. Tech Won't Save Us is part of the Harbinger Media Network, a group of left-wing podcasts that are made in Canada, and you can find out more about that at harbingermedianetwork.com. If you like this episode, make sure to leave a five-star review on Apple Podcasts or Spotify. You can also share the show on social media or with any friends or colleagues who you think would learn from it. And this episode of Tech Won't Save Us, like every episode, is free for everyone because listeners like you support the work that goes into making it every single week. So if you like this conversation, you can join listeners like Claire from East Lansing, Michigan,

and Gabriela Araujo Brito from Brazil by going to patreon.com slash techwontsaveus and becoming a supporter. Thanks so much and enjoy this week's conversation. Rob, welcome to Tech Won't Save Us, and becoming a supporter. Thanks so much and enjoy this week's conversation. Rob, welcome to Tech Won't Save Us. Thanks for having me. This news about Microsoft buying Activision Blizzard came out last week. And so I'm really looking forward to digging into that with you to find out, you know, what the implications of this massive deal is going to be for games, but potentially even broader than that as well. And so I wanted to start by, I guess, giving the listeners a foundation in terms of what this actually is. So with Microsoft buying Activision

Blizzard, what are they actually getting? And what is the significance of an acquisition of this size for the games industry? It's hard to overstate how significant this acquisition is. Even if you're passingly familiar with games, I suspect that a lot of the things that Activision owns would end up surprising you, right? So Microsoft at one stroke has purchased, you know, if you like World of Warcraft, that is a Blizzard property because Blizzard was bought by Activision ages ago.

Ditto Diablo, Starcraft, Hearthstone. But on top of that, Activision has winnowed down their offerings a bit as they just focus on like reliable profit centers but Activision is like synonymous with Call of Duty one of the annual powerhouse shooter franchises in the

game space and then I'm less familiar with this side of things because I've just never been as interested in mobile gaming but Activision did also own King Games which which is a really important and powerful company in the mobile game space. So Microsoft bought a ton of really valuable going concerns. With this, they also buy all the studios that Activision owns. So again, that Blizzard campus out in Irvine, Activision has turned most of its studios into Call of Duty support centers, basically. But that's still a lot of development talent in an era where, as I'm sure you're following the story,

hiring everywhere is getting hard. There are not enough people for the amount of work there is to do. So Microsoft is getting all those development hubs. Plus, because Activision has been buying up companies for years and years, Activision does own a lot of intellectual property that they probably let lie fallow because it's not Call of Duty and it's always more profitable to make another Call of Duty. Nevertheless, that probably is of interest to Microsoft as well, where there's a lot of things with name recognition that they now have access to that they didn't before. Yeah, your discussion of how Activision has been focusing on these big franchises also seems kind of indicative of the larger entertainment space. You know, when we look at Disney and these other major entertainment companies as well, focusing on reliable IP.

And now Microsoft also gets like a ton of that with this acquisition as well. This is where I think things already begin to get complicated in how we assess this. Because I think this is one reason that people are kind of excited to see maybe the back of Activision and its leadership team setting aside for a moment labor issues at the company, which we'll get to in a moment. But Activision's path through the 2000s up to today has been to focus in on blockbuster games, games that command more market share, games with more profit potential. And as part of that process, with every generation, they reduce the diversity of their offerings and turn more studios that used to be

known for making different types of games into studios that just churn out content for Call of Duty. And so Activision, while if you looked at like the things it owns would have a very deep bench of properties and franchises, they don't really use any of that. The CEO there, Bobby Kotick, is sort of this arch-cynic whose philosophy of making games is just make the thing that is going to be reliably most profitable, market the shit out of it, call it a day. Microsoft has not taken that approach yet. I think there's a couple things behind this. One is that the executive vice president running Microsoft's gaming division right now, Phil Spencer, he is authentically a games person. You know, this is somebody in interviews when games come up, he doesn't make obvious references.

He starts referencing back catalogs and such. So there is an element of this is somebody who does come from a place of like interest in games and passion for games. And I think has an inclination to green light, lower percentage plays that are just more interesting. And I'll give you an example. Like two years ago, maybe three at this point, Microsoft acquired a studio called Double Fine, which is helmed by a guy named Tim Schafer. And they have a reputation. Schafer's whole career has been making really interesting, kooky, oddball games, full throttle back in the LucasArts days, Grim Fandango. And he made a game called Psychonauts years ago, which is this platform where you go inside people's minds.

It's a lot of fun. Famously unreliable at the marketplace. Like, he probably has more misses than hits on his record. When Microsoft bought Double Fine, they basically injected that company with the funds and resources to finish Psychonauts 2, which just came out last year. It was really good, sort of delivered on a lot of its promise, but like, this was a game that I don't think any other publisher makes these days. It's the type of project that gets canceled right and left. Microsoft does sort of back these things and give these studios the space to finish them. And so this is, I think, one reason why people

are kind of excited about the idea of an acquisition like this, because if you look at what Microsoft is doing right now, they are supporting weird, interesting stuff in a way that a lot of the incumbent publishers like Activision, like Ubisoft really are not. I think it's interesting you say that because one of the reactions that I saw from gamers, I guess, you know, once this acquisition was announced was, okay, Phil Spencer is a good guy. Phil Spencer likes games, so we can trust him to do the right thing with Activision Blizzard. But are you worried that that kind of perspective also misses out the potential larger kind of structural implications of a merger of this size and what that might mean for the games industry down the road, like as things start to

change because there's so much consolidation going on. I think in every enthusiast space, the structural conversation almost never happens. It's starting to. But in general, I was listening to your show about the iPhone with Brian Merchant, basically talking about the cults of personality that exist in tech. And I think something similar happens in games, like The major games trade shows have always been increasingly like the major keynotes are like little mini Apple keynotes. And people have for years been invested in these narratives of corporate combat and the different rise of personalities who head up these companies or divisions within them. And I think there's a predisposition to focus on a lot of this stuff in these personal terms, these individual terms, and these really immediate

terms, like what has come out recently, what is coming down the pipe. And what gets missed in that is while the industry sort of runs on a quarterly schedule, a yearly schedule, where we talk about these things, companies like Microsoft really don't. Neither do companies like Activision. But like, in some ways, it feels like the bigger the company, the farther out their planning horizon can be. And it extends way beyond what those of us, you know, in the cheap seats can actually perceive. And so I understand where the excitement comes from, because you really couldn't imagine a more cynical and more boring CEO than Bobby Kotick. Getting someone like that out of the picture is almost certainly a good for games as a creative

form. But when you look beyond that and you think about, well, here's a couple things. If Spencer is building a machine, what could that machine do in the future, especially when it is no longer under his control? I think if you look at the arc of a lot of industries, certainly the United States, maybe the world, in general, they are built by people who are coming from within those industries and understand the craft and the trade. And then over time, they are sort of taken over by finance and management types, who don't really have any inherent interest in the good that the industry produces. It's all just a vessel for making money. You know, there's this trend toward the financialization of everything.

And so I don't think Spencer fits that mold, but it's easy to imagine down the road when either Spencer is gone or Microsoft's priorities change. on this and i think this is where i don't know how intensely concerned uh microsoft should be about like getting merger approval for this um and the antitrust implications around it but i think this is why this conversation ends up being important because if we're just looking at do i trust phil spencer to like run a cool and dynamic games publisher? Yeah, probably. Do I trust Microsoft to do that for the remainder of my life? Not at all. Yeah, I want to come back to more of those kind of structural questions. But I think before we get too far from Activision Blizzard, I think we do need to discuss, you know, what has been going on there recently. I had Gita Jackson from Motherboard on recently discussing, you know, what was going on at Activision Blizzard and the kind of ongoing unionization discussions in the games industry. And so in November, we saw Xbox head Phil Spencer say that he was disturbed and deeply

troubled by the horrific events and actions at Activision Blizzard. It was reevaluating Xbox's relationship with it, but then obviously came out last week and announced an acquisition of the company. So where do you see these issues of sexual harassment and the culture at Activision Blizzard going under Xbox? When you're looking at Activision, it's hard to imagine it being worse under new ownership. Almost any change has to be for the good. But there's two things. One is these issues are pervasive across the industry. To a degree, what's kind of remarkable about the Activision story is that it's happening in such a widespread fashion at such a large company. I think in general, there's a sort of presumption,

not without reason, that large companies get kind of good at being boring, inoffensive corporate places to work. That hasn't happened as much in the games industry. Ubisoft, the French publisher that operates massive development campuses across Canada, they had similar stories sort of break out into the open over stuff like this. Like, again, really permissive cultures of abuse. But if you drill down into what happens at, like, smaller studios, these stories, you know, again, pervasive across the industry. And I would not be surprised if, you know, a year from now we're hearing more about, like, a culture of silence or abuse at Microsoft, for instance. Like, you don't know until you know. With Activision, it is such a mess.

It's like a nesting doll of trash. You actually have two toxic cultures that sort of cohabit in Activision. One is that Activision, when they bought Blizzard, bought this really, like, corporate cult around this company. And a lot of the managers at Blizzard really took advantage of, you know, the relationship fans had with the studio, the fact that they tended to recruit staff from among those fans. And so like people were desperate to work at Blizzard,

even setting aside the like sexual harassment, which was endemic there, Blizzard was notorious for paying poorly because you were getting to work at Blizzard. Alongside that, we also learned that Activision's studios, the ones that they sort of oversee directly, because their reputation was always that they left Blizzard alone, but Activision's own stable of studios were also rife with these issues. And what made this one distinct was it really did go all the way to the tops of these studios. And then it was Bobby Kodak who, when faced with the fact that there were studio heads

and leads involved in harassing and abusing employees, made the call to basically hush this stuff up and just refuse to deal with it. And part of that is, with Activision in particular, you always have to look at it in two ways. Activision is a very cynical bottom line company where why rock the boat? Just keep the trains on the rails. Don't worry about what the lead engineer on the locomotive is doing. But also, I think Kodak also has a track record of being an abusive employer himself. There's very publicized allegations there. So when I look at these things, I often feel like there's an ideological component in the refusal to address misconduct, because to a degree that is, I think Kodak sort of fits the

mold of a boardroom jerk who views all of this as, to some degree, the right of people in these positions and just kind of the cost of doing business with people like that. And employees just have to pay those dues. As a result of like all of those issues that have been going on, obviously workers at Activision Blizzard have been those issues that have been going on, obviously workers at Activision Blizzard have been protesting this, have been walking out, have been talking about unionization. Last week, there was a survey from GDC that showed that 55% of game developers in the industry think that the industry should unionize. And we also heard that Raven Software, which is an Activision studio, asked for voluntary recognition of their union by the company.

So do you think that this is going to continue under Xbox? Or what will that mean for unionization attempts and what the workers are up to right now? So there's a few things. It's important to note that at Raven, we're talking about a subset of employees who are unionizing. And that is an exciting development, but also we've seen how these things tend to play out, which is that all the anti-union firepower comes to bear. Before this deal closes,

Activision is going to have to put out some of these fires, or they will try to. I am not sure that it might not be for the best that the unionization drive picks up steam after the acquisition closes, if indeed it goes through, because then you're dealing with Microsoft and there's no chance for nonsense in the terms of the deal. I don't know how these things are structured. I'm just thinking about, I recently was party to a union negotiation where successorship clauses were a huge concern, right? If a company changes hands, does the new owner have to honor this union? Suddenly this all gets really pointed at a place like Activision. The other obstacle

that tends to exist in games is that while those surveys indicate growing interest in unionization, and I think there is a growing understanding that labor conditions are bad, again, there is such a inertia around organizing in the game space that it feels like there are so many ways for Activision or Microsoft to find an exit ramp from this path. Because right now, a lot of this is being driven by extreme exploitation and then extreme misconduct at the top. But labor conditions have been bad in the games industry for ages, and we haven't seen a ton of like really large union drives. You know, we were talking about this on Waypoint Radio, where my colleague Patrick Klepek kind of had a suspicion that just the notion of a change in ownership, a change in management might diminish

some of the urgency around these issues. I hope that's not the case. I think there's probably also a generational component of 20 years ago, people were saying things seem pretty screwed up, but we can grin and bear it. 20 years later, things are worse, and it is harder to grin and bear it. And so I'm hoping things change there. But just as an industry, I feel like there is a lot of reticence to unionize especially on the parts of people who view themselves a friend of mine the games industry once sort of joked that um game development is like working on one of those old roman warships where it's all oarsmen

right that scene from ben hur it's all a bunch of like people chained to the oars chained to the benches and the way it works is that everyone thinks they're going to be captaining the ship at some point. And I think sort of the first step in sort of forming that like sort of class awareness and solidarity is that very few of you are ever going to be captaining the ship or even calling the tempo. Like in a lot of industries, most of us are going to be like sitting on the bench pulling the oars. So you better think about what is in the interest of the person on the bench. Yeah, you know, it reminds me of the broader discussion of like people not wanting to raise taxes, the temporarily embarrassed millionaires thing. Yeah, yeah. So I totally understand that. And especially in an industry

like this that has been traditionally less unionized, not unionized, there are a bunch of roadblocks that especially these employers can make use of to try to halt those sorts of things from happening. But now I want to switch back to, I guess, the larger kind of industry-wide implications of this kind of a deal. I think most people would associate Xbox with consoles, right? With the console wars, with the competition against PlayStation in particular. And new consoles came out in November of 2020, the new Xboxes and the PlayStation 5. Obviously, they have been constrained because of supply chain issues that many different sectors are dealing with. But what does the implication of Xbox buying a major third party developer mean for console gaming and for PlayStation? In the old paradigm, I think you

would have a ton of reaction to this being like, man, Microsoft has just struck a real blow against PlayStation. I'm not sure that matters as much anymore. Like, there's a point in industry consolidation where the major players are no longer playing for keeps against each other, right? Like, Verizon and Comcast aren't trying to kill each other. You know, it's The Godfather 2, where they're carving up the cake with Cuba on it, right? Like, that is how the consolidated economy tends to work. And so I am less convinced that Microsoft is doing this to, like, take dead aim on Sony and try and, like, once and for all win the console war, in part because like

that was sort of bring back a lot of the narrative, like big, scary Microsoft taking on a beloved and Sony still is, I think a beloved games company. But I think more importantly, Microsoft has made it very clear the Xbox, the little box that like is sitting here beneath my TV is less important to them than it's been in the past. And in fact, those boxes in general, the physical consoles themselves, might be less and less important. This is why Xbox increasingly is becoming

a brand apart from the physical console. So in 2017, Microsoft unveiled Xbox Game Pass, and that is a subscription service. Initially, it was just for, I think it was just for the Xbox One. In short order, they expanded it, without changing the name, to Game Pass for PC. But the idea is that Xbox is now a Microsoft gaming ecosystem. One of the other things that Microsoft is really going in on is streaming games from the cloud. They have competitors in this space. Interestingly enough, by all accounts, Google was running one called Stadia that became a bit of a joke for a lot of reasons. They lacked content, was basically the issue Stadia ran into.

And they really began cutting their investment, according to some reports, in 2021, right after Microsoft acquired their last sort of blockbuster acquisition when they bought ZeniMax, which owns Bethesda, the Elder Scrolls games, et cetera. Google saw that and began to cut investment in the Stadia program. So Microsoft, just by doing this acquisition, was able to mark out territory and back off one of their tech

giant rivals. Maybe their biggest rival in game streaming might be NVIDIA, which is the company that makes the video cards that run all the consoles and games. But I think Microsoft looks at this and it's been undeniable that there are people who buy video game consoles. That audience hasn't really grown tremendously in 20 years to a degree maybe. I've seen arguments that it's actually more of a generational blip that like people in my age bracket tended to be all in on like pc gaming and video game consoles but younger kids a little more inclined to mobile or just less invested in the specifics of like what hardware you're running and the future of that might be you can just open up your laptop and somewhere there will be a remote machine letting you play

all this and you're just playing the game. I think there's a lot of indications that that is the future that Microsoft is building for. It'll always be nice to have the physical console business going, but the thing that has the greatest potential for untapped growth is probably streaming, where you just reduce that barrier to entry

and now you get people paying subscription fees for access to a games library. Yeah, I'm happy that you turn that console question into where things are going. Because I think that's essential, right? You know, we've already been seeing the shift away from the console and toward the streaming service or, you know, the subscription games library, I guess, and the combination of both of those things. The consoles are becoming less generational and that is something that Microsoft and Xbox have been very explicit about

and that Sony has had to buy into as well as a result. And now there's indications that Sony is planning its own subscription and streaming service to rival what Xbox is doing because it has to compete in this space. But then at the same time, the subscription model indicates like a big change in how games are consumed and how people think about games, because now you're paying one fee instead of, you know, buying a

box product or a digital download every single time that you want to play something. And as we can see in film and television, subscription services right now are generally not profitable. There's something that these companies are losing money on to bring people in and to encourage people to think about consuming content in the subscription way instead of this kind of more individual way, I guess. So what is the implication of this shift for, I guess, for the industry, but for gamers in particular, but also for the developers who are making those games and who I'm sure are going to need some sort of business model that actually works to continue doing this. This is the multi-billion dollar question, right?

The implications change a lot depending on who you ask and depending on what you sort of foresee. But let's go back actually a little bit to 2013 because I think this is to a degree, I think you have to look at this to sort of make sense of what Microsoft is doing now. In 2013, this is before Phil Spencer was Mr. Xbox, basically. It was under another executive, but they had this really troubled console rollout,

the Xbox One. And one of the things that got them into massive trouble was that they were proposing a lot of convenience in exchange for a lot of control in particular they made this pledge that like all games would be available digitally day one in the world 2013 2013, that mattered. It's laughable now, right? Of course it was all available. I saw The Matrix on my TV.

That's the world we live in. But in 2013, they were sort of pledging that the era of boxed retail, like timed exclusives, was ending. They also sort of proposed this idea of digital loaning. They didn't flesh this out very well, but the idea might be that you could, you know, maybe rent games from people or like loan them to friends.

But the one thing they were very specific about was that if you had a game disc, you could one time only loan that game to a friend. By the way, that friend had to have been on your Steam friends list for 30 days or longer, i.e. don't just sell this on the market. And what's more free than that is being able to loan a physical good once before the digital license is revoked. And people lost their minds over this. I always sort of felt like

it dealt a gut shot to the Xbox during its marketing window that Sony really exploited. People were so thrilled with Sony that they didn't even notice that Sony was matching Microsoft in terms of instituting a fee to play multiplayer games, right? Like, at a stroke, suddenly the industry was a lot more rent-seeking. But compared to what Microsoft was trying to do, Sony seemed positively pro-consumer. But I think the lesson that Microsoft took from this was that they'd gotten the messaging wrong, but it was all about figuring what is the spoonful of sugar to make the medicine of giving up any sort of digital rights go down.

And so they back away from a lot of this stuff. And the next time we hear about game rentals or game streaming is really in 2017 when they roll out Game Pass. And now here is a thing that nobody had any objections to. Because for a pretty small amount of money, you got access to a really strong library of games. Play any of it. If you wanted to buy it, they would give you a hefty discount on those games. And by 2017, the conversation about what resale rights do I still have had kind of been mooted. They had succeeded to a degree in killing off a lot of the used games aftermarket and creating a lot of funnels to get people back into the ecosystem where they're spending money directly on games through Microsoft or through publishers. And I think that's kind of where a lot of this has been headed, is that the idea has always been, you don't want people to be running around up there with control over

their own games. You want them to sort of stay in your ecosystem and play within the library you were offering. Microsoft offers a very good library, but this whole notion of you having a game's collection like maybe you did when you were a kid, that's not part of the future they're building. It's something they're actively interested in killing off. And I think that's where, if you're a player, there should be some concerns.

Because right now, Game Pass, again, really cool service. There's a couple things to think about. Games aren't like movies, where you can binge tons of movies in a month and get a bunch of content out of your Netflix subscription or your HBO subscription. Games take a long time. You probably are not playing through more than a game or two a month on Game Pass. So, like, the old paradigm used to be that a lot of people would only buy one or two or three games a year. Now, a $15 a month subscription for PC and Xbox games, that's suddenly a lot more money that people are spending kind of thoughtlessly about what they're getting. The other thing that they're really leveraging here

is the fact that so many of the Game Pass offerings are either being subsidized directly by Microsoft, which is they are paying people to license these games and put them on Game Pass, or they're being offered up by Microsoft directly as first-party games. This is an initiative that Microsoft started in 2018, where Halo, Gears of War, any new Microsoft game, day one would be on Game Pass. You didn't even have to buy it. All this stuff is sort of built

on the foundations of maybe a more vibrant and competitive games industry. If you think about, well, what would happen if we witnessed the triumph of Game Pass? You know, that this becomes the standard model. In 10 years, do we see as many games coming to market? Especially if Microsoft successfully conditions people to view this as, this is where you go to play games.

This is where the best deal is. You're kind of a sucker if you're out there buying games at retail or buying them individually on a digital storefront. This is obviously the best value in games. That's going to change the decision making of other publishers in the space. And I kind of shudder to what it means for smaller players, right? This is an ongoing crisis. I was reading back at the Game Developers Conference in 2008, GDC every year would have a rant session where sort of leaders in the space would sort of talk about what's really bothering them. And at this one, you had like Warren Spector and Greg

Costigan and Chris Hecker and Will Wright. So that's like The Sims, Deus Ex, they're all there. And this is back in 2008. And this is where Greg Kosikian gives the My Friends We Are Fucked speech. He says we are utterly and truly fucked. And his argument there is that the amount of money

that's going to be required to produce games in the HD era is just going to discourage any sort of risk taking. And by the way, I think he said it's going to be 80 hour work weeks for the rest of our lives or until our jobs are outsourced to Asia. What's very funny about this is they weren't out really wrong, right? Like I think there's a tendency to look at people who are doomsaying about shifts in the industry and say like, see, we were fine, but that's survivorship bias. Like they weren't wrong. Like the amount of like diversity in the space did go down. Working conditions in many places did decline. I think if you imagine what does a victory for

Game Pass and Microsoft look like, it starts to look a lot like Microsoft is the market maker. That through Game Pass, they are the ones that decide, well, what do we even put in front of gamers? Because they're no longer looking. They're no longer browsing store shelves at Walmart. They're already not delving deeply into Steam new releases lists. Why would you? That storefront is chaos.

So Microsoft ends up being in this really privileged position of through Game Pass, they can kind of set the menu for what gamers are involved with. And anyone involved in making games has to start factoring that in. Right now, the deal is very good because Microsoft is happy to run this at a loss to get more people on board with the system. In 10 years, I don't know. We already see Netflix raises its rates annually, twice annually. So what's going to happen in terms of that subscription fee? And what's going to happen in terms of what's offered on the service? And what kind of deals are the people making games getting? I think those are all essential points. You're talking about there

how Microsoft is kind of carving out this space through Game Pass, if it's able to ensure that the subscription model becomes the future of what's happening. And so naturally, that makes me think about what we're seeing in film and television and the streaming over in that space, because it's far more advanced than it is in games, you know, games is getting started, whereas, you know, that's kind of been the model and has kind of been cemented as the model in recent years. And what we see there is that really it's a few major companies that are able to stake out the space and a few of the tech companies that are using their money from, you know, the highly profitable industries that they're

already involved in to then get involved in the space. And they are kind of controlling it. So you have like a few major cable or broadcast companies that already were really dominant and large. But even then, they've had to consolidate and merge just to reach the level of these tech companies that have all this money. And then Amazon, Apple, Netflix are also able to have their own silos effectively of content. And this is kind of your choice. And to be involved in that you have to work with one of these really major companies or be acquired by them or consolidate to be a large enough company to try to compete in this space. And so then is that where you see it going in games as well, the entry of Google and maybe Amazon, along with maybe,

you know, Microsoft, and maybe Sony is able to stick around as well, and Nintendo because they're so large, but then there's this push to consolidate to be able to compete in this new space that is highly consolidated around a few major silos of game streaming services. I think with an acquisition like this, if it goes through, Microsoft becomes an incredibly powerful incumbent. Amazon has tried for years to get into the game space and has sort of famously been inept at it. Now, this is not new. I've heard their approach to solving problems is a bit like they will just beat their head against the wall until eventually through sheer force of will and limitless resources and a lot of fractured skulls, they will eventually

cause that wall to come down. It's a a very determined company but it's rare that they come into a space and like work smarter not harder um they will just keep throwing money at a problem and that's been their approach to games but the result for that has been uh what their most successful thing right now is a middling mmo called new world um so like amazon resources, certainly, but that's not everything here. Like you have to have some of the connections, some of the literacy in the space. Microsoft does, they do enjoy that position. I think Google, through Stadia, they got very fixated on the tech side of things. But the problem was that Stadia's window of opportunity where their approach to like low latency streaming was cutting edge for a heartbeat. And then it kind of got

mashed by a lot of other people. So suddenly there was no longer that value. So I don't know that Microsoft is on track here for effectively a monopoly in the space. I think it is, I think it is more likely that it ends up being carved up by a couple incumbents. And I think Sony is very well positioned to do that. But I am actually less convinced that we would see even the diversity of what you see in the streaming TV space around everyone having their own streaming platform. I don't think there's enough people with viable libraries of content to make that feasible. EA has tried. EA has EA Pass.

But because of choices EA made, mostly that means that you have access to some racing games and annual sports games and Battlefield games. Because EA, like Activision, really narrowed its focus on major profit centers. And I think this is a key difference. If you think about how Netflix or HBO Max or Paramount Plus is being marketed, Netflix is increasingly reliant on their new material, their new content. You might even be able to argue that wasn't necessarily smart of them

to completely privilege that. Because what a lot of other companies have been able to do is lean on back catalog. What can we bring out and just offer up? Like, who currently has Friends becomes a hugely important thing. There's no equivalent to that in games. Like, when Friends was airing, look at what games were contemporaneous with Friends. Nobody is making a $15 a month subscription decision based on that.

You know, like, I really need to play Ultima 5 or something like that. Nobody is doing that. I might, but most people are not. So I really do think that Microsoft's ability here to just have an absolutely gargantuan pipeline of games is a huge competitive advantage here. And it's not like starting a game studio is easy at this point. So there's a high barrier to entry. Microsoft is buying up a lot of prime real estate and proven companies. And anyone else who sees the opportunity, like, hey, you could be the Netflix of games or something. Okay. But there are far fewer equivalent properties to build off of to rival ones Microsoft has. I think that's less the case in film. Or it was, I think consolidation in film is also rapidly changing that landscape. The natural question that arises

from what you've been discussing there and what you've mentioned a few times through this interview is, will this acquisition be able to go through? Because it is Microsoft, Xbox, this massive company acquiring a major third-party developer, Activision Blizzard. In recent years, we have seen growing consolidation. Xbox, as you said, bought Bethesda or ZeniMax, which owns Bethesda. And Sony has bought a number of smaller studios in recent years to build up its first party game studios. But as you mentioned in an article that was published on Waypoint last week, the same

day that this acquisition was announced, the Federal Trade Commission in the United States released new merger guidelines. And, you know, there have also been, I guess, increasing focus on competition and competition policy by a number of regulators like in the UK and the EU. So do you think that such a major acquisition will be able to get through or will it face difficulty in doing that? It's tough to forecast. For one thing, the announcement that the FTC and DOJ made last week wasn't really a specific announcement. It was they are beginning the process of creating new guidelines. It's sort of a call for submissions as to thoughts about

what current merger and antitrust guidelines are. So it is a work in progress. The track record is certainly that by and large what corporate America wants, corporate America gets. It is hard to imagine all these years of precedent sort of turning on a dime on the backs of a couple individuals in a weakening Biden administration. On the other hand, though, it does feel like there has been a bit of a sea change in terms of how people talk about tech in particular. Lena Kahn obviously sort of made her reputation analyzing the ways in which Amazon, without breaching Robert Bork's consumer welfare standard for approving mergers, still ends up harming competitive spaces. And so Kahn's main framework on all of this is is how do we protect healthy,

vibrant, competitive markets? Because if you just look at what's going to drive costs down, consolidation is probably it. If you're thinking about what is going to offer maybe lower prices in addition to higher quality of service or greater diversity of choice, it's probably not consolidation. And maybe these are things that are worth considering. In their remarks last week, though, it was Jonathan Cantor, who he's the head of the Department of Justice Antitrust Division. He posed a series of questions that if you are a tech company, they're kind of worrying.

Basically, he's sort of asking the question, well, does the old framework of vertical or horizontal mergers really make sense anymore? This notion that there would be concerns of a company bought out a competitor, and there would be concerns of a company bought out somebody in the supply chain, like, you know, from the production of raw materials that somewhere in that chain out to the sale of goods to market. Cantor's sort of pointing out that doesn't really make sense in Nira of platform capitalism, that we need to think about like the unique qualities of the platforms themselves and the different interests they have, and the fact that like vertical or horizontal doesn't

really encompass it. And we also need to think about what changes does the fact of the platform itself wreak on a competitive space. And these are areas where I think for years, tech benefited from the fact that it wasn't well understood, particularly on Capitol Hill. I think that has changed, right? They can no longer be the bright young things who are, don't worry about it, regulators. We're smart. We'll figure it out. I think it's pretty clear now that increasingly people are sort of cottoning on to what platform

capitalism looks like and how it can distort the space for other people trying to work within it. And so the thing I'll say is, if you were looking to prove a point, if you were looking for a fairly low stakes test case of some of these ideas, Microsoft's acquisition of Activision really fits the bill. Because you're frustrating Microsoft, but this is not a deal that Microsoft, like, it's a $70 billion acquisition, which is a lot in games. It's not a lot for microsoft it's not a hyper politically influential lobby for comparison a lot of people have been frustrated with the fact that antitrust in the agricultural sector under biden has done nothing uh part of that is because like tom vilsack is sort of a bought out, he's the definition of regulatory capture, where it's like, I think it's great that all chickens sold in America are produced by the same four companies. And so the Biden administration is a land of contrast in that way, where there's places where they have no interest in walking the walk, where some of the people involved are pretty

ideologically committed to being on the side of big business. I don't think that applies to games. And I think there's enough tech skepticism that that umbrella might not apply. So it's an interesting opportunity to create a test case. I think what's going to be frustrating, though, is in a normal environment, you would see companies like Sony, like EA, Ubisoft, they would all be very concerned about this. There'd be an idea of like, well, how do we compete with this? Is this fair? I think to the point we were talking about earlier, where it's sort of the financialization of everything, the people running

most of these companies now are not games people. They don't care about these things in that way. They aren't committed to the idea of bringing their products to market or pushing the specific visions they want to bring into reality. I think Spencer's probably more authentic than any of them, just about. Most of the people behind these companies are probably hoping that consolidation continues because this is your last chance to get a huge payday, right? The number of viable buyers for companies of this scale is diminishing. So I think even though there's a lot of companies that could probably be looking at this and saying, this is anti-competitive. We

can't sell our retail product when Microsoft is giving so many games away for free. We can't sell our flagship franchises when Microsoft is giving away all the most popular ones once again for free. You expect those arguments to be made. I don't think they will, because I think a lot of the people who should be concerned about this, their priority is going to be, how do I hit the exit? How do I cash out this company in this wave of consolidation and leave a billionaire? I completely agree with everything that you just said. And, you know, I think it does really illustrate both the opportunity how, you know, this could happen, but also at the same time,

how there's a lot of interest and incentive to not have this kind of roll up of these companies into these larger consolidated companies to continue. But on that point of financialization and of a lot of these companies being run by numbers, people that are interested in what is going to make the most money, I guess I wanted to end on this question of where you potentially see things going, especially in the sense of like what it is going to mean for games. Because I think that there has been a lot of frustration in recent years with how the focus doesn't seem to be on making good games and having great gameplay, but on how can these games make the most possible money for these publishers and games companies

with the move to service games, always on kind of games, with the implementation of loot boxes and microtransactions. And now what this shift to subscription services and potentially streaming is going to mean for the future of these. So I guess, where do you see the future of the industry going in this kind of direction in terms of the games that are going to be made? And how does these larger changes to the business model and the structure of the industry affect that? There's a few directions things can go.

Real quickly, I'm going to cite something here that I think was just in the news the other day. The fact that old music is selling better than new music, right? The fact that like, we've known this for years, that it's harder and harder to be a musician in the age of, again, like music platforms being the predominant way that people consume music. And this is completely unsurprising. What's very clear is that what places like Spotify have done to music is they did commodify it. And it is just a giant warehouse where people can listen to whatever they want. And if it's what you already know, who cares? We'll serve that up as much as anything.

There's no incentive for them to promote or nurture young talent or emerging artists. Ultimately, if people are happy paying 10 bucks a month to listen to The Who or The Rolling Stones or Louis Armstrong, it doesn't matter. People can do that. This deals a body blow to the vibrancy of a major creative form should be concerning to everyone. But in the music industry that we've sort of allowed to be built by Spotify, it just doesn't matter. The cultivation of new talent, new artists, new forms is just sort of a casualty of turning music into a cash cow for investors. I think that is the road we are probably on with games if things do not change course. And I say that because when I talked about survivorship bias a few minutes ago,

I am now just old enough that I'm starting to realize that, wow, I have a lot of frame of reference that other people don't have. And I don't say that mean that I'm starting to realize that, like, wow, I have a lot of frame of reference that, like, other people don't have. And I don't say that mean, like, that I have a better frame of reference. What I mean is, for me, when I was most excited about games and where it was, like, the greatest sense of discovery and, like, evolution year to year, it's probably the 1990s. You look at, like, what happens to games across the 90s, it's incredible. And it's not just the technological advancements, it's also the fact that new genres sort of emerge and are iterated on at a really rapid rate. In the mid-90s, there's this incredible diversity of offerings

before consolidation begins to happen, and certain genres fall out of favor, they attract less investment, it gets whittled down. A lot of people don't have that frame of reference, and so it's very easy to look at the game space and say, well, it's as competitive and vibrant as ever. No, it's not. And to a degree, that's understandable because to hit the quality bars people expect, it's

just harder to do that now without huge budgets, which involves getting investor backing. Or there's the lower barrier to entry, but it just becomes a question of like, are you lucky enough to win the lottery of discoverably? But by and large, I think the track we are on is a little closer to that Spotify model, where if you're playing games in 10 years and say it's like, you know,

largely happening through Game Pass in some form or another, chances are like you'll be playing a lot of shooters that look an awful lot like what you have today probably with more in-app purchases than like people get nostalgic for like halo one and two that shit didn't have in-app purchases you weren't sitting there being like i need i need a new skin for my Master Chief, but this is what every game turns into now, is like, stay in our ecosystem, buy the little tchotchkes in our theme park. I think with greater consolidation, you will see even fewer offerings in that space, because why compete with one another? Why build products that compete with

yourself? And so I think in terms of like the diversity of offering, you would see it decline and people coming in. Well, one, a lot of people would be discouraged from coming in because the barrier to entry is high and the odds of success are low. And even if you like manage to break in, increasingly you have to do business with a few incumbents, a few major stakeholders. So I think the track we're on is probably pretty bad over time, because I think it accelerates a lot of the trends we've already seen, sort of embodied by Activision over the years. And now it sort of weds that to the cash cow nature of platform capitalism. I think to escape that future, you probably have to see deals like this stopped. I'm not saying that

game streaming is inherently bad. This is one of the conundrums of tech, right? A lot of these innovations are not inherently bad. A lot of them are really cool ideas. It is the fact that every advancement immediately gets monopolized by the same three or four players that makes all of it kind of turn to ash. And I think this is where the interest in sort of hamstringing deals like this comes from. Because I don't oppose Game Pass ideologically so much, but I would like there to be other offerings and maybe other ways to bring other types of game to market and help them find their market. hands of companies like Microsoft that can operate a scale that nobody else can, inevitably, you are going to turn a really vibrant industry into a cash cow for a tech giant that's kind of indifferent to its creative output. Yeah, I think that last point is an essential one as well, right? And

it's kind of a dim future that you've outlined for us, but it's completely what I observed as well, looking at, you know, streaming music, streaming TV's completely what I observed as well, looking at, you know, streaming music, streaming TV and things like that. Rob, I really appreciate you bringing your knowledge of the history of this space and laying out the implications of, you know, not just this deal, but the broader consolidation that's happening. So I thank you so much for taking the time. That's great. Thank you. Rob Zachney is a senior editor at Waypoint and a co-host of Waypoint Radio. You can follow him That's great. Thank you. that goes into making the show every week, you can go to patreon.com slash techwontsaveus and become a supporter. Thanks for listening. Thank you.