One year after acquiring Activision Blizzard, Microsoft's gaming business faces a crucial battle!

Microsoft vigorously develops video game streaming, betting on a "brighter path".

On Friday, October 25th, "Call of Duty: Black Ops 6" was officially released. Players can stream or download it through Game Pass for $19.99 per month, or make a one-time purchase for $69.99. Microsoft hopes that this game release will attract more players to subscribe to Xbox Game Pass (XGP). Analysts believe that this game may be a key factor in the success of Microsoft's XGP strategy.

"Call of Duty" is one of the best-selling games in Activision Blizzard's history. In October 2023, Microsoft went through twists and turns to acquire Activision Blizzard for $75 billion, making gaming its fourth largest business, almost on par with its Windows division.

Prior to "Call of Duty: Black Ops 6", only "Call of Duty 20: Modern Warfare 3" in the "Call of Duty" series had joined XGP, which disappointed some subscribers.

The acquisition of Activision Blizzard is Google's largest deal in history, and it is Google's bet on how people will access and pay for video games in the future. Microsoft positions itself as a "disruptor", believing that the streaming revolution will expand from TV and movies to games, with billions of passionate fans.

In 2017, Microsoft launched XGP, offering users access to a large library of its own games and third-party games, which users can download to Xbox by paying monthly. In 2019, PC games were added to Game Pass, and in 2020, Game Pass added the option of game streaming.

Microsoft's Chief Financial Officer Amy Hood stated in a July earnings call that Microsoft's goal in video games is to build "software annuities and subscription businesses".

Microsoft: Streaming is the brighter path for the development of the video game business

Microsoft believes that to develop the video game business, streaming and its supported subscription model are the brighter path. However, currently, the process of persuading players to give up downloading games and switch to cloud services and monthly payments is still very challenging for Microsoft.

Microsoft states that their mission is to enable more players to play more games on more devices, making gaming more flexible.

Through streaming, Microsoft hopes to attract those who want to play high-end games on a big screen but do not want to spend hundreds of dollars on a console. However, analysts point out that during the pandemic, millions of consumers upgraded their consoles, which is one of the reasons why the transition of gamers to streaming is slow.

Another goal of Microsoft is to cater to those who want to start playing on one device (such as a smart TV at home), pause, and continue playing on another device (such as a smartphone when going out).

According to industry tracking firm Newzoo, global consumer spending on games reached $183.9 billion last year and is expected to increase by 2.1% this year.

Joe Tigay, portfolio manager at Equity Armor Investments, said:

"From a macro perspective, the goal is to create a Netflix for video games. I believe this is a very feasible option, although I don't think it will happen overnight, but Microsoft is in a good position."

Many investors believe that Microsoft's gamble will take time to pay off. Mike Sander, a partner at Sander Capital Advisors, said:

"You have to take risks, it's a good, well-considered risk."

The Dilemma of Video Game Streaming

The structural obstacles facing the video game industry are similar to those faced by Netflix before the era of film and television streaming. Some players are concerned about potential delays that could affect their chances of winning in competitive games. In addition, the technology for streaming games is not yet fully mature.

As of January 2022, Game Pass has 34 million subscribers, with an estimated 3.1 billion people worldwide playing video games, according to analysis firm Aldora Intelligence.

Wedbush Securities analyst Michael Pachter believes that the number of Game Pass subscribers may not have changed much so far, and expects "Call of Duty: Black Ops 6" to increase subscriptions by 2 to 3 million.

Some analysts are skeptical about whether Game Pass can attract the masses. TD Cowen analyst Doug Creutz said:

"The video game industry is not suitable for an all-inclusive model, at least not at a price that is reasonable for publishers. This product has no market."

Eric Webster, a 43-year-old technology consultant from Massachusetts, is not ready to adopt streaming because he believes the technology is not mature enough. He has already invested thousands of dollars in his gaming PC to get the best gaming experience. Webster said:

"I don't think it's ready yet. When you look at a game being played through streaming, you see these images overly compressed."