Why is Microsoft buying up game developers?

Microsoft has acquired a lot of companies over the years. Not so surprising, given that the company has a market cap north of $2 trillion and is active in a number of industries. Yet the pending $68.7 billion acquisition of Activision Blizzard marks the biggest purchase in the company’s history. And it comes after the tech giant purchased Bethesda Game Studios, Rare, and various other developers.

So why is Microsoft spending so much money on game developers? Check out the official press release after the Activision Blizzard deal and you’ll hear that it’s “to bring the joy and community of gaming to everyone, across every device.” Take a step back, however, and there’s arguably more to Microsoft’s strategy.

By purchasing studios developing popular video games, Microsoft can gain so-called “exclusives.” This means the games are available only on Microsoft systems, including Windows and Xbox, and not on PlayStation, Nintendo or other platforms. Microsoft seems to be betting big that more exclusives will help them expand their presence in the lucrative video game market.

Nintendo already has a huge library of exclusives that includes famous IPs like Mario, Zelda, and Pokemon. Sony has God of War, Uncharted, Horizon Zero Dawn, and a smattering of smaller but acclaimed games. Microsoft has Halo and not much else. By purchasing developers, however, the company can acquire more video game brands and can also make them exclusive.

With more exclusives, Microsoft may move more consoles. Console hardware sales don’t produce high profits, but console makers get a cut, typically around 30 percent, of each video game sold on their platform. In 2021, the value of the global video game industry topped $170 billion. To put that into perspective, Microsoft’s revenues totaled $140 billion in 2020.