The next generation of gaming consoles is coming out this winter with the battle between Microsoft’s Series X and Playstation 5. As part of the salvo, Microsoft also announced the $7.5 billion acquisition of ZeniMax Media, one of the industry’s biggest game publishers.
Stratechery has a take on bundling and comparing Microsoft’s approach to Apple’s.
Sony is following the traditional razor and blades model that has long characterized consoles: try and not lose too much money on its consoles, and make up the difference in game licenses, its online service, and in-game purchases. It’s a model that gamers are familiar with, even if it ends up being a pricey one: this generation games are expected to hit the $70 mark, plus more for additional downloadable content that may or may not be necessary to the core experience.
Microsoft is taking a different approach: with Xbox Game Pass you not only get access to over 100 games, along with all of the other usual online services you might expect, but for an additional $10/month, you can get an Xbox Series S as well ($20/month for the more capable Series X)! Notice the framing there, which is the opposite of how I put it on Thursday: given the fact that consoles have always been an up-front purchase, the natural way to think about Microsoft’s monthly pricing option is that it is a 24-month installment plan for the $299 Series S or the $499 Series X, with Xbox Game Pass added on top. Given that Microsoft’s strategy is all about subscriptions, though, it makes sense to consider the console itself as the bundled benefit.
What is compelling about Microsoft’s approach is its potential for expanding the gaming market. Traditional gamers will still be attracted to Sony’s model and its exclusives, but for folks whose last console was the Wii (for which they only ever bought Wii Sports), the $25/month Xbox bundle is a pretty attractive way to not only get a console, but over 100 games; if Microsoft pulls this bundle off, its overall revenue and especially profit could surpass Sony’s more traditional approach, particularly in the long run.
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This also explains Microsoft’s purchase of Zenimax, the publisher for Elder Scrolls, Doom, Fallout, and many more popular games. Going forward Microsoft can ensure those games are available from day one on Xbox Game Pass (and not on PS5
), using content to differentiate their service. However, given that Zenimax’s alternative was continuing to sell games directly, Microsoft has to pay $7.5 billion in cash for the opportunity.
What is even more interesting about the Zenimax acquisition, though, are the implications for Steam, the PC gaming service. Steam, like Netflix, is a content-only play, although it is a marketplace, not a subscription service. Microsoft will probably leave Zenimax games on Steam, but if those same games are available on Xbox Game Pass for $15/month, how many folks will be willing to pay full price? In short, Microsoft could potentially wield the content-differentiated bundle it is building across services and devices not only against Sony, its console competitor, but Steam, its services competitor.
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