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Microsoft to buy EA – Whoa, slow down there Chief… not so fast

by on February 1, 2018
 

It’s been a while since I’ve posted here on the Frak.com, as I’ve been busy with my fatherly duties to a now 3-month old baby girl and I’ve been writing for GameZone.com, as well as the other numerous ventures I’ve taken up. But with my return to the podcast last week and some news I’ve recently read, by that I mean Microsoft buying EA, I knew I couldn’t just leave this low hanging fruit alone, I needed to post again. 

So this news or “exclusive” came from the folks at Polygon, who any loyal reader (or listener) of the Frak knows, I loathe. Aside from their despicable injection of politics and social justice garbage into the world of video games (a space that should be filled with fun an entertainment), they just write terrible, click-bait articles. But I’ll leave those issues alone for now, as I’ve briefly discussed that before. Staying on task, let’s discuss why Microsoft buying EA isn’t going to happen and why it’s a stupid move for Microsoft to even consider.

Reason #1:

First and foremost is the massive cost that it would take for Microsoft to purchase EA. Granted, Microsoft is sitting on a stockpile of billions, but even so, that doesn’t mean CEO Satya Nadella is going to just write a check, especially given the fact that he’s teased the idea of dumping the Xbox division once before. Nadella has since walked back those comments, saying that Microsoft, in fact, won’t be selling the Xbox division. Anyone who has worked in marketing and PR knows that is called damage control. While those comments were initially made back in 2014, if you [Microsoft] were planning to sell off a division of your company, that despite losing handsomely to a competitor, is still worth about $9 billion, you’re going to shut up about it. The mention of a sale would cause concern over the division’s potential success and future and would drive the asking price and thus, value, down. But I digress, my point is, that even if Nadella isn’t planning to sell Xbox, he knows the division is in dire straights. To date, the Xbox One has sold roughly 35-38 million consoles, meanwhile, Sony has sold over 75 million PS4s. The cost to purchase EA would be billions upon billions, especially when you consider EA bought PopCap for nearly $1.3 billion and that’s just one studio they own. While I have no idea how much it would cost, I would say it would have to be more than $35 billion at the bare minimum. While Microsoft is in desperate need of studios with good games for exclusives, the purchase price may be more of a risk, without the guarantee of success.

Reason #2:

EA is home to many licenses that have been very successful, like the NFL, Star Wars, UFC, and FIFA just to name a few. Those license holders may not be thrilled if Microsoft buys EA, which may result in limiting the sales of their games and their overall gross profit. Because of the massive difference in console sales between PS4 and Xbox One, it’s clear that Sony’s hardware is pulling in more cash for EA than Xbox. However, because EA’s games are on Xbox, PS4, and Switch (to some degree), sales are great overall. If you limit the sale of those games to just the Xbox, you’ve cut out nearly 2/3 of your customers (and profit) who may (and I’m sure Microsoft would hope) buy an Xbox, to play games like Madden. On the flip side, they may also revolt and stop buying EA games altogether or at the very least, buying way fewer EA titles. You may scoff, but look at what gamers did to Star Wars Battlefront, Call of Duty (Infinite Warfare) and Rainbow Six Siege. Today, gamers have a strong voice and pissing them off could cost a company billions of dollars. There’s also the possibility that if Microsoft were to buy EA, that those license holders could say their contracts are null and void and take their properties elsewhere, like Ubisoft, 2K or Activision. Then, Microsoft would have paid billions for EA only to lose their biggest money makers, a risk, that again has no guarantee. Think of it like this, you’re Disney, you own Star Wars and you paid $4 billion dollars for it. You want to make that money back and then some, so you license out the development for a game based on that franchise to a company like EA, who is third-party. The idea is to release that game on as many consoles as possible to reach the broadest number of consumers to make the most money. Now, all of a sudden, Microsoft comes in and buys EA, making them first party and all of their games and properties are now tied to just the Xbox. As I previously touched on, the Xbox has only 35-ish million consoles sold, so that means that a Star Wars game that could have been sold to 115-120 million gamers (give or take, as some gamers already own both), is now limited to just 35 million players. This is true because if the deal were to close, all gamers are not going to go out and by an Xbox overnight. If you were Disney, you’d see how your cut of the pie was just slashed to merely a sliver. You’d look for loopholes in the contract (using the loot box disaster as one) and this whole third-party to first-party switch-a-roo as another reason to get out of your deal. You’d take your brands to a company like Activision who has just as large of a reach, if not more, than EA, to sell your games. That scenario is just regarding Disney, so think about what would happen if the NFL, UFC, and FIFA followed suit. 

Reason #3:

Microsoft hasn’t really done well with maintaining a single studio after an acquisition, let alone a massive multi-studio company. With the exception of Bungie, which only lasted a few years, but ultimately failed when the studio bought itself back for independence, Microsoft purchases have really flopped. Ensemble (Age of Empires) was purchased in 2001 and canned in 2009, Microsoft bought RARE for $375 million and other than Viva Pinata, which was a mediocre success, has failed to live up to expectations and was relegated to making crappy Kinect games. Even Sea of Thieves, RARE’s newest title, is getting a lukewarm reception pre-release. 343 Industries was created to carry on the Halo franchise, which bombed with Halo 5. The Coalition made Gears 4, which was critically accepted by again, failed to make a dent in Sony’s onslaught. While it’s not game related, Microsoft also bought Nokia for $7 billion and has let the entire acquisition epically fail. My point is simple, Microsoft has a really poor track record when it comes to buying companies and making them a continued success… Skype, Yammer, Visio, and Tellme Networks are more examples.

So going back to the beginning, Microsoft’s track record, EA’s price tag and the potential collapse of licenses are all things that would need to be discussed and I think someone who’s paid more than me, with a better understanding of business would express these exact scenarios to the top brass at Microsoft.

The Xbox NEEDS some exclusive games, we all know that, but buying EA does not and will not make that a guarantee. Microsoft would be smart to avoid a massive acquisition and spend their money on making popular games exclusive like they did with PlayerUnknown’s Battlegrounds and Cuphead. You don’t need to buy the studio, you just toss enough cash their way to make their game on your console exclusive for 2-3 years, not just a year like Tomb Raider. Microsoft will make some type of deal this year, be it an acquisition of sorts or lock down a game two (or three) as console exclusives, but I really, really doubt that Microsoft would purchase EA. 

Another question for a another time, would EA even want to be acquired?