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Is Xbox's future brighter without Activision? | Opinion

Denied a shortcut to industry leadership, Microsoft's ambitions can be channelled into innovation and creativity – starting with the world-class studios it already owns

Over the past year or so, a note of discord has crept into the generally enthusiastic response to Microsoft's current console strategy. Game Pass has been beloved, Xbox Series X is a superb piece of console hardware, Series S is an unprecedented marvel in terms of bang-for-buck performance, and from Phil Spencer down, the company's execs and spokespeople have perfected the art of making all the right noises to make game consumers feel good about the platform.

There's just one wrinkle; it's become harder and harder to ignore the lack of first-party exclusives.

The impressive backwards compatibility of the new systems, and the back catalogue Game Pass provides, were great stopgaps in the early days before new software arrived – speaking personally, my Series X got far more play than my PS5 in the first year or so for precisely that reason. But as Sony's first-party engine has spun up to speed, the continued reliance on that stopgap and on multiplatform titles has become a significant problem.

There's nothing new or controversial in this take – it's a sentiment that's been expressed regularly in recent months, all the more so in the past week following the UK CMA's decision to block Microsoft's acquisition of Activision Blizzard, which had been the great white hope for resolving Xbox' software pipeline problems.

The concerns about how Xbox can tackle the challenges it now faces have only been intensified by the disappointing reception for Redfall, the first Xbox exclusive title by storied Bethesda studio Arkane and one of the games upon which this year's hopes for Xbox had been pinned (alongside the admittedly far more high profile Starfield). The Xbox bench just isn't deep enough to allow for swings to miss at this point – especially only days after the whole future of the division's strategy was called into question so publicly.

As Sony's first-party engine has spun up to speed, Xbox's continued reliance on stopgap and multiplatform titles has become a significant problem

Yet in the face of all of this, I find myself more cautiously optimistic about the future direction of Xbox than I have been for some time. The reason for that optimism, in a nutshell, is this: having been told that it cannot buy its way out of the dilemma it faces, Microsoft is left with no choice but to innovate its way out of it instead, and in the past it has often been in these moments that Microsoft was most creative, interesting, and to its rivals, threatening.

Whipping out the chequebook was, in many regards, the quick and lazy option. What Microsoft does instead – assuming that the Activision Blizzard deal really does end up off the table – will take significant change and upheaval, but should by rights be a bright new chapter for Xbox and for the games business more broadly.

The underlying assumption here, of course, is that Microsoft actually remains focused on the games business even after being rebuffed in its acquisition attempt.

As Chris Dring pointed out last week, the notion that Microsoft is just playing about in the games business and could become bored in the face of any failure is one that has dogged the Xbox since its earliest days. There were points where it was a reasonable fear – the original Xbox was a kind of weird guerrilla effort within Microsoft that sat uncomfortably alongside the rest of the businesses, while much later on there were question marks about how the games business would fit into Satya Nadella's vision for the company's future, as other consumer device businesses like Zune and Windows Phone were shuttered and service offerings like Azure and Office 365 came to the fore.

Xbox didn't just survive those tricky periods, however – it embedded itself as a core part of Microsoft's consumer branding and offering, cannily also positioning itself as a potential major pillar of the Azure business. Even if Microsoft isn't ultimately allowed to spend $70 billion on buying a game publisher, the fact that it was willing to do so – and willing to fight the case for doing so to sceptical regulators and competition authorities that have been Microsoft's bête noire in the past – remains an important data point.

Microsoft is many things, but fickle generally isn't one of them; going from being willing to make by far the largest acquisition in its corporate history one day, to saying "nah, we don't care about that sector now" the next, is the kind of whiplash-inducing U-turn that you might see from a company like Google, but which would be extremely unusual (and consequently disturbing for shareholders) from a more steady, long-term focused firm like Microsoft.

The disappointing reception to Redfall has only intensified the questions around how Xbox plans to tackle the challenges it faces

The Activision Blizzard bid was approved at the highest level of Microsoft's management, and that means that the company's board firmly believes – firmly to the tune of tens of billions of dollars – that it needs a leadership position in the games business as part of its strategic vision for the future. It does not follow, of course, that the cancellation of this bid would mean that Microsoft now has $70 billion lying about to spend on building its games business – that's not remotely how the mathematics of mergers and acquisitions works – but the determination to succeed in this sector should remain strong, and that should be channelled into other avenues and opportunities.

Buying a top publisher isn't the only way to establish a strong position in games. Neither Sony nor Nintendo ever bought a major publisher to cement their market leading positions; arguably more relevantly, Microsoft managed to compete very effectively in the Xbox 360 generation without such an acquisition. Buying a big publisher with some major annual franchises was one way to build out the software pipeline for Xbox and make up for lagging behind in first-party studio output, but it's clearly not the only way, and might not even have been a particularly good way, to accomplish that.

The Xbox bench just isn't deep enough to allow for swings to miss at this point

One thing that's been a bit lost in the long-running discussions about the Activision Blizzard bid is just how much risk is involved in this acquisition. Integrating two big companies isn't a simple task; corporate and workplace cultures differ significantly, leadership styles and priorities often clash, and overlapping functions, while providing some opportunity for cost-saving, also create friction and potential discontent. The bigger the merger, the trickier things get; Microsoft is a gigantic company by comparison to Activision Blizzard, but the Xbox division that would really be absorbing the publisher is not, and there would inevitably be conflict and jostling for position as the new, merged identity of the two organisations came into being.

There is also inherent risk to any major change to a popular consumer IP. Game franchises decline and die all the time; keeping them successful and relevant for year after year after year is a very specific talent that not many companies do especially well. With the best will in the world, the inevitable upheaval of a major games industry acquisition can easily end up destroying IP value simply by accident – it has happened many times before, to the point where many gamers assume by default that big acquisitions will ultimately kill the identity and quality of studios and franchises they love.

Nonetheless, Xbox needs games in the pipeline, so what are the alternatives? Nintendo and Sony both went the long way around; Nintendo built its first-party studio system almost entirely in-house, while Sony has done so by partnering closely with third-party developers and then acquiring them once the working relationship was already well-established. Neither of those is as fast as buying a big publisher, but they don't have to be slow, either – and with good leadership and strategic direction, you can end up with not only a robust studio system, but with an incredibly valuable stable of original IP.

Focusing on studios one-by-one can also ameliorate risk – by comparison with the games industry's generally not-great track record with acquisitions, Sony's studio purchases in recent years have been remarkable for their success rate. Creating an effective working relationship before a buyout deal helps to ensure that studios generally stay happy, productive, and creative even after being acquired. Moreover, this approach encourages the broader company to function as a kind of umbrella under which many different creative cultures can thrive, which is a much better incubator for innovation than the more rigid corporate monoculture that would be encouraged by the sheer financial weight and attendant expectations and risks of a single huge acquisition.

Of course, Microsoft has already been doing this for some time – buying independent studios, picking up a pre-rolled set of high quality studios through its acquisition of Zenimax, and building up some internal first-party capacity along the way – but it's hard to escape the sense that the looming Activision Blizzard deal had relegated those efforts to being last year's toys, robbed of the attention and importance they deserved. I've wondered a few times in the past year whether the weakness in Xbox' software line-up has been partially down to the company viewing the Activision Blizzard deal as a cure-all, a panacea for the platform's woes that meant there was no real need to make a serious push with existing resources.

It's hard to escape the sense that the looming Activision deal had relegated other acquistions to being last year's toys

Microsoft owns multiple studios with world class track records: the ability to drop a great game like Hi-Fi Rush on the market with little fanfare shows what is already possible with the resources at its disposal, but missing the mark badly with Redfall shows how easily those resources and talents can be squandered. Diminishing consumer confidence in Xbox as a platform for high quality exclusives is a problem, but arguably more insidious is the problem of keeping talented creatives motivated and passionate when they don't feel like the structure that they're working within allows them to achieve their full potential. Nobody is more disappointed by a bad, rushed, or poorly conceived game than the developers who worked on it.

Would Redfall have been given the time, attention, and resources it needed to live up to Arkane's former standards if the Xbox division had not been distracted from the hard work of building its studio capacity by dreaming of simply buying the biggest possible hammer to crush its rivals? Perhaps, perhaps not; but it's fair to wonder if behind the public anger Microsoft is expressing over the CMA's ruling, there might not be quite a few people in the company's existing studios feeling quietly happy that the focus of efforts to build Xbox' software pipeline and major franchises will now return to them. Talking to insiders at the company gives some insight, but it's hard to know for sure just how much oxygen was being sucked out of the room by the Activision Blizzard bid.

Still, the gap between what was expected from Microsoft's acquisitions over the past five years or so (all of which have been pretty great companies and studios to buy, at least at face value) and what has actually been delivered in terms of quality and quantity of software is undeniable. Something isn't working as it should, and even if the focus on buying Activision isn't the underlying cause of that problem, it certainly seems to have distracted attention from fixing it.

Without that acquisition on the table (which assumes that the appeal of the CMA's decision fails and/or that the European Commission or FTC also decide to block the deal), we should hopefully see the existing internal studio system starting to deliver more consistent results, along with the return of Microsoft's appetite for smaller, smarter acquisitions that fill in the gaps in its studio line-up and software pipeline.

The $70 billion Activision deal shows Microsoft's leadership believes games play a big role in its future, but if it falls through, are changes needed within Xbox's leadership?

Investment in IP will be key, because Xbox needs big exclusive franchises beyond Halo and Forza – wonderful as both of those are, the platform needs to branch out beyond them if it's to grow effectively. I argued last week that on the grounds of the console market alone, there was no reason to block the Activision Blizzard deal, and I still think that's true – but that doesn't mean it would necessarily have been good for Microsoft, or for the Xbox platform, or indeed for the fans of that platform. On the contrary, it's good for game consumers and for the broader industry if Microsoft is redoubling its efforts to innovate, to create successful new IP, and perhaps to nurture great third-party studios with a view to buying them in future. That's a brighter prospect than spending tens of billions to short-cut the process by turning some long-in-the-tooth multiplatform franchises into Xbox exclusives.

Microsoft will be sore and angry about its deal being blocked for a while – and comments made by Phil Spencer in an interview with Kinda Funny Games this week suggest that at least some of the Xbox leadership isn't convinced that the software pipeline is their core problem.

"This idea that if we just focused more on great games on our console that somehow we're going to win the console race doesn't really lay into the reality of most people," Spencer said in the interview – which is simultaneously true, and also misses the point.

If Xbox can't buy its way to dominance, it will just have to compete its way there instead

It's true, in the sense that having great games on a console really isn't enough to "win" – it's table stakes, not a winning hand. It misses the point, though, because there's no such thing as a winning hand if you haven't put down the table stakes. Spencer knows that, of course, and you can reasonably read his comments as a frustrated response to being told "have better games" so often, but Microsoft is actually getting almost everything except for the games right – which means that the answer to its woes genuinely is to focus more on great games for its console.

Spencer has been an incredibly effective public voice for Xbox and really brought the platform back from the brink after the wilderness days of the Xbox One – but if the Xbox leadership right now doesn't think that consistently delivering high-quality software on the platform is its absolute top priority, then the Xbox leadership has lost focus and needs to change, either by rethinking its strategy or by making way for new leadership that can.

What the Xbox leadership needs to be delivering is a Microsoft that is hungry, smart, and focused, with an insatiable appetite for great new games and IPs, or talented and innovative new studios – because that Microsoft is a much better competitor than one that's gorged itself to the point of insensibility on a huge publisher, a Microsoft that's lost focus on its own capacity for innovation and creativity in favour of using its chequebook to lock up exclusivity for IPs it did not create.

If Xbox can't buy its way to dominance, it will just have to compete its way there instead – and that's reason for optimism, because given the company's track record and resources, the prospect should make its fans excited and its rivals wary.

Full disclosure: I own shares in Microsoft. I do not own shares of any of the other companies mentioned in this article

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Rob Fahey: Rob Fahey is a former editor of who spent several years living in Japan and probably still has a mint condition Dreamcast Samba de Amigo set.
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