Microsoft’s acquisition of ZeniMax and its impact on the gaming industry – Updated

Microsoft announced a $ 7.5 Billion All-Cash deal to acquire ZeniMax Inc. making it Microsoft’s most expensive video-game deal ever.

ZeniMax is one of the largest privately-held game Companies with 2300 employees worldwide and owns game studios Like iD Softwares (Doom, Quake), Arkane Studios (Dishonoured, Prey), Machine Games (Wolfenstein), ZeniMax Online (Elders Scroll), and  Bethesda Game Studio (Fallout).

The Microsoft-ZeniMax agreement follows as the gaming industry has continued to see the growth even amidst the Covid-19 pandemic. Microsoft’s Game Pass Subscription Service which is considered to be the “Netflix of Gaming” has already added 5 million subscribers during the past 6 months rising from 10 million in April to 15 million in August.

This is the third time that Microsoft has successfully acquired a gaming studio that can be a game-changer for its Xbox Gaming Division. Previously, they had acquired Bungie Studio who was then developing the Halo Franchise for Macintosh which was supposed to be announced by Steve Jobs at the 1999 Macworld Conference & Expo.

Microsoft had acquired Bungie in 2000, and its project Halo was used as a launch title for Microsoft's first console the Original Xbox. Halo since then became known as Xbox's “Killer App”. This gaming franchise alone has sold over 65 million copies worldwide, with the games alone grossing nearly $3.4 billion. In 2014, Microsoft successfully went on to acquire Mojang Studios, the creators of Minecraft, for 2.5 Billion Dollars.

These acquisitions of major game studios by Microsoft are a part of a bigger strategy to strengthen its Gaming Portfolio. Their business model does not depend on the number of consoles it can push during the lifetime of this console generation anymore, but by creating a larger Xbox ecosystem which includes Xbox Consoles, xCloud Game Streaming (For Android), and Xbox Game Pass (a monthly game subscription service). Microsoft hopes to reach out to more than 3 billion gamers globally and wants to offer gaming products for everyone at every price point in its portfolio. With the addition of Bethesda, Microsoft will grow from 15 to 23 creative studio teams and will be adding Bethesda’s iconic franchises to its Portfolio.

The Deal is expected to wrap up in the second half of the fiscal year 2021, according to the deal announcement. Bethesda's current structure and leadership will remain intact. The transaction is subject to customary closing conditions and completion of a regulatory review.

In this deal, ZeniMax Inc. was advised by New York-based Skadden, Arps, Slate, Meagher & Flom LLP.

UPDATE

In March 2021 the Zenimax acquisition by Microsoft was completed after EU gave its regulatory approval.

In an interview in July, 2021 Xbox boss Phil Spencer revealed that Microsoft is looking at acquiring studios outside of the traditional game development hubs. He also said they are open to acquiring studios in Africa, Asia, and South America.