Evangelion Unit-01
Master Chief
I want to break this down because it was frankly a dumb question and I don’t think Phil liked it-I can’t say I blame him. Totilo, like a lot of game journalists, is out of his league asking questions about business.
This parts simple of course. There Isn’t any reason that they have to release on PlayStation. They’ll “recoup” the investment. Bethesda is bringing in plenty of operating income. It’s not like $7.5 B just evaporated. Everything they acquired is now on their balance sheet. Part of the acquisition will be depreciated etc. It would be dumb to imagine that they aren’t going to “recoup” the cash...it’s an unintelligent question. When a company makes a acquisition they do some financial analysis. They have a good idea of what the ROI is on the Bethesda acquisition. When you build that model it is a comparative model-what if we sit on the cash, what if we borrow the cash, what if we invest in something else, etc. You model all these scenarios and compare them. For Microsoft $7.5B on Bethesda is obviously generating more income than doing something else with that cash. It isn’t about recouping it’s about generating more income.
This part is Phil’s boiler plate response and is an Obi-Wan “from a certain point of view” statement. The acquisition isn’t so much about taking away value from PlayStation as it is adding value to Game Pass. Microsoft wants original content on Game Pass-they would acquire a Nintendo or PC only developer if there was an opportunity. It isn’t so much about “punishing” the competition as it is adding something unique to their offering. The “they were already getting these games” responses are missing the point. This is about adding to the value proposition of Xbox. Not only that but we saw the Sony deals on Deathloop and Ghostwire. There wasn’t anything preventing Amazon or Google from acquiring Bethesda either. It isn’t fair to assume they were “getting all these games anyways”.
This is where Phil really gets into his issue with the question itself. The focus is on Game Pass and Xbox. These are profitable studios. There isn’t any need to look to other platforms to generate income. The bit about “making the deal work...whatever that means” is Phil taking issue with Totilo’s fantasy that there is some huge risk there. There isn’t some magic rule that these studios will not be profitable without PlayStation or that they have to return $7.5B to Microsoft in the next year. Microsoft did the analysis on the acquisition-they wouldn’t have made it if they didn’t forecast a positive ROI.
Can Microsoft release Fallout 5 on PlayStation? Certainly but the idea that they made this acquisition with the assumption that they had to release on PlayStation in order for it to be profitable is seriously naive. The idea that Microsoft wouldn’t be able to “recoup” the $7.5 is off base and would be insulting to someone in Phil’s shoes-I can see why the question would be irritating.
“Is it possible to recoup a $7.5 billion investment if you don’t sell Elder Scrolls VI on the PlayStation?” I asked.
“Yes,” Spencer quickly replied.
Then he paused.
This parts simple of course. There Isn’t any reason that they have to release on PlayStation. They’ll “recoup” the investment. Bethesda is bringing in plenty of operating income. It’s not like $7.5 B just evaporated. Everything they acquired is now on their balance sheet. Part of the acquisition will be depreciated etc. It would be dumb to imagine that they aren’t going to “recoup” the cash...it’s an unintelligent question. When a company makes a acquisition they do some financial analysis. They have a good idea of what the ROI is on the Bethesda acquisition. When you build that model it is a comparative model-what if we sit on the cash, what if we borrow the cash, what if we invest in something else, etc. You model all these scenarios and compare them. For Microsoft $7.5B on Bethesda is obviously generating more income than doing something else with that cash. It isn’t about recouping it’s about generating more income.
“I don’t want to be flip about that,” he added. “This deal was not done to take games away from another player base like that. Nowhere in the documentation that we put together was: ‘How do we keep other players from playing these games?’ We want more people to be able to play games, not fewer people to be able to go play games.
This part is Phil’s boiler plate response and is an Obi-Wan “from a certain point of view” statement. The acquisition isn’t so much about taking away value from PlayStation as it is adding value to Game Pass. Microsoft wants original content on Game Pass-they would acquire a Nintendo or PC only developer if there was an opportunity. It isn’t so much about “punishing” the competition as it is adding something unique to their offering. The “they were already getting these games” responses are missing the point. This is about adding to the value proposition of Xbox. Not only that but we saw the Sony deals on Deathloop and Ghostwire. There wasn’t anything preventing Amazon or Google from acquiring Bethesda either. It isn’t fair to assume they were “getting all these games anyways”.
But I’ll also say in the model—I’m just answering directly the question that you had—when I think about where people are going to be playing and the number of devices that we had, and we have xCloud and PC and Game Pass and our console base, I don’t have to go ship those games on any other platform other than the platforms that we support in order to kind of make the deal work for us. Whatever that means.”
This is where Phil really gets into his issue with the question itself. The focus is on Game Pass and Xbox. These are profitable studios. There isn’t any need to look to other platforms to generate income. The bit about “making the deal work...whatever that means” is Phil taking issue with Totilo’s fantasy that there is some huge risk there. There isn’t some magic rule that these studios will not be profitable without PlayStation or that they have to return $7.5B to Microsoft in the next year. Microsoft did the analysis on the acquisition-they wouldn’t have made it if they didn’t forecast a positive ROI.
Can Microsoft release Fallout 5 on PlayStation? Certainly but the idea that they made this acquisition with the assumption that they had to release on PlayStation in order for it to be profitable is seriously naive. The idea that Microsoft wouldn’t be able to “recoup” the $7.5 is off base and would be insulting to someone in Phil’s shoes-I can see why the question would be irritating.
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