Microsoft to Buy Bethesda for $7.5 Billion to Boost Xbox

Microsoft said Monday it plans to acquire ZeniMax Media Inc., owner of the storied video-game publisher Bethesda Softworks.
Microsoft to Buy Bethesda for $7.5 Billion to Boost Xbox
An attendee poses at Bethesda Softworks LLC’s The Elder Scrolls Online Elsweyr booth during the E3 Electronic Entertainment Expo in Los Angeles, California, U.S. (Photographer: Kyle Grillot/Bloomberg)

Microsoft Corp. said Monday it plans to acquire ZeniMax Media Inc., owner of the storied video-game publisher Bethesda Softworks, for $7.5 billion in cash, marking its biggest video game purchase ever.

Bethesda is the publisher of games like The Elder Scrolls, Doom and Fallout and also has at least two titles slated for debut next year. ZeniMax, based in Rockville, Maryland, owns several other studios across the globe, giving Microsoft’s Xbox business a much-needed infusion of titles and game developers. It’s one of the biggest privately held game companies with 2,300 employees worldwide, Microsoft said. The latest in the Elder Scrolls series has sold more than 20 million copies, making it among the top-selling games of all time.

Microsoft to Buy Bethesda for $7.5 Billion to Boost Xbox

“With the acquisition of Bethesda, we metaphorically and literally double our gaming content capacity,” said Microsoft Chief Executive Officer Satya Nadella in an interview.

Microsoft is launching a new generation of Xbox consoles in November at the same time as Sony Corp.’s PlayStation 5. The games lined up for the new Xbox have so far disappointed some players, especially after Microsoft delayed its biggest title, Halo Infinite, until next year. The software maker has been adding new game creators and content, spending $2.5 billion to purchase the maker of Minecraft in 2014 and acquiring six studios in 2018 and one last year.

Microsoft is leaning on its game subscription service, Game Pass, to draw in users and boost revenue and needs compelling content to attract customers to that product. Microsoft said Game Pass now has 15 million subscribers, up from the 10 million it announced in April.

“Bethesda’s games have always had a special place on Xbox and in the hearts of millions of gamers around the world,” said Xbox chief Phil Spencer in a blog post. “Our teams have a close and storied history working together.”

Recently however, Bethesda has been working more tightly with Sony. Bethesda had previously agreed to debut two of its upcoming games, Deathloop and Ghostwire: Tokyo, on Sony’s new PlayStation rather than Xbox. Both games were announced as “timed console exclusives,” meaning that they would be restricted to the PlayStation 5 for a fixed period of time before coming to Xbox.

Microsoft will keep that commitment, Spencer said in an interview. Future games, like Starfield, will be available for Xbox, PC and Microsoft’s Game Pass video-game service. “We’ll take other consoles on a case-by-case basis,” Spencer said.

Nadella said Microsoft may consider releasing games on other platforms in the future. “When we think about strategy whether it’s in gaming or any other part of Microsoft, each layer has to stand on its own for what it brings. When we talk about our content we want our content to be broadly available.”

Microsoft expects the deal to close in the second half of its fiscal year 2021, which ends June 30, and to have “minimal” impact on its adjusted operating income for the current and next fiscal years. The shares were down 1.1% to $198.18 at 11:11 a.m. in New York.

Sony’s launch lineup for the PlayStation 5 is stronger than Microsoft’s, and that machine is expected to outsell the new Xbox devices, the Series X and Series S, according to George Jijiashvili, an analyst at researcher Omdia.

“This announcement comes at a critical time; the lead-up to the launch of the next-gen consoles is when gamers pick their ‘religion’,” he said. “The delay to Halo Infinite, the most anticipated Xbox exclusive is a huge blow to Microsoft, but it is betting that the Game Pass Ultimate will sway more gamers in the long run, thanks to day-one launches, cloud gaming and a growing library of appealing titles.”

Deal talks started this summer, Spencer said, leveraging a multi-decade relationship between Xbox and Bethesda, which released its first-ever console game Elder Scrolls III: Morrowind for the original Xbox in 2002. This sort of deal underscores the advantage Xbox has over newer entrants to the gaming market, Spencer said, taking a swipe at companies he didn’t name but include Alphabet Inc.’s Google.

Bethesda was a pioneer in the market for personal computer games and an early developer of new types of games. The company was founded by Christopher Weaver in 1986 and initially developed football and hockey simulation games, before releasing role-playing title The Elder Scrolls in 1994.

ZeniMax was founded in 1999 by Weaver and Robert Altman, the company’s chief executive officer, to serve as a parent company for Bethesda. Over the next decade, it acquired the Fallout franchise and Id Software, the maker of Doom, one of the earliest first-person shooters, and Quake. Bethesda’s structure and leadership will remain in place, Microsoft said.

“Gaming has been there at the foundation of this company, next to (programming) languages perhaps and maybe operating systems, but the point is, going forward this interactive media has got much more reach,” Nadella said.

©2020 Bloomberg L.P.

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