How Important Are Video Games to Microsoft's Revenue?

After intense scrutiny by competition watchdogs in the European Union, the United Kingdom, the U.S. and other major economies, Microsoft finalized its acquisition of Activision Blizzard King (ABK) this past October to the tune of $69 billion after announcing its intention to buy the home of popular franchises like Call of Duty and Diablo in early 2022. Even though the company had to agree to some stipulations, for example, ceding control of the cloud gaming rights for ABK titles to Ubisoft to appease regulators, the impact of this deal can already be felt in the company's financial results.

As Microsoft reported on Tuesday, revenue in its gaming segment increased by 82 percent compared to its previous fiscal quarter. This can, in part, be traced back to the release of Call of Duty: Modern Warfare III on November 10. The newest installment in the long-running franchise became the second-best-selling game in the U.S. for 2023 despite mediocre reviews.

While investors and Microsoft executives are likely pleased with the boost, bringing the ABK studios into the Microsoft fold also created sizeable redundancies. According to a memo obtained by CNBC last week, around 1,900 employees, or nine percent of its gaming division, will lose their jobs due to "areas of overlap." Former Blizzard president Mike Ybarra also announced his voluntary departure on social media. Johanna Faries, formerly in charge of the Call of Duty brand, will become Blizzard's new president on February 5.

Cost-cutting measures and layoffs have become commonplace in the video games industry over the past year. In January 2024 alone, around 6,000 people working in the games industry, from small studios to international heavyweights like Unity and Riot Games, are thought to have lost their jobs according to crowdsourced data from Games Industry Layoffs. Experts estimate that these developments will likely continue through 2024, potentially leading to a brain drain of a size not seen for at least a decade.