Skyrocketing Game Development Costs Cast Doubt on Industry’s Future

KEY TAKEAWAYS

Game development costs are increasing and expected to continue rising, with some AAA franchises already exceeding $300 million in development costs.

Publishers are finding big-budget game development increasingly unsustainable, forcing them to rely more on their most trusted franchises.

Microsoft's acquisition of Activision Blizzard has been blocked by the UK's CMA, citing concerns over the future of cloud gaming. Microsoft's chances of a successful appeal are slim, as the CMA has a track record of winning appeals.

The impact of the acquisition on cloud gaming is a key concern, and Microsoft's deals with various cloud gaming providers have been deemed too limited in scope.

The EU's decision on the acquisition, expected by May 22nd, could have a significant impact on Microsoft's chances of success.

Recent testimony in the regulatory battle over Microsoft’s acquisition of Activision Blizzard reveals that game development costs have been on a steady rise, with blockbuster game budgets expected to grow significantly in the next few years.

Market analyst firm IDG projects that development costs for high-budget games will increase from an average of $50-150 million last console generation to over $200 million for games to be released in the next couple of years.

The Financial Strain on Publishers

The UK’s Competition and Markets Authority (CMA) report demonstrates the financial strain on game publishers, with some AAA franchises like Call of Duty already exceeding $300 million in development costs.

Additionally, several publishers reported spending millions on pre-launch development and marketing for their recent releases.

This continuous escalation in costs has made big-budget game development increasingly unsustainable, forcing publishers to rely more on their most trusted franchises.

Microsoft’s Acquisition of Activision Blizzard Faces Regulatory Hurdles

Microsoft’s $68.7 billion deal to acquire Activision Blizzard was blocked by the UK’s CMA, citing concerns over the future of cloud gaming.

Microsoft president Brad Smith expressed his anger over the decision, stating it was the “darkest day” for the company in its four decades of working in Britain.

To appeal the CMA’s decision, Microsoft will have to file a notice with the Competition Appeal Tribunal (CAT), a process that could take months.

CMA’s Track Record of Winning Appeals

The CMA has won 67% of all merger appeals since 2010, making Microsoft’s chances of a successful appeal slim.

Previous battles involving Meta and Viagogo show the difficulty companies face when trying to overturn a CMA decision.

Market analyst firm IDG projects that development costs for high-budget games will increase from an average of $50-150 million last console generation to over $200 million for games to be released in the next couple of years.

The Impact on Cloud Gaming

Microsoft has been signing deals with various cloud gaming providers, such as Boosteroid, Ubitus, and Nvidia, in an attempt to mitigate the CMA’s concerns.

However, the CMA has found these deals “too limited in scope,” raising concerns about Microsoft’s ability to leverage Windows and Azure to influence game distribution and revenue shares across the gaming industry with its Xbox Game Pass subscription.

The Role of the European Union

The future of Microsoft’s acquisition largely depends on the European Union’s decision, expected by May 22nd.

If the EU approves the deal, it could put pressure on the UK as the only major market to block the acquisition.

However, if EU regulators share the same concerns as the CMA, Microsoft’s chances of success may be even slimmer.