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Microsoft Is Becoming A Netflix Of Video Games, And That's Good News

Jan. 23, 2019 3:29 PM ETMicrosoft Corporation (MSFT)14 Comments
Roman Luzgin profile picture
Roman Luzgin


  • The video games industry is rapidly shifting toward the game-as-a-service business model, as development costs are growing.
  • Although Microsoft has lost the current platform war to Sony, the company may reclaim its position in the near future with the game streaming and subscription models.
  • Cloud gaming is being actively developed by Microsoft in alliance with AMD, which was presented during the latest CES.
  • Microsoft is aggressively acquiring big game studios to enhance its portfolio of exclusive games for a future streaming service.
  • The gaming business may become an even more substantial source of revenue for the corporation in the coming years.

Microsoft and the game streaming technology

The shifts in the gaming industry force video games companies to evolve

The video games business has been growing rapidly ever since the beginning of the industry. Accelerating over the last few years, the growth has brought several challenges to the video game corporations, as it has become more difficult for publishers to consistently generate high returns.

The primary reason behind the challenges is the growing costs of game development. It has been established that budgets for video games are increasing about 10 times every 10 years, driven by the amount of content included in modern open-world titles. While video game publishers try to implement such strategies as microtransactions to boost financial returns, the model is too difficult to balance, evident by PR scandals around Electronic Arts' (EA) Star Wars Battlefront 2 and other games.

Therefore, it is predicted that the video games industry will see significant changes in the very model of content delivery in the near future in order to remain financially viable. The good news for Microsoft's (NASDAQ:MSFT) investors is the fact that the company is moving fast to become the leader under the future paradigm of video games entertainment.

It can be seen that the changes brought by Netflix (NFLX) to the video streaming segment are now being used as an example for Microsoft's services such as cloud gaming and video games subscription, which may become a huge source of revenue for the corporation in the coming years. Given Netflix's enormous valuation (around $150 billion), it is easy to imagine that Microsoft's gaming division can drive the tech giant's valuation higher even in case of difficulties in other segments, which in the end is beneficial for the investors. Let us review this in more detail.

Although Microsoft has lost the current console war, the company has recently

This article was written by

Roman Luzgin profile picture
I write about growth opportunities in different sectors related to technology, providing analyses of fundamentals that are driven by current and future trends. Senior Data Analyst by day, I am building and managing my own portfolio of tech-related securities, which to date has consistently beaten the market.

Analyst’s Disclosure: I am/we are long AMD, EA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (14)

Robert Vowler profile picture
Excited to see where Microsoft can go! Thanks for sharing!
Sony tried this (streaming video games by subscribing to playstation +) on their PSN platform. How did it work out for them?
Basit Saliu profile picture
we are yet to know but it is still around...PlayStation Now.
Vic Ferrari profile picture
Nice article, very informative.

I knew gaming was popular, but I didn't know it was that popular. Glad to hear Microsoft is a major player in the gaming universe. Hope it leads to large profits and a rising stock price.

Completely agree with @User 44247916 ; Microsoft should acquire Tencent asap. Better do it now before someone else does.

Hard to believe gaming is so popular, but facts is the facts...
Admiral Risky profile picture
Microsoft and Tencent have a ton of collaborations in the exact space the author is writing about as well as many others. Tencent uses Microsoft's cloud architecture/service fabric extensively in its Game Cloud Solution platform.

I think it's definitely shortsighted and borderline perplexing to not mention Tencent in this writeup (especially when you consider the heavy type of capital Tencent has and is deploying in the gaming, streaming, and e-sports space). This is especially strange when Netflix specifically stated on their earnings call they are competing with and losing to Fortnite (owned by Epic games, which Tencent has a ~40% stake).

It's also very highly unlikely that China's government would let Microsoft acquire Tencent, but the two will obviously look to continue and expand their beneficial and lucrative partnerships/collaborations. Long Both.
Is there a breakdown for current market share of the top 5?
Bankfurt profile picture
Long MSFT...Tencent....
edmond-dantes profile picture
This is very compelling and leads me to believe that Apple should definitely acquire Nintendo. Microsoft can probably leverage their Skype tech for the whole spectator scene and add additional revenues. As a whole should easily generate double-digit billion dollar revenues.
Basit Saliu profile picture
AT&T have three separate gaming businesses (five if we include Adult Swim Games, and 45% stake in GSN Games) in Crunchyroll Games, Rooster Teeth Games, and WB Games- all three could be sold or merged together to form one super mega gaming entity named AT&T Gaming or the fiefdom in these area continues while one of them take one the AT&T name. Nonetheless will be super cool to see a t-m-t like Ma Bell use 5G to dominate the gaming world.

Excellent Article Roman.
Benjamin Graham Cracker profile picture
Videogames capture the most viewing hours and mindshare in media. Even while people watch their streaming services, they're playing Candy Crush on their phones.

Gaming is the content king.
Basit Saliu profile picture
That for sure.
Airline profile picture
Cambridge STR profile picture
AAXN is becoming the Netflix of police videos, along the same vane.......
Admiral Risky profile picture
You know, you could just buy Tencent since it is already light years beyond being just "a Netflix of video games".
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