I'd love to see actual figures showing the totals Microsoft has spent in console development and production (plus console repair), first party software development, third party deals, and studio acquisitions versus the profit from hardware and first party software. I just don't see how they've ever recouped any of their costs at this point. I don't get what their strategy going forward is or why they think it is worth still being invested in the video game market so heavily. It just seems like the strategy is throw money at the problem and that should eventually fix it. If Xbox wasn't backed by Microsoft's deep pockets, it probably have folded by now. I'd love to know the justification from Microsoft on why they aren't decreasing their money spent in the market especially as they keep pushing hardware to further drive up the cost of video game development which they'll be on the hook for with all these studios they've bought developing software for it.
While I don't wanna be the corporate defender in here, Xbox has been profitable for a while now. In 2018 their gaming business
cleared 10bn in revenue (about 1/11th of their then-market cap). I'm thinking they probably take a bath on hardware, but there's 90 million Xbox Live subscribers and 10m+ of those also pay for GamePass (
source here).
Presumably the ZeniMax purchase wipes most of that revenue clean, and I don't think their sale of Mixer to Facebook was enough to subsidize the purchase. What it does do though, is up their studios from 15 to ~23, including one in Japan. It buys them a ton of middleware, some cloud tech, and several scalable engines, which they might like since the future Xboxes might be a range of devices. It denies current rival Sony several enticing exclusives in the future (Skyrim sold 30 million units, they just bought its sequel), pads the xCloud portfolio in another big blow to Google's Stadia, and it effectively raises the price of entry for "new" players in the market like Apple, Amazon, and TenCent.
This all shores up their position against both their current as well as their future rivals. I agree with you Xbox often seemed like a side-project which grew slightly too big to kill, but it's difficult to read this purchase as anything other than MicroSoft going all-in on gaming.
So, I guess it is smart for Microsoft to purchase other IP like this to bolster the big name franchises they can offer and control since they haven't been able to do much to create a lot of them on their own but their past history in purchasing Rareware should also be a warning that purchasing IP doesn't automatically mean high-quality system selling software is going to come from it.
These are valid concerns, MicroSoft has a tendency to buy companies, change their work culture and then run them into the ground (Skype, Nokia). Presently they seem to have quite a hands-off approach with regards to their recent game studio purchases, which admittedly leads to unfocused branding. We'll see how long they can keep themselves from tinkering too much with the creative processes.
Overall I'm not thrilled about this purchase, since it will surely result in
some job losses in Bethesda's publishing arm at the very least, and it's another move towards market consolidation not unlike the film and record industry underwent. But I think MicroSoft have finally made up their mind to go all-in on gaming (which they're fast integrating into their Azure cloud business), so for them it could be a big win in the long term if handled well.