Regulators are ‘greatest threat to innovation’

In a surprise move last week, the UK’s Competition and Markets Authority moved to block Activision Blizzard’s $68.7 billion merger with Microsoft. Activision Blizzard CEO Bobby Kotick – whose company is behind blockbusters like Call of Duty, World of Warcraft, and Candy Crush – declined to comment on the merger’s future specifically. But Kotick did share his thoughts on the future of the gaming industry and how excessive regulation is curtailing innovation.

Lydia: What keeps you up at night? What are your biggest concerns for the industry?

Bobby: The greatest threat to Western innovation is government regulation, primarily from the UK and the United States. The regulators charged with the responsibility of protecting consumers, and encouraging competition are actually the greatest obstacles to competition.  Europe has always had a vibrant gaming economy and in the last decade we have seen enormous talent throughout Europe. Countries like Poland, Romania, Ukraine have now joined Germany, France and Spain as leaders in gaming innovation and development. We are seeing Middle Eastern and even North African countries starting to demonstrate innovation and embrace opportunities to develop local gaming industries.

My greatest fear is that an industry that was invented in the United States by Atari in the 1970s could find itself like so many other over regulated industries — an innovation laggard — because of regulatory burdens from governments that don’t have the willingness to invest in understanding the industries they are attempting to regulate. From cures for cancer; to games that connect people through joy, fun and a sense of accomplishment, a whole host of industries invented in the United States could disappear if we don’t fix our K-12 education system and elect government officials who embrace capitalism and the entrepreneurial spirit which is the foundation for what has enabled America’s success.

Lydia: How important is AI to the gaming industry? 

Bobby: Because China’s K-12 education system is superior to US and most Western education systems, there are more math and science students graduating in China with advanced skills as compared to anywhere else in the world. In 10 years there will likely be more exceptional AI and Machine Learning programmers in China than anywhere else. I suspect this will result in the very best game companies continuing to be Chinese. What impresses me most about Chinese games is how innovative and creative they have become. That combined with great long term vision, speed of execution and exceptional management has propelled the Chinese game companies into the biggest global competitors in the world.

Lydia: The video game, TV, film and social-media industries are all investing billions into their products and humans still only have 24 hours a day.  When you read that a third of all Americans are on TikTok and that they are on it an average of 3 hours a day, are you concerned about the impact on your business?

Bobby: Since the introduction of the Atari 2600 in 1977 there has always been speculation about whether video games would ever be more than a passing fad. Today, the worldwide market for video games is approaching $200 billion, larger than movies and growing faster than television. It is an incredibly fragmented market but 3 billion people around the world now play games.

Lydia: Analysts have been forecasting the death of gaming consoles that connect to TVs for over a decade, when will games be simply over broadband or do you think consumers will have to continue to buy next-generation boxes for years to come?

Bobby: Over the last decade games became mainstream media because of mobile phones. Dedicated game consoles like Xbox and the market dominant Playstation are expensive and are largely successful in developed countries with middle class consumers. I believe there will always be a role for high end dedicated game consoles to provide premium game experiences for well-to-do gamers.

Lydia: How have mobile phones upended gaming?

Bobby: The democratization of gaming was driven by phones and the market for gaming will largely continue to be driven by mobile games. Apple and Google are the leading game companies for phones. The computing power of phones is improving at a blazing fast pace and our view is that games will largely be played on phones for the next decade or longer.

There have been a lot of investments in game streaming. I believe Amazon has the largest number of game streaming customers in the world through its Luna game service which is free with Prime. Netflix has entered game streaming, Google entered and exited game streaming as they realized it was actually less efficient to provide processing power in the cloud than on Android phones. Companies will continue to invest in so-called “cloud gaming” but this isn’t really a market. There is storage in the cloud, there is broadband for supporting downloading of content and multiplayer play, and there are efforts to offer “processing” in the cloud which so far have not proven to be successful.

Lydia: Will enough people actually pay for high-end immersive experiences? Is there still innovation in that space?

Bobby: Fortunately, there is still some hardware innovation happening in the US. Meta is leading the development of Virtual Reality based gaming which will create entirely new immersive experiences for gamers. And the chips that power phones for gaming are largely still designed in the United States.