Microsoft pulling a Netflix in gaming, Market Overview & More

🔆 Saturday Coffee Newsletter

• Market Overview: Top stocks & asset classes

• **World View: **Microsoft is pulling a Netflix in gaming

• Good Reads: 5 articles on investing & more

• Pop Quiz: Answer and win a cool prize!

What’s up with markets? 📉📈

On 08 March, the 1-year government T-Bill auction yielded 7.46%. This is the second-highest rate since 2015 and it shows how high the cost of capital has been. USDINR, Gold and Nifty 50 closed almost flat last week.

Both, power generation company (NTPC) and power transmission company (Power Grid) had a nice week on the back of positive announcements and news flows.

Microsoft is pulling a Netflix in gaming 🎮

While Netflix had many aces up its sleeve, its decision to produce its own original content was arguably a major factor that helped disrupt the cable and video rental store industry. Though Netflix initially relied on purchasing long-term rights to the content that it thought appealed to its users, it soon realized that this approach made it dependent on the very same people it was disrupting. Soon after, Netflix started making its own original content with House of Cards.

This strategic shift in making your own content paid off for Netflix. It is also why there were high hopes for Disney+, a streaming service tailor-made for the behemoth’s extensive library of content.

Now get this: Microsoft has taken a similar approach with Game Pass, its subscription-based gaming service for Xbox and PC.

By creating a platform that offers a library of 400 games, many from its own studios, the company is aiming to provide gamers with a value proposition that goes beyond what the current model can offer.

But here’s the kicker: its already extensive library of games, featuring the likes of *Halo *and Minecraft, may not have provided a tipping point. Thus, a year ago, Microsoft stunned the gaming community by announcing it would acquire Activision Blizzard for $68.7 billion in an all-cash deal. ICYMI, Activision is behind some of the most iconic franchises in gaming, most notably Call of Duty series, Overwatch, and World of Warcraft. Moreover, its subsidiary King Digital Entertainment is the publisher of the popular smartphone game Candy Crush.

In its announcement, Microsoft boasted Activision’s 400 million monthly active players across 190 countries, with $3 billion in franchisees, and hoped the acquisition would add to its Game Pass portfolio, which crossed 25 million subscribers at that time. Activision aside, Microsoft reportedly has two dozen game studios.

But the US anti-competition watchdog, the Federal Trade Commission, had other plans. It announced that it plans to block the Activision deal, arguing that its games are too popular to be exclusive to one platform. If they were, it could sway gamers to choose Xbox over Sony’s PlayStation for instance. And since multiplayer games are social, if your friends are playing an Xbox-exclusive game, you may be inclined to buy one.

What’s more: Microsoft’s extensive library of games is not its only advantage. Take Warner Bros’ latest AAA game *Hogwarts Legacy, *which has struck gold, as an example. Based in the same universe as the Harry Potter series, the game retails for $70 with a playtime of fewer than 30 hours for the main storyline. Compare that with Microsoft’s Game Pass, which offers its library of 400 games for just $15/mo, one can see the value of its subscription. Part of the reason why it’s so cheap is that Microsoft can subsidize the service with its other profit centers.

And then there’s its experience with the cloud computing platform Azure, which could enable “cloud gaming” with minimal latency. Cloud gaming refers to gaming on a remote server that does all the heavy lifting, with the player able to view the playback and send commands from a less powerful computer. It is an ambitious prospect in countries where not many can afford to spend upwards of $500 on consoles or gaming computers. Microsoft recognizes this, and nearly doubled the number of countries where Game Pass is available last month.

Similar efforts by the likes of Google and Sony have disappointed, but with some luck in anti-competition regulations and diligent execution, Microsoft may be able to pull off a Netflix in gaming. Lest we forget, staying on the right side of regulators and executing are two things Microsoft has historically been good at.

References: Bloomberg | The Verge

What we are reading 📝

The debt markets are cowering in fear. On 08 March, the 1-year government T-Bill auction yielded 7.46%. This is the second-highest rate since 2015 and it has an impact on a lot of things. Read: Money’s getting expensive and fast, and what you can do about it

The predictions for the near term are likely to be more accurate than those we make for the distant future. Does it, therefore, mean that investors are best placed to focus their attention on the short term? Read: Is it Easier for Investors to Forecast the Long-Term or Short-Term?

Price is what you pay. Value is what you get. Read: Everything you need to know about valuation

What lessons can we extract from the most successful funds of last year? Read: What We Can Learn From The Top 3 Performing Funds of 2022

Charlie Munger is famous for applying different mental models to get an edge in markets. In this vein, here’s a look at how ecological niches can be applied to stock markets and may help you become a better investor. Read: Finding your investment niche

Pop Quiz 🙋‍♂️

It’s simple. Reply to this email and answer the question.

It’s simple. Reply to this email and answer the question.

**Etymology: **Many banks in post-renaissance Europe issued small, porcelain “borrower’s tiles” to their creditworthy customers. Like credit cards, the tiles were imprinted with the owner’s name, his credit limit & the name of the bank.

Each time the customer wanted to borrow money, he had to present the tile to the bank teller, who would compare the imprinted credit limit with how much the customer had borrowed. If the borrower were past the limit, the teller would just break the tile. Else, he would update the title and disburse the loan.

Which colloquial term comes from something to do with this practice?

Hit reply to this email and answer.

Each week, we randomly pick one winner who gets something cool!

Last week’s winner: Sahil Kasturia 🎉

Last week’s answer: Sula Vineyards

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