Today, the Competition and Markets Authority details its concerns over Microsoft’s Activision Blizzard acquisition following the launch of second, deeper antitrust investigation. This comes after Brazil approved the deal. The UK regulator is concerned that the deal will harm PlayStation and other multi-game subscription offerings as Microsoft may withhold Activision Blizzard content from them. The CMA is also concerned that Microsoft will out-compete rivals such as Google, Amazon, and Nvidia in the game streaming space by using Activision Blizzard alongside other Microsoft services. Since the CMA’s issues were revealed, Microsoft has issued a response.
“There is a realistic prospect of a substantial lessening of competition in gaming consoles, multi-game subscription services, and cloud gaming services,” the firm said in an extensive document. The CMA believes that the acquisition of exclusives like Call of Duty and other potential exclusivity on Xbox will create a sizeable network effect on Microsoft’s platform. A network effect is where a console with a lot of gamers attracts more content, which in turn attracts more gamers.
“The CMA is concerned that having full control over this powerful catalogue, especially in light of Microsoft’s already strong position in gaming consoles, operating systems, and cloud infrastructure, could result in Microsoft harming consumers by impairing Sony’s – Microsoft’s closest gaming rival – ability to compete as well as that of other existing rivals and potential new entrants who could otherwise bring healthy competition through innovative multi-game subscriptions and cloud gaming services.”
Subscriptions are one of the key parts of the CMA’s concerns. They believe it’s possible (even likely) that without this deal, Activision Blizzard games may have to come to other subscription services, too. “The CMA recognises that ABK’s newest games are not currently available on any subscription service on the day of release but considers that this may change as subscription services continue to grow. After the Merger, Microsoft would gain control of this important input and could use it to harm the competitiveness of its rivals.”
Streaming is another key issue of the CMA’s concerns.The concerns are around Microsoft’s potential in this market due to its ownership of the Azure cloud gaming service, plus its PC operating system. It believes that there’s a chance this, coupled with the ownership of Activision Blizzard, will give Microsoft an “unparalleled advantage” over other cloud streaming providers.
Microsoft considers these concerns as flawed as the company currently does not use Azure and does not stream from PC hardware. “There is no advantage,” the company said. “Indeed, Xbox considers that it faces a number of significant disadvantages as compared to rival providers of infrastructure for game streaming.”
Microsoft also responded to the CMA thinking that the deal will raise barriers to entry and potentially foreclose’ rivals in the cloud gaming space. Recently, Google announced that it would be sunsetting Google Stadia, its game streaming service in January. Microsoft insists that blocking potential competitors in the game streaming space runs counter to the objective of making it a successful distribution model in the first place.
“Consumer adoption of cloud gaming remains low,” it said. “Harming or degrading rival services would significantly set-back adoption of this technology – protecting market-leading incumbents (i.e., Sony on console, Apple and Google on mobile, as well as Steam on PC). Xbox, as a platform which is in last place in console, seventh place in PC and nowhere in mobile game distribution globally, has no incentive to do this – instead its incentive is to encourage the widespread adoption of cloud gaming technologies by as many providers as possible to encourage the major shift in consumer behaviour required for cloud gaming to succeed.”
Regarding the impact the deal will have on PlayStation, Microsoft said that these concerns are ‘misplaced’. “These unsupported theories of harm are not sufficient to justify a reference to Phase 2,” Microsoft said.
In a statement shared with Gamesindustry.biz, Microsoft argued: “The suggestion that the incumbent market leader, with clear and enduring market power, could be foreclosed by the third largest provider as a result of losing access to one title is not credible.”
Microsoft posited that if every Call of Duty player on PlayStation moved to Xbox, “the PlayStation gamer base remaining would be significantly larger than Xbox”. Microsoft also discussed the level of content available on PlayStation. According to Microsoft, there were over 280 first and third-party exclusive titles on PlayStation in 2021, which was nearly five times as many as Xbox.
“In short, Sony is not vulnerable to a hypothetical foreclosure strategy, and the Referral Decision incorrectly relies on self-serving statements by Sony which significantly exaggerate the importance of Call of Duty to it and neglect to account for Sony’s clear ability to competitively respond,” Microsoft added. “While Sony may not welcome increased competition, it has the ability to adapt and compete. Gamers will ultimately benefit from this increased competition and choice.”
Microsoft argues that bringing Activision Blizzard’s games to Game Pass, which is the company’s big motivation behind the deal, would offer gamers more choice in how they access content. Microsoft believes that with the continued popularity of traditional ‘buy to play’ and free-to-play models means that Game Pass will always face strong competition. Microsoft concluded this area of the CMA’s concerns by saying that if gamers do choose to leave PlayStation for Xbox, it will be because Xbox is offering choice in its approach to how games can be bought.
“Should any consumers decide to switch from a gaming platform that does not give them a choice as to how to pay for new games (PlayStation) to one that does (Xbox), then that is the sort of consumer switching behavior that the CMA should consider welfare enhancing and indeed encourage. It is not something that the CMA should be trying to prevent.”