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Hello and welcome to Protocol Entertainment, your guide to the gaming and media industries' business. This Friday, we're looking at Microsoft and Sony's increasingly bitter feud over Call of Duty, as well as whether the U.K.The Activision Blizzard deal may be doomed by regulators.
Activision's ship is being sunk by Call of Duty.
The U.K.'s Competition and Markets Authority, one of three key regulatory bodies potentially in a position to sink the acquisition, published a 76-page report on Wednesday outlining its review findings and justifying its decision last month to move its investigation into a more in-depth second phase. The fate of Call of Duty is beginning to look less like a bargaining chip and more like a deal breaker for Microsoft's Activision Blizzard acquisition.
Microsoft retaliated vehemently, accusing the CMA of repeating Sony's talking points, but the Xbox maker has already promised to play nice with PlayStation in a variety of ways, particularly regarding the exclusivity of future Call of Duty titles.Unless Microsoft is able to meet Sony's aggressive demands while also appeasing the CMA, it appears that the UK has the power to kill this deal, as it did Meta's acquisition of Giphy.
The CMA is focusing on three key areas: the console market, the game subscription market, and the cloud gaming market, and its report, which was delivered to Microsoft last month but only recently made public, goes into detail about each one, including how games as large and influential as Call of Duty may give Microsoft an unfair advantage.
- "The CMA is concerned that having complete control over this powerful catalogue, especially given 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's — ability to compete," according to the report.
- The CMA is also concerned about "other existing rivals and potential new entrants who could otherwise bring healthy competition through innovative multi-game subscriptions and cloud gaming services," according to the agency.
- According to the report, "the CMA recognizes that ABK's newest games are not currently available on any subscription service on the day of release, but believes 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."
- In other words, if Microsoft owned Call of Duty and other Activision franchises, the CMA contends the company could use those products to lure PlayStation owners away from the PlayStation ecosystem by making them available on Game Pass, which at $10 to $15 per month can be more appealing than paying $60 to $70 to own a game outright.
- The CMA argued that even if Activision games were accessible on both platforms, Microsoft could still entice players to play them on Xbox devices by offering benefits and other giveaways like exclusive in-game item bundles or early access to multiplayer betas.
In a formal response, Microsoft accused the CMA of adopting "Sony's complaints without considering the potential harm to consumers," which was a stunning accusation.
- Microsoft argued that the CMA "incorrectly relies on self-serving statements by Sony, which significantly overstate the significance of Call of Duty," and that the CMA adopted Sony's positions without "the appropriate level of critical review."
- Microsoft reaffirmed many of the points it has made since the agreement was announced in January, such as its promise to continue releasing Call of Duty games on PlayStation "for several more years" after Activision's current agreements, which PlayStation CEO Jim Ryan deemed "inadequate" last month.
- Microsoft implied that Sony, as the market leader, does not require the franchise to continue dominating the console market when it said that taking Call of Duty away from PlayStation players would "tarnish both the Call of Duty and Xbox brands."
- Sony may not welcome increased competition, but it has the ability to adapt and compete, according to Microsoft. "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," the company said.
- Additionally, Microsoft went to great lengths to downplay its position in the gaming industry, a move that, while tactically necessary, also comes across as dishonest.
- Microsoft claimed to be "last" in the console race, "seventh" in the PC market, and "nowhere" in mobile game distribution.
- Microsoft stated in August that pulling Call of Duty from PlayStation would be unprofitable, and in this recent filing, it claimed that even if every single Call of Duty player on PlayStation switched to Microsoft's ecosystem, Sony would still have a larger install base than Xbox.
- The CMA responded to some of Microsoft's complaints in a secondary issues statement issued Friday, saying the company was not fairly representing the incentives it might have to use the deal to "foreclose" Sony's ability to compete.
Sony is playing a clever, but deceptive, game. The PlayStation maker has spoken out against the deal to the CMA and other regulators around the world, but many of the tactics it claims Microsoft will use if it acquires Activision Blizzard are the same tactics Sony has used for years.
- The company's first-party studios, many of which it acquired, and the exclusive games they produce are in part responsible for Sony's dominant market position.
- Sony has also paid Activision Blizzard for exclusivity rights to certain elements of yearly Call of Duty games (such as early access to betas) for years; this is the same contractual agreement Microsoft has stated it will honor if the deal is approved.
- At the same time, Sony told the CMA that it is concerned that Microsoft will use similar tactics to entice players away from PlayStation. "According to SIE, gamers may expect that CoD on Xbox will include extra content and enhanced interoperability with the console hardware, in addition to any benefits from membership in [Xbox Game Pass]," the CMA report said."SIE asserted that these factors are likely to influence gamers' console selection."
- Call of Duty is a significant revenue-driver on PlayStation due to the console's large install base of more than 150 million units, so Sony has reason to be concerned.
- Beyond that, Microsoft's strategy of acquiring studios, adding more games to its subscription platform, and supporting game streaming is undermining Sony's business model; it's also possible that Microsoft is simply so large and has such deep pockets that it is the only company that can afford this strategy.
- Many of the Xbox ecosystem's most appealing features — such as being able to buy a game on Xbox and play it on PC, or streaming Game Pass games to multiple screens — are nonexistent in the PlayStation ecosystem, and Sony has made clear that it has no desire to change that.
- Sony's stance on some of these policies, as well as its sluggish response to subscription and cloud gaming, as well as cross-platform play, lead me to believe that it would rather regulators halt Microsoft's advances than have to defend its own platform through competition.
Picking sides in this increasingly bitter feud is difficult; Microsoft does offer platform benefits that Sony does not, and we can imagine those benefits extending to Activision Blizzard game players if the deal goes through.
But Microsoft is also one of the world's largest corporations, and praising such massive industry consolidation doesn't feel like the long-term consumer benefit Microsoft claims it is. It's also worth considering how much better off the industry might be if Microsoft is forced to make significant concessions in order for the deal to pass.On the other hand, Sony's obsession with Call of Duty is beginning to resemble a greedy, desperate death grip on a decaying business model, a status quo Sony feels entitled to maintain.
"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," Microsoft wrote.
A MESSAGE FROM QUALCOMM
Every great tech product you rely on every day, from your smartphone to your music streaming service and navigation system in your car, has one thing in common: a portion of its innovative design is protected by intellectual property (IP) laws.