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In the end, it wasn't really about Call of Duty. It wasn't even really about PlayStation, no matter how much some people want to try to spin this as a console war narrative.
The biggest setback to Microsoft's bid to buy Activision Blizzard – a setback that could quite possibly sink the deal entirely – came largely from an interpretation of Microsoft's own beliefs and logic.
Microsoft, perhaps more than any other company, believes fervently that cloud gaming is the future of this industry. The UK's Competition and Markets Authority's ruling blocking the Activision acquisition is largely based on taking Microsoft seriously on this point – making a ruling based on protecting competition and innovation in a market in its infancy that both the CMA and Microsoft believe will grow to dominate the business landscape in years to come.
This ruling is a product of a very specific timeframe: if Microsoft had tried to make an acquisition of this scale in the games sector five or ten years ago, it's likely that it would have sailed through regulatory scrutiny in every major market with only a few light-touch remedies demanded for consumer protection.
That's because five to ten years ago, the conversation would have been solely about the console market – and if we look only at the console market, the arguments for blocking the deal are very weak. Microsoft trails both Sony and Nintendo, and is severely outgunned by both of its platform holder rivals in terms of successful, high-profile exclusives.
Allowing it to buy Activision Blizzard could actually have made the console market more competitive in the medium to long term – some guarantees about not pulling key multiplatform franchises from rival systems for a negotiated window of time would have been warranted to protect consumers who had bought expensive hardware with a reasonable expectation of access to specific franchises, but there was really no good argument to be made for outright blocking that deal, no matter how loudly Sony decried the idea.
All of this remains true: there are no really good grounds for blocking this deal in the console market. As the CMA itself observed some months ago, pulling Call of Duty or other franchises from major rival platforms would be an incredibly costly move, and likely result in a pyrrhic victory at best.
Call of Duty is a very important game franchise, of course, but let's not overstate the case: given current competitive dynamics in the console industry, any eventuality where Microsoft stopped shipping CoD games on PlayStation would ultimately do far more damage to Call of Duty than it would to PlayStation.
Sony's consoles are better positioned to survive the loss of one of their myriad tentpole franchises than Call of Duty is to survive the loss of its biggest platform. The console market is mature and settled, Sony and Nintendo both have libraries of IP that provide very significant moats for their businesses, and Microsoft getting a major boost from a large acquisition can be reasonably argued to be good for competition and pro-consumer in this space.
However, it's not five years ago, nor ten, and this isn't the landscape in which this deal is being proposed. Cloud gaming is being touted as the industry's technological future, most of all by Microsoft itself – and arguably much more importantly, game subscription services like Game Pass are positioning themselves to be the industry's business model future, in line with how subscription services have become the default business model for every other form of media that has shifted to a cloud-based system.
This remains a sector in its infancy, but Microsoft is by far the dominant player in the market thus far; and the sector overall is quite divorced from the console market in which Microsoft plays third fiddle, since the whole selling point of cloud streaming is that it's device-agnostic and doesn't require dedicated gaming hardware.
This is the nascent market the CMA's ruling seeks to protect, arguing that Microsoft being able to further cement its dominance by locking up the properties belonging to one of the industry's largest publishers would not only extend its market lead to the point of being potentially unassailable, it would also give Microsoft far too much power to set the terms for any other entrants into cloud gaming.
If Microsoft had tried to make an acquisition of this scale in the games sector five or ten years ago, it's likely that it would have sailed through regulatory scrutiny
This double effect would expose consumers to higher prices (because it's very obvious that services like Game Pass will not be sustainable long-term at their current pricing level, and only some serious market competition will provide downward pressure on those prices) and rob them of potential innovation in the space, since even would-be competitors would have to dance to the market leader's tune.
That's the core argument – though I think it's fair to say that everything around it has been muddied and confused quite badly, in part due to a somewhat injudicious use of words by the CMA, which seems to use the term "cloud gaming" to encompass both the actual technology of delivering games over cloud streaming, and the rising importance of subscription business models as a consequence of cloud gaming's adoption.
I understand the reason for grouping these concepts together – business models are path dependent on the underlying technology to a large extent, and subscription services are a much neater fit for cloud streaming than any effort to shoehorn a buy-to-own model into a technology paradigm where ownership doesn't intrinsically mean anything. Still, conflating subscription and cloud issues as if cloud streaming is the actual problem, and not merely the technological underpinning for the subscription business models that will define this nascent market, has created a lot of confusion.
Microsoft was arguably quite smart to try to capitalise on that confusion by proposing remedies that address the cloud streaming aspect, while pointedly ignoring the subscription aspect. I do say arguably; there's another perspective which argues that wilfully misunderstanding the points the CMA is making, and making a public song and dance about remedies which deliberately ignored the CMA's concerns, may have simply fuelled the regulator's distrust of the company.
Microsoft went off and struck deals with companies like Nvidia to put Activision titles on cloud streaming platforms like GeForce Now, then made a butter-wouldn't-melt claim that this was a reasonable remedy to concerns about the cloud gaming market – when of course, all of those services simply let people play games they've purchased on a virtual PC, and do not include any subscription model.
They embrace the new technology while remaining firmly stuck in the old business model – this is quite explicitly not the market the CMA is concerned about. It's quite telling that one of the reasons for ruling to block the deal seems to be that the CMA is deeply unhappy about the idea of ongoing regulatory oversight of any remedies that would satisfy its concerns. Microsoft signing deals and making announcements that look for all the world like PR stunts intended to muddy the waters without actually engaging with the substance of the CMA's issues has probably not helped with the perception that it's a slippery customer for any regulator to have to deal with.
Is it reasonable, though, to argue that letting this deal go through would have distorted the emerging cloud gaming/subscription gaming markets so badly that competition and innovation would have been damaged? After all, Sony's strength in the console market should give it an advantage in the streaming and subscription world too – why shouldn't the same logic apply to both markets?
The sheer financial scale of this deal is precisely why it's being scrutinised so carefully, and it creates arguments of its own
There are good arguments in both directions (and any appeal may hinge on pretty much that question), but once again, it feels like Microsoft's own statements and actions created a catch-22 here. If anyone believes that Activision Blizzard's portfolio is sufficiently important to create a significant distorting effect in this market, it's the company offering to pay the GDP of a small European nation to buy it.
The sheer financial scale of this deal is precisely why it's being scrutinised so carefully, and it creates arguments of its own: this is the largest proposed deal in Microsoft's history, the largest proposed deal in the history of the games industry, and would have been one of the biggest corporate acquisitions in history.
Microsoft was proposing to pay a sum for Activision Blizzard that's significantly larger than most estimates of the overall annual value of the console games industry. It was not doing this in order to try to sell more Xbox consoles than PlayStations, a corner of its business that's barely a rounding error on its financial results. Microsoft believes that the Activision Blizzard portfolio would give it an outsized competitive advantage in a market that's going to be incredibly important in the coming years; the CMA agreed.
To be blunt, I remain a cloud streaming skeptic – at least in the short to medium term – and from that perspective, I think this deal should probably have been approved. Microsoft being more robust competition to Sony's market dominance would be a good thing for consumers, and relatively light-touch remedies would have made the Activision Blizzard perfectly palatable for the console market.
But Microsoft would never have offered to pay this much money just to be more effective at competing in the console market; it believes that cloud streaming and subscription services are the future. Consequently, the CMA looked at Game Pass and PlayStation Plus, it looked at the way that every other media market is being carved up by a handful of giant subscription services (Apple and Spotify for music; Netflix, Disney, Amazon, and some also-rans in video; Amazon effectively as a monopoly in books), and it ruled on the basis that this is the market that actually matters.
For all Microsoft's angry bluster in response, it's hard to deny that on this core issue, it's in perfect agreement with the CMA.
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