The UK’s Competition and Markets Authority (CMA) recently published the responses to its provisional finding that Microsoft’s proposal to buy Activision would not limit competition in the console space, a change from its earlier stance. Sony Interactive Entertainment (SIE) criticized the move, calling it “surprising, unprecedented, and irrational.” SIE argued that Microsoft could be incentivized to withhold Activision content from PlayStation platforms, lessening competition. However, the CMA countered that Microsoft would have no financial incentive to make Call of Duty and other Activision content exclusive to Xbox. The response from the two companies was one of several issues raised in the CMA’s report.
SIE Response
Sony Interactive Entertainment (SIE) issued a response questioning the CMA’s decision and how it came to it, specifically the assumption that Microsoft has no incentive to foreclose. SIE pointed out that Microsoft would no longer need to pay a margin to Activision for sales of Call of Duty as the series would become first-party. SIE argued that Call of Duty’s revenues for Microsoft would be multiple times more profitable than it presently is to Microsoft, assuming the deal went through, and that the existing model the CMA used understates the potential gains Microsoft could see by making Call of Duty exclusive to Xbox by at least 70%. Microsoft has, however, said it would not make Call of Duty exclusive to Xbox, citing Minecraft as an example of its continued availability to multiple platforms after Microsoft bought developer Mojang.
SIE disputed this comparison, claiming Minecraft is different from Call of Duty since Minecraft is a single game release that does not drive as much engagement or purchasing decisions. Furthermore, Microsoft has already blocked Minecraft from certain platforms, and SIE argued Microsoft could do so again with Call of Duty if it served its strategic interests. SIE also cited quotes from Arkane’s Harvey Smith about Redfall and how the developer chose to not release the game on PS5 after the studio was acquired by Microsoft, prompting concerns that Microsoft might withdraw games from rival platforms, be it in operating systems, consoles or cloud gaming, when it served its goals of dominance.
Microsoft’s Response
Microsoft welcomed the CMA’s revised findings and agreed that buying Activision would not suppress competition. The CMA’s findings only addressed the console market and raised concerns over competition issues in the cloud space. Microsoft hoped to convince the CMA that its buyout would not limit competition in cloud gaming.
UCL School of Management Response
The CMA also uploaded a response from UCL School of Management associate professor of strategy Joost Rietveld on identifying what the term “cloud gaming” meant. He concluded that cloud gaming had many meanings, and the CMA should do its due diligence to consider all factors.
What’s Next?
The UK has yet to approve the deal, and the US Federal Trade Commission (FTC) is suing Microsoft in an attempt to block the deal. Microsoft still faces several hurdles.
