Sony Calls Out CMA’s Irrational Reversal on Xbox Activision Deal
The proposed merger between Microsoft and Activision Blizzard, worth $68.7 billion, has been under scrutiny by the UK’s Competition and Markets Authority (CMA) since January 2023. The CMA is responsible for ensuring that mergers and acquisitions do not reduce competition or harm consumers in the UK market.
One of the main concerns that the CMA initially raised was that Microsoft could make Call of Duty, one of the most popular and profitable video game franchises in the world, exclusive to its Xbox consoles and PC platforms, thereby excluding PlayStation users from accessing it. This could reduce consumer choice and weaken Sony’s position as a rival console maker.
However, in March 2023, the CMA changed its provisional findings and said that it no longer considered this scenario as a likely outcome of the deal. The CMA said that it had received new evidence and analysis from Microsoft and other parties that suggested that Microsoft would have no financial incentive to withhold or degrade access to Call of Duty or any other Activision content on PlayStation.
This reversal of position has sparked a strong reaction from Sony, which has called the CMA’s decision “surprising, unprecedented, and irrational”. Sony has submitted a detailed response to the CMA, challenging its reasoning and evidence, and arguing that the deal would still cause significant harm to consumers, competition, and developers in the UK and beyond.
It seems that these results did not please Sony at all, and Sony criticized the UK Competition and Markets Authority (CMA) for its revised assessment of Microsoft's acquisition of Activision Blizzard.
In this article, we will examine Sony’s response to the CMA’s change in the Xbox Activision deal, as well as Microsoft’s counter-arguments. We will also look at some of the potential implications of the deal for the gaming industry and the UK market.
Sony’s arguments against the deal
Sony questions the CMA’s methodology and evidence
Sony has criticized the CMA for relying on a flawed quantitative model to estimate Microsoft’s incentive to make Call of Duty exclusive to Xbox. Sony claims that the model contains serious conceptual errors that bias the analysis in favor of finding that Microsoft does not have an incentive to foreclose PlayStation.
For example, Sony says that the model does not account for the fact that Microsoft would no longer have to pay a margin to Activision for sales of Call of Duty on Xbox, which would make the game much more profitable for Microsoft than it currently is. Sony also says that the model does not consider the network effects and switching costs that could lock consumers into Microsoft’s ecosystem if they lose access to Call of Duty on PlayStation.
Sony also challenges some of the assumptions and evidence that the CMA used to support its model, such as:
- The lifetime value of an average gamer, which Sony says is based on outdated data and does not reflect the differences between Call of Duty players and other gamers.
- The elasticity of demand for Call of Duty, which Sony says is underestimated by the CMA and does not capture the loyalty and preference of Call of Duty fans for PlayStation.
- The availability and attractiveness of substitutes for Call of Duty, which Sony says are overestimated by the CMA and do not account for the unique features and appeal of Call of Duty compared to other games.
- The impact of multi-game subscription services, such as Xbox Game Pass, which Sony says are ignored by the CMA and could give Microsoft an additional incentive and ability to foreclose PlayStation.
Sony claims that consumers would be harmed by the deal
Sony argues that if Microsoft were to make Call of Duty exclusive to Xbox or degrade its quality or performance on PlayStation, millions of consumers in the UK and around the world would be harmed. Sony estimates that there are about 10 million active Call of Duty players on PlayStation in Europe alone, who would either lose access to their favorite game or be forced to switch to a less preferred device or platform.
Sony says that this would reduce consumer choice and welfare, as well as undermine consumer trust and confidence in the gaming industry. Sony also says that this would create a significant barrier to entry for new console makers or cloud gaming providers who would struggle to compete with Microsoft without access to Call of Duty or other Activision games.
Sony claims that competition would be harmed by the deal
Sony contends that if Microsoft were to foreclose PlayStation from Call of Duty or other Activision games, it would also harm competition in the console and cloud gaming markets. Sony claims that Microsoft would gain an unfair advantage over its rivals by leveraging its dominant position in PC gaming and its growing presence in cloud gaming.
Sony says that Microsoft could use its control over Activision’s games to promote its own platforms and services, such as Xbox Game Pass, which offers access to hundreds of games for a monthly fee. Sony argues that this would create a “tipping point” in favor of Microsoft, as more gamers would switch to Xbox or PC to access Activision’s games, and more developers would favor Microsoft’s platforms to reach a larger audience.
Sony also says that Microsoft could use its influence over Activision’s games to undermine Sony’s cloud gaming efforts, which rely on third-party content providers. Sony says that Microsoft could restrict or degrade the quality of Activision’s games on Sony’s cloud gaming service, PlayStation Now, or prevent Sony from offering them at all.
Sony says that this would reduce innovation and diversity in the cloud gaming market, which is still nascent and evolving. Sony says that cloud gaming has the potential to expand the gaming industry and reach new consumers who do not own consoles or PCs.
Microsoft’s arguments in favor of the deal
Microsoft denies any intention to foreclose PlayStation
Microsoft has repeatedly stated that it has no intention to withhold or degrade access to Call of Duty or any other Activision content on PlayStation. Microsoft says that such a strategy would be contrary to its vision of bringing more games to more people on more platforms and devices.
Microsoft says that it has a track record of supporting multiplatform games, even after acquiring their developers. Microsoft cites Minecraft as an example of a game that continued to be released on PlayStation and other platforms after Microsoft bought its developer Mojang in 2014.
Microsoft also says that it has a history of collaborating with Sony and other competitors on various initiatives, such as cross-play, cross-progression, and cross-save features that allow gamers to play together and switch between different platforms without losing their progress or achievements.
Microsoft says that it respects Sony as a competitor and a partner, and that it welcomes fair and transparent competition in the gaming industry.
Microsoft claims that consumers would benefit from the deal
Microsoft argues that its acquisition of Activision Blizzard would benefit consumers by creating more value, choice, and innovation in the gaming industry. Microsoft says that it would invest more in Activision’s games and studios, enhancing their quality and performance, and expanding their reach and accessibility.
Microsoft says that it would also offer more options and flexibility for gamers, such as allowing them to play Activision’s games on their preferred device or platform, whether it is console, PC, or cloud. Microsoft says that it would also make Activision’s games more affordable and accessible by including them in its Xbox Game Pass service, which offers over 100 million subscribers access to hundreds of games for a low monthly fee.
Microsoft says that it would also foster more innovation and diversity in the gaming industry by supporting independent developers and creators who use Activision’s tools and platforms, such as Unreal Engine and Battle.net. Microsoft says that it would also promote social responsibility and inclusion by addressing the issues of harassment, toxicity, and discrimination that have plagued Activision’s games and culture.
Potential implications of the deal
For the gaming industry
The deal between Microsoft and Activision Blizzard is the biggest ever in the gaming industry, surpassing Tencent’s $8.6 billion acquisition of Supercell in 2016. The deal would create a gaming powerhouse with some of the most popular and profitable franchises in the world, such as Call of Duty, Halo, Warcraft, Minecraft, Candy Crush, and more.
The deal would also reshape the competitive landscape of the gaming industry, especially in the console and cloud gaming markets. The deal would give Microsoft an edge over Sony and Nintendo in terms of content portfolio, user base, revenue stream, and platform integration. The deal would also give Microsoft an advantage over Google, Amazon, Netflix, and other tech giants who are trying to enter or expand their presence in the cloud gaming market.
The deal could also trigger more consolidation and competition in the gaming industry, as other players may seek to acquire or partner with other developers or publishers to strengthen their position or challenge Microsoft’s dominance. The deal could also spur more innovation and diversity in the gaming industry, as new entrants or existing players may try to create new games or genres that appeal to different audiences or offer different experiences.
For the UK market
The UK is one of the largest markets for video games in the world, with an estimated 37.4 million gamers and a revenue of £5.89 billion in 2021. The deal between Microsoft and Activision Blizzard could have significant implications for the UK market, depending on how it affects the availability and quality of games and services for UK consumers.
The CMA is the main authority that can approve or block the deal in the UK, or impose conditions or remedies to address any competition concerns. The CMA has said that it will announce its final decision by April 26, 2023 at the latest.
The CMA has also said that it is still investigating the impact of the deal on the cloud gaming market, which it considers as a separate market from console and PC gaming. The CMA has said that it has provisional concerns that the deal could reduce competition and innovation in cloud gaming, as Microsoft could use its control over Activision’s games to favor its own cloud gaming service, Xbox Cloud Gaming, over other providers.
The CMA has also said that it is coordinating with other regulators around the world who are also reviewing the deal, such as the European Commission, the U.S. Federal Trade Commission, and the Japan Fair Trade Commission. The deal has already been cleared by Japan, while the U.S. and the EU are still conducting their investigations.
FAQs
What is Sony’s response to CMA’s change in the Xbox Activision deal?
Sony’s response to CMA’s change in the Xbox Activision deal is that it disagrees with the CMA’s decision and challenges its methodology and evidence. Sony claims that the deal would harm consumers, competition, and developers, as Microsoft could make Call of Duty or other Activision games exclusive to Xbox or degrade their quality or performance on PlayStation.
What is Microsoft’s argument in favor of the Xbox Activision deal?
Microsoft’s argument in favor of the Xbox Activision deal is that it has no intention to foreclose PlayStation or limit access to Call of Duty or other Activision games on any platform. Microsoft says that the deal would benefit consumers by creating more value, choice, and innovation in the gaming industry. Microsoft says that it would invest more in Activision’s games and studios, offer more options and flexibility for gamers, support independent developers and creators, and promote social responsibility and inclusion.
What are the potential implications of the Xbox Activision deal for the gaming industry and the UK market?
The potential implications of the Xbox Activision deal for the gaming industry and the UK market are:
- The deal would create a gaming powerhouse with some of the most popular and profitable franchises in the world, such as Call of Duty, Halo, Warcraft, Minecraft, Candy Crush, and more.
- The deal would reshape the competitive landscape of the gaming industry, especially in the console and cloud gaming markets. The deal would give Microsoft an edge over Sony and Nintendo in terms of content portfolio, user base, revenue stream, and platform integration. The deal would also give Microsoft an advantage over Google, Amazon, Netflix, and other tech giants who are trying to enter or expand their presence in the cloud gaming market.
- The deal could also trigger more consolidation and competition in the gaming industry, as other players may seek to acquire or partner with other developers or publishers to strengthen their position or challenge Microsoft’s dominance. The deal could also spur more innovation and diversity in the gaming industry, as new entrants or existing players may try to create new games or genres that appeal to different audiences or offer different experiences.
- The deal could have significant implications for the UK market, depending on how it affects the availability and quality of games and services for UK consumers.
The CMA is the main authority that can approve or block the deal in the UK, or impose conditions or remedies to address any competition concerns. The CMA has said that it will announce its final decision by April 26, 2023 at the latest.
The CMA has also said that it is still investigating the impact of the deal on the cloud gaming market, which it considers as a separate market from console and PC gaming. The CMA has said that it has provisional concerns that the deal could reduce competition and innovation in cloud gaming, as Microsoft could use its control over Activision’s games to favor its own cloud gaming service, Xbox Cloud Gaming, over other providers.
The CMA has also said that it is coordinating with other regulators around the world who are also reviewing the deal, such as the European Commission, the U.S. Federal Trade Commission, and the Japan Fair Trade Commission. The deal has already been cleared by Japan, while the U.S. and the EU are still conducting their investigations.
The UK is one of the largest markets for video games in the world, with an estimated 37.4 million gamers and a revenue of £5.89 billion in 2021. The deal between Microsoft and Activision Blizzard could have significant implications for the UK market, depending on how it affects
- The consumer choice and welfare of UK gamers, who may lose access to or face degraded quality of Call of Duty or other Activision games on PlayStation or other platforms.
- The competitive position and innovation of UK console makers, such as Sony, who may face a stronger rival in Microsoft with a larger content portfolio and user base.
- The development and diversity of UK game studios and creators, who may benefit from more investment and support from Microsoft or face more challenges in accessing Activision’s tools and platforms.
- The social responsibility and inclusion of UK game culture and community, who may see more efforts from Microsoft to address harassment, toxicity, and discrimination in Activision’s games or face more risks of losing their favorite games or platforms.
Conclusion
The Xbox Activision deal is one of the most significant and controversial mergers in the history of the gaming industry. It has sparked a fierce debate between Sony and Microsoft over its impact on consumers, competition, and developers. It has also attracted the attention of regulators around the world who are examining its potential implications for their markets.
The deal could create a new gaming powerhouse with some of the most popular and profitable franchises in the world. It could also reshape the competitive landscape of the gaming industry, especially in the console and cloud gaming markets. It could also trigger more consolidation and competition in the gaming industry, as well as more innovation and diversity.
The deal could also have significant implications for the UK market, which is one of the largest and most important markets for video games in the world. The deal could affect the choice and welfare of UK gamers, the position and innovation of UK console makers, the development and diversity of UK game studios and creators, and the social responsibility and inclusion of UK game culture and community.
The final outcome of the deal will depend on how Microsoft decides to use its control over Activision’s games and platforms, as well as how regulators decide to approve or block the deal or impose conditions or remedies to address any competition concerns. The deal is expected to be finalized by June 2023 at the latest.
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