What’s Happening?
Activision is one of the largest video game companies in the world and makers of some of the most popular games in the world, like Call of Duty, Candy Crush, and Diablo. But nothing has been going good for Activision. Reviews for their recent games have been middling and many accounts of a culture harassment instigated by the senior leadership. Activision is imploding and everyone knows it.
Enter white knight Microsoft. January 18th, 2022, Microsoft announced they would purchase Activision for 69 billion dollars (nice). Even more fascinating is reactions from gamers and famous streamers has been glowing with the idea of Xbox getting more games. Of course, Microsoft’s Xbox division has been busy securing various deals and promises of exclusivity with Nvidia, Boosteroid, and various other game studios. Of course, they’ve promised these deals will last as long as a decade and allow autonomy to their partners, but I’ll get back to this.
But we need to ask ourselves: why is Microsoft willing to spend seemingly bottomless sums of money to acquire video game companies? The answer is Microsoft has been a distant third in console gaming and even more disconnected from the coveted revenue source of mobile gaming. From the outside looking in, acquiring Activision would instantly give them a large portfolio of established brands and further their goal of boosting their Xbox platform and an entry point into mobile gaming.
FTC, CMA, WTF?
Unfortunately, the press conference was not televised and was transcribed by third party account and new sources.
If you thought gamers capitulating to Microsoft’s decision was crazy, many other countries have also allowed the merger. Except the biggest resistance comes from the United Kingdom’s Competition and Markets Authority (CMA) and the Federal Trade Commission (FTC) here in the United States.
Over the last week, the FTC’s private court case has surfaced a treasure trove of documents, emails, and corporate posturing exposing the truth behind the whole thing (some of which Sony didn’t even redact properly). Sony, the creator of PlayStation and biggest critic to such an acquisition, has loudly protested with the fear Microsoft will sabotage the PlayStation versions despite Microsoft promising a decade-long, non-exclusivity agreement.
What does this mean for us?
Of course, the news stops right here and this is where the palm reading and dream interpretations begin! We’re still waiting on a decision and by the time you see this, the US courts may already be done. But what these US courts won’t see is the long-lasting consequences (if they even understood what they were even presiding over that is)!
Let’s face it: Microsoft is going to get what they want.
Too many public people and governments are in favor of this and it will go through. The only thing we can hope for is this used to create some regulation against the harms and fears both Microsoft and Sony levy against each other. Microsoft hates exclusivity because Sony has been milking it as a tactic for years. Sony hates the prospect of Microsoft taking away games from the walled garden they created.
How do we solve this? Ban contractual exclusivity and sabotage of non-exclusive products in gaming. This will alleviate fears from both sides and end what essentially is petty political posturing over PlayStation and Xbox exclusives. In fact, it’s clear Microsoft doesn’t even care, because they wouldn’t have offered such an option for no exclusivity in the first place.
But Think of the Gamers?
The other reason is this court case showcases how ill-prepared the federal court and the FTC was dealing with this whole debacle. The Biden administration here in the US have vowed to crackdown on Big Tech and in the current laws as they are, Microsoft knows they will win, because they write endless papers to the Wall Street Journal and popular influencers basically saying:
We lost the worst generation to lose in the Xbox One generation, where everybody built their digital library of games.
Acquiring Activision Blizzard would enable Microsoft to compete against [Sony, Apple, Google] through innovation that would benefit consumers. While modern consumers can stream videos or music on multiple devices on low-cost subscription plans, many games can often only be individually purchased and downloaded onto one device. Microsoft wants to change that by offering consumers the option to subscribe to a cloud gaming service that lets them stream a variety of games on multiple devices for one reasonable fee. It would also benefit developers by allowing them to reach a much broader audience.
Brad Smith, Microsoft’s Activision-Blizzard Acquisition Is Good for Gamers (Without paywall)
The @CMAgovUK’s Senior Director of Merger Reviews–who used to work for #Sony’s law firm–will speak now at a @CompetitionLaws (@Concurrences) event on “Merger Remedies in a Post-Brexit Context”: https://events.concurrences.com/en/evenement/merger-remedies-in-a-post-brexit-context
Another speaker has current Sony/Google ties.
🧵1/3
— Florian Mueller (@FOSSpatents) May 25, 2023
And news that one of the directors of the CMA used to be a Sony lawyer no doubt helps Microsoft’s narrative, but just icing on the cake.
Activision is a new Microsoft monopoly strategy
Microsoft may lag behind its competitors in the gaming space, but that doesn’t mean they aren’t in others. In the landscape of gaming, consolidation was guaranteed. The greater concern is what this means for the other, non-gaming industries Microsoft has real market share in.
While Amazon dominates the cloud space, Google and Microsoft have been fighting tooth and nail for the silver medal. While both Google and Microsoft have been ramping up their AI spaces, this is where Microsoft hopes to get out of Activision—expanding their cloud offering, which is why in reading accounts of the trial, Sony is so afraid of Microsoft’s cloud platform (Sony’s own game streaming is by Microsoft after all).
In review of Microsoft’s cloud revenue, Microsoft makes $34B in cloud revenue every year and in all estimates, this beats out Google’s $26B, while still being a very distant foe to Amazon. But this follows a pattern of behavior from Microsoft—being a content #2 while your larger rivals eat regulation and each other. And Microsoft may have come to view their position as a distant third behind Sony and Nintendo the same way.
Of course, there’s nothing to stop Microsoft when they’ve amassed the largest cloud offering after the fact, right?
The Win For Windows
One thing that people aren’t talking about is game development in light of Activision and you might ask what will change. The reality is (and I’m sure many game devs in the comments will back me up) most game developers just use Windows, a Microsoft-owned platform that dominates a large portion of desktop/developer market share. No sane person uses macOS (God help you Linux) for game development.
But subject to this dichotomy is Sony, whose devs will no doubt be using Windows and porting their games to Windows once their exclusivity ends. PC gaming is also the dark horse of this whole trial and while it may be limited to a small, vocal minority, it’s largely a Microsoft-controlled platform to boost their influence in the world. Microsoft and Google constantly fight over the enterprise world and this deal would only benefit Microsoft in getting more people to use Windows.
Pulling the Rug (10 Years Later)
Microsoft has promised that these platforms and games will be available to outsiders and Sony for years to come, but all you need to do is ask yourself the question: what happens in 2034 when these deals are up? Of course, this is the biggest stretch, but consider this:
- The CEOs of Xbox (or equivalent because Microsoft changed the name multiple times) have never lasted very long. If Phil Spencer’s successor comes along, what if they don’t share the same views or if Microsoft takes a different position? Then you will really will be dealing with having your platform’s games taken away unless meaningful regulation is passed to block it.
- Inevitably, someone is going to bring up “embrace, extend, and extinguish,” but this fails to capture Microsoft’s “content to be second” strategy. I understand to the old timers out there it’s a concern, but I would be more concerned that Microsoft’s strategy is going to become the going practice for the rest of Big Tech.
Outro
But alas, there’s nothing you and I can do about it. Popular opinion is on Microsoft’s side and gamers only want what’s good in the moment. So I need to lay this to rest.