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If you have been around games for any period of time, you are probably familiar with gaming/console wars. Since the rivalry between Sega and Nintendo in the 1980s and 1990s, videogame console makers have been vying for your attention and hard earned money by offering  console exclusive games, online multiplayer services or simply just by giving you a massive discount on the price of the console itself.

Microsoft acquires Activision Blizzard

In 2022, the intense rivalry between Microsoft and Sony shows no signs of abating. In fact, Microsoft’s proposed acquisition of Activision Blizzard for $68.7 billion is indicative of ambitious plans to gain further control of the videogame market, not solely by outselling competitors in terms of consoles but by squeezing them out of videogame market altogether.

Afterall, Activision Blizzard owns the intellectual property to Call of Duty, arguably the progenitor of modern first person shooters and one of the most valuable gaming IP worldwide (Call of Duty games typically rank amongst the biggest selling games in the year they are released in). A potential strategic move by Microsoft to undermine Sony’s competitiveness post acquisition could come in the form of denying Sony’s Playstation gamers access to current/future editions of the Call of Duty games and to promote Microsoft’s Xbox platform instead.

Historically, Microsoft has followed this approach in several past acquisitions of gaming studios, where it made future game releases from those studios exclusive in consoles to Xbox (such as the upcoming Starfield and, based on Microsoft’s public statements, Elder Scrolls VI from Bethesda, a studio Microsoft acquired as part of its USD 7.5 billion acquisition of ZeniMax in 2021).

However, could it be that such concerns are overblown? Afterall, Microsoft’s gaming chief Phil Spencer has said publicly that Microsoft is committed to making the same version of Call of Duty available on Playstation on the same day the game launches elsewhere. Financially, it would also not be in Microsoft’s interest to shut out Sony’s Call of Duty gamers who likely represent a large portion of the Call of Duty gaming community. The risk is that such gamers would seek other titles in the first person shooting genre (competition amongst game studios in this area is intense) and have shown that they will vehemently reject anti consumer practices. (See gamers shutting down NFTs in gaming)

Sony has voiced out its concerns over Microsoft’s proposed acquisition. In a filing with regulators in Brazil, Sony has stated that the Call of Duty franchise is so popular that any limitation on its availability could influence which console consumers chose to buy, potentially disadvantaging its PS5 console, the current console market leader. Indeed Microsoft need not even resort to drastic tactics like releasing Call of Duty Xbox exclusives and shutting Sony out of the market. In the era where gamers are increasingly demanding greater levels of polish and user satisfaction experience in gaming, the prioritisation of Microsoft users when it comes to things like updates, bug fixes, download speeds could convince gamers to make the switch.

However, Sony itself is guilty of purchasing game development studios. Once Microsoft announced its intentions to purchase Blizzard Activision, Sony blitzed ahead with its acquisition of Bungie and while Bungie is not the behemoth that Activision is, it still owns the IP to valuable franchises such as the Halo and Destiny series.

Unfair Competition and Gaming as a service

The onslaught of MnA activity has attracted the intense scrutiny of competition regulators. The UK’s Competition and Market’s Authority (CMA) recently released its decision on Microsoft’s acquisition. The CMA took the view that the acquisition could significantly reduce competition not only for gaming consoles but also cloud gaming services.

What is significant is the CMA’s cognisance that the current competition is not merely confined to the sale of videogame consoles or videogames, but extends to the provision of gaming as a service. This surpasses the traditional boundaries of what was considered competition. Previously where the performance of market participants was assessed in accordance with the number of units sold, be it consoles or games,  this assessment now has to be holistic. This requires taking a whole of gaming approach where all aspects, including service delivery, support and merchandising across all platforms have to be considered collectively.

In particular, the CMA notes that Microsoft already has a combination of assets that is difficult for other cloud gaming service providers to match. Microsoft already owns Windows, the operating system where most PC games are played. It also has a large and well-distributed cloud infrastructure. Collectively, these enable Microsoft to be able to host games on its servers on preferential terms and reach gamers throughout the world without having to pay fees to third party platforms. Microsoft can also leverage on its dominant position as the owner of Windows to charge game studios fees to design and test games on their platforms. The concern is that by leveraging Activision’s content and Microsoft’s wider ecosystem, Microsoft will have an unparalleled advantage over current and potential cloud gaming service providers. This could result in increased concentration in cloud gaming services or the market ‘tipping’ to Microsoft, and ultimately deny consumers the benefits of competition between new and emerging providers vying to succeed in cloud gaming.

Microsoft’s market dominance as seen from a whole of gaming perspective and not merely a console perspective is further highlighted by the fact that its main rival Sony, lacks such systemic advantages. Unlike Microsoft, it does not have an operating system where most PC games are played. In addition, Sony’s online gaming catalogue and cloud gaming services may not be as attractive as Microsoft’s. In fact Sony went as far in its comments made to Brazilian regulators by stating that the lower immediate costs of subscription services to consumers may cause publishers who recoup significant investments in games by selling them for an upfront fee to become uncompetitive This could reflect anxieties in Sony’s management that they may  lose customers for both consoles and cloud gaming who may be lured by the Microsoft’s wider game offering and the relatively lower upfront cost of a subscription model.

If Microsoft’s successfully adds the Call of Duty franchise to its cloud gaming lineup, the disparity between its cloud gaming offering and Microsoft’s would be further exacerbated. Another macroeconomic factor is that Sony likely lacks the financial ability to raise capital in the same magnitude as Microsoft to make acquisitions on the scale of the Activision deal. Afterall, Microsoft has its highly profitable business arm selling the suite of Microsoft Office products and enterprise level solutions to leverage on and this is reflected in the massive disparity in their market capitalisations. (Microsoft’s is $1.81 trillion compared to Sony’s $100 billion. Some commentators have even remarked that Sony is the David to Microsoft’s Goliath in the gaming wars)

What does gaming as a service mean for gamers?  

For gamers, things such as console exclusive games, while not revolutionary, have been anathema to the enjoyment of the entire gaming experience. (Unless one is a self professed Sony/Microsoft fanboy who denies the existence of products better than the company’s whom they support)

The greater implication is that gamers would be placed in a position to have to make increasingly rational choices with greater forethought when it comes to purchasing. This is difficult, often because game purchases are made impulsively on the basis of emotions. Game companies further exploit that feeling of hype and the fear of missing out through aggressive marketing campaigns to sell more copies.

However, this is much needed because the decision to purchase a console/platform/game also results in gamers buying into a particular ecoystem and its attendant services. While gamers may initially be attracted by the low prices of consoles/games/subscription services, they may find it increasingly difficult to change gaming service providers in the future because those companies are finding ways to make it unattractive for gamers make the switch. To be fair, some of these services do bring about value by giving gamers never before levels of convenience (ability to play on the same file across platforms, at home and on the go, see the Steam Deck) or to connect with other gamers (stream while playing without the need for third party software) The concern is when the line crosses into unfair competition, and companies exploit their incumbent (some would say monopolistic) positions to make massive profits at the expense of gamers by blocking competition.

So while Microsft and Sony are burning their cash from their war chests during this generation’s incarnation of gaming wars, gamers should enjoy while it lasts. Games are no longer about the product but about the complete service and that just gives big corporates like Microsoft and Sony more opportunities to get gamers to part with their hard earned money without them noticing it.

Sources:

https://assets.publishing.service.gov.uk/media/634536048fa8f5153767e533/MSFT.ABK_phase_1_decision_-_1.09.2022.pdf

https://sei.cade.gov.br/sei/modulos/pesquisa/md_pesq_processo_exibir.php?1MQnTNkPQ_sX_bghfgNtnzTLgP9Ehbk5UOJvmzyesnbE-Rf6Pd6hBcedDS_xdwMQMK6_PgwPd2GFLljH0OLyFX6gl2sGKAL6BCs1NvfGDcTA25PStaVelgicwm5iRue6

https://www.ft.com/content/780c0432-554e-48fe-96df-6ffa4db9b5de

https://newsletter.gamediscover.co/p/inside-the-microsoft-vs-sony-unfair

https://www.theverge.com/2022/8/10/23300133/microsoft-sony-xbox-game-pass-blocking-rights-accusation

https://www.forbes.com/sites/paultassi/2022/07/16/so-what-changes-with-sonys-acquisition-of-bungie-finalized-nothing-allegedly/?sh=3ca469455e14

https://www.bloomberg.com/news/features/2022-10-17/how-gamers-beat-nfts?leadSource=uverify%20wall