Microsoft risks an antitrust battle over the future of gaming

Microsoft risks an antitrust battle over the future of gaming

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Wednesday, December 7, 2022

Microsoft could face its first antitrust fight in years over ‘Call of Duty’

Microsoft has launched its opening salvo in what could be a major showdown with the Federal Trade Commission (FTC) over the tech giant’s acquisition of Activision Blizzard for $69 billion. On Monday, Microsoft Chairman Brad Smith wrote an op-ed in the Wall Street Journal saying the deal would benefit gamers and developers by making Microsoft more competitive with rival Sony.

The move is perilous, however, as a fight with the FTC risks exposing Microsoft to the same negative scrutiny and scrutiny that Alphabet, Amazon and Meta face as they watch their own antitrust investigations.

So why take such a risk? Because Activision Blizzard, which owns the hugely popular “Call of Duty” franchise, will instantly turn Microsoft into the world’s third-largest games company by revenue behind Tencent and Sony. Additionally, it will also give Microsoft the opportunity to leapfrog Sony in the still nascent cloud gaming industry, which Newzoo predicts will grow from $2.4 billion in revenue in 2022 to $8.1 billion in 2025. On top of that, the deal would also make Microsoft a real contender in the growing mobile gaming industry.

'Warzone 2.0' brings a host of significant changes to one of the most exciting battle royale games around.  (Photo: Activision Blizzard)

Activision Blizzard’s “Call of Duty” is an extremely important game for Microsoft and Sony. (Photo: Activision Blizzard)

And Microsoft would have a really huge gaming showcase if it combined its cloud gaming options and the mobile game titles it acquires through Activision Blizzard like “Candy Crush.”

“The only reason they’re buying this…is that they really intend to become the Netflix of games,” explained Wedbush managing director of equity research Michael Pachter. “The difference between Microsoft’s approach and Netflix’s approach is that Netflix did it largely based on content it licensed to others, and Microsoft does it largely on the basis of the content it owns and controls.”

For Microsoft, the goal is not to dominate the console war, but to outstrip the competition in the future fight for cloud gaming supremacy. And if that means taking on the government, Microsoft seems more than happy to do so.

Play from anywhere, anywhere

The FTC’s antitrust lawsuit wouldn’t just be a black eye for Microsoft, it could also prove to be a major distraction. If Microsoft hadn’t been grappling with the Justice Department’s antitrust lawsuit that nearly split the company in half in the 1990s and 2000s, it might not have missed out on the smartphone revolution.

But the gaming industry, which Newzoo predicts will generate $196.8 billion in global revenue in 2022, is apparently too big an opportunity for Microsoft to pass up.

“There are a lot of exams [the deal], because this is an absolutely huge acquisition,” explained Lewis Ward, IDC Research Director for Games, Esports, and Virtual/Augmented Reality. “It would upset the competitive dynamics of the entire gaming industry.”

It’s not just about game consoles and downloadable games. Microsoft is finally looking to leapfrog Sony by becoming the go-to company for cloud gaming.

Cloud gaming essentially allows gamers to stream and play “Assassin’s Creed Origins”, “Deathloop”, and “Halo Infinite” on traditionally underpowered devices like smartphones, tablets, or even smart TVs without the need for expensive consoles or PCs.

During Microsoft’s first-quarter earnings call in October, CEO Satya Nadella announced that 20 million people have used Microsoft’s Xbox Cloud Gaming service so far. That’s up from 10 million people in April.

A man poses for a photo in front of a Microsoft Xbox sign opposite a Sony PlayStation sign at the Electronic Entertainment Expo, or E3, in Los Angeles, California, U.S., June 16, 2015. REUTERS/Lucy Nicholson

A man poses for a photo in front of a Microsoft Xbox sign opposite a Sony PlayStation sign at the Electronic Entertainment Expo, or E3, in Los Angeles, California, U.S., June 16, 2015. REUTERS/Lucy Nicholson

Still, that’s less than the 25 million PlayStation 5 consoles sold by Sony since the console launched in 2020. Despite its best attempts, Microsoft consistently underperforms Sony in the gaming space and consistently sells fewer consoles and of games than the manufacturer PlayStation.

Cloud gaming, however, represents a new opportunity for Microsoft, and one that the company is keen to exploit. It already has the necessary technological backbone thanks to its massive servers around the world. He just needs to attract more players.

“game pass [Microsoft’s gaming service that includes its cloud gaming platform] has really become a central part of growing Microsoft’s games business. It goes beyond the highly competitive console market; it builds on Microsoft’s strengths in cloud and software as a service, and it enables access to new audiences…among other things,” said Louise Shorthouse, head of research at Ampere. Games at Yahoo Finance.

“It would allow Microsoft to be more competitive with Sony, of course, but also with China-based tech giants like Tencent, who are very focused on international expansion right now.”

‘Call of Duty’ is the key

At the center of the very public dispute between Microsoft and Sony is whether Sony will continue to have access to Activision Blizzard’s “Call of Duty” if Microsoft is able to buy Activision Blizzard.

According to Smith’s op-ed, Microsoft is ready to sign a 10-year deal ensuring “Call of Duty” is available the same day on PlayStation and Xbox. It makes sense that Microsoft is keeping “Call of Duty” on PlayStation as well. The latest title in the franchise “Call of Duty Modern Warfare 2” hit $1 billion in sales in its first 10 days on the market. Eliminating Sony would mean eating into “Call of Duty” sales.

FILE - The Activision Blizzard booth is shown on June 13, 2013 during the Electronic Entertainment Expo in Los Angeles.  Microsoft is buying Activision Blizzard on Tuesday, January 18, 2022, for $68.7 billion to gain access to hit games like Call of Duty and Candy Crush.  The all-cash deal will allow Microsoft to accelerate mobile games and provide it with building blocks for the metaverse, or virtual environment.  (AP Photo/Jae C. Hong, File)

Microsoft’s Activision Blizzard deal would help it bolster its cloud gaming service. (AP Photo/Jae C. Hong, File)

What’s unclear, however, is whether Sony would be able to offer the game through its PlayStation Plus service, which has a cloud gaming option.

Microsoft and Sony have a history of buying third-party game companies and making their titles exclusive to Xbox or PlayStation. But “Call of Duty” is such a big franchise that if Sony doesn’t have access to it, say after the proposed 10-year deal expires, gamers might find themselves opting for an Xbox instead of one. Playstation.

Mobile is huge, but part of the cloud story

While Game Pass growth is a huge focus of the Activision Blizzard acquisition, Microsoft also stands to gain by finally having its own competitive mobile games. Activision Blizzard’s King is home to titles like “Candy Crush,” and then there’s the mobile version of “Call of Duty.”

The mobile games industry is expected to reach $225 billion in revenue by 2026, according to IDC. And since more people around the world have access to smartphones than high-end PCs and game consoles, investing in the mobile games industry just makes sense for Microsoft.

But, as Ward explained, if Microsoft can ensure that users can both stream console-quality games through Xbox Game Cloud and access downloadable versions of traditional mobile games, it could create a one-stop shop for gamers. of the whole world.

Microsoft still has a long way to go to close its deal. And there’s no way to guarantee that the tie will benefit gamers rather than hurt them due to reduced competition, as Sony argues. For Microsoft, however, the risk seems worth it. Even if it means being the bad guy.

By Daniel Howley, technical writer at Yahoo Finance. follow him @DanielHowley

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