Competition and Markets Authority (CMA) lays low-browning hope on a cloud-game merger with Activision Blizzard
The Competition and Markets Authority in the UK ruled on Wednesday, that the deal could change the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK consumers over time. They’re denying a deal that was widely expected to be approved, leaving Microsoft and Activision Blizzard hanging their hopes on a European Union decision next month.
The Competition and Markets Authority said in its final report that “the only effective remedy” to the substantial loss of competition “is to prohibit the Merger.” The companies have vowed to appeal.
In the run-up to the decision, Microsoft had been attempting to demonstrate that its takeover of Activision wouldn’t mean that blockbuster titles like Call of Duty would end up only being available on its hardware, signing deals with other, smaller, cloud gaming companies. The company has previously agreed to make Call of Duty available to its biggest competitors, Sony and Nintendo—though Sony has questioned whether it can trust those promises.
Cloud gaming has the potential to change the industry by giving people more choice over how and where they play, said Martin Colman, chair of the Competition and Markets Authority’s independent expert panel investigating the deal.
“We remain fully committed to this acquisition and will appeal,” President Brad Smith said in a statement. He said the watchdog’s decision “rejects a pragmatic path to address competition concerns” and discourages tech innovation and investment in the United Kingdom.
“We’re especially disappointed that after lengthy deliberations, this decision appears to reflect a flawed understanding of this market and the way the relevant cloud technology actually works,” Smith said.
The watchdog reviewed Microsoft’s proposals to simplify competition, and found that they required oversight, but it wouldn’t affect cloud gaming because Microsoft wouldn’t intervene.
In the flagship store in London, there is a souvenir of the company’s $7.5 billion acquisition of ZeniMax, owner of game publisher Bethesda, creator of Halo. A year after that deal closed, Microsoft launched an even more ambitious play—a $69 billion bid for Activision Blizzard, owner of some of the game industry’s most valuable intellectual property, including Call of Duty, World of Warcraft, and The Elder Scrolls.
“The technology that allows you to play Activision Blizzard [games] is the same technology that allows a process engineer to walk through a virtual oil refinery, turn pipes, move different levers, and see what happens,” says Steven Weber, a professor at UC Berkeley’s School of Information. To be good at game is to be good at the metaverse.
There are some good points made about the barriers to entry. There are precious few companies with the technology and know-how to power cloud gaming, Microsoft is one of the biggest, and it’s the only one with a computer platform that game developers actually target en masse. (Google reportedly paid developers tens of millions of dollars per game to port to Stadia’s Linux instead of Microsoft’s Windows, to give you a sense of the uphill battle.)
When you consider that every Xbox Game Pass Ultimate subscription is included with xCloud, it makes sense that Microsoft won the battle with little real competition. We have asked Microsoft to give us clearer monthly user figures, which aren’t clear about that.
Mind you, Microsoft’s promises are pretty self-serving because they feed right back into Microsoft’s core business. If you want to stream PC games on the Microsoft cloud, you would likely need to invest in a Windows-based server or possibly even Microsoft’s azure cloud platform. You might also halt any plans to build cloud games for Linux instead. Microsoft was going to keep all of the game sales and in app purchases for themselves, instead of sharing them with other cloud providers.
There are other technological issues still standing in the way of a vibrant cloud gaming market, not least of which is how most big games require companies to have an entire graphics card waiting in a server room for every single player. Sony — which once kept a PlayStation 3 in a server room for each cloud player — is among those searching for a way to fix that. I am unsure if Sony will bother with Microsoft being a slightly less of a competitor and looking like less of an opportunity.
Is Microsoft Really Doing It Better than the Merger? An Analysis of Microsoft’s Cloud Game Remedy and a Constraint on its Implementation
Still, it’s never a great idea to take a company’s merger promises at face value. The biggest reason for blocking the deal is that Microsoft doesn’t know what it is talking about.
The complex remedy in the context of a changing market meant it was hard to monitor effectively, and it also meant it had a high risk of circumvention. We found out that the only remedy to the problem would be to prohibit the Merger, and we could not be sure that the Microsoft Cloud Remedy would have addressed our concerns.
Cloud gaming does work and can work brilliantly, giving you an experience approaching that of a high-end gaming PC when everything lines up. But it depends on so, so very many things to work that way — not just your internet speed but the Wi-Fi congestion in your neighborhood, the physical distance of a company’s cloud gaming servers from your home, the peering arrangements and handshakes that take the bits all the way across the internet and deliver an image back to your screen, the virtualization of the game controller you use, and so on.