Microsoft Activision deal blocked over cloud concerns, not Call of Duty exclusivity

Both Microsoft and Activision released statements expressing disappointment over the decision. The companies have announced that they’ve already begun working together to appeal CMA’s ruling. However, experts say that having a decision made by the CMA overturned is no easy feat.

It’s pertinent to mention that the CMA didn’t block the deal over Sony’s Call of Duty exclusivity concerns or concerns over competition in the console space. The authority has concluded that console business would not have been harmed by the merger. It is competition in the cloud gaming arena that CMA is concerned about. Additionally, it finds Microsoft’s proposed remedies inadequate.

“Cloud gaming needs a free, competitive market to drive innovation and choice,” CMA said. “That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.”

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FTC’s response to lawmakers regarding Microsoft Activision deal

Several videos circulating on Twitter show multiple lawmakers quizzing Khan about siding with Sony despite its dominant position, in response to which Khan said that as a matter of policy, the FTC obtains feedback from market players who are likely to be impacted by mergers and acquisitions irrespective of their size.

Khan said that she’s not in a position to go into specifics about the deal because a decision has yet to be made, but argued that the FTC makes its own independent judgments based on law and facts.

On one occasion, Khan was quizzed about the FTC coordinating with foreign regulators to block U.S. companies from mergers and acquisitions, to which Khan said that the FTC liaises with counterparts in other countries but denied that it’s to the detriment of U.S. companies.

U.K. regulator Competition and Markets Authority will be the first to reach a decision regarding Microsoft’s purchase of Activision Blizzard on April 26th.

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PS5 vs Xbox Series X comparisons have a “high level” of social conversations

Sony has been arguing that should Microsoft acquire Activision Blizzard and its properties, it would have no incentive to ensure that Call of Duty games fully utilize PS5-exclusive features like DualSense haptics. It further argues that Microsoft could release an inferior version of Call of Duty on PS5.

“Within a week of releasing Modern Warfare II, Digital Foundry, a leading analyst, compared performance on PlayStation 5 and Xbox Series X and S,” Sony wrote. “Studies show that these types of comparisons are highly influential. The level of social conversation surrounding consoles and games is extremely high.”

Sony added that Call of Duty can’t be compared to Minecraft because the latter has “blocky” graphics, which means that it can’t be used to showcase a console’s technical capabilities.

The CMA will make its final decision on the proposed Microsoft Activision merger this month.

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Is PlayStation really throwing shade at Xbox and Nintendo?

The language was first highlighted by GameRant, who pointed out that Sony submits two versions of its patent applications. One version is in PDF form, which is specifically used for legal purposes, and this version seems to omit text referring to other console manufacturers as “inferior.”

For context, here’s what Sony wrote:

“For example, an end user device may be a personal computer, a home entertainment system (e.g., Sony PlayStation 2(R) or Sony PlayStation 3(R) or Sony PlayStation 4(R)), a portable gaming device (e.g., Sony PSP(R) or Sony PlayStation Vita (R)), or a home entertainment system of a different albeit inferior manufacturer.”

I’ve personally never written a patent application but Florian Mueller of Foss Patents apparently has 30+ years of analyzing patents and intellectual property (note: Mueller has worked with Microsoft and Blizzard in the past, and Sony’s locking horns with both over their proposed merger). According to him, this is unheard of. In a lengthy article on his own blog, he noted that Sony has been using this “childish” and “unprofessional” language in patents dating back to 2011.

Mueller then proceeded to share a list of patents containing this language from various years, noting separately on Twitter that even some PDFs used for legal purposes contain this language. He also claims that his LinkedIn post on this topic has been liked by various industry professionals, including a senior Nintendo counsel, suggesting that they agree with him.

Make of this what you will.

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Sony’s statement on Redfall PS5 cancellation

Arkane Studios’ Harvey Smith put himself and Microsoft in an awkward position when he casually revealed in an interview that a PS5 version of Redfall was in development, and despite a lot of work having gone into it, Microsoft canned the PS5 version as soon as it acquired Bethesda.

“Like Call of Duty, Redfall is a first-person shooter game that features both single player and cooperative multiplayer modes,” Sony argued. “This experience provides further compelling evidence of Microsoft’s ability and incentives to foreclose rivals to acquired games, together with its likely conduct post transaction with respect to Call of Duty.”

Microsoft, who’s presumably pretty unhappy with Smith’s interview right now, scrambled to respond when initially quizzed about Redfall. The company regurgitated its past statements, arguing that it didn’t “pull” anything from PlayStation. Microsoft refrained from directly addressing Smith’s comments.

The CMA will make its final decision about the Microsoft Activision deal this month.

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Why Square Enix games might be skipping Xbox

Exclusivity deals aside, Windows Central‘s Jez Corden claims to have heard that something has gone “functionally wrong” between Microsoft and Square Enix.

Recently, the publisher announced Final Fantasy Pixel Remaster Collection for all platforms but Xbox, and despite Octopath Traveller previously releasing on Xbox Game Pass, its sequel seems to be skipping Microsoft’s platforms.

Corden didn’t elaborate what exactly went wrong between Square Enix and Microsoft, but in response to a comment on Twitter, he suggested that the issue is on Microsoft’s side rather than Square Enix.

Indeed Square Enix has enjoyed a healthy relationship with Microsoft in the past. The company famously signed a one-year timed exclusivity deal for Rise of the Tomb Raider – a game from a franchise long associated with PlayStation. We also saw Outriders land on Xbox Game Pass. What changed between the two is anybody’s guess.

Interestingly, Microsoft has complained to lawmakers that Sony is the reason popular Japanese games (read: Final Fantasy) won’t launch on Xbox.

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Sony finds the latest CMA ruling to be based on “extreme assumption”

In a now public document called “SIE Observations on PFs Addendum,” Sony believes the new Addendum provisional ruling is based on faulty reasoning. The document is a bit of heavy read, but Sony says that the ruling apparently ignores data that Microsoft would have an incentive not to include Activision games on PlayStation consoles in the future. In particular, Sony says that doing so would be of “strategic value to Microsoft” in its expansion of Xbox Game Pass.

Sony also claims that the CMA underestimates the gains that Microsoft would get from making Call of Duty an Xbox exclusive by a large margin. This is partly because Call of Duty players are not “average users” because they tend to spend a lot more than the regular platform user.

The CMA’s ruling stated that CoD players with less than 10 hours of gameplay or who have spent less than $100 on the game would not switch platforms after the deal, ostensibly from PlayStation to Xbox. Sony disputes this multiple times as “unsupported speculation,” an “extreme assumption,” and “pure conjecture.”

The ruling also used Minecraft as an example of Microsoft releasing a popular game on multiple platforms despite owning Mojang, but Sony believes that Minecraft and Call of Duty are not comparable due to difference in graphics and user engagement. Even then, Sony says that Microsoft has “blocked Chrome OS’s access to Minecraft’s consumer edition,” revealing the company’s intentions to make its games exclusive.

It finds Microsoft’s acquisition of ZeniMax far more indicative of what the company would do in making Activision games exclusive to Xbox if the merger were to be approved.

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How PlayStation players boost Microsoft’s MAUs

Surprisingly, despite having far fewer consoles in the market, Microsoft has more MAUs than Sony. According to Ampere Analysis, between September 2022 to February 2023, Sony overtook Microsoft only once and it was around the time God of War Ragnarok released.

In a statement to IGN, analyst Piers Harding-Rolls revealed that this is because a large number of PlayStation players are playing Minecraft, which is owned by Microsoft. Apparently 35 percent of users playing Microsoft games (which includes acquired properties) are actually on PlayStation.

Harding-Rolls further explained the implications of Microsoft’s acquisition of Activision Blizzard. According to him, the merger – which will result in Activision Blizzard appearing as Microsoft going forward – will challenge EA’s lead as the top console publisher, with Microsoft “potentially having a share over two times that of Sony.”

Many have suggested that Sony should purchase EA in the inevitable consolidation wars following the Activision Blizzard merger.

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Microsoft could be subject to special antitrust regulations like Google and Meta

Andreas Mundt, president of the FCO, makes the case for why Microsoft could be subject to further antitrust regulation in an official statement:

With Windows and its Office products Microsoft has had a long-standing and very strong position with regard to operating systems and office software… In addition, Microsoft is also active in other areas, including gaming with its Xbox, career networks with its service LinkedIn or internet searching with its search engine Bing.

In 2022, the FCO determined that its special abuse controls would apply to Google, Meta, and Amazon, with Amazon attempting to appeal this decision. If Microsoft is included in this list, it will allow the FCO to crack down on any of its current or future anti-competitive behavior.

A spokesperson for Microsoft responded with a statement (via TechCrunch), stating that it is “mindful of [its] heightened responsibility to support a healthy competitive environment” and wishes to “engage constructively with the Bundeskartellamt.”

Fortunately for Microsoft, its acquisition of Activision Blizzard has been approved by Japan and looks like it could be approved in the UK.

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How NetEase got pulled into the Microsoft Activision deal fiasco

According to The New York Times (via Eurogamer), Kotick was in a Zoom meeting with NetEase boss Ding Lei when the latter suggested through a translator that the Microsoft Activision deal may face hurdles in China with the current state of Activision NetEase partnership.

Kotick reportedly felt “threatened” by Lei bringing the topic up, and somehow ended up believing that Lei was suggesting that he would be able to influence the Chinese government’s decision about the deal.

Perhaps, Lei’s comments were lost in translation but it’s unclear why Kotick felt threatened by the mere mention of the merger. In the end, he decided not to extend Activision Blizzard’s contract with NetEase – a decision made in haste that ultimately resulted in all of Blizzard Entertainment games going dark for millions of players in China.

NetEase was understandably infuriated by Kotick’s move, and refused to entertain Activision’s request for a temporary extension of contract to keep Blizzard games online.

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