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An open letter to the Capital Markets Authority

An open letter to the Capital Markets Authority

Disclaimer: The view expressed below is that of the author only and does not represent the official position of lordsofgaming.net

this week , UK Competition and Markets Authority He invited the public to express their views on Microsoft’s proposed acquisition of Activision-Blizzard-King. I took the opportunity to do so. Below is the message I sent to them in its entirety.

To the Competition and Markets Authority:

I would like to begin my remarks by thanking your organization and its members for your tireless efforts to ensure the betterment of consumers in the UK and, indeed, around the world. I also want to thank you for allowing the public to share their thoughts on Microsoft’s proposed acquisition of Activision-Blizzard-King.

Before sharing my views on this proposed acquisition, I briefly wanted to share my background with the gaming industry to provide context for my observations and expose any biases I might have. I’ve been a consumer in the gaming industry for over 20 years. Throughout that time, I’ve owned multiple consoles made by each of the leading console manufacturers today: Microsoft, Nintendo, and Sony. Last year, I also worked as a writer for the press outlet lordsofgaming.net.

At the beginning of this console generation, I decided to buy the Xbox Series X over the PlayStation 5, having decided that I preferred the value proposition that the Microsoft brand had to offer as an entry point into this generation of games. I anticipate that I will also buy a Playstation 5 before the end of the current generation.

Having said that, I believe that the interim results from the CMA’s Phase 1 review of the merger overestimate the potential for harm from this acquisition and underestimate the likelihood and magnitude of the potential benefits. In my view, the potential outcomes of this acquisition will lead to stronger competition in the gaming industry for the betterment of consumers.

Impact on console platforms

In its statement of issues, the CMA notes that one focus of Phase 2 realization will be the potential damage to Xbox console competitors (particularly Playstation) if Xbox decides to use its ownership of Activision properties to try to win market share through exclusivity, pricing, or quality degradation. I agree with the CMA’s assertion that Microsoft may have commercial incentives to do so to increase affinity with their platform.

However, given their public commitments to preserve it Call of duty On a PlayStation with equal features and content, they will likely drive convergence by adding the Activision catalog and future games to Game Pass, and getting the product to consumers at a lower price. In my reading, this approach will be useful for two reasons.

  1. In the absence of integration, every consumer wants to play games like Call of duty or coming Diablo IV You will need to purchase them at full price. After the integration is completed, this option will still be available to each consumer, but consumers who own an Xbox or PC capable computer or have access to cloud gaming will also have the option to play the title with an inexpensive subscription.
  2. Over time, this approach could lead to broader adoption of the Xbox console platform, narrowing the current wide gap between Microsoft and Sony’s market share and, more importantly, market power. If the competition between these two console manufacturers is closer in the future, this will benefit consumers. I will give just one example of why below, as I am confident that the other participants will give to others.
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One way that Sony’s current market size hurts consumers is in its ability to secure full or time-limited exclusives from outside developers and publishers. Given the market leadership it has gained over the past nine years, Sony is able to secure favorable conditions for these deals in a way that Microsoft cannot.

The reason is simply my account. To persuade a third-party partner to enter into an exclusive agreement, Sony must offer the partner more money than it expects to lose by not releasing it on Xbox (or by releasing it on Xbox after a year or more). Microsoft, of course, should do the same.

However, this is usually only applicable to Sony due to the huge difference in the installation rules on their respective platforms. With a combined total install base of 150 million+, compared to Xbox’s 60-70 million, the conditions under which such an agreement would be commercially viable for Sony are much broader than they are for Microsoft.

While this is a legitimate business practice and part of Sony’s strategy to enhance convergence for its console, it hurts any consumer without the PlayStation platform. In the absence of such agreements, I would have been able to play games like Final Fantasy 7 Remakeblood borne And the Spiderman from Marvel on the Xbox. Instead, I had to buy a Playstation 4. Others with less means couldn’t get it to work.

If competition between the two units were closer, such harmful practices of market power would be much rarer and more expensive. This is just one of many examples of how close competition between the two companies can enhance well-being.

Impact on multi-game subscription services

Capital Markets Authority logo

The CMA is making a wise decision to investigate whether Game Pass, arguably the multi-game subscription service with the strongest reputation in the gaming industry today, will be boosted by the addition of the Activision-Blizzard-King catalog to close out current and future competitors. However, I believe that a thorough investigation will lead to the conclusion that this addition to game arcadeAlthough it is large, it will not reduce competition in the gaming market significantly. This is for two reasons.

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First, for the foreseeable future, the success of subscription services will be limited by their competition with buy-to-play and free games. For example, if Microsoft raised the price of Game Pass to $30 per month after the acquisition, consumers like me would likely cancel the subscription and instead buy the games we want to play “on demand”. These distribution models are alternatives available to consumers. However, even in the hypothetical scenario where a company’s subscription service becomes dominant over the services of its competitors, it does not follow that that company will exercise undue market power. This company will still need to compete on price, quality and other fronts.

Second, even with the addition of Activision-Blizzard-King, Microsoft won’t be the only company able to bring a convincing subscription service to the market. Each of the current major competitors on the console has a wealth of intellectual property and perks that can provide a solid foundation for a Game Pass competitor. In fact, Sony has already taken meaningful steps towards competing directly with Game Pass in restructuring its PlayStation Plus service.

In a virtual future where subscriptions become the dominant way consumers choose to access games, competitors like Sony and Nintendo can leverage their holdings, partnerships with third-party developers and publishers, and their own acquisitions to compete directly with Microsoft’s Game Pass offering. . This direct competition will benefit consumers on each platform.

Impact on cloud gaming

Finally, the CMA reported in its filing that it is also exploring “whether the merger could adversely affect the future of cloud gaming.” Moreover, the authority noted that a particular concern is whether Microsoft’s “multi-product ecosystem” may give it an insurmountable advantage over current and future competitors. This is another line of inquiry that makes sense. However, in my opinion, the risks of regulating on these grounds are greater likelihood and scope than potential benefits.

In my view, cloud gaming is very new and unproven as a consumer product, so regulators should be very careful about using their power in ways that might prevent their growth artificially. While cloud gaming is currently only used by a small percentage of gamers, as a technology, it has the potential to be of great benefit to consumers, developers, and publishers. So far, it can reduce the current friction points that prevent consumers from accessing high-quality games, such as the need to buy expensive consoles or computers, or (in some cases) even consoles. Microsoft is currently using its cloud ecosystem to reduce developer pain points through efforts such as the ID@Azure program. If the CMA prevents this acquisition from being completed, it could significantly impede consumer adoption of this technology and thus either delay or prevent the benefits it may bring to the industry.

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Additionally, while the CMA rightly notes that Microsoft has a potential advantage in any future cloud gaming market due to its multi-product ecosystem, I think its concerns about this feature are misplaced. At first, I don’t think one could reasonably argue that his advantage is so great that it potentially prevents other players from being able to compete purposefully.

Second, and most importantly, the same factors that give Microsoft an edge in the cloud competition can also be described as efficiencies. As CMA members know, market efficiencies (including digital markets) tend to benefit consumers, as eliminating costs in the supply chain most often leads to lower prices for consumers.

However, the CMA may not realize that there is a parallel to this in the recent history of the gaming industry. Throughout the previous console generation, there has been a major shift in consumer trends: that is, the vast majority of consumers are now buying games digitally rather than physically. In my opinion, the main reasons for this are market efficiency and reduced friction. Developers and publishers reduce costs by physically manufacturing and shipping fewer discs and disc covers. Also, delivering content directly to consumers’ homes eliminates the need for a third-party retailer. These reduced costs are often passed on to consumers in the form of more frequent and dramatic sales than one might find at an actual retailer. These discounted prices, combined with the convenience of being able to download a game from the couch, have caused widespread consumers to prefer digital as a means of delivering products over physical.

Having a multi-product ecosystem that it could leverage to enhance its cloud gaming offerings means that Microsoft has efficiencies that other companies may not have. If this leads to Microsoft being the market leader in the future of cloud gaming, it can only be because Microsoft is using those efficiencies to pass on value to its customers.

conclusion

As a consumer who will benefit directly and immediately from the completion of this transaction, I ask the CMA to carefully consider the various efficiencies and consumer welfare enhancement outcomes of this merger as it continues to achieve Phase II. I am confident that in your investigation, you will reach many of the same conclusions that you did.

thanks for your time.

With gratitude,

Steve Perry