Microsoft risks an antitrust battle over the future of gaming

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Wednesday, December 7, 2022

Microsoft may face its first antitrust battle in years over Call of Duty

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

The decision is risky, because fighting with the FTC risks opening Microsoft to the same negative attention and scrutiny that Alphabet, Amazon, and Meta are facing as they scrutinize their own antitrust investigations.

Why take such a risk? Because Activision Blizzard, which owns the famous “Call of Duty” franchise, will instantly turn Microsoft into the third largest game company in the world by revenue after Tencent and Sony. On top of that, it would also give Microsoft the opportunity to leapfrog Sony into the still-fledged cloud gaming industry, which Newzoo says will jump from $2.4 billion in revenue in 2022 to $8.1 billion in 2025. Moreover, the deal would make Microsoft is also a real competitor in the rapidly growing mobile gaming industry.

Activision Blizzard’s Call of Duty is a very important game for both Microsoft and Sony. (Image: Activision Blizzard)

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

“The whole reason they bought this…is because they really intend it to become gaming’s Netflix,” explained Michael Pachter, managing director of equity research at Wedbush. “The difference between Microsoft’s approach and Netflix’s approach is that Netflix has been based largely on content that it has licensed from others, and Microsoft is doing so largely on the basis of content that they own and control.”

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

Play from anywhere and everywhere

Not only would the FTC’s antitrust lawsuit be a black point for Microsoft, it could also be a major distraction. If Microsoft wasn’t dealing with the Justice Department’s antitrust lawsuit that nearly cut the company in half in the ’90s and 2000s, it might not have missed the smartphone revolution.

But the gaming industry, which Newzoo estimates will see $196.8 billion in global revenue in 2022, seems too big for Microsoft to miss.

“There is a lot of scrutiny [the deal]It’s a pretty huge acquisition,” explained Louis Ward, IDC’s director of research for gaming, esports, and virtual/augmented reality. “This would shake up the competitive dynamics of the entire gaming industry.”

It’s not just about game consoles and downloadable games. Microsoft is seeking to finally get ahead of Sony by becoming the number one company for cloud gaming.

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

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 to date. That’s up from 10 million people in April.

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

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

However, that’s less than the 25 million PlayStation 5 consoles Sony has sold since its launch in 2020. Despite its best attempts, Microsoft is constantly outpacing Sony in the gaming space and regularly sells fewer consoles and games than the PlayStation maker.

However, cloud gaming represents a new opportunity for Microsoft, and one that the company is keen to seize. It already has the necessary technology backbone in place thanks to its massive servers all over the world. It just needs to attract more players.

Game Pass [Microsoft’s gaming service that includes its cloud gaming platform] It really became pivotal to the growth of Microsoft’s gaming business. Reach beyond the highly competitive console market; It builds on Microsoft’s strengths in the cloud and software as a service, and allows for access to new audiences… among many other things,” Louise Shorthouse, director of research at Ampere Games told Yahoo Finance.

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

“Call of Duty” is the key

The general disagreement between Microsoft and Sony revolves around whether Sony will continue to have access to “Call of Duty” from Activision Blizzard if Microsoft is able to buy Activision Blizzard.

According to Smith’s article, Microsoft is willing to sign a 10-year agreement that will ensure that “Call of Duty” will be available on the same day on PlayStation and Xbox. It makes sense for Microsoft to keep “Call of Duty” on PlayStation as well. The latest installment in the “Call of Duty Modern Warfare 2” series has reached $1 billion in sales within its first 10 days on the market. Cutting out Sony means gobbling up Call of Duty sales.

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

The Microsoft Activision Blizzard deal will help it boost its cloud gaming service. (AP Photo/Jae C. Hong, file)

However, what isn’t clear is whether Sony will be able to offer the game via its PlayStation Plus service, which features a cloud gaming option.

Both Microsoft and Sony have a history of buying third-party game companies and making their titles exclusive to either Xbox or PlayStation. But “Call of Duty” is such a huge franchise that if Sony doesn’t have access to it, say after the proposed 10-year agreement expires, gamers could find themselves choosing Xbox over PlayStation.

Mobile is huge, but it’s part of the cloud story

While developing Game Pass is a huge goal of the Activision Blizzard acquisition, Microsoft is also benefiting by finally having its own competitive mobile game franchise. Activision Blizzard’s King is home to titles like “Candy Crush” and then there’s the mobile version of “Call of Duty.”

The mobile gaming 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 computers and high-end game consoles, investing in the mobile gaming industry makes sense for Microsoft.

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

Microsoft still has a long way to go to fulfill its deal. And there is no way to guarantee that a tie will benefit players rather than harm them through diminishing competition, Sony argues. But for Microsoft, the risk appears to be worth the reward. Even if it means being the bad guy.

by Daniel HollyTechnical Editor at Yahoo Finance. follow him @tweet

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