Was the CMA’s decision as expected?
Reactions to the CMA’s decision have been mixed.
Niko Partners president and CEO Lisa Cosmos Hanson believes this is perfectly in line with what UK regulators have been saying throughout the process, while Kantan Games’ Dr Serkan Toto believes that the UK is on track for the deal. It was expressed as “quite shocking” because he thought that the consensus of those involved in the game industry was that they would eventually approve.
Nick Parker of Parker Consulting agreed, adding: “The CMA’s decision surprised me. If Europe were the first to deliver the bad news on this matter, the UK would be the leader. It would have been better to have been a follower instead.”
But Ampere Analysis’s Piers Harding-Rolls argues that the validity of this judgment depends on whether you think streaming will become the standard form of game distribution in the next five to 10 years. . In the analyst’s own opinion, it will take at least that long for cloud gaming to become “more than just a footnote in the gaming space.”
”The game market is so dynamic that it’s difficult to predict long-term prospects for changes in distribution,”
he adds. “However, with Microsoft’s investment in infrastructure and service offerings with Game Pass Ultimate, the number of users has increased, and Microsoft itself has spoken of its ability to reach billions of gamers through streaming. It’s kind of understandable for the CMA to focus on this area because there are so many of them.”
Finally, Midia Research’s Karol Severin adds that this approach “doesn’t really protect gamers.” The CMA suggests that without Microsoft’s umbrella, Activision Blizzard could launch its own cloud gaming service and, as a result, offer consumers more choice, which Severin says is good I don’t think so. “The more choices, the better for consumers,” he explains. “We tend to think of the benefits of choice as being linear, more is better, but it’s actually a bell curve. Too few choices aren’t good, too many aren’t good, and everything in between. There’s an optimal choice value somewhere — and fragmentation, price, and too many options start to diminish the advantage.”
He continues: “From the very beginning of this process, I was pretty vocal that I didn’t see any substantive reasons why this acquisition wouldn’t go through. The reasons given by the CMA yesterday convinced me. In fact, some of these reasons were more questions than answers for me, like how much market size do you need to have to get regulatory oversight? Shall we?
Why was cloud gaming the biggest hurdle?
Microsoft, Activision Blizzard, and Sony all huddled over how the acquisition would affect Call of Duty and its availability, drowning out concerns about cloud gaming, but this is the end result. It became a pitfall of this deal (for now).
The CMA predicts the cloud gaming market will hit $11 billion by 2026, but Severin argues that even if it does, it’s less than 5% of the entire gaming industry.
”The CMA points out that Microsoft has a large share of the emerging market for cloud gaming, but if you helped launch that market (and do the right thing for consumers). If you’re one of the pioneers or early entrants, you’ll naturally get a high share while the market is small,” he adds.
”In a sense, it risks penalizing innovators who successfully enter new markets and achieve premature success. In this sense, Microsoft is a victim of its own success.” James McWhirter of
Omdia According to the analytics firm’s own estimates, cloud gaming (which includes Xbox Cloud Gaming and PlayStation Plus Premium) will generate $5.1 billion in revenue in 2022 (versus traditional console game revenue of $35 billion). in contrast to ). In this regard, the CMA clearly has a progressive view on the issue, and that view may have some substance, he says.
”While cloud gaming has not yet delivered a satisfactory experience, given the direction of technology trends, streaming will become the primary means of accessing premium games in a significant portion of the addressable market. It’s possible,” says Mr. “This is especially true in markets like India and Brazil, where traditional premium games played on PCs and consoles are not as established as they are in other regions.”
”Content will become an increasingly important differentiator for the competitiveness of cloud services as streaming takes hardware ownership out of the equation. In this context, ABK’s like Call of Duty and World of Warcraft Offering a portfolio of leading titles will work in Microsoft’s favour, among cloud gaming operators.”
More choice is not automatically better for consumers. The choices are linear, more is better, but it’s actually a bell curve – Karol Severin, Midia Research
Microsoft has a 10-year deal with the CMA to bring its games (and Activision Blizzard’s games if the deal is approved) to other cloud gaming services like Nvidia GeForce, Boosteroid and Ubitus offered remedies such as
McWhirter says these partnerships don’t necessarily mean that rival services will get unrestricted access to these games — the licensing terms, fees and terms are set in Microsoft’s favour. would The platform holder also owns Azure’s infrastructure, which not only provides Xbox Cloud Gaming, but also other cloud services.
Harding-Rolls adds that services like GeForce Now and Boosteroid are “bring-your-own-game services and don’t compete with multi-game subscription offerings like Game Pass.”
DFC Intelligence, in a report released this morning, cited the reasons for the CMA’s rejection of Microsoft’s bailout plan. Among other things, these partnerships don’t cover other multi-game subscriptions, aren’t open to cloud gaming providers who want to offer games on non-Windows OSes, and that such deals aren’t for games. Standardization of the terms under which the two companies are provided (as opposed to leaving room for variation and creativity, as in the case of non-mergers).
”In other words, Microsoft should propose remedies that address these arguments,” the DFC report reads. “The strategy of acquiring Activision Blizzard was that Microsoft could use games as Trojan horses to lure consumers into other Microsoft products and services centered around PC and mobile rather than consoles.
”The remedy the CMA grants will likely limit Microsoft’s ability to use Game Pass as a gateway to other services. This will be the point at which Microsoft will give up and walk away. ” The
DFC also cited the CMA’s suggestion that Microsoft’s bailout “will necessarily require some level of regulatory oversight” by UK regulators, with the analytics firm saying this is clearly “It’s not a hassle they want to deal with,” he added.
”It’s easier to block a merger,” the report continues. “This means Microsoft needs to find a remedy that doesn’t require constant monitoring, which may not be possible.”
Will Microsoft’s lawsuit succeed?
Given the effort and money put into this acquisition, it’s no surprise that Microsoft has declared an appeal against the CMA’s decision. But few analysts think Xbox will win the lawsuit.
”Both parties to the potential acquisition seem confident in their chances, even before the CMA’s decision was made,” Professor Toto observes.
Harding-Rolls provided more detail on the appeals process: For Microsoft to succeed, will the UK Competition Tribunal admit there are procedural errors in the CMA’s review process? , It is necessary to prove that the CMA acted ‘unreasonably’. It is also possible that a lengthy review of the CMA’s findings may be required.
”It’s unlikely that CAT will be against the CMA on all counts, but it could take a different view on certain counts,” Harding-Rolls explains. “The odds of a successful appeal based on the denial of the CMA’s findings appear relatively low given the history of appeals of this type. However, as the CMA takes a more aggressive stance, There will inevitably be more appeals, which may result in more successful cases, and we anticipate that this process will take several months.” Niko’s Hanson added: “It’s already been done
. Given the depth of the review and the fact that the CMA said the behavioral remedies were inadequate, an appeal wouldn’t reverse the decision, such as making Activision’s IP available on Nintendo and Steam. Microsoft’s offer was insufficient in the eyes of the CMA.”
What happens to Microsoft if the deal doesn’t go through?
Despite the size of the acquisition, Midia’s Severin stresses that neither Microsoft nor Xbox will “live or die with this acquisition.”
Are there other buyers willing to pay $69 billion for Activision? Probably not anytime soon – Serkan Toto, Kantan Games
”Activision is, of course, a desirable target, but there are other places where Microsoft could put billions in its war chest,” he says. “If this doesn’t go through, I think Microsoft will continue to acquire other targets.” Toto agreed, suggesting that Microsoft could
take a similar approach to Tencent and Saudi Arabia’s public investment fund. ing.
”Microsoft needs to start looking at other potential acquisitions now,” he says. “We’re clearly behind Sony in first-party gaming. If the acquisition doesn’t happen, Microsoft will have to acquire multiple studios to bolster its software portfolio, but it still has Call Of Duty. You’re not going to get something as big as that.”
Parker adds: “If this acquisition doesn’t go through, and I don’t know if it’s possible now, I don’t know, but Microsoft’s presence in the market. So you’ll lose more opportunities than ABK and will have to look for other targets to fill the gap between cross-platform exploitation and a growing user base.”
Harding-Rolls agrees, stressing that while the deal’s demise will hurt, it won’t lead to “an overhaul of Microsoft’s gaming strategy.” Meanwhile, Hanson says the need for acquisitions will also be amplified by Xbox Game Pass, adding: “To keep and attract users, Microsoft needs to continually release new content. The need makes it a challenge to maintain an attractive and valuable (subscription) service for current and future users.”
What will happen to Activision Blizzard?
Analysts believe the impact on Activision Blizzard will be minimal, but the company’s stock price is bound to take a hit. Prior to Microsoft’s proposed acquisition, Activision Blizzard was one of the most profitable publishers in the games space, not only because it owned Call of Duty, but because it owned King, creator of Candy Crush. In fact, the company just announced yesterday that it had its best financial year yet.
Harding-Rolls says nothing will change for Activision Blizzard in the short or medium term, but it may need to be reviewed in the long term: “The deal with Microsoft is changing distribution, subscriptions, etc. It should have helped protect Activision’s business from future challenges such as the impact of its new business model, soaring development costs, etc. Without Microsoft’s capabilities and financial strength, Activision would have a long-term growth and product strategy. Toto sees this as a
”back to square one” for Activision, adding: “There are other buyers willing to pay Activision $69 billion. Probably not for the foreseeable future, and I think, in the broader picture of things, that the potential for a deal not going through would be worse for Microsoft than it would be for Activision.”
What impact will it have on future gaming M&A?
Given the potential demise of the largest M&A transaction in the history of the industry, be discouraged by the prospect of other large companies considering similar acquisitions going through a complex regulatory process to close the deal. is not difficult to imagine.
But Niko’s Hanson says the deal between Microsoft and Activision “doesn’t reflect a potential acquisition of a AAA game developer more broadly” — and not just because of its sheer size.
He continues: “Like a growing area, game developers, publishers, platforms and other parts of the video game ecosystem are looking to grow for economic efficiency and better serve increasingly discerning gamers. Consolidation will continue, not just in the Western market, but in all existing and emerging video game markets around the world.”
If this acquisition doesn’t go through, and I don’t know if it does now, Microsoft will lose more than ABK – Nick Parker, Parker Consulting
Parker agrees: “Each acquisition of this magnitude will be dealt with by the authorities on a case-by-case basis, so I don’t think it will hinder or deter future M&A opportunities.
” Severin believes that the days of independent AAA publishers like Activision Blizzard may be limited, and that similar acquisition proposals may be necessary in the future.
”I don’t think a pure game company will be very successful on its own if it can’t create commercial synergies outside of games,” he explains. “Microsoft, Nvidia, Amazon, and Google can afford to fund user and platform growth. But pure gaming companies rely heavily on making their games profitable, so It will be difficult to compete in terms of the value it provides.”
But Ben Greenstone, managing director of technology policy and communications consultancy Taso Advisory, laments the impact of regulators on their home market.
”The CMA’s decision could be a major disincentive for video game operators operating in the UK,” he says. “It can narrow the exit route for companies, damage investment in this field, and discourage domestic entrepreneurship. The CMA should have absolute enforcement power, but this is misguided. It seems that”
Did the acquisition fall apart?
The $69 billion question is, is this the end of Microsoft’s acquisition of Activision Blizzard?
The fact that Xbox is appealing makes an immediate no. However, as noted above, the caveat is that appeals are unlikely to succeed, and DFC Intelligence’s report is very clear on the matter.
”This contract has not been terminated,” the company wrote. “But it looks like Microsoft will have to make more compromises to appease regulators. The question is how far will Microsoft compromise to get this deal done? The DFC is currently saying that the CMA is telling Microsoft that it’s owning I see the possibility of demanding more than they are willing to provide, increasing the risk that Microsoft will pull out of the acquisition.” Midia Research’s Severin remains optimistic
. “Given how soft the currently-cited reasons feel, I still believe that this acquisition will eventually go through. Ironically, the decision would require a second round of concessions from Microsoft. You can think of it as something you’re trying to get.” “
Microsoft has already made extra concessions in terms of warranties, for example a 10-year non-exclusive offer of Call of Duty and a partnership with NVIDIA. So who can say we’re not willing to make a few more concessions to get this deal done?”