Microsoft buys Activision Blizzard

[Aceris]

@Ginger_Yellow

but rather that MS could leverage a) Azure and its cloud infrastructure in general, and b) ABK’s content, in anti-competitive ways to foreclose potential competitors in cloud and subscription services.

I don’t buy (a) at all. The competitors to xcloud are going to have to be big enough to build their own infra anyway, and cloud infra is actually pretty fungible. If infra was the killer prerequisite here Stadia wouldbe conquering the world.

Leveraging content in an anti-competitive way to draw people into your ecosystem - indeed. But how is that different from the way the console industry has worked since forever?

I’m not opposed to a regulator saying “spin out CoD / covenant to provide 10 years of equal terms access on PS”. I just don’t see why the FTC is beign so aggressive.

[stusser]

Distributed infra is a mandatory prerequisite to providing a streaming service, particularly where responsiveness matters like gaming. It’s one of several, and coming up with a business model the market embraces is definitely another.

This is very different from an exclusivity agreement with a third-party studio in that Microsoft would own Actilizzard and thus have it in perpetuity.

[Timex]

Honestly, I don’t see Microsoft’s Azure infrastructure as being anti-competitive, given that it’s not dominant. That is, while having access to that infrastructure is required, Azure is far from the only game in town. There are other options for doing large scale cloud deployment that a competitor streaming service could leverage.

[Woolen_Horde]

Microsoft – Activision deal could harm UK gamers

[Ginger_Yellow]

At this stage, the CMA has identified the following possible structural remedies: (a) Requiring a partial divestiture of Activision Blizzard, Inc. This may be: (i) Divestiture of the business associated with Call of Duty;

(ii) Divestiture of the Activision segment of Activision Blizzard, Inc. (the Activision segment), which would include the business associated with Call of Duty;

(iii) Divestiture of the Activision segment and the Blizzard segment (the Blizzard segment) of Activision Blizzard, Inc., which would include the business associated with Call of Duty and World of Warcraft, among other titles.

(b) Prohibition of the merger.

15. Behavioural remedies are designed to address an SLC and/or its adverse effects by regulating the ongoing conduct of parties following a merger. The CMA will generally only use behavioural remedies as the primary source of remedial action where: (a) divestiture and/or prohibition is not feasible, or the relevant costs of any feasible structural remedy far exceed the scale of the adverse effects of the SLC;

(b) the SLC is expected to have a short duration; or

(c) behavioural measures will preserve substantial relevant customer benefits (RCBs) that would be largely removed by structural remedies.8

16. At this stage, the CMA considers that certain divestitures and/or prohibition are, in principle, feasible remedies in this case. The provisional SLCs are not time-limited, and while RCBs have not yet been assessed in detail, evidence on efficiencies received to date does not suggest that RCBs might be substantial.

17. In most CMA merger investigations, the detailed assessment of remedies begins only after the Provisional Findings – where the CMA provisionally concludes that a Merger gives to an SLC (or SLCs). While the CMA’s guidance notes that merging parties have the option to engage in discussions about potential remedies before the Provisional Findings (‘without prejudice’ to the question of whether the Merger gives rise to an SLC),9 there is no requirement for merging parties to do so – and the Parties in this case have not yet proposed any potential remedies to the CMA.

18. Microsoft has, however, informed us of existing and potential contractual arrangements with third-party platforms relating to access to Call of Duty. Accordingly, while none of the circumstances in which the CMA would select a behavioural remedy as the primary source of remedial action in a merger investigation (as summarised in paragraph 15 above) appear to be present, the CMA will also consider a behavioural access remedy as a possible remedy.

Edit: more on behavioural remedies:

As noted above, the circumstances in which the CMA might select a behavioural remedy as the primary source of remedial action are not present in this case. The two markets in which the CMA has provisiona lly found SLCs are multi-faceted and continue to develop. This is particularly the case in cloud gaming, where the customer offerings and business models of market participants are evolving rapidly. We are of the initial view that any behavioural remedy in this case is likely to present material effectivenessrisks. We invite the Parties to provide evidence on how these risks could be appropriately managed to ensure that any behavioural remedy is effective.

[Timex]

A question that I have regarding this type of thing is… what if a corporation tells one of these individual regulatory groups to fuck off?

I mean, would the result be that Microsoft would be prohibited from doing business in the UK? What would that look like?

The only thing like that I can really recall would be when Google pulled out of China rather than acquiesce to their demands.

[Ginger_Yellow]

Well, ignoring for now that the MS/ABK merger agreement is conditional on CMA approval, probably something like this:

https://www.ashurst.com/en/news-and-insights/legal-updates/competition-law-newsletter-march-2022/cn06---cma-imposes-record-fines-for-breaches-of-initial-enforcement-order-in-merger-cases/

The CMA can order the unwinding of a business integration (as it did with Giphy), but ultimately in international cases like this the main sticks are fines and political pressure.

Failure to comply with Interim Measures without reasonable excuse may result in the CMA imposing a penalty of up to 5% of the total value of the turnover (both in and outside the United Kingdom) of the enterprises owned or controlled by the person on whom the penalty is imposed. To date the penalties imposed have been significantly less than the 5% cap.89 However, given the importance of Interim Measures to the functioning of the regime, the CMA will not hesitate to make full use of its fining powers. The CMA will therefore impose proportionately larger penalties in future cases should this prove necessary in the interests of deterrence.

[Ginger_Yellow]

Re CoD:

48. As to what Microsoft would do with CoD, we have provisionally found that it would have an incentive to make it either partially or totally exclusive to Xbox.

49. First, Microsoft’s commercial strategy to date suggests that there are strategic benefits in limiting the availability of acquired gaming content. Microsoft has acquired a range of gaming studios over the past few years and, with very few exceptions, has made their future releases of games exclusive or redirected the efforts of those studios to produce exclusive Xbox games. Although we recognise that Activision is a bigger studio than any acquired by Microsoft before, this pattern of behaviour seems to be consistent with Microsoft’s commercial strategy.

50. Second, the evidence suggests that making CoD partially or totally exclusive could bring Microsoft longer-term strategic benefits. These would include acquiring new loyal customers, growing the number of Game Pass subscribers, and strengthening Microsoft’s reputation as having a console with attractive exclusive content. We recognise that Microsoft could face backlash from some gamers for adopting this approach, but we believe that this would not be enough to make these strategies commercially disadvantageous in the long run.

51. Third, we provisionally believe that making CoD exclusive to Xbox could be profitable for Microsoft. Although it is difficult to quantify Microsoft’s financial gains and losses from making CoD partially or totally exclusive to Xbox, we provisionally believe that making CoD exclusive to Xbox could be profitable for Microsoft. Although it is difficult to quantify Microsoft’s financial gains and losses from making CoD partially or totally exclusive to Xbox, we have tried to approximate these by using two different financial models. One model measured the direct financial gains over the course of one year of making CoD exclusive to Xbox. It is a straightforward comparison of the income that Microsoft would lose from not selling CoD on PlayStation against the additional income that it would earn from selling CoD, additional Xbox consoles, and other games to new customers who would switch—as estimated from our survey results—from PlayStation to Xbox. We provisionally found that this calculation on its own was broadly neutral in terms of profitability. The other model considered data used by Xbox in the ordinary course of business on the ‘lifetime value’ of new customers. This has the benefit of accounting for five years of spend on the Xbox platform and on CoD. This model, which we currently believe is a better way to estimate long-term financial incentives, suggests that making CoD exclusive to Xbox would be profitable for Microsoft.

52. On this basis, we provisionally believe that this combination of financial and broader strategic considerations would provide Microsoft with the incentive to make CoD either partially or totally exclusive to Xbox following the Merger.

[wavey]

Great, now I have to extend my conspiracy theory that the FTC are a bunch of Sony fanboys who irrationally hate Microsoft and America as a whole, to also include the UK CMA.

[JonRowe]

So, this is the Call of Duty lawsuit then?

[Timex]

@wavey

Great, now I have to extend my conspiracy theory that the FTC are a bunch of Sony fanboys who irrationally hate Microsoft and America as a whole, to also include the UK CMA.

Certainly the UK government hasn’t made any profoundly terrible decisions lately.

[JonRowe]

Call of Duty is on every single line of that CMA letter.

This entire argument is not around a company, but one IP.

[stusser]

MS will probably offer to spin out Treyarch with the CoD IP as an independent company next, is my guess, if they can cut a third off their offer price without paying the penalty.

[Rock8man]

But CoD is developed by Treyarch, Infinite Ward and Sledgehammer. Three studios that rotate with each iteration. And Raven Studios helps each of them with wherever they need help (which is a waste of talent at Raven, IMHO).

[JonRowe]

I wonder how much of a win that would be. It feels like this entire purchase from MS is to get CoD on gamepass, or the very least gain a competent studio infrastructure to make their own Microsoft owned IP games.

I guess, splitting COD off Activision, and then getting some game-pass exclusivity deals into place would help to accomplish that goal, with the benefit of gaining the rest of Acti-blizz’s significant holdings, like Warcraft, Starcraft, Overwatch, Hearthstone etc.

Because Activison doesn’t really have any IP outside of COD that isn’t licensed.

Could this deal end with Microsoft just buying Call of Duty? That would be a significantly less large purchase, and would still manage to piss Sony off. Would that even be allowed? Because it really feels like the entire argument is over Call of Duty.

[Timex]

Honestly, MS could just pay whoever owns CoD to put it on gamepass. That’s how most things get on gamepass.

[JonRowe]

Sure, but why buy the milk when you can buy the cow?

[Ginger_Yellow]

@stusser

MS will probably offer to spin out Treyarch with the CoD IP as an independent company next, is my guess, if they can cut a third off their offer price without paying the penalty.

Why would ABK shareholders accept that? That’s less than the shares are currently trading at and not much more than they were trading at before the offer.

Edit, actually, it’s slightly less than where they were trading.

[morlac]

Wasn’t it always?

[dionisus1122]

It would be nice if the regulators looked at all exclusives with the same lens as was quoted above. Frustrating to see Microsoft singled out.