This is the best possible outcome I could have hoped for!
Ubisoft are typically excellent when it comes to supporting cloud gaming platforms and have a history of supporting Google Stadia and GFN and Amazon Luna!
This also increases the chance that we get Overwatch ported to other platforms including Linux!
I now vouch for this new deal to go ahead and be approved!
Of course the original deal was rightfully blocked just as I expected and indeed I emailed the CMA outlining the many problems inherent to the Microsoft submission!
My email to the CMA re. the Microsoft Submission
Subject: Commentary on Microsoft’s submissions by an interested party
To whom it may concern,
Per the document published online:
“7. Any person wishing to comment on Microsoft’s submissions is now invited to do so. In particular, the CMA welcomes submissions on whether or not there has been a material change of circumstances since the preparation of the Report and/or that there is a special reason for the CMA to take remedial action other than as proposed in the Report (and as set out in the proposed Order previously consulted upon), on the bases set out in Microsoft’s submission.”
I have not seen any persuasive reason as to why there should be a material change of circumstances since the preparation of the report.
I do not believe there is any special reason for the CMA to take remedial action other than proposed in the report on the bases set out in Microsoft’s submission.
It is therefore my recommendation that the Microsoft-Activision merger be prohibited per the final report.
I wish to address some of the points in Microsoft’s submission.
In their submission, Microsoft states:
In the FR, the CMA stated that the Agreements Microsoft had entered into did not affect its view on the likely theory of harm because it had no assurance that Microsoft would not simply break, terminate or renegotiate the Agreements.
- Pg. 1
This in my view is a misrepresentation of the CMA’s point of view put forward in their final report. The actual reason the CMA did not accept the agreements or Microsoft’s Cloud Remedy was not simply due to the above but rather due to multiple factors. From the summary of the final report (https://assets.publishing.service.gov.uk/media/6448f377814c66000c8d067f/Microsoft-Activision_FR_Summary.pdf):
5. Microsoft offered a behavioural remedy to address our concerns in cloud gaming services (the Microsoft Cloud Remedy). The Microsoft Cloud Remedy did not aim to restore competition to the level that would have 2 prevailed absent the Merger, but rather to impose obligations on Microsoft to support cloud gaming service providers using certain business models (such as by allowing them to stream certain games purchased by users through certain storefronts) for a ten-year period.
6. We found that the Microsoft Cloud Remedy had several shortcomings connected with the growing and fast-moving nature of cloud gaming services. In particular, the scope of the remedy was limited to cloud gaming providers with specific business models. As a result, Microsoft would not have to supply Activision’s full range of games to providers that, absent the Merger, may have entered into a different type of commercial relationship with Activision (eg, through exclusive content, joint marketing arrangements, or a multi-game subscription service like Game Pass) or to cloud gaming providers that may decide to operate using a non-Windows PC operating system (eg Linux). It also did not provide for competition through differentiation in content. The complexity of the remedy, in the context of a dynamic market that is evolving, also meant that it had a high risk of circumvention, and that it would have been difficult to monitor effectively. In light of these shortcomings, we could not be sufficiently confident that the Microsoft Cloud Remedy would have addressed our concerns, and we found that the only effective remedy to the SLC is to prohibit the Merger.
[…]
What remedy did Microsoft offer?
73. To address our concerns, Microsoft offered the Microsoft Cloud Remedy. Under this remedy, Microsoft committed to license Activision games, including CoD and World of Warcraft, royalty-free to certain cloud gaming providers for a period of 10 years. Microsoft proposed to update the consumer licenses on its website, giving the right to any consumer who acquired an Activision game in one of the online stores designated by Microsoft to stream that game in the cloud gaming services that were covered by the remedy. Microsoft offered to appoint a monitoring trustee to monitor and seek to ensure Microsoft’s compliance with the remedy, and a fast-track dispute resolution mechanism carried out under arbitration.
74. The CMA’s guidance sets out the established position that behavioural remedies are, due to their overall risk profile, unlikely to deal with an SLC and its adverse effects as comprehensively as structural remedies. Behavioural remedies can operate satisfactorily in limited circumstances, such as where the company operates in a regulated environment, where there are expert monitors, or where the SLC is expected to have a short duration. In this case, the market for cloud gaming is a new and unregulated sector. We have nevertheless engaged in a detailed assessment of the proposed Microsoft Cloud Remedy, including through multiple discussions with the Parties and third parties to establish whether this could constitute an effective remedy in the specific circumstances of this case.
75. We found two significant limitations in scope for the Microsoft Cloud Remedy.
76. First, it was limited to a model whereby gamers had to first acquire the right to play certain games (eg, by purchasing them on certain stores or subscribing to them on certain services) in order to stream those games on certain cloud gaming services. It did not make any provision for a different type of commercial relationship between cloud gaming service providers and the game publisher (ie, Activision). As such, it restricts the ability of cloud gaming service providers to access Activision’s games through other strategies and business models (some of which we already see in the cloud gaming market), such as joint marketing arrangements, exclusive or early access to content, or multi-game subscription services. In our view, and consistent with our competitive assessment, this is a dynamic market in which there is a reasonable chance that different providers will compete using a range of different business models, and that these providers would have had access to Activision’s content absent the Merger.
77. Second, the Microsoft Cloud Remedy applies to current and future PC and console versions of Activision games. The PC versions are those that are developed to run on a Windows OS, as well as other PC OS versions as may be released by Microsoft during the term of the remedy. We found that, absent the Merger, Activision would seek to maximise the value that it can derive from these games, which would have involved considering making non-Windows PC versions of its games (as it has already done in some cases). However, after the Merger, Microsoft’s incentives to make these games compatible with rival OS would be significantly lower, as this would both increase the attractiveness of rival cloud gaming services and divert demand away from Windows OS. This means that, in effect, cloud gaming services wishing to stream these games would have to use, or be compatible with, the Windows OS version of those games. This could exclude or restrict providers that may wish to provide cloud gaming services using other operating systems (such as Linux), either now or in the future. The Microsoft Cloud Remedy would therefore put non-Windows based cloud gaming services at a disadvantage, and potentially distort the choice of OSs for new entrants.
78. We also found limitations in terms of the duration, monitoring, and enforcement of the proposed remedy. The fact that the remedy is only for 10 years represents a clear weakness in terms of its effectiveness as a comprehensive solution to the SLC, which is not itself time limited. Since the remedy applies only to a defined set of Activision games, which can be streamed only in a defined set of cloud gaming services, provided they are purchased in a defined set of online stores, there are significant risks of disagreement and conflict between Microsoft and cloud gaming service providers. Given the information asymmetry between Microsoft and any monitoring trustee or the CMA, it would be difficult to monitor and enforce this remedy, even with significant information gathering. We found several additional concerns with the practicalities of implementing the remedy, which are detailed in the Final Report.
79. Based on this evidence, we found that the only effective remedy to the SLC and its adverse effects was to prohibit the Merger.
Per above the CMA had multiple concerns that were not addressed by the agreements that Microsoft had entered into, namely:
-
that the remedy applies only to a defined set of Activision games streamed in a defined set of services provided they were purchased from a defined set of online stores
-
that the above meant risks of disagreement and conflict between Microsoft and cloud gaming service providers
-
difficulty with enforcement due to the complexity of the remedy
-
difficulty of enforcement due to information asymmetry between Microsoft and any monitoring trustee or the CMA
However in my view the most crucial point is that it would lessen competition with cloud gaming service providers who would potentially have chosen to make use of a different operating system than Windows.
For example popular games like Overwatch are much less likely to ever be ported over to macOS or Linux operating systems once Microsoft has ownership of Activision-Blizzard.
As it stands Activision-Blizzard has published several of their games on MacOS. World of Warcraft continues to be supported to this day with updates on MacOS. This shows that there was a potential in the future for Blizzard to have ported their games to a Mac computing system eventually, especially due to recent developments in both the hardware and software side of Mac computers that make it much more feasible for games to be ported and run with acceptable performance even on the lowest end Mac hardware currently sold.
Rival cloud gaming service providers may have chosen to use different operating systems due to the factors such as reduced cost, better performance or more control.
Microsoft’s submission does not address this.
Microsoft states:
a. The commitments impose a legally binding ten-year obligation on Microsoft to grant royalty free worldwide licenses to NVIDIA, Boosteroid and Ubitus in accordance with the terms of Microsoft’s Agreements with those firms.
The CMA has already addressed this. A 10-year agreement does not sufficiently address the substantial lessening of competition which is not time limited. Per the summary of the final report:
“The fact that the remedy is only for 10 years represents a clear weakness in terms of its effectiveness as a comprehensive solution to the SLC, which is not itself time limited.”
Microsoft states:
For the reasons set out below, these commitments constitute a material change of circumstance, as well as a special reason for reaching a different decision. The Agreements (which cover 2 of the 5 largest cloud gaming providers, Microsoft being a third) cannot be broken, terminated or renegotiated without very significant regulatory consequences for Microsoft (in addition to the contractual sanctions). The change in status of the Agreements (and attendant consequences) means that the CMA could not rationally consider them of no material weight in the assessment of the ability or incentive of Microsoft to withhold Activision games from cloud gaming providers. Instead, it is clear that they are important and reshape any such analysis.
It is inappropriate for Microsoft to emphasize two of the “five largest cloud gaming providers” since this is a nascent industry and in the future there will most certainly be new entrants to the industry that are none of those five, that have the potential to compete as some of the largest providers.
But even if we constrain ourselves to discussion of those five then what of Amazon Luna?
What of Playstation Plus Premium’s cloud game streaming service?
Microsoft’s agreements do not cover these providers and therefore once again Microsoft’s submission does not present a material change of circumstances that should alter the CMA’s decision put forward in the final report.
Microsoft states:
4. Second, on 15 July 2023 Sony entered into an extended agreement for the provision of Call of Duty (the principal Activision game with which Sony is and has been concerned). The entry into this agreement (the “Sony Agreement”) is a material change of circumstance and/or special reason for reaching a different decision, (both in its own right and in combination with the commitments referred to above).
This is immaterial since the CMA has expressly stated in the final report that the console theory of harm is not the reason for prohibition and that they do not believe Microsoft has the incentive to foreclose console rivals such as Sony’s PlayStation.
Microsoft states:
18. Activision games are currently not available on any cloud gaming service.
This is incorrect. Activision games are currently available on Boosteroid.
Microsoft states:
19. In contrast, the Agreements provide certain and immediate access to Activision games to three cloud gaming rivals for at least ten years post-Merger.
There is no certainty of immediate access if we judge by the currently slow on-boarding of Microsoft’s titles to NVIDIA’s and Boosteroid’s cloud gaming services. For example currently it is still not possible to access Bethesda’s titles such as “Elder Scrolls” or even first party Microsoft titles such as Forza Horizon 5 on them despite the agreement to bring Microsoft games to these services.
Microsoft themselves admits that the onboarding of these games is still a work in progress and not “immediate”.
Microsoft states:
20. The Agreements also provide immediate access to Microsoft’s own titles on other cloud gaming platforms. Implementation of this part of the Agreements is progressing even against the backdrop of the FR.
Therefore there is no reason to believe that we would have immediate access to Activision titles post-merger. There would almost certainly be an on-boarding period during which time the games would not be available.
Microsoft states:
22. NVIDIA has publicly stated that its agreement with Microsoft “is a major boost for cloud gaming and brings incredible choice to gamers”.13 Following the FR, NVIDIA publicly stated that “GeForce NOW and other cloud gaming providers stand to gain an even deeper catalog of games if Microsoft’s acquisition of Activision is completed. We see this as a benefit to cloud gaming and hope for a positive resolution”.
But NVIDIA has the incentive to now support the merger since they stand to benefit thanks to gaining access to the games as well as the Windows license agreement reducing the cost of their Windows licensing fees.
Therefore it is obvious that they would be supportive of the merger.
What of other future cloud gaming providers?
Google has already voiced their concerns about the deal. There exists a possibility that Google will in the future once again attempt to build and provide a cloud gaming service.
Microsoft states:
c. The cloud gaming providers will retain all of the revenue from their cloud gaming services and will not provide any form of payment or minimum guarantee for the rights to stream the games. The cloud gaming providers will [-] from the game sales and in-game monetisation.
It is unclear whether cloud gaming service providers would receive revenue or partial revenue from in-game transactions.
For example Google Stadia would have received some portion of micro transactions per their business model. New entrants could operate under a similar business model.
Microsoft states:
e. The agreements are effective for an initial period of ten years from the date of signing,
This suggests that the 10 years have already begun to elapse despite the fact that Activision games are not even present currently on several of the cloud gaming services.
While 10 years may appear to be a long duration at first glance the above means that in reality customers have access to Activision games for a reduced duration for example 8 or 9 years depending on how long it takes to on-board the games to the services.
Microsoft states:
The consequences of breach of the commitments would be extremely severe for Microsoft from a legal, financial and reputational perspective.
From the legal perspective Microsoft is well positioned to employ a large legal team for their defense that would potentially exploit any loopholes in the agreements.
Financially it would appear to me that Microsoft is well positioned to simply pay off any fines resulting from a breach of the agreements and therefore this would not be a significant deterrent to doing so.
Reputational harm would also not be significant enough to deter a breach if a breach meant significant financial gain in the long term for Microsoft by keeping Activision content exclusive to Microsoft’s services.
Microsoft states:
40. Fourth, the existence of the Agreements and the commitments is consistent with – and only codifies in regulatory commitments – Microsoft’s avowed strategy that it would provide games to more gamers on more platforms. The strategic incentives are not to withhold content: to the contrary they are to make it widely available. The conduct manifested in the Agreements makes clear that whatever the basis for the findings about Microsoft’s past practice in relation to provision of content to cloud gaming providers, [51] those considerations must be revisited. The CMA cannot rely on past practice and ignore present practice which is now enshrined in regulatory commitments.
If it were true that Microsoft intended to provide games to more gamers or more platforms why did they issue a take down request of games from both NVIDIA and Boosteroid’s cloud gaming services previously?
Microsoft’s claim that past behavior cannot be relied upon is simply untrue. Past behavior is indicative of future behavior.
Microsoft states in a footnote:
[51] FR 8.362-8.374 - for the avoidance of doubt, Microsoft has always made clear that the basis for nonsupply of games was due to lack of licencing agreements.
The question then must be asked: why was there a lack of licensing agreements?
It is obvious that it was because Microsoft wished to foreclose rival cloud gaming providers and this was further evidenced in the internal emails brought up during the FTC trial in which Matt Booty of Microsoft was quoted as saying “no effing way” in response to having their titles on rival cloud gaming platforms.
Microsoft states:
47. On 15 July 2023, Microsoft entered into an agreement with SIE that ensures that Activision content remains available to SIE following the Merger.
This agreement to my knowledge however does not include certain games such as Overwatch 2 being available on Sony’s cloud gaming platform.
Microsoft states:
The statement that Google Stadia as a cloud gaming service competed against “the existing console and PC gaming participants,” as well as cloud gaming competitors, could not have been clearer. That statement shows that Google unequivocally viewed native gaming as a competitive constraint on cloud gaming, which is contrary to the FR’s market definition assessment.
But at the time Google Stadia came out there were no significant rivals in the cloud gaming space therefore it is obvious that the only competition would have been PCs and consoles.
Other cloud gaming services had only begun to set up and gain traction as the technology had progressed sufficiently to make cloud gaming accessible to the average consumer.
In relation to points 85-92:
Activision games rank as the top most played games as evidenced by “most popular games” web pages for Microsoft and Sony’s consoles.
See:
https://www.microsoft.com/en-gb/store/most-played/games/xbox
Call of Duty, Overwatch and Diablo rank highly in these charts.
In relation to market definition:
I believe that cloud gaming should be considered a distinct market because of device agnosticism i.e. players can play Triple-A on any device including for example a Mac computer or a mobile. This is not possible with local gaming.
In light of the above I do not believe that there has been a material change of circumstances arising from the points raised in Microsoft’s submission.
Thank you for your consideration.
