Xbox rocked by UK block
Microsoft's Activision Blizzard acquisition hits turbulence in the cloud
Welcome back to Multicore for Thursday, April 27th.
I haven't really written about Microsoft's proposed $69 billion acquisition of Activision Blizzard because it hasn’t had much to do with hardware. Others, like ever-excellent Multicore buddies Nathan Brown and Shannon Liao, steeled themselves far better for the interminable legal back-and-forth than I could've put myself through.
But I have to address it now that the UK's Competition and Markets Authority has unexpectedly blocked the deal. Although the CMA's decision was mostly based around the potential for Microsoft to further entrench its Xbox business as the leader of the still-nascent cloud gaming industry, it looks like the biggest beneficiary of this ruling will be the leading provider of console hardware: Sony.
What strikes me about the CMA's reasoning is how little it ultimately had to do with how the debate on this acquisition played out in public. Microsoft went out of its way to promise that it wouldn't keep Activision's blockbuster Call of Duty franchise off the PlayStation, for example, even pledging to bring it to Nintendo systems for the first time in a decade. Xbox executives, meanwhile, argued that the deal was largely about the inclusion of Candy Crush maker King, giving Microsoft a footing in mobile gaming. And lots of normal people, of which I would like to think I am at least nominally a member, generally lamented the ongoing trend of consolidation in the games industry.
When the deal was first announced, though, I didn't think there would be much of an antitrust case. Microsoft is in last place in the console market and a total non-entity in mobile, while Activision Blizzard — although huge — represents a small fraction of gaming revenues worldwide. Microsoft is a tech giant, of course, but it remains an underdog in gaming.
The CMA didn't buy Microsoft's defence. Pointing to figures that UK users of cloud gaming services tripled between 2021 and 2022, the CMA highlighted Microsoft's leading advantage in the space, both in terms of its Xbox services and its Azure cloud infrastructure. The argument is that if Microsoft bought Activision Blizzard, it would reduce competition in cloud gaming overall.
That makes little sense if you consider how most people play games today. Microsoft has made bigger inroads into cloud gaming than anyone else, but this has been offered as a subset to its Xbox Game Pass subscription service, which lets users download a selection of games to their consoles or PCs as well as accessing them through the cloud on devices like phones. While Microsoft doesn't release a detailed breakdown of users, it's clear that the vast majority of Game Pass subscribers are accessing this content natively on local hardware. In that market, Sony has a dominant advantage against Microsoft in terms of exclusive content, partly because of its own efforts to buy up studios in the past (albeit through far smaller deals).
But I can see where the CMA is coming from.