Microsoft’s last stand in the $69bn war for Call of Duty

Phil Spencer, the US tech giant’s chief gaming officer, was on hand to help him when Microsoft announced its acquisition of Activision Blizzard for PS57 billion in January 2013. Spencer, who manages Microsoft’s Xbox brand and sent an email to Sony’s chief Executive Kenichiro Yoshida. This set up a meeting between Yoshida, Spencer, and Satya Nadella, Microsoft’s chief Executive.

Yoshida was assured that no content would be taken from the PlayStation platform. The main concern was Activision Blizzard’s game Call of Duty which is one of history’s most popular franchises.

Spencer said, “We had the conversation and that was cordial…we have a good relationship.”

Since then, Spencer has been trying to convince regulators that a deal would allow Microsoft to control a number of highly-popular gaming titles like Candy Crush Saga and Guitar Hero.

The UK Competition & Markets Authority (CMA), warned this month that the takeover could result in higher prices and fewer options for UK gamers.

Although the watchdog is the most difficult hurdle Microsoft has to overcome, it faces challenges from both the US Federal Trade Commission and the European Commission (EC). CMA is currently conducting an in-depth investigation of the deal. This month, the CMA proposed solutions that included Microsoft selling Call of Duty. This move could be disastrous and lead to the end of the deal. CMA will make its final decision in April. Spencer must work hard to win their approval.

Spencer has been working at Microsoft for 35+ years. One thing is puzzling: Why are regulators protecting Sony’s PlayStation, the dominant player in the console market with a 70% global market share, while the rest is controlled by Xbox? The FTC, perhaps unfairly, sees Nintendo as a different, lower-quality gaming competitor.

Spencer said that competition is about us trying to be stronger. He is currently in London ahead crunch meetings with CMA this week. I don’t see how more competition in consoles could be harmful for consumers. I believe that having us, Sony and Nintendo do well in the console market — each of us with uniqueness, content, and capabilities — gives consumers greater choice. I would hate for consoles to go the way of smartphones, where there are only two companies. We have three strong competitors right now.”

Spencer just arrived in Brussels from where he met with regulators to present his arguments.

Spencer believes that the acquisition was made to improve Microsoft’s mobile gaming capabilities, which it has been lacking in. Microsoft can catch up by buying Activision . Activision is strong in mobile gaming through Candy Crush and Call of Duty. That’s our strategic angle. It was not mentioned that ‘Call of Duty is available on PlayStation’, or ‘Call of Dutynot available on PlayStation’.

Sony’s shares plunged 13% in Tokyo on the news.

Last year Spencer claimed Microsoft would continue to offer Call of Duty for PlayStation. But Sony’s Jim Ryan countered by saying that the offer was only valid for three years after the current deal expired.

Last week, Smith from Microsoft stated in Brussels that he was ready to sign a ten year deal with Sony to continue selling the popular franchise.

Gaming is Sony’s biggest division in terms of sales. However, Microsoft makes a lot more money from other products like Windows, Office products and cloud services.

Both make money from gaming in a different way. Revenue was previously derived from the sales of controllers, consoles, and other hardware. In 2021, 21% of Sony’s PS16.9billion sales came from the gaming division, and 31% was from add-ons, including in-game purchases. Microsoft’s gaming revenues for the year ended June 2022 were PS13.5billion.

This is not the first Microsoft deal with a games studio. In 2014, it bought Minecraft creator Mojang for $2.5 billion. In 2020 , ZeniMax Media was purchased for $8.1 billion. It promised that it would not pull its games, such as Fallout or The Elder Scrolls, from PlayStation and other platforms. Spencer stated that they have fulfilled their promises and are ready to fulfill them both with Call of Duty and PlayStation.

Microsoft made its case last week by negotiating deals with Nintendo and Nvidia . Nvidia has a cloud gaming platform called GeForce NOW where gamers can use their smartphones and TVs to play without having to own an Xbox or PlayStation. This means Call of Duty is now available for the Nintendo Switch.

Multiple requests for comment were not answered by Sony and PlayStation.

Karol Severin, senior games analyst at MIDiA Research stated that “it’s the size and the scope of the deal which invites a lot more scrutiny — and rightly so.” It’s true that this process is in place, but the data and all the other information that’s being revealed and the data I’m seeing don’t make me believe there’s any reason to stop the deal.

The CMA also raised concerns about cloud gaming and the potential power the tie-up might give Microsoft. According to the CMA, Microsoft’s share in cloud gaming grew from 20-30% in 2021 up to 60-70 percent in 2022. It advised Microsoft that it would be beneficial for Activision to have its titles exclusively on its cloud gaming service, xCloud. Or on better terms than other services. It is still a new market, so this is a more difficult issue to resolve. These revenues represent only a small fraction of gaming sales.

Spencer has sympathy for regulators. He said that he has met with regulators most of his career at Xbox. “There’s been a real shortage of knowledge about the gaming industry.” I’ve enjoyed spending time with them, and in some cases, helping to educate. This is, I believe, the first time that regulators have looked at the industry.

Microsoft hopes to increase competition in the area of mobile app stores. These are currently dominated by Apple and Google. It is looking to launch a competing service starting with gaming.

Spencer stated that regulators support Spencer when they talk about opening mobile to third-party alternatives on these devices. However, we are still a long way away from getting there today.

Activision was accused of having a toxic culture in 2021. After being accused of failing to address workplace misconduct complaints, Activision reached a $35 million settlement agreement with the Securities and Exchange Commission. In 2021, Communications Workers of America filed a formal complaint. Last week, Chris Shelton (union president) urged the European Commission not to approve the Microsoft acquisition. He argued that the deal could lead to unionization.

Spencer stated that Microsoft had examined Activision’s culture plans during the due diligence phase. He stated that Microsoft believes in the efforts of Activision and will continue to do so to ensure employees feel included and safe, and where they can do their best work.

What if the deal isn’t approved? “This acquisition is important for us. He said that it’s not a linchpin to long-term success — Xbox will continue to exist even if the deal isn’t done.



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