Microsoft’s fight for Activision is a bet on the future of video games

- Advertisement -

Cloud gaming is a nascent technology these days, but experts believe it could eventually make consoles like Xbox and PlayStation less relevant.

Microsoft Corp.’s $69 billion acquisition of Activision Blizzard Inc. has focused attention on Sony Group Corp.’s decades-old paradigm of console-exclusive games played on its Xbox and PlayStation, but antitrust officials they seek to block the deal. they are potentially more concerned about the future of cloud gaming.

Cloud gaming is still in its infancy. Most video games, from Activision’s Call of Duty to Elden Ring, developed by FromSoftware Inc., are purchased individually for around $70 each and downloaded to a console or computer. But Microsoft, one of the leading providers of cloud computing services, is looking to change that. He has focused his significant gaming efforts on creating a subscription service, Xbox Game Pass, which offers a library of more than 300 titles for around $10 a month for gamers who want to download games to play on Xbox or PC. A higher subscription tier, at $15 a month, includes cloud gaming, allowing subscribers to stream certain games on any device, including tablets and phones.

While cloud gaming is still nascent in terms of the technology and content available today, some analysts and executives believe it could eventually make consoles less relevant. And Microsoft is at the top with the infrastructure and content to increase their share. By bringing Activision titles like Candy Crush and Call of Duty under its roof, Microsoft is betting that it will be able to offer more games to its Game Pass subscribers. The concern of the FTC, and also of Sony, is that Microsoft will take the lead in the cloud by adding Activision’s games, and eventually making them all exclusive to their own platforms.

“We seek to prevent Microsoft from gaining control of a leading independent game studio and using it to harm competition in multiple fast-growing and dynamic gaming markets,” Holly Vedova, director of the FTC’s Office of Competition, said in a statement. accompanying statement to the agency. complain.

Game Pass, which launched in 2017, has grown rapidly and now has more than 25 million subscribers, far more than a similar offering from Sony, called PlayStation Plus. Microsoft added cloud gaming to Game Pass in 2020, and according to the FTC, more than 20 million gamers have streamed games from the cloud with the service. Microsoft has said that cloud gaming subscription services are essential to reaching its goal of expanding to 3 billion gamers worldwide and its vision of allowing gamers to play games on Windows, Xbox and smartphones.

The cloud allows gamers to stream and play graphically rich and technically complicated titles like Assassin’s Creed Origins and Halo Infinite on less sophisticated devices like smartphones or tablets that would otherwise lack the computing power or storage to support them. bear the games. The technology has proven complicated and has yet to take off further due to the high-quality graphics used in games and the reliance on the ultra-fast data processing required to ensure that each button press is immediately matched with a movement in the game. , without delay, known as low latency.

Microsoft has an advantage over Sony here, as Microsoft’s cloud division Azure owns more than 200 data centers, which support low-latency cloud gaming services for its suite of titles on Game Pass. Sony does not own data centers from which it can run its subscription service, PlayStation Plus. Sony launched a revamped version of the service in June, which offers similar subscription tiers with access to popular titles like Spider-Man and Returnal, but doesn’t offer new releases in the subscription package like GamePass does.

Other tech giants have tried to build a cloud gaming service without much success. Alphabet Inc.’s Google had Stadia, the search giant’s attempt to take on the video game giants with a platform of its own. But after failing to gain ground among the players, it will be shut down next year. Inc.’s Luna+, which provides streaming access to more than 100 third-party games, has also struggled to attract users. Nvidia Corp.’s GeForce NOW cloud gaming deal, which is much more expensive with its top tier at $100 for 6 months, allows gamers to stream titles they already own.

Struggles to gain traction in cloud gaming make the FTC even more concerned that Microsoft could quickly dominate the market. Phil Spencer, head of Microsoft Gaming, has downplayed the role consoles will play in Microsoft’s future. The company loses between $100 and $200 for every Xbox it sells, according to Spencer. Meanwhile, cloud gaming is forecast to generate revenue of $5.1 billion in 2022, according to industry analyst Omdia, rising to $12.7 billion by 2027. That’s about 3% of the $172.7 billion in total gaming revenue expected this year.

FTC Chair Lina Khan specifically highlighted her concern that Big Tech players could try to leverage their power in adjacent markets to dominate emerging markets and is trying to prevent a repeat of the agency’s acquiescence when Meta Platforms Inc bought Instagram and WhatsApp.

“By now, regulators understand that big tech companies will seek to use their power in a market to capture downstream markets,” said Vili Lehdonvirta, a professor of economic sociology and digital social research at Oxford University. “Microsoft doesn’t quite dominate the public cloud market, but it has a huge advantage over cloud gaming rivals who don’t own their own infrastructure and have to rent it out to cloud providers.”

The FTC is currently in court arguing its lawsuit against Meta for its proposed acquisition of Within Unlimited Inc., a virtual reality startup that produces a popular fitness app, Supernatural. In an unusual case, the FTC has alleged that Meta sought to buy the app in an effort to monopolize the nascent virtual reality industry. Experts see similarities with the Microsoft case.

“Meta says ‘we want to move into the metaverse, we need apps to populate it and Inside and Supernatural fit into that,’” said Florian Ederer of the Yale School of Management. Microsoft argues that the future is cloud gaming and that they “need content for that cloud service. The Activision transaction is a way to populate that.”

Sony has been a staunch opponent of the Microsoft deal, accusing the company of seeking to “get a lot of consumers to Xbox” and leveraging its other products to “shut down cloud gaming at a critical point in its evolution.” Analysts question whether Sony’s criticism stems from concerns that the Japanese tech company is lagging behind Microsoft in diversifying away from console games. Sony typically releases its best first-party games on PlayStation long before they appear anywhere else.

“If Sony is doubling down on its PlayStation business, that’s potentially very problematic,” said Joost Rietveld, an assistant professor of strategic management at the UCL School of Management, who spoke to Microsoft and Sony representatives about the deal.

But Sony’s concerns about Microsoft shutting it down by making top-selling games like Call of Duty exclusive to Microsoft have precedent the FTC has said it won’t ignore. After the European Commission cleared Microsoft’s purchase of ZeniMax Media in 2021, the company said it would release three future titles exclusively on its own products, according to the FTC complaint.

- Advertisement -

Related articles