The proposed merger between Microsoft and Activision Blizzard, worth $68.7 billion, has been under scrutiny by the UK’s Competition and Markets Authority (CMA) since January 2023. The CMA is responsible for ensuring that mergers and acquisitions do not reduce competition or harm consumers in the UK market.
One of the main concerns that the CMA initially raised was that Microsoft could make Call of Duty, one of the most popular and profitable video game franchises in the world, exclusive to its Xbox consoles and PC platforms, thereby excluding PlayStation users from accessing it. This could reduce consumer choice and weaken Sony’s position as a rival console maker.
However, in March 2023, the CMA changed its provisional findings and said that it no longer considered this scenario as a likely outcome of the deal. The CMA said that it had received new evidence and analysis from Microsoft and other parties that suggested that Microsoft would have no financial incentive to withhold or degrade access to Call of Duty or any other Activision content on PlayStation.
This reversal of position has sparked a strong reaction from Sony, which has called the CMA’s decision “surprising, unprecedented, and irrational”. Sony has submitted a detailed response to the CMA, challenging its reasoning and evidence, and arguing that the deal would still cause significant harm to consumers, competition, and developers in the UK and beyond.
It seems that these results did not please Sony at all, and Sony criticized the UK Competition and Markets Authority (CMA) for its revised assessment of Microsoft's acquisition of Activision Blizzard.
In this article, we will examine Sony’s response to the CMA’s change in the Xbox Activision deal, as well as Microsoft’s counter-arguments. We will also look at some of the potential implications of the deal for the gaming industry and the UK market.
Sony’s arguments against the deal
Sony questions the CMA’s methodology and evidence
Sony has criticized the CMA for relying on a flawed quantitative model to estimate Microsoft’s incentive to make Call of Duty exclusive to Xbox. Sony claims that the model contains serious conceptual errors that bias the analysis in favor of finding that Microsoft does not have an incentive to foreclose PlayStation.
For example, Sony says that the model does not account for the fact that Microsoft would no longer have to pay a margin to Activision for sales of Call of Duty on Xbox, which would make the game much more profitable for Microsoft than it currently is. Sony also says that the model does not consider the network effects and switching costs that could lock consumers into Microsoft’s ecosystem if they lose access to Call of Duty on PlayStation.
Sony also challenges some of the assumptions and evidence that the CMA used to support its model, such as:
- The lifetime value of an average gamer, which Sony says is based on outdated data and does not reflect the differences between Call of Duty players and other gamers.
- The elasticity of demand for Call of Duty, which Sony says is underestimated by the CMA and does not capture the loyalty and preference of Call of Duty fans for PlayStation.
- The availability and attractiveness of substitutes for Call of Duty, which Sony says are overestimated by the CMA and do not account for the unique features and appeal of Call of Duty compared to other games.
- The impact of multi-game subscription services, such as Xbox Game Pass, which Sony says are ignored by the CMA and could give Microsoft an additional incentive and ability to foreclose PlayStation.
Sony claims that consumers would be harmed by the deal
Sony argues that if Microsoft were to make Call of Duty exclusive to Xbox or degrade its quality or performance on PlayStation, millions of consumers in the UK and around the world would be harmed. Sony estimates that there are about 10 million active Call of Duty players on PlayStation in Europe alone, who would either lose access to their favorite game or be forced to switch to a less preferred device or platform.
Sony says that this would reduce consumer choice and welfare, as well as undermine consumer trust and confidence in the gaming industry. Sony also says that this would create a significant barrier to entry for new console makers or cloud gaming providers who would struggle to compete with Microsoft without access to Call of Duty or other Activision games.