CMA blocks major acquisition: Implications for market competition
The UK’s Competition and Markets Authority (CMA) recently blocked the largest tech acquisition ever, a $69 billion deal that saw Microsoft try to acquire Activision Blizzard. The decision was surprising, given that the debate around the deal had mostly focused on whether Microsoft would monopolize Call of Duty and make it an Xbox exclusive, and the CMA had provisionally concluded that there wasn’t an economic incentive for the company to deny rival platforms the hit shooter game. However, the CMA ultimately concluded that cloud gaming was the real threat and that the deal could lead to a substantial lessening of competition in the market for cloud gaming services in the UK.
In an article published in The Verge, Nick Statt argues that the CMA’s decision to block the deal over cloud gaming is bizarre because cloud gaming is still a very small and bad substitute for playing games on a local console or PC. While cloud gaming has the potential to become huge, it’s still a long way off, and it’s hard to see how Microsoft could dominate the market when hardly anyone is using cloud gaming services right now. Moreover, the CMA’s analysis of cloud gaming seems to misunderstand the market in some important ways.
For example, the CMA worries that Microsoft could make Call of Duty or World of Warcraft exclusive to its streaming service, xCloud, which would give it an unfair advantage over other cloud gaming startups. However, the idea that Microsoft could create a walled garden by offering exclusive content is unlikely, given that the TV and movie market offers subscriptions for all different types of content, and Netflix, while dominant, has hardly stayed the only game in town.
Statt argues that cloud gaming is more complex than the TV and movie market, and the CMA is right to point out that Microsoft’s advantages in owning the technology and infrastructure make it a big challenge for competitors like Nvidia and Sony. However, hardly anyone is paying to subscribe to cloud gaming services right now, and Google abandoned Stadia for this very reason. Sony folded PS Now into PS Plus, and Nvidia GeForce Now is cool but niche. xCloud is the market leader not because people want to stream Halo Infinite but because it comes free with a Game Pass subscription that you can use to play Starfield on day one on a physical Xbox.
Statt argues that the CMA is treating cloud gaming like a console war, when it’s really a completely different question. The CMA is worried that Microsoft could use its power to dominate cloud gaming in the future, but that’s a long way off, and there’s no guarantee that Microsoft will succeed in dominating cloud gaming, given how difficult it is to create a successful cloud gaming service. The CMA’s decision to block the deal over cloud gaming seems to be based on speculation and prognostication, rather than on solid evidence of harm to competition.
The CMA seems to be treating cloud gaming like a console war, where it’s all about exclusive titles and who can capture the most players. But cloud gaming is different, and the market is still in its infancy. There’s no clear dominant player yet, and many gamers still prefer to play on local consoles or PCs. Plus, cloud gaming still faces technical limitations such as latency and bandwidth issues that prevent it from being a true substitute for local gaming.
Furthermore, the CMA’s decision could have unintended consequences for the industry. By blocking the Microsoft-Activision deal, it could deter other large tech companies from making big acquisitions in the gaming industry, which could stifle innovation and growth. It could also lead to a fragmented market with smaller companies competing for a limited pool of users, which could ultimately hurt consumers by limiting their choices and raising prices.
The CMA’s decision to block the Microsoft-Activision deal based on concerns over cloud gaming is a curious one. While cloud gaming is a growing market, it’s still in its early stages and faces significant technical challenges. The decision could have unintended consequences for the industry, and it’s unclear whether it will actually benefit consumers in the long run. Only time will tell how this decision will affect the games industry and whether it will ultimately prove to be a wise one.