Sony Says The Microsoft Activision Deal Will Give Xbox An Unfair Advantage

Microsoft’s planned acquisition of Activision Blizzard has drawn headwinds from regulators, as Sony claims the deal is anti-competitive and could harm its gaming business.

The UK’s Competition and Markets Authority made a request for information about why the transaction could hurt competition within gaming. Sony responded to the request for information in a 22-page document filed with the CMA. 

Sony believes the deal will “harm competition, Industry Participants, Innovation, and Consumers”. Microsoft responded to this request for information back in October.  The CMA has also requested feedback and submissions from the public, which it continues to review and will until March 2023.  

KEY TAKEAWAYS 

• Microsoft planned acquisition of Activision has been targeted by regulators for questions of anti-competitiveness.
• Sony wants to thwart the deal by any means necessary. 
• Sony argues that the deal will give Microsoft an unfair advantage and could cause harm to its core gaming business.

In January, Microsoft announced the $68.7 billion acquisition of gaming publisher Activision-Blizzard, the largest acquisition ever within the gaming industry. ATVI is the producer of some of the largest franchises in gaming, including Overwatch, Candy Crush, World of Warcraft, and of course Call of Duty.

Sonys Arguments

This deal has made Sony uneasy, and it seems they will want to kill the deal by any means necessary. Earlier this year, PlayStation boss Jim Ryan flew to Brussels to personally convince regulatory authorities in the EU to act against the deal. Sony’s key arguments for opposing to opposing the acquisition are, as stated in the filing:

• The transaction is a game-changer that poses a threat to an industry enjoyed by hundreds of millions of consumers.

Sony notes that the Call of Duty franchise in particular is among the largest AAA franchises, and claims that Microsoft having control of such a large franchise could give them an “unprecedented content advantage”. Sony also claimed that the acquisition could become an “inflection point” in the industry.

• Post-transaction, Microsoft would have the ability and incentive to exclude or restrict rivals, including PlayStation and PlayStation Plus, from having access to Call of Duty.

Sony is most concerned about the availability of Call of Duty and claims that Microsoft has not made guarantees about the availability of the game on Playstation in the future.

Sony would later claim in the article that no guarantees from Microsoft have been made about keeping the Call of Duty franchise on PlayStation, despite Microsoft promising it could be available for 10 years, and Xbox head Phil Spencer verbally promising that Call of Duty would be available on PlayStation “as long as the platform exists.”

Some have speculated that Microsoft would be uneasy closing the deal if it had to make legal assurances that Call of Duty cannot stay exclusive or be restricted from being added to Xbox Game Pass. 

The CMA in the past noted at least 5 acquisitions from Microsoft where acquired studios had their projects locked exclusively to Xbox. The regulatory authority says it saw a pattern of this behavior with Microsoft, and it is the reason why Sony would be skeptical of any assurances made by Microsoft.

One example of this would be the $8 billion acquisition of Bethesda, in which the upcoming RPG Starfield was later announced as an Xbox exclusive. 

• The transaction’s effect on consoles and multi-game subscription services would cause significant harm to consumers, competition, and developers.

Sony is worried that Call of Duty could be pulled from Sony and that its consumers would be forced to buy a new, less preferred console in order to play future COD titles. They believe that consumers will be harmed and that Microsoft, with their monopoly, could increase the prices of games and consoles and do what sony claims is “reducing quality and innovation”. Sony is also worried that users who switch would be locked into the Xbox ecosystem, and could cause Microsoft to be further Entrenched. 

Sony also believes that the addition of Call of Duty to Game Pass will harm independent developers who depend on contracts with the service, as they could have less negotiating leverage with Microsoft.

• The transaction would harm nascent competition in cloud gaming.

Sony believes that Microsoft’s large investment and lead in cloud gaming will cause them to become anti-competitive. Xbox Game Pass Cloud gaming is the largest game streaming service available, with millions of users worldwide.

Meanwhile, competitor services from Google and Amazon are flailing. Google is even shutting down its Stadia service due to underperformance. Sony also cites Microsoft’s Azure cloud technology as an “ecosystem advantage” despite the fact that Xbox cloud streaming does not use Azure. 

Microsoft’s Response 

Microsoft itself responded to the request for information regarding anti-competitiveness. Microsoft submitted a 111-page document detailing some of the companies’ arguments in favor of the acquisition. Some of these arguments include:

• PlayStation has more than double the MAUs (close to 60 million more) of Xbox.
• Call of Duty gamers are neither ‘special’ nor ‘unique’ in terms of either their spending or user engagement as compared to gamers that favor other popular franchises.
• For the vast majority of gamers, Call of Duty is a small component of their overall gaming consumption.

Xbox sees itself as the underdog in gaming, citing that PlayStation is the larger of the 2 gaming companies. They cite that Sony has “more exclusive games than Microsoft, many of which are better quality.”

The fight is not over yet. Microsoft and Sony continue to fight over the deal in other countries. For the deal to close, it must be approved by regulators around the world.

Saudi Arabian and Brazilian authorities have approved the transaction to go forward. The deal needs regulatory approval in the UK, US, EU, China, New Zealand, and much more. Both Microsoft and Sony have appealed and discussed the deal with regulators around the world as they have here. 

Microsoft expects the deal to close in June of 2023.