Last month, the Federal Trade Commission (FTC) finally answered whether it was going to attempt to block Microsoft’s acquisition of the gaming company Activision. If the FTC successfully stops the acquisition, the likely impact will be fewer Microsoft consumers having easy access to Activision’s titles.
The FTC argues that the proposed merger would allow Microsoft to gain a bigger share of the relatively new cloud gaming market by making Activision’s game franchises exclusive to Microsoft.
What Are the Relevant Services?
In addition to Microsoft’s console Xbox, the company offers a service called Xbox Game Pass, which allows subscribers to access a large library of games for a monthly subscription. Subscriptions are an alternative to the buy-to-play model that has been the norm for the past few decades. The highest tier subscription service for Xbox Game Pass allows users to play select games via a cloud service, eliminating the need to download or run the games on their hardware at all.
Xbox Game Pass’s cloud service is one of several competitors in the growing cloud gaming market. Cloud gaming has been around for several years and its growth has been spurred by the ubiquity of smartphones and the acceleration of 5G technology offering lower latency for players. The market also increased in 2020 following the Covid 19 pandemic and subsequent lockdowns and is projected to continue to grow throughout the decade. Competitors in the cloud gaming market can help to attract consumers through their library. This is similar to how Netflix attracts members through their content offerings.
Activision is one of the foremost AAA game publishers, which refers to games with high production value, and owns well-known franchises such as Call of Duty, Overwatch, and Diablo. Call of Duty remains one of the best-selling video game franchises of all time and Diablo IV was recently released to critical acclaim.
Potential for Console Exclusivity and Arguments Against It
A key component of the FTC complaint is the concern that Microsoft will make these titles exclusive. This fear is not unfounded as Microsoft has announced that games by another company they acquired, ZeniMax, will be exclusive to Xbox and PC despite saying that would not be the case.
One important difference, however, is that with Activision’s titles, Microsoft has made binding agreements, rather than assurances, to make Activision’s games available on several platforms including Nvidia’s cloud gaming service and Nintendo consoles. Microsoft also offered a similar deal to Sony, the creator of Xbox’s main competitor PlayStation. These show Microsoft is serious, at least in the short term, about making Activision titles available to as many players as possible, even players using their competitors’ services.
Advantages of Cloud Gaming
Due to the nature of cloud gaming, Microsoft’s acquisition of Activision is more likely to expand access to games from Xbox Game Pass, rather than limit it. Currently, Xbox Game Pass Ultimate, the highest-tier subscription service, allows users to stream games from a remote server to their devices rather than play them natively on the console or computer. Not only can players stream to their Xbox, but also to PCs, smartphones, and smart TVs.
Cloud gaming enhances the interchangeability between devices in the gaming market and allowing Microsoft to put Activision games on their Game Pass cloud service will allow access to these titles to people who want to play these games but may not want to invest in the hardware necessary to play otherwise.
The FTC’s blocking of the merger between Microsoft and Activision was done so out of a misunderstanding of the gaming market and cloud gaming. This attempt to protect competitors will likely have the opposite effect and inhibit consumer access to some of the most popular franchises in the world.
Trey Price is a technology policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information, visit https://www.theamericanconsumer.org/ or follow us on Twitter @ConsumerPal.