Microsoft And Activision Blizzard Deal: The Reasons Why It Can Actually Take Place

The UK’s Competition and Markets Authority (CMA) has recently blocked Microsoft’s acquisition of Activision Blizzard arguing it would “alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers over the years to come”. At this moment, the Federal Trade Commission is suing Microsoft to block the deal due to competition concerns in the US, and the EU is still investigating. 

Regarding the debate about the possible implications for the console gaming space, the CMA said it no longer believed the deal would significantly reduce competition, but it still has concerns about the acquisition’s impact on the cloud gaming market.

The fact is that Microsoft already accounts for an estimated 60-70% of global cloud gaming services, and has other important strengths in cloud gaming from owning Xbox, the leading PC operating system (Windows) and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming). Therefore, according to CMA, Activision could start providing video games via cloud platforms by giving Microsoft control over AAA video game sagas such as World of Warcraft, Call of Duty, Overwatch, or Diablo. From the CMA perspective, this could derive from higher prices, fewer choices, or less innovation.

From my perspective, I am convinced this deal would not harm the number of choices and innovations in the cloud segment. Many unknown companies have achieved successful video game sagas with much lower budgets and worse track records than the AAA video game companies. In fact, video game sagas tend to decay over time because gamer expectations always rise compared to old releases. In such a creative environment, from my perspective, it does not make any sense to believe a giant industry leader within the video game space can lower innovation and choices. Although anyone can create a video game at present, the fact is the best video game developers are hard to find and hire, and the Research and Development costs for these companies rise in the long term and imply a harder barrier to entry within the industry. However, this barrier of entry is not that high for medium to large size companies, which can still compete and promote their innovative video games to reach a bestseller video game (being Fornite one of the most remarkable examples). At this point platforms such as Twitch have shifted the competitive environment by giving more promoting opportunities through streamers to reach competitive audiences.

In terms of higher prices, I do not believe Microsoft's portfolio can influence the video game market prices in such a negative way. The video game portfolio included in the Xbox subscription would be more competitive obviously, but I do not think gamers, especially the younger segment that is the most relevant to retain, will be able to pay an extremely higher price than the current one for that subscription because their rent per capita is not that flexible. I do believe the acquisition would improve video game sagas' value and sustainability in the long term because they can be offered together and also together with a complementary product such as the Xbox console, but this is basically the same as Nintendo now has with its Nintendo Switch platform and sustainable video game sagas such as Pokémon or Mario Bros. In my opinion, Microsoft would strengthen its positioning within the industry and improve its long-term sustainability, which also benefits the industry growth against other entertainment alternatives because it would become a key industry leader with a previous customer value proposition in terms of entertainment, but it will not have enough power to influence the overall competition that exists significantly till the point prices will change significantly. From my perspective, the deal would be even highly beneficial for the industry, which would become more attractive than others in decline such as TV.