Sony Says UK’s U-Turn On Microsoft-Activision Deal Is “Surprising, Unprecedented, And Irrational”

The UK government’s Competition and Markets Authority (CMA) has published the responses to its provisional finding that Microsoft’s proposed deal to buy Activision would not limit competition in the console space. This was a major change, as the CMA originally provisionally said it could.

The response from Sony Interactive Entertainment is what many might have expected. SIE said the CMA did a “u-turn,” calling the move “surprising, unprecedented, and irrational.” SIE said there existed a “significant body” of evidence to support the suggestion that Microsoft could be incentivized to “withhold” Activision content from PlayStation platforms, thus lessening competition.

The CMA said in its updated response that Microsoft would have no financial incentive to make Call of Duty and other Activision content exclusive to Xbox. This is a point that Microsoft itself has been making, saying it makes no business sense to take Call of Duty off PlayStation.

For its part, SIE said it “respectfully questions” the CMA’s decision and how it came to it. For some background, the CMA said it was looking at the lifetime value of an average gamer to estimate Microsoft’s incentive to make Call of Duty exclusive to Xbox.

“SIE respectfully questions whether this can be the case for any model, in particular given the CMA’s explanation that ‘quantitative modelling is subject to uncertainties and has to rely on assumptions where information is imperfect,’ which ‘limits the weight we can give this type of evidence.’ More specifically, reliance on the revised [lifetime value] model is unsound because it includes serious conceptual errors that bias the analysis in favor of finding that Microsoft does not have an incentive to foreclose,” Sony said.

Among a range of other issues, SIE said if Microsoft is allowed to buy Activision and the Call of Duty series, Microsoft will no longer need to pay a margin to Activision for sales of Call of Duty because the series will be first-party. SIE said Call of Duty’s revenues for Microsoft will be multiple times more profitable than it presently is to Microsoft if the deal goes through.

SIE said the CMA’s calculations are flawed and that its current model, which it said contains “errors,” understates the potential gains Microsoft could see by making Call of Duty exclusive to Xbox could be at least 70% more than they currently are. This assumes Microsoft would make Call of Duty exclusive to Xbox, which is something the company has said it will not do.

Microsoft has regularly cited Minecraft as an example of a title that continued to be released on a multiplatform basis following Microsoft’s buyout of developer Mojang. But SIE said Minecraft is “very different from Call of Duty” because it is a single game release. This is true for the original Minecraft, but Microsoft has released additional Minecraft titles since then, including Minecraft Dungeons, and they have been made available across Xbox, PlayStation, and Switch.

SIE went on to say Minecraft is a bad comparison for Microsoft to make because the game “does not drive anything like the level of gameplay, engagement, or purchasing decisions as Call of Duty.” The game has fewer players and monthly active users, as well as worse engagement statistics compared to Call of Duty, Microsoft said.

Additionally, SIE said Microsoft has already shown that it will block Minecraft from certain platforms where it sees fit, with the suggestion being that Microsoft could do this again with Call of Duty.

“Microsoft has nonetheless deployed Minecraft exclusivity where it suits its strategic interests. In particular, Microsoft has blocked Chrome OS’s access to Minecraft’s consumer edition, instead making available only Minecraft: Education Edition, a version intended for students and teachers (not consumers),” SIE said. “This evidences Microsoft’s intentions to withdraw games from rival platforms when it serves its goals of dominance–be it in operating systems, consoles, multi-game subscription services, or cloud gaming.”

Also in the response, SIE cited quotes from Arkane’s Harvey Smith about Redfall and how the developer chose to not release the game on PS5 after the studio was acquired by Microsoft. For its part, Microsoft has said it never pulled any games from PlayStation.

“Even though the studio had already put in the work to make a PlayStation version of the game, Microsoft decided to terminate this work and make the game exclusive to Xbox,” SIE said.

SIE ended its response by calling on the CMA to “revisit its analysis of Microsoft’s incentives and partial foreclosure” and that it would correct “errors” that SIE claimed to have identified.

The CMA also uploaded Microsoft’s response, and it was much rosier. Microsoft said it welcomed the CMA’s revised findings and said it agrees that Microsoft buying Activision Blizzard would not suppress competition. The CMA’s updated findings only spoke to the console market, and still raised concerns about competition issues in the cloud space. Microsoft said it hopes the evidence it’s submitted to the CMA will help the organization also conclude that Microsoft’s buyout of Activision Blizzard would not limit competition as it relates to cloud gaming.

Finally, the CMA uploaded a response from UCL School of Management associate professor of strategy Joost Rietveld pertaining to the cloud gaming market. Rietveld attempted to identify what, exactly, the term “cloud gaming” actually means. The professor concluded that cloud gaming has many meanings and the CMA should do its due diligence to consider all factors.

The CMA’s final deadline for responses and submissions for the case is April 12. After that, the CMA will hand down a decision by April 26, so keep checking back with GameSpot for the latest.

If the deal is approved by the CMA for the UK, that’s not the end of the road. In the US, the FTC is suing Microsoft in an attempt to block the deal, so Microsoft still has a number of hurdles to overcome.

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