In October, Sony and Microsoft submitted their own statements to United Kingdom’s competition regulator, the Competition and Markets Authority (CMA). And as the watchdog goes deeper into its second-phase investigation, it released the documents provided by the two. It offers a lot of valuable insights, giving the public a better idea of the companies’ arguments regarding the proposed $69 Activision acquisition.
Many would expect Sony’s document to simply reiterate its concern over the Call of Duty franchise, but no —- it wants to paint Microsoft generally as the big bad wolf that could destroy the competition in the market once the deal closes. This, however, is different from the data presented by Microsoft, showing how Sony is the actual titan in the gaming market. Here are the best highlights of the documents published by CMA.
Sony’s accusation of Microsoft being the goliath monster goes on and on
Before the second phase of the CMA investigation started, Sony had always stressed its concerns regarding its future access to the Call of Duty franchise and how Microsoft could use it to harm competitors. And surprise, surprise —- the CMA cited this exact claim in its decision to start the deeper probe.
Sony continues the sentiment in its October document, targeting Microsoft’s “conduct,” which, it says, should be the basis of why CMA should be skeptical about the deal. According to the company, there were instances where Microsoft performed “bait-and-switch” actions regarding its previous transactions, where assurances were made only to be reversed afterward.
“The Decision identifies five separate transactions – ZeniMax, Obsidian, inXile, Ninja Theory, Compulsion – where Microsoft acquired games studios and then made their upcoming games exclusive to Xbox,” Sony explains. “This conduct occurred despite Microsoft’s assurances to the public and regulators that it would not make ZeniMax content exclusive.”
Moreover, Sony is taking a new approach and perspective to further strengthen its concerns by stressing in its October statement to CMA that Microsoft is already a giant. In the document, Sony revealed that Xbox Game Pass has finally reached a 29 million subscriber count, giving it a four million growth from the previous 25 million mark shared by Microsoft.
“Game Pass leads PlayStation Plus significantly,” Sony says in the document. “Microsoft already has a substantial lead in multi-game subscription services. Game Pass has 29 million subscribers to Xbox Game Pass Console and Xbox Game Pass Ultimate, and is expected to grow substantially in the future. The multi-game subscription tiers of PlayStation Plus considerably lag with fewer than [redacted] the number of subscribers.”
The true giant
Pushing the idea that Microsoft’s acquisition of Activision would result in chaos in the current state of competition in the market could help stop the deal. For Sony, that is a threat, especially if you’ll believe Microsoft’s claim regarding Sony’s PlayStation business size. To prove this, Microsoft didn’t just state the number of the console’s installed base but also compared the monthly average user (MAU) numbers of Xbox and PlayStation by saying, “PlayStation has more than double the MAUs (close to 60 million more) of Xbox.” To stress how big this number is, Microsoft added that even without PlayStation’s Call of Duty players, Sony’s MAU would remain bigger than Xbox’s.
“Even if it were to lose all of its Call of Duty gamers, a highly improbable outcome, the PlayStation gamer base would remain significantly larger than Xbox. Sony would need to lose a substantially higher number of non-Call of Duty gamers than actual Call of Duty gamers for its total MAUs to fall to Xbox’s current level (i.e., [redacted] million MAUs),” Microsoft details. “This is not credible, and yet even in such an unrealistic scenario the CMA could not conclude that Sony would be likely to be foreclosed, given that Xbox is a viable competitor today at this same level of MAUs.”
Additionally, Microsoft partly divulged some of Sony’s gaming revenue, hinting at how Sony is the true dominating entity in the field.
“Game Pass accounted for less than [0-5]% by value of digital distribution of gaming content globally ([0-5]% in the UK),” Microsoft shares. “Even just looking at multi-game subscription services alone, it is Sony which if anything is larger in revenues today ([30-40]% compared to [30-40]%).”
Microsoft further backs its claims of Sony’s real influence in the gaming industry by stating, “Sony has more exclusive games than Microsoft, many of which are better quality” and that “Sony’s and Nintendo’s exclusive first-party games rank among the best-selling in Europe and worldwide.” Additionally, Microsoft recalled how Sony “entered into arrangements with third-party publishers which require the ‘exclusion’ of Xbox from the set of platforms these publishers can distribute their games on.”
“In addition to being the dominant console provider, Sony is also a powerful game publisher,” Microsoft adds in the document. “Sony is roughly equivalent in size to Activision and nearly double the size of Microsoft’s game publishing business. Sony publishes iconic first-party franchises, such as God of War, The Last of Us, Marvel’s SpiderMan, Uncharted, Ghost of Tsushima, Horizon Zero Dawn, and Days Gone, as well as the recently acquired Destiny 2, and has minority shareholdings in Epic Games, the publisher of Fortnite and From Software, the publisher of Elden Ring. There were over 280 exclusive first- and third-party titles on PlayStation in 2021, nearly five times as many as on Xbox.”
Price tag concerns
Sony stresses that the alleged foreclosure strategy of Microsoft could execute in the future after getting the deal closed will mean harm to its customers. In case it happens, Sony shares two possibilities for PlayStation users:
Specifically, PlayStation users who prefer playing Call of Duty on PlayStation would be harmed by being denied the opportunity to play Call of Duty on their device of choice. They would face two options: either to not play Call of Duty or to incur a cost of £450 to buy an equivalent Xbox console and play Call of Duty on a less preferred device at a similar quality to the level they currently enjoy. In the former case, consumers would self-evidently lose the opportunity to play one of their favourite games. In the latter case, in addition to paying for a new console that they would not otherwise have bought, 28 those PlayStation users who sold their consoles in the process of switching would lose access to their current PlayStation content library, causing further consumer harm. Either way, consumer choice would be restricted and the result would be direct consumer harm.
Ironically, Sony expresses that it also fears that the merger would give Microsoft the power to increase the price of its subscription service.
“Faced with weaker competition, Microsoft would be able to: increase console and game prices for Xbox users (including those that had switched from PlayStation); increase the price of Game Pass; and reduce innovation and quality,” Sony says. “These harms would be amplified by the direct and indirect network effects at play in the industry, allowing Microsoft to further raise prices or reduce quality once its position has become even more entrenched.”
The news about the increase, however, is no secret to everyone since Xbox Lead Phil Spencer himself admitted in October that the company could soon do it as the company has “to look at the return on our business, the cost of the business.” Microsoft also explained that the decision is due to the increasing energy costs in Europe affecting its cloud provision, translating to up to $800 million.
What’s truly odd about the issue being raised by Sony regarding this price increase is the fact that it did it recently on its PS5 due to high inflation rate reasons, not to mention that it also joined other publishers in raising the price of premium game offerings.
The fight continues
The documents submitted by Sony and Microsoft to CMA uncover a lot of interesting things about the two companies’ situation in the gaming industry. More of them would probably be revealed as different regulators globally continue their probes. Out of the 16 countries scrutinizing the merger, only Brazil and Saudi Arabia have nodded, This will still be a long journey for Microsoft, and Sony would still probably continue its protest to stop the deal.
What’s your opinion about the new revelations stated above? Let us know in the comment section!