I am not a merger apologist. I don’t generally think the world is better off with a much smaller number of companies at the helm! But of all the reasons to block Microsoft’s $68.7 billion purchase of Activision Blizzard, I never dreamed that “we need to stop Microsoft from dominating cloud gaming” would be one.
That’s right, though, as the UK’s Competition and Markets Authority ruled on Wednesday that the deal could “alter the future of the fast-growing cloud gaming market, leading to reduced innovation and less choice for UK gamers for years to come.” ” They are rejecting a deal that was widely expected to be approved, leaving Microsoft and Activision Blizzard pinning their hopes on a European Union decision next month.
I’ve read hundreds of pages of documents, and most of the CMA’s argument boils down to this: Microsoft is so dominant in cloud gaming today that it can control its entire future.
And I can’t help but laugh because that means the deal could be dead, not Because cloud gaming is thriving, but because cloud gaming is still kind of useless! Microsoft is being punished because Google Stadia completely failed, because Amazon Luna went nowhere fast, because Sony got distracted, because Nvidia can stream your own purchased games without having to negotiate with every publisher and developer under the sun. not
It may die because EA and Verizon and AT&T largely backed out after they realized that the infrastructure costs to do it didn’t justify weak demand from gamers and that — 5G or no — phones weren’t the best option for game consoles. It may have died because Apple was so terribly afraid of being a dumb pipe for cloud games that it arbitrarily created new App Store rules that locked down the iPhone.
With very little real competition, Microsoft’s xCloud Appearance Impressive, especially when you consider that Microsoft bundles it with every Xbox Game Pass Ultimate subscription — whose subscribers, for all we know, can try xCloud once and never again. (We’ve asked Microsoft to clarify the monthly active user statistics provided to the CMA, which is unclear about that.)
Microsoft is a big fish in a small pond. And paradoxically, the UK decision may help keep it that way.
The Activision Blizzard deal could be the biggest shot yet for cloud gaming as Microsoft promises to sweeten the pot with major concessions to other players in the market. Did you know that Microsoft promised to put everyone On its PC games everyone Eligible cloud service On his release day For 10 years if the deal is done? Nintendo could theoretically set up its own servers Call of Duty Running on Switch with Microsoft’s blessing. Smaller cloud gaming providers will also have access.
Did you know that Microsoft promised to shake up the entire business model, giving each game owner the rights to stream their own games from the service of their choice to their own devices, instead of the status quo where Nvidia has to acquire the rights. Games you already own Before it can stream you? It was also a 10-year promise:
Microsoft will unilaterally license any customer who purchases or obtains a free license to play a PC Game from an authorized third-party PC digital storefront (“Eligible Game”) to stream the Game using generally recognized PC consumer cloud gaming. Provider of the device they own (“Customer Licensee”). Microsoft will publish the consumer license on Microsoft’s website. A customer license will be issued for a term.
Nvidia’s GeForce Now boss told me that a 10-year promise could break the chicken-and-egg cycle to attract enough gamers and persuade publishers to offer more games in cloud gaming services. “This period is long enough to establish cloud gaming as a consumer service and secure a range of popular games for providers,” argued Microsoft.
Mind you, Microsoft’s promises are pretty self-serving because they lead back to Microsoft’s core business. If you want to stream Microsoft’s cloud PC games, you can stop investing in Windows-based servers and possibly let Microsoft’s Azure cloud platform handle the load as well, as Sony was exploring a bit. You can also hold off on any plans to build cloud games for Linux instead. Microsoft was apparently planning Keep all revenue from game sales and in-app purchases rather than sharing them with competing cloud providers as well.
And CMA makes some very good points about barriers to entry. There are precious few companies with the technology and know-how to power cloud gaming, Microsoft being one of the biggest, and the only company with a computer platform that game developers actually target en masse. (Google paid the developers Millions of dollars per game (to port Stadia to Linux instead of Microsoft’s Windows, to give you a sense of the uphill battle.)
For new entrants without an existing gaming console (including its games and operating system), we find that this catalog is likely to come from games currently available on PC OS, as these can be streamed from any cloud gaming service that runs. That OS (although adequate licensing arrangements are in place). As such, these cloud gaming service providers will either require a license for a proprietary PC OS – such as Windows, the OS for which most PC games are designed.
It may be difficult for Sony to compete with Microsoft in this area – even though it is Sony, not Microsoft, that bought IP from OnLive and Gaikai, putting the patent collections of the two cloud gaming pioneers under one roof.
The CMA says it believes so Call of Duty “Cloud gaming can make a material difference to a provider’s success” and that Overwatch And World of Warcraft Can help, but that’s why Blocked Instead of letting the deal pass.
But if Microsoft can show that cloud gaming really is a good business and offers a collection of games large enough to attract and retain gamers, it will be the first — and K Technology can ultimately spur the investment it deserves.
However, it is never a good idea to take company merger promises at face value. One of the biggest reasons CMA is blocking the deal is because it doesn’t believe it can hold Microsoft to its word:
The complexity of the remedy, in the context of a dynamic market that was evolving, also meant that it had a high risk of fraud, and was difficult to monitor effectively. In light of these deficiencies, we cannot be reasonably confident that the Microsoft Cloud Remedy will have addressed our concerns, and we find that the only effective remedy for SLC is to prohibit the merger.
And I agree that it would be very easy for Microsoft to subtly poison its promise if it wanted to.
Microsoft doesn’t need to do something as dramatic as the Mac Call of Duty Exclusive to its own cloud gaming service, as CMA says it fears. There are plenty of technical trip-ups just waiting to happen.
Cloud gaming doing work And can perform brilliantly, giving you an experience approaching that of a high-end gaming PC when everything is on the line. But it depends, too, on a lot of things to work that way — not just your Internet speed but the Wi-Fi crowd in your neighborhood, the physical distance from your home to the company’s cloud gaming servers, the peering configuration and the handshake it takes. Bits across the internet and return an image to your screen, virtualization of the game controller you use, etc.
I’ve been covering cloud gaming for over a decade since the days of OnLive and Gaikai, and now I tell everyone that the cloud gaming market won’t take off until friction disappears. But it also means that Microsoft could enter the fray for cloud gaming competitors over the next 10 years or fail to mitigate the friction. Even if Microsoft isn’t intentionally sabotaging competing services, it can accidentally screw things up for people depending on its platform.
There are still other technical issues standing in the way of a vibrant cloud gaming market, not the least of which is that most major games require companies to wait for a full graphics card in the server room for every single player. Sony — which once kept a PlayStation 3 in the server room for every cloud player — is looking for a way to fix that. Now, I wonder if Sony will bother now that Microsoft seems like little chance at the same time And Slightly less than the competitor.
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