Shulou(Shulou.com)11/24 Report--

This article comes from the official account of Wechat: ID:chuappgame, author: NemoTheCaptain

The road is long, and the line is coming.

Late last night, Beijing time (July 11), the Federal District Court of Northern California ruled that Microsoft's acquisition of Activision Blizzard does not constitute a monopoly. At this point, most regulators in countries and regions around the world have approved Microsoft's acquisition of Activision Blizzard, and the British Competition and Market Authority (CMA), which previously opposed it, has also entered the stage of renegotiation, and the one-and-a-half-year-long national and regional antitrust investigation has come to an end. Microsoft has cleared the obstacles in principle to the acquisition of Activision Blizzard, and the $68.7 billion acquisition is coming to an end.

In order to obtain approval from national and regional regulators, Microsoft made concessions to other game companies in the form of contracts, and for the core "call of Duty" series, Microsoft also promised that the series would continue to log on to other consoles. these conditions have been approved by national and regional regulators. On the other hand, Sony, which is not satisfied with the contract and commitment, tried to block the acquisition, wrestling with national regulators and courts, resulting in a lot of rare internal details worth reviewing.

Problems arise Microsoft officially announced this high-priced acquisition on January 18, 2022, because the number was so large that the acquisition attracted the attention of regulators around the world from the very beginning of the announcement. How will Microsoft deal with popular series such as call of Duty and Diablo after the acquisition, whether it will become exclusive to Xbox or continue to share with other hosts or platforms? This core issue concerns whether Microsoft is involved in monopoly, and regulators naturally attach importance to it.

Microsoft and Activision Blizzard are both American companies, and if the US court decides that the case involves a monopoly, the acquisition will fail directly. If regulators in other countries and regions decide to monopolize, although they cannot directly block the acquisition, one of the two companies needs to legally withdraw from the business there. Assuming this happens, Microsoft's business outside the game is more complicated, and the one who withdraws from the direct operation will be Activision Blizzard. Microsoft needs to hand over Activision Blizzard's local game distribution to a third-party agent.

To show that it has no monopoly, Microsoft has signed 10-year game licensing contracts with several companies to license games from Microsoft and Activision Blizzard to different console and cloud gaming platforms. By transferring these benefits, Microsoft has passed the censorship of most institutions around the world-with many twists and turns in the process.

On the eve of the war, according to internal documents released by the US court, Microsoft listed eight acquisition target companies in April 2021, of which five were mobile gaming companies such as Zynga and Niantic, but the remaining three traditional gaming companies were noteworthy-Bungie, IO Interactive and Supergiant Games.

At this time, the expansion "Lingguang moment" developed by Bungie for Destiny 2 once entered the XGP (Xbox Game Pass) subscription library, so players were not surprised by the news that Microsoft had planned to buy Bungie again. In fact, Bungie is in acquisition negotiations with Microsoft and Sony at the same time in 2021. IO Interactive, known as the Killer 47 series, is still developing fantasy online games codenamed "Project Dragon" for Xbox and PC platforms, which will be released by Microsoft, according to documents. If the documents have not changed so far, then even if Microsoft does not buy IO Interactive in the end, the two still maintain a partnership. Supergiant Games Studios has previously developed classic independent games such as Fortress, Transistor and Hades, so it has been included in Microsoft's acquisition options, but there is no evidence that Supergiant Games has a partnership with Microsoft in the future.

Dragon should be a fantasy online game exclusively owned by Microsoft platform, Activision Blizzard has no plans to sell the group in April 2021, and Microsoft has not listed Activision Blizzard as an acquisition target during the same period. Activision Blizzard began looking for buyers in July 2021 after the California Department of Fair Employment and Housing sued Activision Blizzard over previous scandals (details can be found in Activision Blizzard, the end of eternity). There are three buyers competing with Microsoft, in order to protect privacy, the outside world does not know who these three competitors are, and giants who can spend 60 billion dollars at once are rare in the world, and players can take their seats on their own.

Microsoft made public its plan to acquire Activision Blizzard on January 18, 2022, while Sony announced its plan to acquire Bungie on January 31, 2022. Sony's planned acquisition of Bungie, valued at $3.6 billion on July 15, 2022, did not trigger an antitrust investigation and was a regular defensive acquisition. On the other hand, Microsoft's plan to buy Activision Blizzard attracted the attention of market regulators in many countries as soon as it was announced, and all kinds of antitrust investigations have been going on for a year and a half and have not come to an end until now.

Two days after Microsoft made public its plan to acquire Activision Blizzard, on January 20, 2022, Jim Ryan, president and CEO of Sony Interactive Entertainment (SIE), said in an internal email: "Microsoft's acquisition is not for monopoly at all, but for greater thinking. They have enough money to do this big deal. I'm familiar with Phil Spencer (Microsoft gaming division CEO) and Bobby Kotick (Activision Blizzard CEO), so I'm pretty sure the PS console will still be able to play the call of Duty series in the long future. "

Jim Ryan, who is outwardly excited and calm inside, probably did not expect that this internal email would later be made public by the US courts. He often said in public that "the 'call of Duty' series of Microsoft will leave the PS mainframe after the acquisition." this discrepancy may have left a negative impression on the US courts and influenced the judgment to some extent. On the other hand, Microsoft has always stressed in public that "the call of Duty series will still log on to other hosts after the acquisition," and the US court has not found the internal documents that Microsoft is considering letting call of Duty leave the PS host. At least on the core issue of call of Duty, Microsoft is what it looks like.

Phil Spencer is not a legal professional and many details related to the acquisition are handed over to Microsoft President and Chief legal Officer Brad Smith. Smith has previously urged Microsoft to settle with competitors in a number of major lawsuits. In 2003, Microsoft paid $750 million to AOL to settle the IE and Netscape browsers, and in 2004 Microsoft paid $1.95 billion to Sun Microelectronics to settle server patents and antitrust lawsuits. Smith praises the idea that "the enemy should solve the problem but not the knot", and "breaking money and eliminating disaster" and "benefit sharing" are his usual methods.

Brad Smith UK and EU on December 6, 2022, Microsoft signed a 10-year license contract with Nintendo to provide first-party games to Switch and successor Nintendo consoles. if Microsoft succeeds in acquiring Activision Blizzard, series such as call of Duty will also be launched on Switch. On January 12, 2023, Nvidia expressed concern about Microsoft's acquisition of Activision Blizzard. Although Nvidia did not directly object to the acquisition, they wanted a cross-platform commitment from games. On February 21, 2023, on this European Commission working day, Microsoft announced a 10-year licensing agreement with Nvidia to provide games for Geforce Now cloud services.

Not all companies have signed such contracts, and Valve CEO Gabriel Newell says he trusts Microsoft, so there's no need to sign such contracts for Steam. Sony's Jim Ryan said that Microsoft's acquisition of Activision Blizzard is a monopoly in itself, so he doesn't want to sign a contract, he just wants regulators to block the acquisition.

Microsoft and Sony argued over the CMA report in the UK on March 9, 2023. Microsoft says the contract allows the call of Duty series to join both XGP and PlayStation Plus on the same day, while Sony says Microsoft can offer a defective version of PS, or even add deadly Bug in the final stage of the campaign, driving out call of Duty players from the PS console in this way.

On March 22, Microsoft assured CMA that the PS version of call of Duty was the same as Xbox in terms of release time, content, functionality, upgrade and quality, and could even be individually optimized for PS5's DualSense handle to make the PS5 version richer than Xbox Series X, but Sony did not sign the contract anyway.

After PS5's DuelSense handle has many unique features, in order to continue to show that it does not have a monopoly, Microsoft has signed contracts with cloud game companies in more countries and regions to distribute its own first-party games to these cloud game platforms and continue to sell some of its own interests. On March 15, Microsoft signed a cloud game contract with Japanese company Ubitus and Ukrainian company Boosteroid. On March 24, CMA released a periodic report determining that the withdrawal of the call of Duty series from the PS platform outweighed Microsoft's loss, so Microsoft's acquisition of Activision Blizzard did not involve antitrust in the mainframe industry, while the report on the cloud gaming industry was yet to be determined.

On April 11, Microsoft signed a cloud game contract with the British company Everything Everywhere. CMA has previously said that Microsoft is not involved in the monopoly of the mainframe industry, and now Microsoft has signed contracts with a number of cloud game companies, and even the British media predict that CMA will release Microsoft in the full report on April 26.

However, the full report released by CMA on April 26 took almost everyone by surprise and could only be summed up as "serious nonsense". CMA admits that Microsoft does not have a monopoly on the mainframe, but believes that cloud games have broad prospects for the future, and Microsoft's position in the field of cloud games is close to monopoly. CMA said in the report that Microsoft already accounts for 70% of the global cloud game market, and although Microsoft has signed contracts with a number of cloud game companies, cloud games are growing rapidly and more companies are likely to join in the future. These companies do not have cloud games business yet, so they have not signed contracts, which is disadvantageous to the future. Finally, CMA says it's not in the mood to manage the cloud gaming market for the next 10 years, so the easiest way to oppose acquisitions now is to take an one-size-fits-all approach.

The tone of the serious nonsense CMA that the British are good at is the same as that of the classic comedy "Yes, Minister", with an extremely arrogant attitude. The full report caused an uproar after it was released. The problem is not the results of the report, but the process-CMA can object to the takeover, but must come up with reasonable logic. If CMA decided that Microsoft's acquisition of Activision Blizzard would lead to a monopoly in the mainframe industry, it would be reasonable, as expected. However, CMA first decided that there was no monopoly in the console industry, and said that Microsoft was about to monopolize cloud games, so it opposed the acquisition. This kind of "selective blindness" staring at sesame seeds and ignoring watermelons is speechless. It is no exaggeration to say that as a professional regulator, the theoretical level of the CMA report is even lower than that of ordinary players, which is surprising.

The normally mild-mannered Brad Smith was furious when he saw the report and openly sprayed CMA upside down. By the time the periodic report was released on March 24, Microsoft had answered every question raised by CMA, and Microsoft even asked CMA if there were any more questions, while CMA did not respond and held back for a whole month before releasing the full report on April 26. This kind of clandestine operation let Smith judge that CMA is just finding fault.

Players' mischief, satirizing CMA's resemblance to Sony's subordinate CMA said that Microsoft is about to monopolize cloud games, but the market share of cloud games is not comparable to that of traditional consoles. Microsoft can only provide cloud games to 5000 players in the UK. In the end, Smith even threatened that business people around the world were shocked by CMA's performance. CMA's actions were destroying investment and job opportunities in the UK. Microsoft operates game studios in the UK, such as Rare (Sea of Thieves), Playground Games (Ultimate Speed: horizon), Ninja Theory (Hell's Blade: Xena's sacrifice), which provide jobs for thousands of developers outside the gaming industry. Microsoft's investment in the UK should also not be underestimated. EU regulators are far more transparent and reasonable than Britain, and if CMA does not change its attitude, Microsoft can hand over more investment to EU countries.

Smith's threat is not sensational. Microsoft does invest far more in the UK than Sony. Sony's London studio fell into recession in the PS4 era, and the rise of Dutch Guerrilla Games studio with "Horizon: dawn of Zero" is the focus of Sony's strategy in Europe in recent years, and the Brexit crisis has intensified this shift of development power. Now that Sony can gradually shift its focus from the UK to continental Europe, so can Microsoft.

Although Guerrilla Games in Amsterdam, the Netherlands, remains intransigent, British Prime Minister Richthunak said on May 13 that "Britain will issue strategic guidance on CMA, reform institutions, simplify audits, and make regulators the final choice for Britain to face problems, rather than the first choice." The speech hinted at the prime minister's dissatisfaction with CMA and laid the groundwork for CMA's compromise two months later.

On the other hand, the European Union released a report on May 15 that the EU believes that Microsoft will keep its promise to keep the PS version of the call of Duty series. Even if Microsoft breaks its promise, the EU does not think that call of Duty will cause Xbox to monopolize the mainframe field, because the sales of PS in Europe are four times that of Xbox. The EU said Microsoft's market share in the cloud gaming industry was far less than 70 per cent, and that CMA miscounted many XGP users who did not use cloud games, leading to the false figure. If, according to this algorithm, every PS Plus premium user is a PS Now cloud game user by default, then Sony's market share in cloud games should be higher than that of Microsoft. CMA's report is nonsense.

The European Union believes that cloud games have only a 3% market share in Europe, but they do worry that uncontracted cloud game companies will face disadvantages in the future, so Microsoft needs to license new entrants to the cloud game industry in the future. Microsoft accepted the request and promised to extend the initiative outside the European Union, so the European Union approved Microsoft's acquisition.

After the final battle with the European Union in Northern California, Microsoft focused on the review in the United States. Although the US Federal Trade Commission (FTC) launched an antitrust investigation against Microsoft for a year and a half, it has been slow to apply for a short-term injunction to suspend the acquisition. On June 13, FTC finally applied for a short-term injunction, and Microsoft and FTC fought a decisive battle in the Federal District Court of Northern California. This is also a large-scale confrontation between Microsoft and Sony in court, revealing a lot of unknown details.

FTC, the location of the Federal District Court of Northern California, is significantly more professional than CMA and does not struggle too much with cloud games with a tiny market share, focusing on the traditional console industry. Sony listed a lot of internal data, which FTC tried to emphasize to the court the importance of the "call of Duty" series.

Take call of Duty: vanguard in 2021 as an example, this is a low-selling work in the series, even so, it still won the No. 1 revenue in 2021. In 2021, 14 million PS console users spent at least 30 per cent of their game time on the call of Duty series, while 6 million PS users spent 70 per cent of their game time on call of Duty, who played an average of 296 hours of call of Duty in 2021. And 1 million PS users do nothing but call of Duty.

The call of Duty series generated $800 million in revenue for PS hosts in the US market in 2021 and $1.5 billion for PS hosts worldwide. If you take into account the total cost of buying PS hardware and software for PS mainframe call of Duty players, they all provided Sony with annual revenue of $15.9 billion from 2019 to 2021, compared with SIE's combined hardware and software revenue of $24.8 billion in 2021.

As for call of Duty: modern Warfare 2, the blockbuster version of 2022, PS sold 4.4 million in its first week worldwide, up from 3.8 million in FIFA 23. Sony is trying to prove that the call of Duty series is even more important to PS than the FIFA series.

Despite mixed reviews, the logic for call of Duty: modern Warfare 2 to easily win the top-selling FTC is simple. If call of Duty withdraws from PS after Microsoft buys Activision Blizzard, players choose Xbox because PS does not have a "call of Duty" and then spend more hardware and software on Xbox. Sony's loss will be much more than $1.5 billion a year.

This logic is obviously clearer and more powerful than CMA, but there are still loopholes. Call of Duty has been transformed into a free online game through war zone mode in recent years, and a player who deletes the client after playing two sets of war zones and has not spent a penny on call of Duty has also been included by Sony. That's where the exaggerated figure of $15.9 billion comes from, and it doesn't mean that PS will really lose 60% of its revenue without call of Duty.

In addition, Sony also announced the development cost and production cycle of some first-party single-player games. "Survivor 2" took six years to produce and cost $220 million. Horizon: the despair of the West was produced for five years and cost $212 million to develop. The above figures do not take into account the publicity cost, which will eventually be more expensive, which is the fundamental reason why Sony's first party will focus on investing in online games in the future.

Before the whale swallowed Activision Blizzard, the biggest acquisition of Microsoft's gaming division was the $7.5 billion purchase of Bethesda in 2020, so Bethesda-related issues became the focus of this court debate. Phil Spencer said that Sony had previously bought time-limited exclusive rights to the mainframe of "death cycle" and "Ghost Line: Tokyo", and he was worried that Sony would repeat the old trick of "Starry Sky", so he bought Bethesda.

Spencer said being monopolized by the "death cycle" console spurred Spencer to claim in 2020 that it would take a case-by-case analysis of whether future Bethesda games would be available on PS consoles. The internal email of November 2021 proved that Spencer had decided to exclude all future Bethesda games from the PS platform because the subsequent works did not sign a contract with Sony in advance.

Although Phil Spencer himself admits that the failure of "Red Sauvignon Island" is due to his poor supervision, many managers within Microsoft have said that Spencer pursues the concept of "governing by doing nothing". The three major IP of "Halo", "War Machine" and "Ultimate Speed" only need to report to Microsoft Game Department once a month, and other IP reports even less. This attitude will naturally give birth to failed works such as "Hongxia Island", but it also provides the soil for successful works such as "perfect Sound Wave". It all depends on the ability of the studio itself.

The court follows the principle of grasping the large and releasing the small, and the higher the sales are, the more important the works are, so Bethesda works are not as important as Activision Blizzard. Jim Ryan also said in court that although he was dissatisfied with the absence of a PS5 version of Starry Sky, he admitted that this sales level of works did not involve a monopoly.

As for the Switch version of call of Duty, Bobby Kotick said that he is not talking about the current Switch, but the future enhanced version or follow-up model, which Nintendo will introduce more powerful hardware in the future, which can provide a suitable stage for call of Duty.

On July 11, a Northern California court ruled against FTC that Microsoft's acquisition of Activision Blizzard did not involve a monopoly. In fact, FTC is far better than CMA in terms of logic, but there are still many loopholes in the details. More importantly, the judge was discussing the interests of consumers, that is, players, and FTC often confused Sony's interests with those of players, an attitude that led to FTC's defeat.

The defeat of FTC in the future does not mean that they have ended their supervision of Microsoft. FTC has never touted itself as an one-size-fits-all organization like CMA, and regulation in the United States is long-term and sustained. Take Nintendo as an example. In 1990, when FTC investigated Nintendo's monopoly behavior in the United States, Nintendo was forced to relax restrictions on third parties in the United States, in exchange for FTC's "hold it up high and gently put it down." Nintendo has never re-tightened these restrictions in the United States since then. FTC is like a sword of Damocles hanging in the American market, which makes every manufacturer think twice before taking action, and its deterrence can not be underestimated.

Tianyuan, a subsidiary of Atari, has angrily denounced Nintendo's monopoly in the United States. Sony has not yet signed a new contract with Microsoft. The previous "call of Duty" contract signed between Sony and Activision stipulates that the series will not enter the XGP subscription library and gives priority to providing Sony with publicity and DLC rights. The contract expires in 2024, and the last game to be covered is this year's call of Duty, and next year it should only involve DLC. In other words, the new film call of Duty will not join XGP this year, and it will be hard to say next year.

FTC's ongoing regulation can ensure that call of Duty will not withdraw from the PS mainframe after it is acquired by Microsoft, otherwise FTC will file a new antitrust lawsuit. As for other conditions, such as synchronizing PS Plus subscriptions with XGP, which is probably not a monopoly because Sony did not sign a contract with Microsoft, FTC is out of reach. Jim Ryan said six months ago that "I just want to stop the acquisition, not sign the contract." if he adheres to this route, then Sony will pay a price for it.

Sony first Studio is already developing a number of online games, and the online game versions of "Last Survivor", "Horizon" and "Soul of Falklands" are worth looking forward to, but these IP are not FPS. The restart version of Marathon, as the next FPS of Bungie, chooses cross-platform, as does the future Destiny 2 DLC, which is the condition that Sony promises to Bungie. As for the FPS developed by Sony from the second-tier team of Activision and Ubisoft, from the current state of the press conference, the situation is not optimistic.

Microsoft believes that a 10-year contract is enough for Sony to develop a FPS comparable to call of Duty, just like the Hero of Apex. Different people have different views on how to understand this sentence, but we all know that although the reputation of call of Duty has declined in recent years, it still occupies the top spot in the revenue list, not shaky.

As for the UK, according to the original plan, Microsoft could ask CMA for review in the UK competition appeal court. Microsoft is ready to review the worst case in the UK. Microsoft and Activision Blizzard are American companies, not British companies, so CMA does not have the power to block acquisitions. If CMA insists on Microsoft's monopoly, Microsoft can hand over Activision Blizzard's UK game sales channels to an agent to distribute, in a disguised way to pull Activision Blizzard out of the UK business and avoid triggering antitrust sanctions.

However, an hour after the US court ruled against FTC, CMA announced that it would withdraw its review with Microsoft in court, and CMA would reopen negotiations with Microsoft and Activision Blizzard. CMA, who was unwilling to communicate with Microsoft before, unexpectedly took the initiative to make peace, showing obvious signs of retreat. This may also show that at a time when the European Union and the United States have given Microsoft permission, the right and wrong of the United Kingdom can not stop Microsoft's determination to complete the acquisition.

Now that Microsoft has cleared the obstacles in principle to the acquisition of Activision Blizzard, the drama is coming to an end.

Microsoft swallowed Activision Blizzard just to compete with Sony? Phil Spencer's answer is not so, Microsoft's game division's own survival is the most important factor. When Phil Spencer joined Microsoft's gaming division CEO in early 2014, the Xbox One console had been suppressed by PS4, and the outlook was not optimistic. Microsoft CEO Satyanadella even said that if there is no new direction, since there is no hope of defeating Sony, the Xbox One will be Microsoft's last mainframe. At this time, Spencer came up with blueprints for Azure servers, XGP subscriptions and cloud games, and crazily drew a big pie for Nadella to save Microsoft's mainframe industry.

Without Spencer, there would be no Xbox One X codenamed "Scorpio" Microsoft CEO had a different view of the mainframe industry. Bill Gates thought that the mainframe was a pure money-burning industry, so he accepted the $3.7 billion loss of the original Xbox. Steve Ballmer asked Xbox 360to be responsible for its own profits and losses, which indirectly led to the Sanhong incident. Satyanadella could burn money for the mainframe, but he couldn't see the odds on the traditional track, so Spencer drew him another big cake.

Maybe that's why Spencer is so eager to buy Activision Blizzard-after spending $68.7 billion, Microsoft's sunk costs in the gaming industry, especially in the console industry, will be too big to quit. Spencer and Nadella will both retire one day, and their successors can have a long-term plan considering that sunk costs won't let Microsoft out of the gaming industry.

Even so, Microsoft still has a bumpy road ahead. PS5 shipments reached 38.4 million as of March 2023, while Brazil's Microsoft announced a total of 21 million Xbox Series X / S on July 1. Sony still has a clear advantage in the mainframe sector, which cannot be reversed by Microsoft's acquisition of Activision Blizzard. However, now that the acquisition is coming to an end, Spencer can finally calm down and think about the effective integration of resources.

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