The Microsoft-ActivisionBlizzard merger review processes have already created one unprecedented situation: a company (Sony) that is not just the market leader (in videogame consoles) but even holds a dominant market position is being portrayed as a potential victim.
There is another aspect that makes this merger stand out: the vertical foreclosure theory--withholding that "must have" AAA title named Call of Duty from other platforms and services--is being reduced to absurdity by a host of commercial agreements. Microsoft just announced its third 10-year contract in a row. After Nintendo and Nvidia, the latest one was struck with Boosteroid, a cloud gaming platform that is available in the U.S. and various European countries:
Players deserve more choice than they have now when it comes their favorite games. Today we've signed a 10-year deal with @Boosteroid_main enabling players to stream Xbox PC games, including Activision Blizzard PC titles like CoD following after close https://t.co/Xso6ykadw1
— Phil Spencer (@XboxP3) March 14, 2023
The company behind Boosteroid is headquartered in Romania and has its research and development in Ukraine, which is why a high-ranking member of Ukraine's government contributed a quote to the announcement:
"Microsoft partnering with Boosteroid is welcome news and further evidence of the company’s ongoing support for Ukraine," said Mykhailo Fedorov, Ukraine’s Vice Prime Minister and Minister of Digital Transformation. "Boosteroid’s Ukrainian dev team has built a world-class streaming platform under the most challenging circumstances and demonstrates the ingenuity and creativity of our citizens and local game developers."
According to a Wall Street Journal article, "Microsoft expects to reach additional deals in the coming weeks."
It's worth noting that Valve (known for Steam) was offered a deal a while ago and said they knew they could trust Microsoft, thus saw no need to contractualize that commitment.
But the same article also says that Microsoft and the only vocal deal critic, Sony, "aren't currently in discussions." Instead, Sony complained last week that certain passages of documents released by the UK's Competition & Markets Authority (CMA) were redacted, and made the broad and vague claim that the license it has been offered would "irreparably harm" competition. Activision's outspoken CCO Lulu Cheng Meservey exposed Sony's attitude on Twitter:
Jim Ryan (CEO of Sony Interactive Entertainment): "I don’t want a new Call of Duty deal. I just want to block your merger."
Should any of those U.S. lawsuits (the FTC's in-house case and/or the so-called "gamers' lawsuit" in San Francisco) go to trial, we may hear testimony that will confirm that the above is what Mr. Ryan actually said.
With every announcement of another industry player having decided to secure its (and, by extension, its customers') long-term access to Call of Duty, Sony's obstructive attitude becomes clearer. Regardless of where one stands on this particular merger, or even on "big Big Tech deals" in general, the situation raises the fundamental question of when there comes a point at which regulators will feel that a complainant is abusing the process.
Put differently, the question is whether a given regulator rewards constructive or incentivizes obstructive behavior.
Competition authorities have resource constraints. If everyone behaved like Sony by unnecessarily complicating matters, and if that happened in situations with more than one major transaction under review, regulators' ability to achieve good outcomes would be compromised.
In today's Wall Street Journal article, Microsoft president Brad Smith also says the following:
"If the only argument is that Microsoft is going to withhold ‘Call of Duty’ from other platforms, and we’ve now entered into contracts that are going to bring this to many more devices and many more platforms, that is a pretty hard case to make to a court." [...] He said any decision on the deal would be subject to judicial review.
That is a new kind of statement. It suggests that a blocking decision (such as by the CMA) might be appealed. In that case, Microsoft would have to work out an extension of the merger agreement with Activision Blizzard--a possibility that Microsoft has so far declined to discuss in public. An appeal could obviously not be decided by the current mid-July deadline. Would Activision Blizzard do that? In my observation, they're really very committed to making this deal happen. If they see that all the facts are on the table to prove that a blocking decision is not just wrong but plainly irrational, then they will keep on fighting for it and an extension becomes a "numbers game" (Microsoft would owe ABK $3 billion if the current deadline was missed).
I believe Mr. Smith was talking about a purely hypothetical situation. Nothing has changed about my impression that the CMA is actually being constructive in its own way. I've taken note of the fact that Microsoft recently placed full-page ads advocating clearance of this deal in UK newspapers. It shows an unwavering commitment and that they take nothing for granted. That is the key message from today's announcement, too.
If a company tries hard to cooperate with regulators and goes out of its way to address potential concerns, it's being constructive. But there comes a point where such a company might just have to demonstrate to those agencies that if all else fails, it will stand its ground in the courts of law, as is already the case in the United States. By accepting a negative decision that has no basis in law and fact, a company like that would effectively invite other regulatory action adverse to its interests. It would be a victim again and again, while the likes of Apple and Google exhaust all appeals and risk non-compliance fines just to get the best results possible. Today's Wall Street Journal article suggests Microsoft is not going to accept totally baseless decisions, though it's still going to be far more cooperative than Apple or Google.
The last week of April will be extremely important for this merger as my timeline chart (last updated on March 1) shows:
