Microsoft’s acquisition of Activision Blizzard is being scrutinised by regulators in multiple regions. Recently, UK’s Competition and Market Authority’s (CMA) released provisional findings in which it calculated how Microsoft could make profits by withholding Call of Duty from PlayStation and drawing Sony fans to Xbox. The Windows maker has now responded to those findings saying the CMA’s calculations are flawed.
‘CMA calculations skewed’
In the findings, CMA based its calculations on profits and losses from Xbox hardware, subscriptions, and games over a period of five years. However, Microsoft said that calculations are flawed because the CMA’s model compares gains on a five-year basis to losses on just a one-year basis.
“The CMA’s primary financial modelling is based on the Life Time Value (LTV) of customers that might divert to Xbox. However, the CMA’s LTV calculation contains a fundamental and obvious error: in calculating the ‘gains’ to Microsoft of a withholding strategy, the calculation uses a five-year gross profit figure, but in assessing the ‘losses’ side, it uses a figure that measures losses for only a single year. Comparing gains on a five-year basis to losses on a one-year basis massively skews the results,” Microsoft said in its 84-page reply.
Microsoft’s four 10-year deals
Microsoft also highlighted that around the time of hearing in Brussels last month, the company entered into legally binding, 10-year agreements with Nintendo and Nvidia. These deals will bring Call of Duty “to millions of additional gamers on both console and cloud gaming services” if the Merger is approved, the company said in the response filed on March 2.
“Unfortunately, there are clear errors in the figures being used to value the small number of Sony customers who might move to Xbox in the absence of Call of Duty (CoD),” The Verge quoted Rima Alaily, corporate vice president and deputy general counsel for Microsoft, as saying.
The company recently announced two 10-year deals with a Ukraine-based cloud gaming platform and Ubitus, a Japanese leading cloud gaming provider.
“As we’ve always said, any realistic modelling of the true cost of removing CoD from PlayStation players clearly demonstrates that there is absolutely no financial incentive for us to do so. Which is why we have repeatedly said we won’t. Our actions demonstrate that we want to bring more games to more people, not less,” Alaily added.
Sony reiterates ‘degraded’ COD version narrative
Meanwhile, Sony in its response to the CMA, reiterated that Microsoft could degrade the quality and performance of Call of Duty on PlayStation consoles, withhold Call of Duty from PlayStation consoles, or raise the price of Call of Duty. It highlighted that Microsoft did that when it acquired Bethesda.
“It is about the impact of Microsoft making new Call of Duty releases (which are launched every year) exclusive, as it has done for the new releases of Starfield and Elder Scrolls following the acquisition of ZeniMax in 2021,” Sony said in its CMA filing on March 1.
“These releases were announced in 2018 and were not expected at that time to be Xbox exclusives. It was only after acquiring ZeniMax that Microsoft’s Phil Spencer revealed that, all along, the deal had been about ‘delivering great exclusive games’ for Xbox,” Sony highlighted.
Microsoft hits back
Microsoft hit back at Sony saying that launching a degraded version of Call of Duty on PlayStation “would destroy a significant portion of the value from the merger and would undermine Microsoft’s hard-won reputation for bringing competition to the gaming industry.”
It also said that the CMA’s findings do not provide “any plausible basis” of substantial lessening of competition (SLC) by this merger in the UK. Microsoft also highlighted that even if CMA confirms the Console SLC and/or Cloud Gaming SLC, Microsoft has provided licensing remedies to guarantee parity between the PlayStation and Xbox platforms in respect of CoD.
“The CMA faces a stark choice. A clear path forward with remedies, which would deliver increased competition and substantial benefits to UK gamers, or a prohibition decision which would squander these benefits in order to protect the position of the dominant console platform,” Microsoft concluded.
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