The Microsoft / Activision Blizzard acquisition |OT| Antitrust Simulator (completed; discussing post-merger issues)

Idas · Jul 27, 2023

The gamers' lawsuit is not dead yet :p

Microsoft Asks 9th Circ. To Reject Gamers' Activision Appeal - Law360

Microsoft Corp. urged the Ninth Circuit on Tuesday not to revive a bid by video game players to pause its planned $68.7 billion purchase of Activision Blizzard Inc., saying that recent contracts with Sony and others confirm that games will not be withheld from other platforms anytime soon.

www.law360.com

Microsoft Corp. urged the Ninth Circuit on Tuesday not to revive a bid by video game players to pause its planned $68.7 billion purchase of Activision Blizzard Inc., saying that recent contracts with Sony and others confirm that games will not be withheld from other platforms anytime soon.

KnowinStuff said:
How was Sega allowed to buy Rovio. Isn't this affected by their duopoly with General Motors in the market for discontinued products I never wanted to buy named a "Saturn"?

Hahaha!

Scottoest said:
How do you even get a monopoly on a genre? It's like saying a movie studio has a monopoly on rom-coms.

I think that in the short - medium term defining markets by genre it's unlikely to have any serious consequences (although they could be an extra issue).

But if consolidation in the industry keeps progressing and the cost of developing triple AAA games keeps rising, it's not impossible to think about a scenario in 15-20 years where some genres are dominated by just 3-4 big players with huge IPs, in a market with high barriers to entry (access to talent, manpower, technology, etc) and where new competitors have a hard time succeeding.

Lorul2 said:
He He ... Off Topic.

xD

Sheepinator · Jul 27, 2023

Apologies if off topic, just a bit of regulator/MSFT news today:

Microsoft is facing an antitrust investigation opened by the European Commission to evaluate whether the company's product bundles may have breached EU competition regulations, according to a Thursday statement from the regulator.

"The Commission is concerned that Microsoft may be abusing and defending its market position in productivity software by restricting competition in the European Economic Area for communication and collaboration products," according to the statement.

According to the commission, the product bundles may have created a "distribution advantage" for the company's Teams communication platform by not giving customers an option on whether to include it in their subscription to Microsoft's productivity suites. These practices may constitute "anti-competitive tying or bundling," the commission said.

A Microsoft spokesperson told MT Newswires that the company will "continue to cooperate with the Commission and remain committed to finding solutions that will address its concerns."

Idas · Jul 27, 2023

The CAT published the transcript from the Case Management Conference on July 17th.

81 pages 🤓

Sopleux · Jul 27, 2023

I got used to the speed of recent weeks and now that slow days in this deal are driving me crazy. I hope #TeamA will win, it'll be good for my mental health

T0kenAussie · Jul 27, 2023

Sheepinator said:
Apologies if off topic, just a bit of regulator/MSFT news today:

Microsoft is facing an antitrust investigation opened by the European Commission to evaluate whether the company's product bundles may have breached EU competition regulations, according to a Thursday statement from the regulator.

"The Commission is concerned that Microsoft may be abusing and defending its market position in productivity software by restricting competition in the European Economic Area for communication and collaboration products," according to the statement.

According to the commission, the product bundles may have created a "distribution advantage" for the company's Teams communication platform by not giving customers an option on whether to include it in their subscription to Microsoft's productivity suites. These practices may constitute "anti-competitive tying or bundling," the commission said.

A Microsoft spokesperson told MT Newswires that the company will "continue to cooperate with the Commission and remain committed to finding solutions that will address its concerns."

Always hilarious to me how slack took out a full page ad about teams being shitter than slack and that it wouldn't take off and now they are complaining to the commissioners that teams is too good a product inside 365 and it's anticompetitive lol

I think value bundling is proconsumer but I guess I could see the political argument as to why it's not

Timexy · Jul 27, 2023

T0kenAussie said:
I think value bundling is proconsumer but I guess I could see the political argument as to why it's not

My opinion is that as that as long as you have the option to buy everything else standalone, it being in a bundle shouldn't be considered anticompetitive.

Of course I may be wrong, but I foresee Microsoft removing Teams from the Office 365 and Microsoft 365 license bundles in the EU, in which case may bring more harm than benefits for EU consumers as they'll (probably) be forced to buy Teams separately. In this scenario I also foresee Microsoft not reducing the license bundle prices because of that as that's gonna mean free earning money from the current consumers that won't be bothered by the hasle of migrating to a new solution once they need to renew their current license.

What doesn't help Microsoft in this case is the way the products are intertwined on the platform. For instance, try using Teams without having an Exchange Online and/or OneDrive/SharePoint license and you'll see what I mean: some functionalities doesn't work. It's really hard for consumers to understand which functionality is from which product. Hell, even to IT personnel sometimes its not that easy to understand/explain either... Maybe that's going to be a focus of this investigation; certainly a welcomed one if it does.

ThereAreFourNaan · Jul 27, 2023

Timexy said:
My opinion is that as that as long as you have the option to buy everything else standalone, it being in a bundle shouldn't be considered anticompetitive.

Like a lot of things, it depends. Bundling products is absolutely not anticompetitive intrinsically - it only becomes so if the influence on the market is so significant that it can drive other companies out of the market and raise substantial barriers of entry to new ones.

There are probably some other things to consider too, like whether it's a market worth thinking about at all. I don't think anybody cares at all that Windows ships with Notepad and Calculator, because nobody is seriously monetizing those very basic types of software and hasn't for a long time, but in the 1990s there was a competitive market between vendors for web browsers, and internet explorer did make it extremely difficult for netscape to compete through bundling (and back then, you would even buy web browsers in a store on a disc!). By comparison now, I think the EU would have a hard time arguing that bundling Edge with the browser - even if they do some relatively annoying things to try and make it hte default - is not a serious threat to Chrome because it is itself so dominant. There might be regulations or individual laws they can violate by the way they make Edge default back after an update occasionally, but they're probably not getting clipped on monopolistic practices per se.

Here, you can probably make a very believable case that Microsoft bundling an essential office productivity suites used by a huge fraction of companies and organizations with free (or very cheap) licences to Teams did cause them to become dominant in a short space of time. I saw that in my own work place, where it rolled out as the de facto software used because we already had an organization Office 365 licence while we would have had to pay extra for Slack. If they bundled Teams with Xbox Live Gold, by comparison, the risk of anticompetitive effects would have been extremely low, at least in relation to Slack.

I'd also say that if there were 3 equally widely used office productivity suites, and each of them came with a Teams-equivalent, then it would be harder to argue anticompetitive effects.

killerrin · Jul 27, 2023

T0kenAussie said:
Always hilarious to me how slack took out a full page ad about teams being shitter than slack and that it wouldn't take off and now they are complaining to the commissioners that teams is too good a product inside 365 and it's anticompetitive lol

I think value bundling is proconsumer but I guess I could see the political argument as to why it's not

It's kind of a gray area. Especially considering that Teams was literally a replacement for Skype, which was a replacement for Lync, which was a replacement for MSN. So it's not like Microsoft was new to this space. There are plenty of companies that couldn't give two shits about Slack or any other platform. They were perfectly fine with Lync, then they were perfectly fine with Skype, and then they were perfectly fine with Teams. And all they did was just follow the upgrade path.

For a business, they already know how Microsoft operates, they have a dedicated Microsoft Sales person, they already have support contracts, their staff know how to use Microsoft Products, everything Microsoft integrates into everything else. And the software is so important you probably already licensed you're entire organization for every other office tool years ago.

Even if the EU punishes them and forced them to debundle and go A'la-carte...Someone like Slack/Salesforce really isn't going to stand much of a chance when it's just easier to use the product that works with everything else that powers your business. And even if Slack might be better in some ways... The law doesn't force you to always pick the best product. Just like it's not illegal for Microsoft to develop an a competitor to Slack. Especially since at the end of the day Microsoft built it from scratch

inpHilltr8r · Jul 27, 2023

Teams is shit, but it's free with your monopoly office subscription. Our studio went back to Slack after protests.

TurkishDelight · Jul 27, 2023

inpHilltr8r said:
Teams is shit, but it's free with your monopoly office subscription. Our studio went back to Slack after protests.

Teams 2 is way better than og version

melodiousmowl · Jul 28, 2023

TurkishDelight said:
Teams 2 is way better than og version

I sometimes have to deploy teams because at least a while ago was the only service that didnt own your data.

L11ghtman · Jul 28, 2023

melodiousmowl said:
I sometimes have to deploy teams because at least a while ago was the only service that didnt own your data.

Slack + Zoom + Outlook. I don't want something that tries to do all three poorly.

FrostweaveBandage · Jul 28, 2023

killerrin said:
It's kind of a gray area. Especially considering that Teams was literally a replacement for Skype, which was a replacement for Lync, which was a replacement for MSN. So it's not like Microsoft was new to this space. There are plenty of companies that couldn't give two shits about Slack or any other platform. They were perfectly fine with Lync, then they were perfectly fine with Skype, and then they were perfectly fine with Teams. And all they did was just follow the upgrade path.

For a business, they already know how Microsoft operates, they have a dedicated Microsoft Sales person, they already have support contracts, their staff know how to use Microsoft Products, everything Microsoft integrates into everything else. And the software is so important you probably already licensed you're entire organization for every other office tool years ago.

Even if the EU punishes them and forced them to debundle and go A'la-carte...Someone like Slack/Salesforce really isn't going to stand much of a chance when it's just easier to use the product that works with everything else that powers your business. And even if Slack might be better in some ways... The law doesn't force you to always pick the best product. Just like it's not illegal for Microsoft to develop an a competitor to Slack. Especially since at the end of the day Microsoft built it from scratch

It's not so gray when you keep in mind that many businesses were using Skype, only to have Microsoft buy Skype, strip it of features, rebrand (recolor, really) Lync 2013 as Skype for Business, rebrand Skype as Skype for Desktop, continue to strip it of features, and then rebrand Skype for Business as Teams. Now everyone uses Teams and Skype is more or less dead.

By making Skype less useful, drawing users to Skype for Business, and then renaming it to Teams, they consolidated Skype users onto the platform, and then killed the brand. It's the same embrace/extend/extinguish strategy they've been using for decades.

BarcaTheGreat · Jul 28, 2023

TurkishDelight said:
Teams 2 is way better than og version

Is this a joke or is there really a teams 2?i hate our MS Teams so if it's real and it's coming, I welcome it

Dega · Jul 28, 2023

Is Teams 2 on Game Pass?

TurkishDelight · Jul 28, 2023

BarcaTheGreat said:
Is this a joke or is there really a teams 2?i hate our MS Teams so if it's real and it's coming, I welcome it

yes it's already available with early access toggle. full version coming in august i believe. Memory consumption is 1/10 and its 3-4x faster

The new Microsoft Teams is here with big performance improvements and UI changes

The new Microsoft Teams client focuses on performance improvements.

www.theverge.com

it also has lots of AI tools like when you sleepwalk a meeting it can summarize to you very easily with bulletpoints etc

View: https://youtu.be/rLC2frnUasw

killerrin · Jul 28, 2023

TurkishDelight said:
yes it's already available with early access toggle. full version coming in august i believe. Memory consumption is 1/10 and its 3-4x faster

The new Microsoft Teams is here with big performance improvements and UI changes

The new Microsoft Teams client focuses on performance improvements.

www.theverge.com

it also has lots of AI tools like when you sleepwalk a meeting it can summarize to you very easily with bulletpoints etc

IIRC, isn't Teams 2 a rebuild that strips out Electron for a native app instead. If so that would explain the massive performance increases.

spaim · Jul 28, 2023

killerrin said:
It's kind of a gray area. Especially considering that Teams was literally a replacement for Skype, which was a replacement for Lync, which was a replacement for MSN. So it's not like Microsoft was new to this space. There are plenty of companies that couldn't give two shits about Slack or any other platform. They were perfectly fine with Lync, then they were perfectly fine with Skype, and then they were perfectly fine with Teams. And all they did was just follow the upgrade path.

For a business, they already know how Microsoft operates, they have a dedicated Microsoft Sales person, they already have support contracts, their staff know how to use Microsoft Products, everything Microsoft integrates into everything else. And the software is so important you probably already licensed you're entire organization for every other office tool years ago.

Even if the EU punishes them and forced them to debundle and go A'la-carte...Someone like Slack/Salesforce really isn't going to stand much of a chance when it's just easier to use the product that works with everything else that powers your business. And even if Slack might be better in some ways... The law doesn't force you to always pick the best product. Just like it's not illegal for Microsoft to develop an a competitor to Slack. Especially since at the end of the day Microsoft built it from scratch

This, being an integral and native solution of an existing ecosystem is the better choice unless specific criteria/requierment isn't met. An organization relying mostly on MS services (O365 and Azure) will definitely get more benefit from Teams than Slack, however an organization relying on Google (G Suite and Google Workspaces) wouldn't find any benefit in Teams, so Slack could be the option in here (though Google has Meet, god know if Slack would complain about that as well).

Removing Teams from any O365 licensing SKU would be anti-consumer, actually that would help MS boost sales of Teams besides the newer premium SKU (which is awesome btw).

I have worked for companies using both Teams and Slack, each one for its own purpose, but they can definitely coexist so I fail to see the monopoly on this matter.

TurkishDelight · Jul 28, 2023

killerrin said:
IIRC, isn't Teams 2 a rebuild that strips out Electron for a native app instead. If so that would explain the massive performance increases.

yes its entirely react based on all platforms web windows mac
it also has some amazing shit that i use daily but nont announced so just eait

gifyku · Jul 28, 2023

Engineers love Slack but they really dropped the ball not having decent video calling and even when they did, it was the most barebones possible. I get it; engineers dont want to talk or come on video; this meeting could have been an email etc. but Slack gave this huge opening to Teams. Sometimes, listening to your most passionate fans is not the best way to strategize

BarcaTheGreat · Jul 28, 2023

TurkishDelight said:
yes it's already available with early access toggle. full version coming in august i believe. Memory consumption is 1/10 and its 3-4x faster

The new Microsoft Teams is here with big performance improvements and UI changes

The new Microsoft Teams client focuses on performance improvements.

www.theverge.com

it also has lots of AI tools like when you sleepwalk a meeting it can summarize to you very easily with bulletpoints etc

View: https://youtu.be/rLC2frnUasw

I had no idea. Thanks for this glimmer of hope.

Deleted member 5876 · Jul 28, 2023

killerrin said:
IIRC, isn't Teams 2 a rebuild that strips out Electron for a native app instead. If so that would explain the massive performance increases.

Not quite right.. its still web based. They are using their own, way way more performant Edge Webview over Electron.

Introduction to Microsoft Edge WebView2 - Microsoft Edge Development

Host web content in your Win32, .NET, UWP apps with the Microsoft Edge WebView2 control.

learn.microsoft.com

Trup1aya · Jul 28, 2023

FrostweaveBandage said:
It's not so gray when you keep in mind that many businesses were using Skype, only to have Microsoft buy Skype, strip it of features, rebrand (recolor, really) Lync 2013 as Skype for Business, rebrand Skype as Skype for Desktop, continue to strip it of features, and then rebrand Skype for Business as Teams. Now everyone uses Teams and Skype is more or less dead.

By making Skype less useful, drawing users to Skype for Business, and then renaming it to Teams, they consolidated Skype users onto the platform, and then killed the brand. It's the same embrace/extend/extinguish strategy they've been using for decades.

This isn't embrace/extend/extinguish at all- that refers to eliminating an open standard by adding a bunch of proprietary features to it such that others using the standard can't access the features that users come to expect.

What you described is just MS taking a bunch of overlapping tech brands that they own and combining them into a single product.

FrostweaveBandage · Jul 28, 2023

Trup1aya said:
This isn't embrace/extend/extinguish at all- that refers to eliminating an open standard by adding a bunch of proprietary features to it such that others using the standard can't access the features that users come to expect.

What you described is just MS taking a bunch of overlapping tech brands that they own and combining them into a single product.

Fair enough, but the practical effect was the same -- eliminate the Skype brand.

Trup1aya · Jul 29, 2023

FrostweaveBandage said:
Fair enough, but the practical effect was the same -- eliminate the Skype brand.

Yeah, but it was their own brand. There's nothing anti-competitive about a company moving away from a brand they own and shifting customers to a new one. EEE is more about eliminating open standard, leaving the proprietary standard as the only viable option.

The issue with Slack is more or less about predatory pricing. Since Teams is being bundled with products that businesses already license, why buy Slack? Since Teams is bundled with Office 365, Slack can't compete on price, and they can't compete with regards to interactions with Office because MS owns office. So even if the Slack offers better features, it gets squeezed out of the market.

Since Office is proprietary, we aren't looking at EEE. But there's definitely the argument that MS is leveraging the monopolistic market power of Office to squeeze out adjacent competition.

Stalker · Jul 29, 2023

I have a bit of a speculative question.

If this deal clears in a week and Microsoft annouced a purchase of SEGA immediately after would it face the same level of scrutiny and delays?

Dega · Jul 29, 2023

Stalker said:
I have a bit of a speculative question.

If this deal clears in a week and Microsoft annouced a purchase of SEGA immediately after would it face the same level of scrutiny and delays?

Most likely not.

show me your skeleton · Jul 29, 2023

gifyku said:
I get it; engineers dont want to talk or come on video; this meeting could have been an email etc.

that is so apt and so funny 😅

Trup1aya · Jul 29, 2023

gifyku said:
Engineers love Slack but they really dropped the ball not having decent video calling and even when they did, it was the most barebones possible. I get it; engineers dont want to talk or come on video; this meeting could have been an email etc. but Slack gave this huge opening to Teams. Sometimes, listening to your most passionate fans is not the best way to strategize

I tell you what- in my line of work, the interactions between engineers and field technicians has improved ten-fold thanks to how easy and powerful video conferencing in Teams can be.

I've never used Slack, but if Slack slept on this feature, then yes, it's a huge missed opportunity.

VinFTW · Jul 29, 2023

I'm getting unreasonable angry waiting for this to finish, time is draaaaaging

MCD · Jul 29, 2023

Stalker said:
I have a bit of a speculative question.

If this deal clears in a week and Microsoft annouced a purchase of SEGA immediately after would it face the same level of scrutiny and delays?

Maybe divest Rovio and/or 10 year deals for Sega games at least in Japan (Japan FTC might require it?) but other than that, I think it will be smooth.

Xbox got 1% presence in Japan/Asia lol.

Psamtik · Jul 29, 2023

gifyku said:
Sometimes, listening to your most passionate fans is not the best way to strategize

Randdalf · Jul 29, 2023

TurkishDelight said:
yes its entirely react based on all platforms web windows mac
it also has some amazing shit that i use daily but nont announced so just eait

I find it a little amusing that the strategy to make something faster is to use a different bloated JavaScript framework but whatever. I guess the performance critical stuff is done natively.

Barrakketh · Jul 29, 2023

Randdalf said:
I find it a little amusing that the strategy to make something faster is to use a different bloated JavaScript framework but whatever. I guess the performance critical stuff is done natively.

I'm guessing React Native for the non-web platforms. Looks like it supports WebView2.

FrakEarth · Jul 29, 2023

Randdalf said:
I find it a little amusing that the strategy to make something faster is to use a different bloated JavaScript framework but whatever. I guess the performance critical stuff is done natively.

Electron apps can be a bit resource heavy as they all kind of load a chromium-esque experience (including the RAM hungryness) to run the app cross-platform. What MS have done is integrate WebView2 (an Edge based web view) - which is similar to how Android handles things - a shared webview component for lots of apps - and they've migrated the app itself fully over to React, whereas parts of it were different libraries before. Their UI framework (Fluent UI) is pretty good and pretty mature now, so it made sense for them to have done that. I imagine it is a lot leaner.

Idas · Jul 29, 2023

My highlights from the EC (European Commission) decision (256 pages).

This is PART 1. You can find PART 2 here, and PART 3 here.

MS expects to reach (part) of the famous 3 billion consumers by 2030 (page 9)

Gaming is a highly dynamic industry, and the fastest growing portion of the media and entertainment sector. It is larger than pay-TV, home video (including streaming), cinema, music, books or newspapers & magazines. Today, 3 billion consumers around the world play games, a number that the Notifying Party expects to reach [REDACTED] by 2030. Gamers are able to access and play thousands of highly differentiated games on a variety of devices, including PCs, gaming consoles, and mobile devices.

Originally, it looks like MS thought about releasing xCloud through white-label services (page 11, footnote 18 about white-label services)

Prior to the launch of cloud game streaming, Microsoft considered the possibility of [business secrets concerning business strategy]. This would entail [business secrets concerning Microsoft XCloud strategy]. Microsoft has had preliminary discussions with [business secrets concerning business strategy]. Microsoft offers publishers the option to appear as channels within Game Pass (e.g., EA Play). Further investment would be required in order for Microsoft to be able to offer white-label services to third parties from a technical perspective.

MS is still selling Xbox at a loss (page 13, footnote 24)

From this viewpoint, singling out the sale of console hardware as a standalone activity is not meaningful for the purpose of the present Decision. In this regard, the Notifying Party submitted that "Microsoft's Xbox console is sold at a loss, and to the best of the Parties' knowledge this is the case for other consoles as well. This is because all console vendors expect to recoup (at least some) of this loss from the sale of games and services to the new console owner." As the Transaction at hand does not concern such products, the Commission does not assess the market for the supply of gaming hardware alone, and potential vertical relationships connected to it.

The EC didn't consider cloud gaming a relevant element to asses the market of developing and publishing games (page 15, footnote 41)

The Commission notes that video games can also be distributed via cloud game streaming. However, the Commission does not consider cloud game streaming as a relevant element for the assessment of the market for the development and publishing of video games. This is because cloud game streaming does not provide a different content from what is available for download. In principle, as regards PC and console games, all games available for download can also be played via cloud game streaming without the relevant game developer having to adapt it. As regards the Xbox console, for example, Microsoft explains that [business secrets concerning game development].

The EC concluded that mobile does not belong to the same market as developing and publishing for PC/console; there was no further segmentation by console and PC (pages 17 - 18)

In light of the above, for the purposes of this Decision, the Commission concludes that the development and publishing of mobile games does not belong to the same product market as the development and publishing of PC and console games, respectively.

Moreover, the Commission concludes that the product market definition can be left open with regard to a segmentation based on platform between PC and console, as the outcome of the analysis will be the same regardless of whether the Commission considers an overall market for game development and publishing of PC and console games, or potential separate markets for the development of (i) PC; and (ii) console games, respectively.

The EC's findings indicated that when gamers start playing a newly released game, they spend less time playing other games of the same genre; therefore substitution across genres is uncommon and a segmentation by video game genre is appropriate (pages 18 - 19)

During the Phase II market investigation, the Commission has investigated whether the market for the development and publishing of video games should be segmented by genre and whether such segments constitute separate product markets or should be considered part of one differentiated product market.

In Annex 44 of the Article 6(1)(c) Response, the Notifying Party argues that (i) there is no agreed-upon classification of games into genres in the gaming industry; (ii) most gamers play games in multiple genres; (iii) gamers' playing choices change over time; (iv) when gamers start playing a new game, they decrease game time across games of all genres; and (v) gamers' tastes are heterogeneous. Taken together, according to the Notifying Party, these findings show that there are no clear boundaries between genres and that gamers are likely to substitute between games within and across genres.

The majority of the arguments brought forward in Annex 44 of the Article 6(1)(c) Response are based on the Notifying Party's analysis of "telemetry" data that tracks the game time on Xbox devices of a sample of almost […] gamers.

The Commission considers that the Notifying Party's analysis of the telemetry data that is presented in Annex 44, has several shortcomings. Most importantly, the Notifying Party's submission that when gamers start playing a new game, they spend less time playing other games across all genres, indicating substitution within and across genres, does not hold up under further examination. First, the evidence provided by the Parties is presented in purely visual form. It is therefore difficult to assess whether the Parties' claim actually holds in quantitative terms. Second, new game titles are released on Xbox very frequently, making it difficult to distinguish the impact of one release from another when they are released in close proximity.

(70) The Commission provides an alternative examination of the telemetry data using a more robust methodology that addressees these concerns. Specifically, the Commission uses a so-called 'difference-in-differences' methodology that compares the change in game time between gamers who did and who did not play the newly released title. This approach allows to estimate the causal effect of the new release on game time, while controlling for any other factors that may have affected the outcome. Contrary to the Notifying Party's submissions, the Commission's findings indicate that when gamers start playing a newly released game, they mostly spend less time playing other games of the same genre. That is, substitution mostly takes place within genres while substitution across genres is substantially less frequent. This indicates that at least a segmentation of the market for game development and publishing by genre would be appropriate.

The EC concluded that the relevant product market is the one for the development and publishing of PC and console games, but game development and publishing is highly differentiated by genres; however, the EC left open the possibility of further segmentation by 7 genres due to the nuances of the market (pages 19 - 20)

In its Phase I market investigation, the Commission asked market participants to list the main video games (i.e., the top five particularly representative or popular titles) that belong to each of the following genres: (i) action and adventure; (ii) shooter/battle royale; (iii) role-playing games; (iv) sports (including racing and flying, respectively); (v) fighting; and (vi) strategy. The Commission also asked market participants to indicate a given title under all genres that apply, should they consider that the title belonged to more than one genre.

The replies to those questions confirmed that battle royale is part of the shooter genre and that racing is a genre separate from sports. In its Phase II Market Investigation, the Commission therefore listed seven genres, giving the top 5 games for each genre as listed by market participants in Phase I as an example. It asked market participants whether they considered it appropriate to distinguish between such genres, both for console63, and for PC games.

The answers of market participants to the Phase II market investigation are nuanced. While some market participants submit that they do not consider a segmentation by genre meaningful, for each of the seven genres a clear majority of the respondents which expressed a view indicated it to be appropriate to distinguish the respective genre from the others. Only a few respondents suggested in their answers that certain games should be allocated to other genres or that other games should be mentioned as representative for the suggested genres.

Moreover, the respondents indicated in their answers that most often games within the suggested genres compete with each other, whereas games across genres compete less often. However, based on the replies to the market investigation, a degree of across-genre competition still exists.

Overall, the replies of the market participants indicated that the level of substitution between one genre and another significantly depends on the specific genres examined. The genres "action & adventure" and "role-playing" are considered significantly more substitutable between each other than, for example, "action & adventure" with "sports" or "fighting". Games in the "shooter" genre are considered to a slightly lower degree substitutable with games in the "action & adventure" genre compared to the degree of substitution between "action & adventure" and "roleplaying", but significantly less so with "sports", "fighting" or "strategy" games. Overall, "action & adventure" and "role-playing" games seem to be close substitutes, as occurs with "sports" and "racing" games, whereas "fighting" and "strategy" games each have no other genre that is considered substitutable by a significant number of respondents.

The Commission received mixed evidence also on the feasibility of switching genres for developers. On these topics, the Commission received similar replies for console games and PC games.

Based on the results of the market investigation, the Commission considers that the market for game development and publishing is highly differentiated on the basis of game genres. In this regard, genres constitute an important distinguishing factor between video games that affects to a certain degree the level of competition between them. However, there exists some uncertainty as to whether such differentiation allows to conclude that all or certain game genres form separate product markets from other genres.

In light of this, for the purposes of this Decision, the Commission concludes that the relevant product market is the market for the development and publishing of PC and console video games. The Commission considers that it can be left open whether this market should be further segmented based on game genres, in particular based on the following genres: (i) action and adventure; (ii) shooter (including battle royale); (iii) role-playing games; (iv) sports; (v) racing; (vi) fighting, and (vii) strategy, as this would not change the outcome of the competitive assessment in this case.

The EC concluded that segmentation based on type of game (AAA or non-AAA) could be left open (page 21)

The results of the Phase I market investigation were inconclusive regarding a possible segmentation of the video game publishing product market by type of video game (AAA games vs. non-AAA games).

From the supply-side, the majority of market participants that expressed a view submitted that game developers focusing on AAA can easily switch to developing a non-AAA game in a short period of time and with minimal costs, while the opposite is not necessarily the case.

However, market participants were not entirely aligned on this point. For example, one market participant stated that also switching from developing AAA to developing non-AAA games can be challenging, even if still to a lesser extent than vice-versa: "switching from AAA to a non-AAA development might be challenging as it requires scaling down (plans, team, budget), however it is much easier than the vice-versa situation." On the contrary, a few market participants indicated that both switching from developing AAA games to developing non-AAA games and viceversa is possible in a short period of time and with minimal costs.

For the purposes of this Decision, the Commission concludes that the relevant product market is the market for the development and publishing of PC and console video games. The Commission considers that the question whether this market should be further segmented based on game types can be left open, as this would not change the outcome of the competitive assessment in this case.

The EC concluded that segmentation based on payment model (buy to play or subscription) wasn't appropriate in the case (page 26)

The majority of respondents that expressed a view on this subject during the market investigation submitted that the market for game distribution should not be segmented by payment model (buy-to-play vs subscription services). In particular, from the demand-side, the majority of respondents considered that multi-game subscription services and digital storefronts selling games on a buy-to-play basis compete with each other and belong to the same market for (digital) distribution of games. From the supply-side, market participants provided mixed views as to whether a video games distributor selling games on a buy-to-play basis can switch to offering a viable multi-game subscription service in a short period of time and with minimal costs, and vice-versa.

In light of the above, for the purposes of this Decision, the Commission concludes that the market for game distribution should not be segmented based on payment model.

The EC concluded that segmentation based on type of access to video games (downloading vs cloud gaming) wasn't appropriate in the case (pages 26-27)

During its market investigation, the Commission asked market participants to provide their views with regard to the status quo in the market. The results of the market investigation indicated that the market for game distribution should not be segmented based on the type of access to video games (downloading vs. cloud game streaming).

In particular, from the demand-side, the majority of respondents considered that cloud game streaming services compete with the more traditional access to video games via download, as cloud game streaming constitutes just a different method to access the games.

In light of the above, for the purposes of this Decision, the Commission concludes that the relevant market is an overall market for PC and console video game distribution and that this market should not be segmented based on type of access.

If there was any doubt, MS is moving away from per-game monetization to a flat-fee subscription model (page 29)

The Notifying Party submits that, by acquiring Activision Blizzard, Microsoft enhances the attractiveness of Microsoft's multi-game subscription service Game Pass by adding Activision Blizzard's popular games to its library, as Microsoft undertakes to move from per-game monetization to a flat-fee subscription model. Microsoft expects the Transaction to improve Game Pass' user engagement and increase its subscriber base, allowing Microsoft to continue investing in Game Pass and cloud gaming functionality.

The 3 largest franchises from ABK in 2021 for PC and console (page 30)

Activision Blizzard's three largest franchises in 2021 in terms of revenues on PC and console were World of Warcraft, Call of Duty, and Diablo for PC, and Call of Duty, Crash Bandicoot, and Diablo for consoles.

The EC received complaints regarding Microsoft's supply of physics engines (Havok) but considered that there was no theory of harm specific to the merger (page 34, footnote 139)

The Commission has received complaints also as regards Microsoft's supply of physics engines, a type of software that allows computers to create physics phenomena such as rigid and soft body dynamics and fluid dynamics to reproduce the real-world situation. Such engines are critical for the development of video games with complex 3D physical characteristics. According to such complaints, postTransaction Microsoft would have increased incentives to require developers to use its Havok physics engine, and to degrade Havok's compatibility with competing gaming platforms that currently use Havok, thereby harming competition in the market for the provision of such physics engines. The Commission considers that such possible theory of harm is not merger specific, as Activision Blizzard's games does not carry out any activities that are horizontally or non-horizontally linked to the provision of physics engines. Therefore, the Transaction does not bring about any change in the ability and incentive for Microsoft to foreclose Havok's competitors. In light of this, the Commission has not assessed in this Decision the possible effects of the Transaction in the market for the provision of physics engines.

The EC received complaints regarding Microsoft's Jumpstart programme (a Windows license rebate) but considered that there was no theory of harm specific to the merger (page 35, footnote 140)

The Commission has received complaints also as regards Microsoft's Jumpstart programme. Jumpstart is a programme under which Microsoft grants PC manufacturers a […] Windows license rebate if they fulfil certain requirements (mainly consisting of the pre-installation of certain Microsoft apps, programs, software etc). According to the complaint received, the requirements imposed by the Jumpstart programme make it difficult for Microsoft's competitors offering similar apps and programs to compete fairly vis-à-vis PC manufacturers. Post-Transaction, Microsoft could expand the game related requirements to Jumpstart, especially by adding the Xbox app and Game Pass, thereby reducing the ability of rival gaming platforms to enter into promotional arrangements and to compete with Microsoft's gaming channels. The Commission considers that such possible theory of harm is not merger specific. Not only Microsoft could already implement such strategy, but the Transaction would not bring about any change in Microsoft's ability or incentive to foreclose competitors. Game Pass already allows to download games on Windows PCs only, and Game Pass Ultimate's cloud game streaming feature remains accessible as a web app via browser regardless of its integration into the Jumpstart programme. The Commission has assessed in Section 7.5.3 below Microsoft's ability and incentive to make Game Pass Ultimate's cloud game streaming feature no longer accessible on rival PC OS, as well as the effects of such strategy on competition. In light of this, the Commission has not assessed in this Decision the possible effects of the Transaction in relation to the possible foreclosure of rival distributors of video games due to the Jumpstart programme.

The EC received complaints regarding the provision of cloud gaming services (PlayFab and Azure) but considered that there was no theory of harm specific to the merger (page 35, footnote 141)

The Commission has also received complaints that the Transaction will harm competition on the market for the provision of cloud services. In particular, Microsoft is active in the provision of cloud services through its Azure business, and it also operates PlayFab, a back-end service that allows developers to use Azure to build and operate games, as well as to analyze gaming data. According to the complaints, Activision Blizzard's games will enhance the importance of Microsoft's cloud game streaming service, therefore post-Transaction Microsoft will have increased incentives to require developers to use PlayFab and Azure in order to develop games for cloud game streaming, especially for distribution via Microsoft's Game Pass Ultimate. The Commission considers that such possible theory of harm is not merger specific, as Activision Blizzard is not active in the supply of any cloud-related services that create competitive links with Microsoft's supply of PlayFab, nor that would change Microsoft's offering post-Transaction. In light of this, the Commission has not assessed in this Decision the possible effects of the Transaction in relation to the foreclosure of rival providers of cloud services.

MS is a small player in the market of development and publishing of AAA games (page 39)

The market share information shows that Microsoft is a small player in the market of development and publishing of AAA games, across all platforms and geographical segmentations. Its market shares in 2022 were equal or below [0-5]%, with the exception of console [0-5]% and PC and console [0-5]% worldwide only.

In the EEA, ABK has been losing marketshare in the development and publishing of AAA games on console since 2020 (page 39)

While Activision Blizzard's shares by revenue were consistently below [5-10]% in 2022, with the exception of console worldwide ([10-20]%), the Commission notes that Activision Blizzard has managed to consolidate its position as an important video games' publisher worldwide. In the EEA, Activision Blizzard's share of the market has progressively decreased, going from [10-20]% in 2020 to [5-10]% 2022 on PC and from [5-10]% to [0-5]% in the same period on console. Accordingly, the same trend is observable in the Parties' combined shares across all platforms and for PC and console together.

Tencent and Valve are the largest players in development and publishing on AAA PC video games by revenue (page 40)

Tencent and Valve are the largest players in development and publishing on AAA PC video games by revenue, followed by a wide range of smaller players, with shares around (EA and Embracer in the EEA) or below [10-20]%.

EA and Nintendo are the largest players in development and publishing on AAA console video games by revenue (page 40)

On console, EA is the market leader both globally ([20-30]%) and in the EEA ([20-30]), with Nintendo ranking second. EA's shares have increased since 2020, while Nintendo's have declined both globally and, to a lesser extent, in the EEA. As for console, besides EA and Nintendo, the market is divided between a long tail of small players.

EA and Tencent are the two largest players worldwide by revenue in development and publishing on AAA console and PC video games (page 40)

Finally, when we look at the broader market segmentation of PC and console, EA and Tencent are the two largest players worldwide by revenue ([10-20]% and [10-20]%), closely followed by the Parties, with a combined share in 2022 of [10-20]%. In the EEA, the difference that separates the first player, EA, and the second, Valve is larger, with a share gap of around [0-5]%. The Parties account for [5-10]% of the total market by revenue (with a declining trend over the 2020-2022 time period).

Microsoft is a small player in the development and publishing of AAA games with role playing elements on PC, ABK is Top 3 worldwide; NetEase and Nexon are numbers one and two; Embracer and Tencent are large players in the EEA (pages 40 - 41)

The market shares information shows that Microsoft is a small player in the development and publishing of AAA games with role playing elements on PC, with [0-5]% globally and [0-5]% in EEA in 2022. Moreover, Microsoft's market share has decreased in the period from 2020 to 2022 both globally and in EEA. However, Activision Blizzard is one of the top-3 players worldwide, accounting for [10-20]% of the market total revenues in 2022. Despite a decline from [30-40]% in 2020 to [30-40]% in 2022, Activision Blizzard is the first player in the EEA. The Parties' combined higher share in the EEA, [30-40]% compared to [10-20]% in 2022 worldwide, are due to a lower penetration of publishers like NetEase and Nexon in the EEA, that are the first ([20-30]%) and second ([10-20]%) largest players in the worldwide market. Nevertheless, the Parties in the EEA compete against two large players, Embracer ([30-40]%) and Tencent ([10-20]%). Their rapid growth — Embracer especially in two years has more than doubled its shares — overlaps with the Parties' decrement.

Embracer is the largest player in the market for developing and publishing on PC and console of AAA games with flying and racing elements; MS/ABK would be second worlwide and in the EEA (page 42)

Within the narrow market of AAA games with flying and racing elements, Activision Blizzard's share estimated to be around [0-5]% on PC and, respectively, [0-5]% globally and [0-5]% in the EEA on console in 2022. On the other hand, Microsoft has a market share on PC of [20-30]% worldwide and [10-20]% in the EEA, while on console the shares decrease to [10-20]% and [10-20]%.

Embracer is the largest player in the market for developing and publishing on PC and console of AAA games with flying and racing elements, who has more than doubled its market shares, going from [10-20]% in 2020 to [20-30]% 2022 globally and from [20-30]% to [40-50]% in the EEA. The Parties' combined share amounts to [20- 30]% worldwide and [10-20]% in the EEA in 2022, granting the Parties the role of second biggest player worldwide and EEA-wide.

MS/ABK would lead the market regarding the development and publishing of AAA action and adventure games by revenue; Sony, Nintendo or Epic would be alternatives (page 43)

On the market for development and publishing of AAA games with action and adventure elements on console, Microsoft has a market share by revenue of [0-5]% worldwide and [0-5]% in the EEA in 2022. Activision Blizzard's market shares by revenue have increased from [10-20]% in 2020 to [20-30]% in 2022 worldwide, while they have consistently decreased in the EEA, from [10-15]% in 2020 to [10- 20]% in 2022. On the market for development and publishing of AAA games with action and adventure elements on both console and PC, Microsoft's market share by revenue is below [0-5]% worldwide and below [0-5]% in the EEA. Similarly to the console market, Activision Blizzard's market shares by revenue have increased from [10-20]% in 2020 to [10-20]% in 2022 worldwide, while they have consistently decreased in the EEA, from [10-20]% in 2020 to [5-10]% in 2022.

Other players in the market are Epic Games with market shares by revenue of [5- 10]% and [10-20]% in 2022 worldwide and in the EEA respectively and Sony with market shares by revenue of [5-10]% and [0-5]% in 2022 worldwide and in the EEA. The majority of the market is split between other smaller competitors.

MS/ABK would lead the market regarding the development and publishing of AAA shooter console video games by revenue; Epic or EA would be alternatives (page 43)

In the market for development and publishing of AAA shooter console video games, the Parties' share of the market by revenue was [30-40]% worldwide and [10-20]% in the EEA. Activision Blizzard accounts for [30-40]% and [10-20]% of the market worldwide and EEA-wide, respectively. On the other hand, Microsoft represented only [0-5]% of the total market revenues globally and [0-5]% in the EEA.

Other developers and publishers with notable market shares by revenue are Epic Games and EA with more than [10-20]% market share by revenue worldwide and in the EEA. Other smaller players comprise the remaining [40-50]% of the market in the EEA and [20-30]% worldwide.

In the distribution of PC and console video games: Sony leads on console, Valve is the strongest player, NetEase is big worldwide but inactive in EEA (page 45)

With respect to shares by revenue for overall video games distribution, the market information shows that Microsoft is a small player across PC games both globally and in the EEA, while its shares on console in 2022 were [20-30]% worldwide and [20-30]% in the EEA. In the EEA, Microsoft has increased its shares for console video games from [10-20]% in 2020 to [20-30]% to 2022. In the same time period, Sony has experienced a decline in its EEA shares, from [60-70]% to [60-70]%. Nevertheless, Sony still holds a leading position in the market of overall games distribution on console both globally and in the EEA. The third largest player is Nintendo that has maintained its market share in the last three years and currently accounts for [10-20]% of the total market.

On PC, the Parties' combined shares in 2022 accounted for [10-20]% both in the EEA and worldwide. The two geographical markets differ when it comes to competitors and their presence in the market. Valve Corporation is the strongest player in both but its shares in the EEA are substantially higher ([40-50]%) compared to its share worldwide ([20-30]%). Furthermore, a China-based firm, NetEase, appears to be inactive in the EEA market for overall games distribution, while its shares globally account for [10-20]% of the total market.

Finally, by taking into account both platforms together, the Patties' combined share in 2022 was [20-30]% worldwide and [10-20]% in the EEA. Microsoft contributes to most of it, while Activision Blizzard's shares cover less than [0-5]% of the total market. For what concerns competition, Sony still holds a leader position, with [20- 30]% shares worldwide and [30-40]% in the EEA. Sony is then followed by Microsoft globally ([10-20]%) and by Valve Corporation in the EEA ([20-30]%).

In 2022, MS/ABK combined market share exceeded 20% by revenue (either on a worldwide or EEA-wide level) in 5 markets (page 46) | Those were the markets assessed by the EC in this case

Based on the market shares by revenue in 2022 provided by the Notifying Party, the Commission has identified five product market segments where the Parties' combined market share exceeds 20% by revenue in 2022 either on a worldwide or EEA-wide level:

(a) Development and publishing of AAA Role Playing video games on PC (EEA);

(b) Development and publishing of AAA Racing and Flying video games on: (i) PC and console (worldwide); (ii) PC (worldwide); and (iii) console (worldwide);

(c) Development and publishing of AAA Action and Adventure video games on: (1) PC and console (worldwide); and (ii) console (worldwide);

(d) Development and publishing of AAA Shooter video games on console (worldwide); and

(e) Distribution of video games on PC and console (worldwide).

Antrax · Jul 29, 2023

Trup1aya said:
I tell you what- in my line of work, the interactions between engineers and field technicians has improved ten-fold thanks to how easy and powerful video conferencing in Teams can be.

I've never used Slack, but if Slack slept on this feature, then yes, it's a huge missed opportunity.

Slack has "huddles" but they're pretty shit compared to things like Zoom

L11ghtman said:
Slack + Zoom + Outlook. I don't want something that tries to do all three poorly.

This is the way

I don't want to migrate from these 3

StudioTan · Jul 29, 2023

Thanks for the summary Idas!

Frieza · Jul 29, 2023

Thanks as usual Idas

Idas said:
MS is a small player in the market of development and publishing of AAA games (page 39)

The market share information shows that Microsoft is a small player in the market of development and publishing of AAA games, across all platforms and geographical segmentations. Its market shares in 2022 were equal or below [0-5]%, with the exception of console [0-5]% and PC and console [0-5]% worldwide only.

5]% in the same period on console. Accordingly, the same trend is observable in the Parties' combined shares across all platforms and for PC and console together.

Now it makes sense why they released no AAA games in 2022 🧐

Idas · Jul 29, 2023

My highlights from the EC (European Commission) decision (256 pages).

This is PART 2, you can check PART 1 here and PART 3 here.

MS/ABK will be constrained by Embracer and Tencent in the market for development and publishing of AAA role playing PC video games (page 50)

First, while both Parties are active in development and publishing of AAA role playing PC video games in the EEA, the Commission observes that the increment brought about by Microsoft in this market is limited: [0-5]% by revenue on PC in 2022.

Second, in the market for development and publishing of AAA role playing PC video games, the combined entity will remain constrained by two large developers and publishers— Embracer/Perfect World (Fantasy Westward series, Eve Online) and Tencent (4rcheage, Path of Exile), who significantly expanded their share of the market from 2020 to 2022. Embracer/Perfect World more than doubled its market share by revenue from [10-20]% in 2020 to [30-40]% in 2022 in the EEA, and Tencent grew its market share by revenue from [10-20]% in 2020 to [10-20]% in 2022 in the EEA. In fact, Embracer/Perfect World accounts for a similar share of the market as the combined entity in 2022 ([30-40]%, compared to [30-40]% of the combined entity by revenue) in the EEA.

Finally, the Commission notes that it has not received any complaints from the respondents to the market investigation regarding horizontal non-coordinated effects on the horizontally affected segments of the market for development and publishing of AAA role playing video games in the EEA.

MS/ABK will be constrained by Embracer, EA, Sony, Bandai Namco or Ubisoft in the market for development and publishing of AAA racing and flying console and PC video games (page 51)

Third, the Parties will remain competitive constrained by developers and publishers with significant share of the market, irrespective of the market segmentation. On PC, Embracer/Perfect World (Monster Energy Super Cross, Moto GP, Hot Wheels Unleashed) remains the market leader with more than [40-50]% market share by revenue in 2022 worldwide. On console, Embracer/Perfect World comes close to the combined entity in the share by revenue ([10-20]% compared to the combined entity's [20-30]% in 2022) worldwide, while EA (F1 2021, Need for Speed, Grid) also has a significant market share ([10-20]% in 2022) worldwide. In addition, a trail of large publishers will continue to provide meaningful competition in development and publishing of AAA racing and flying PC and console video games worldwide, such as Sony (Gran Turismo), Digital Bros (Assetto Corsa), Bandai Namco (Ace Combat) and Ubisoft (The Crew).

MS/ABK will be constrained by Epic, EA, Nintendo, Take Two or Ubisoft in the market for development and publishing of AAA action and adventure console and PC video games (page 53)

Third, the market for development and publishing of AAA action and adventure console video games hosts a large number of credible competitors. All large developers and publishers are active in this market on the worldwide level, such as Epic Games ([5-10]% by revenue in 2022); Ubisoft ([5-10]% by revenue in 2022); Nintendo ([5-10]% by revenue in 2022); Take Two ([5-10]% by revenue in 2022) and EA ([5-10]% by revenue in 2022). The competitive landscape is similar in the wider market including both console and PC video games of the action and adventure genre worldwide.

MS/ABK will be constrained by Epic, EA or Ubisoft in the market for development and publishing of AAA Shooter (including battle royale) console and PC video games (pages 55-56)

In the worldwide market for development and publishing of AAA shooter console video games, the combined entity's market share exceeds 20% by revenue in 2022 worldwide ([30-40]%). Therefore, the Commission has assessed whether the Transaction gives rise to competition concerns with regard to horizontal noncoordinated effects in the worldwide market for the distribution of AAA shooter console video games.

The Transaction gives rise to a horizontal overlap in this market segment also on the EEA level. In this respect, however, the Parties' activities do not give rise to an affected market because the combined entity's EEA-wide market share remains below 20% by revenue in 2022 ([10-20]%). Therefore, by reason of the Parties' limited market share and the unlikelihood of a significant impediment to competition arising in the narrower plausible EEA-wide market, the Commission finds it unlikely that the Transaction is liable to impede effective competition in the EEA-wide market development and publishing of console shooter video games.

Second, large developers and publishers also have a presence on the market and provide meaningful competition to the merged entity worldwide: EA (Bartlefield, Apex Legends, Titanfall, Star Wars Battlefront, and others) with [20-30]% share by revenue worldwide, Epic Games (Fortnite) with [10-20]% share by revenue worldwide and Ubisoft (Tom Clancy) with [5-10]% share by revenue worldwide.

MS considers that Sony has a market position in consoles of "super-dominance" (page 61)

The Notifying Party submits that, should the merged entity engage in a customer foreclosure strategy against third-party developers and publishers of console games, this would not have significant effects on competition in the upstream market for console games publishing.

In this regard, the Notifying Party reiterates that console game developers and publishers would have multiple alternatives to Microsoft's Xbox to publish their game, and would not be deprived of an essential customer. In particular, the Notifying Party submits that Sony's market position in consoles amounts to "super-dominance" when considering Sony and Microsoft alone. In this scenario, Sony would have a share of the market of [80-90]% by revenues, [70-80]% by volume and [80-90]% by installed base, which shows that Sony is significantly stronger than Microsoft.

One respondent to the market investigation indicated that Xbox is more important than Sony's and Nintendo's consoles (page 62)

The above emerges also from the results of the market investigation. The majority of respondents indicated that Sony's PlayStation is the most attractive platform for developers and publishers to distribute their console games. In this regard, only one respondent indicated that Xbox is more important than Sony's and Nintendo's consoles, while the large majority of respondents indicated that Microsoft's rivals, especially Sony, are more important. Therefore, Microsoft does not constitute an essential customer for console game developers and publishers.

It looks like MS thinks that many publishers have more negotiating power than them, although the majority of the respondents to the market investigation thought that the transaction would increase Microsoft's bargaining power vis-a-vis third-party (pages 60 and 63)

Third, the Notifying Party stresses that the Xbox ecosystem is smaller compared to the Sony and Nintendo's ecosystems. Third-party developers and publishers of console games have [...] negotiating power vis-a-vis Microsoft, such that should Microsoft restrict access to the Xbox console, publishers would switch to other consoles without foregoing a [...] of their revenues. In light of this, a customer foreclosure strategy would be self-defeating for Microsoft.
Fourth, while a majority of the respondents to the market investigation submitted that the Transaction would increase Microsoft's bargaining power vis-a-vis third-party game developers and publishers, the Commission considers that such higher bargaining power would not provide Microsoft with the ability to foreclose competitors in the upstream market.

It sounds like EA, Take Two and Epic have a special revenue-split too (page 63) | Like ABK now, I guess

The Commission notes that, currently, console game developers and publishers enjoy a significant bargaining power vis-a-vis console manufacturers, despite the fact that game developers have only limited options to distribute their games on console digitally, namely the storefronts of the three console distributors that exist in the market (Microsoft, Sony and Nintendo). This is demonstrated by the fact that current standard commercial arrangements, especially with prominent developers such as EA, Take Two and Epic Games, provide for a [...] revenue-split in favour of game publishers. Therefore, in light of the importance that third-party content will continue to have for Microsoft postTransaction, as assessed above, the Commission considers it implausible that Microsoft's bargaining position would improve to such an extent that would make Microsoft able to impose its own terms unilaterally.

The EC took notice of the difference between Sony and MS regarding exclusive games (page 65, footnote 224)

In this regard, the Commission notes that, as indicated by the Notifying Party, Sony has [...] times more exclusive titles than Microsoft, therefore the number of Xbox exclusives is relatively limited. See Phil Spencer's presentation for the Oral Hearing of 21 February 2023, slide 6.

Microsoft's top ten game franchises by revenue (2021) across all platforms, including console, include... (page 68) | From top to bottom, seeing how they are mentioned

- Minecraft
- Forza
- Elder Scrolls
- Halo
- Fallout
- Sea of Thieves
- Doom
- Flight Simulator
- Deathloop

According to MS, ABK is technically capable of adding Call of Duty titles to Switch... and has thought about it? (pages 69 - 70, footnote 238)

The last Call of Duty title was release on Nintendo console in 2013, after which Activision Blizzard opted not to produce Call of Duty for Nintendo's console Wii U. According to the Notifying Party, Activision Blizzard decided to stop shipping new titles on the Wii U because [business secrets from internal documents]. According to the Notifying Party, Activision Blizzard is technically capable of adding Call of Duty titles to the Switch. However, the Commission notes that Activision Blizzard has nonetheless decided to focus on publishing its key franchise on PlayStation and Xbox since 2013. In addition, the Commission understands that Activision Blizzard has considered [business secrets from internal documents].

For MS, withholding Call of Duty from PlayStation would imply giving up the equivalent of [10-20]% of the overall deal value and [10-20]% of current total annual revenue of Microsoft's Xbox business (page 74)

First, the Notifying Party submits that withholding Call of Duty from PlayStation would be a commercially unsound strategy. Microsoft's deal value modelling anticipates that [40-50]% of overall Call of Duty revenue on PC and console would come from licensing to PlayStation. The foreclosure strategy would imply giving up the equivalent of [10-20]% of the overall deal value and [10-20]% of current total annual revenue of Microsoft's Xbox business for the uncertain prospect of diverting gamers from PlayStation to Xbox.

According the MS, at most only 5.3% of PlayStation gamers in the EEA would switch to Xbox as a result of a hypothetical withholding of Call of Duty from PlayStation (page 76)

First, the Notifying Party submits that given Sony's leading position in consoles today, even in the most extreme hypothetical foreclosure scenarios, Microsoft could not foreclose Sony post-Transaction. Sony's significant position in consoles is further amplified by its meaningful position in the upstream market for development and publishing, which provides it with ample content to counter any foreclosure strategy. Second, the Notifying Party commissioned an independent Internet-based market research and data analytics firm, to run a survey of console gamers across five of the largest EU Member States across the Union's geographies: Germany, Spain, France, Italy and Poland ("YouGov Survey"). The YouGov Survey found that at most only 5.3% of PlayStation gamers in the EEA would switch to Xbox as a result of a hypothetical withholding of Call of Duty from PlayStation.

The industry and the majority of gamers are a bit obsessed with AAA shooters/battle royale games (pages 79-80)

The large majority of the market investigation respondents expressing an opinion on this subject considered that AAA shooter (including battle royale) games are very important for the competitiveness of console game distributors. A number of market respondents considered that this type of console games is very important, if not crucial, for console game distributors. According to several market respondents, this genre is among the most popular genres, which has a large potential to attract and retain a large user base and therefore drive the choice and adoption of consoles. For example, one market participant commented that "Shooting-style games will typically be among the most interesting game types to the first-adopter audience of any new console generation, and will continue to remain popular even as any generation of hardware ages. Shooter games can be considered to represent the backbone of AAA game experiences on both consoles and PC (excepting Nintendo Switch)", further adding that "Offering such titles is very important as they will be among the primary titles that the game player is looking for". Another market participant noted that "Shooters and battle royale games are in the top categories of genre of games in popularity for players", adding that "The ability to offer a range of titles within this genre is therefore important for user acquisition and retention".

Another market participant stated that "Shooters are one of the most played genres in consoles and, in fact, most of the very well-known videogames fit in this category. It is a must-have in any videogame service." In addition, according to a third party analyst, shooter was the top video game genre across the globe in 2021. Shooter games ranked as the most-played gaming genre for virtually all age groups except for online users aged 55 to 64 years, where it ranked third. Action-adventure were the second-most popular gaming genre, ranking second across all age groups. Finally, some market participants explained that shooter games drive console adoption and retain high levels of user engagement even long after a user first acquires a console. For example, one market participant argued that "Shooting-style games will typically be among the most interesting game types to the first-adopter audience of any new console generation, and will continue to remain popular even as any generation of hardware ages".

On Xbox, shooters games are also dominant (page 80)

The Xbox user data corroborates the fact that shooter games are a particularly important genre. Compared to all other genres of games distributed on Xbox, the shooter genre shows the highest daily and monthly playtime levels on Xbox and days played per month in 2021 worldwide and in the EEA. Further, Microsoft's own internal analysis of user engagement on Xbox shows that shooter games have the [business secrets concerning Microsoft's Xbox user data] share of user engagement on Xbox worldwide, both by game time and consumer spend on game purchases and add-ons. For example, Microsoft found that shooter games [business secrets concerning Microsoft's Xbox user data].

In another internal document, Microsoft noted that shooter games [business secrets concerning Microsoft's Xbox user data]. Further, Microsoft found that shooter games [business secrets concerning Microsoft's Xbox user data]. Shooter games alone accounted for [business secrets concerning Microsoft's Xbox user data]% of total spend on Xbox, while the remaining spend is distributed across [business secrets concerning Microsoft's Xbox user data]%. Microsoft's internal player engagement assessments confirmed [business secrets concerning Microsoft's Xbox user data]. [business secrets concerning Microsoft's Xbox user data].

Sony called COD the "largest annualized AAA premium franchise in the games market" and "an evergreen IP on console" (page 82, footnote 330)

First, the Call of Duty franchise is widely regarded as one of or even the most successful franchise in the video gaming industry given its longevity, profitability and frequency of new content release. Since its release in 2003, it has been one of the longest running, bestselling and top grossing video game franchises worldwide.329 According to industry experts, Call of Duty is the "largest annualized AAA premium franchise in the games market" and "an evergreen IP on console".330 Another study found that: "Call of Duty's significance to entertainment at large cannot be overstated. The brand was the only video game IP to make it into the top 10 of all entertainment brands among fanatics, joining powerhouses like Star Wars, Game of Thrones, Harry Potter, and Lord of the Rings."

Footnote 330: Sony's observations on certain of Microsoft's public statements of 3 October 2022, Annex 1 (IDG Consulting, IDG-SIE Publisher Structure Project), page 35 [ID3529]

In the period between 2016 and 2022, [20-30]% of gamers played COD within a month of activating their new Xbox console; on the first day, [10-20]% of new Xbox owners played COD as the first game (page 85)

According to the data provided by the Notifying Party, a material proportion of gamers play Call of Duty in the very initial period of the console usage. In the period between 2016 and 2022, [20-30]% of gamers played the franchise within a month of activating their new Xbox console. In addition, the Notifying Party provided a proportion of users that played Call of Duty as their first game after activating a new Xbox between 2016 and 2022. According to the data, relative to other AAA game franchises, a significant share of gamers plays Call of Duty as their first game after purchasing Xbox. Over the entire 2016-2022 period, Call of Duty has the second highest share of gamers that play it first after activating a new Xbox ([10-20]%) and only Fortnite has a slightly higher share ([10-20]%) than Call of Duty. In addition, none of the top AAA franchises with a meaningful share of Xbox users that play them as a first game on their Xbox console are classified as shooter games by the Xbox Store: FIFA ([10-20]%), Minecraft ([5-10]%) GTA ([5-10]%) and NBA 2K ([0-5]%).

MS/ABK share in the market for development and publishing of AAA shooter console games comes close to 40% worldwide, when considering the proportion of MAU on PlayStation and Xbox (page 88)

When considering the proportion of MAU on PlayStation and Xbox, the combined entity's share in the market for development and publishing of AAA shooter console games comes close to 40% worldwide ([30-40]%) and exceeds 35% in the EEA ([30-40]%) in 2022. On a worldwide level, the combined entity is a clear market leader while the competing developers and publishers have a share that is two times or more lower. The largest competitors trailing the combined entity are Epic Games ([10-20]%), Take two ([10-20]%) and EA ([10-20]%). The competitive landscape is similar in the EEA, where the combined entity accounts for [30-40]% of MAU on PlayStation and Xbox.

The combined entity is a market leader in development and publishing of AAA shooter console games also when considering the proportion of game-time on PlayStation and Xbox worldwide in 2022. On a worldwide level, the combined entity holds [30-40]% of game-time. The largest competitors include Epic Games ([20-30]%), Take two ([10-20]%) and EA ([1020]%). The user engagement with the combined entity's AAA shooter console games by game-time is lower in the EEA, where the combined entity's share does not exceed 30% in 2022 ([20-30]%).

Only Fortnite is capable of maintaining long periods of high user engagement levels like COD (page 89)

Further, the Xbox [business secrets concerning methodology] data shows that Call of Duty franchise is capable of maintaining long periods of high user engagement levels. The Notifying Party provided the daily total minutes played on the Call of Duty franchise games, and, separately for other popular AAA shooter (including battle royale) franchises Apex Legends, Destiny, Fortnite, GTA, and Tom Clancy / Rainbow Six, for years 2019-2022 respectively. The Notifying Party clarified that events that impact on franchise game-time (for all franchises examined) include new title releases, the COVID pandemic (with game-time on all franchises going up beginning of March 2020) and seasonality, with game-time increasing during holiday periods.

However, the data shows that in terms of total game-time measured by daily total minutes played, Call of Duty has long and sustained periods of high engagement levels that are further amplified by new title and content releases. Fortnite is the only AAA shooter (including battle royale) franchise with the game-time comparable to Call of Duty. Other top AAA shooter (including battle royale) franchises (GTA, Apex Legends, Tom Clancy, Destiny) generate substantially lower levels of game-time. The peaks in engagement levels that follow new title releases of these franchises are not maintained but rather drop to earlier, lower game-time levels.

The EC considered that Sony could deploy effective and timely counter-strategies to react to potential foreclosure strategies (pages 92 - 93)

While Sony's market share of AAA console games decreased in 2022 compared to previous years, the Commission notes that in 2020, Sony's market share by revenue in development and publishing of AAA console games reached [10-20]% and surpassed even the Parties' combined market share ([10-20]%). The Commission understands that the growth of Sony's market share was prompted by new releases of Sony's popular first-party console game franchises that occurred throughout 2020. Indeed, Sony released several new game titles based on several of game franchises owned by Sony in 2020, such as The Last of Us Part II, Demon's Souls, Ghost of Tsushima, Spider-Man: Miles Morales, which were very popular among PlayStation owners. In addition, all of these game titles remain exclusively available on either the latest (PlayStation 5) or the previous PlayStation console generation (PlayStation 4), and they cannot be accessed and played on Microsoft's or Nintendo's consoles. The Commission acknowledges that development and publishing of AAA console games is hit driven and that market shares are impacted by factors such as new game title releases, seasonality as well as special circumstances such as the Covid-19 pandemic in 2020. However, the Commission considers that this example reflects the strength of Sony's PlayStation catalogue and its potential to reduce Sony's reliance on Activision Blizzard's AAA shooter console games and mitigate the effects of any Microsoft's foreclosure strategy.

Second, as explained further in recitals (417)-(422) below, Sony has been the leading distributor of console games with a very large share of the market worldwide and particularly in the EEA. In distribution of console games, Sony currently accounts for half of the market worldwide ([40-50]% by revenue in 2022) and the majority of the EEA market ([60-70]% by revenue in 2022). In addition, Sony has been the leader in the console landscape for the past two and a half decades, with three of PlayStation console generations in the top 4 of consoles ever released based on the estimated lifetime unit sales.

Similarly, Sony could reduce its reliance on Activision Blizzard's AAA shooter console games and negotiate exclusivity agreements with other developers of popular AAA console games such as Epic Games, EA, Ubisoft and Take-Two. In fact, Sony explained that it continuously explores opportunities to negotiate partnerships with third party developers and publishers to increase the attractiveness of its PlayStation console: "[Sony] regularly discusses potential partnerships (which involve marketing support and/or development funding) as well as subscription services agreements to bring games into PlayStation Plus with developers and publishers."

More than [80-90]% of Activision Blizzard's console revenues were generated on PlayStation in 2021 in the EEA (page 96)

First, restricting or degrading access to Activision Blizzard's console games would likely not be profitable for Microsoft if Activision Blizzard's console games (overall console games, or more narrowly AAA shooter (including battle royale) console games) were not available on PlayStation. In that regard, the Commission firstly notes that Activision Blizzard is dependent on the distribution of its console video games on PlayStation where it generates much of its console video games revenues.

The majority of Activision Blizzard's worldwide revenues from the sale of its video games on console (approximately [60-70]% in 2021) comes from the PlayStation platform. By comparison, Activision Blizzard's console revenues from the sale of video games are […] lower on Xbox (only around [30-40]% in 2021). The proportion of Activision Blizzard's console revenues coming from PlayStation is even higher in the EEA. More than [80-90]% of Activision Blizzard's console revenues were generated on PlayStation in 2021 in the EEA, while only approximately [10-20]% came from Xbox in 2021.

Among other benefits, Sony assumed that gamers who switched to Xbox would increase their platform spending by 20%, based on a public statement by Microsoft that Game Pass leads to 20% more spending (page 97)

To support its claim that Microsoft would have the financial incentive to withhold Activision Blizzard's console games from Sony, Sony presented an economic analysis of costs and benefits to Microsoft's strategy of restricting Sony's access to Activision Blizzard's Call of Duty franchise. According to Sony, Microsoft would extract higher profits from a Call of Duty player on Xbox than by selling a copy of the game on PlayStation, because Microsoft would earn both the margin that it would have earned from selling on PlayStation as a third party, in addition to the margin that Sony would have earned as a platform margin. In addition, according to Sony, it is likely that Microsoft would also collect additional revenues from subscription services and accessories that the Call of Duty users would further generate.

The Commission considers that Sony' analysis most likely overestimates the combined entity's incentives to foreclose Sony post-Transaction. First, Sony's analysis is subject to important uncertainties because it relies on platform revenues from the Sony PlayStation platform, which differ from spending on the Xbox platform. Second, Sony considers that gamers that spend a certain share of their game time on Call of Duty would switch to Xbox in case of foreclosure.

However, the Commission submits that also the absolute level of user engagement, for example, in terms of game time hours per week, should be taken into account, see Section 2.3 of Annex 1 to this Decision. Doing so reduces the number of potential switchers substantially. Third, Sony makes additional assumptions that lead to an overestimation of the incentives to switch. For example, Sony assumes that gamers who switch to Xbox would increase their platform spending by 20%, based on a public statement by Microsoft that Game Pass leads to 20% more spending. However, the Commission submits that it seems invalid to assume a causal link between gamers joining Game Pass and an increase in their spending on gaming content.

Sony holds very large market shares worldwide but specially in Europe (pages 99-101)

Sony has been the leading distributor in the downstream market for distribution of console games, worldwide and particularly in the EEA, based on the market shares the Notifying Party provided for the past four years. Moreover, the Commission notes that Sony holds very large market shares reaching or exceeding [50-60]%. In 2022, in the market for distribution of console games, Sony accounts for [...] of the market worldwide ([40-50]% by revenue in 2022) and more than [50-60]% of the same market in the EEA ([60-70]% by revenue in 2022). Sony's worldwide share by revenue is similar or higher in 2019 ([50-60]%), 2020 ([50-60]%) and 2021 ([5060]%).

In the EEA, Sony's share by revenue exceeds or remains just below [70-80]% in 2019 ([70-80]%), 2020 ([60-70]%) and 2021 ([60-70]%). While Sony's market share has been decreasing since 2019, the Commission notes that the overall size of the market for distribution of console games has in fact been increasing at the same period.
Finally, the Commission notes that Sony's market position is even more significant in distribution of console games when considering only the competition between two closely competing consoles, Microsoft's Xbox and Sony's PlayStation, and excluding Nintendo's activities from the competitive landscape. For example, when considering the sale of console hardware excluding Nintendo, Sony is a leading player worldwide and particularly in the EEA with more than 60% and around [80-90]% share, respectively. Sony's worldwide a share of console hardware in 2021 is [70-80]% by revenue, [60-70]% by volume and [60-70]% by installed base. Sony's EEA share in 2021 is even higher: [80-90]% by revenue, [70-80]% by volume and [80-90]% by installed base. By comparison, Microsoft's share is [...] smaller based on all metrics (value, volume, installed base).

The EC considered that given its significant leadership in console game distribution, Sony would be able to offset any losses incurred by Microsoft's foreclosure strategies (page 102)

In that regard, the Commission notes that the majority of respondents to the market investigation expressing an opinion considered that Sony's PlayStation is the most attractive console platform for third-party developers and publishers to distribute their console video games. Further, the market investigation indicated that given the size of its console game distribution business, Sony is and will likely remain an attractive distribution channel and valuable partner for independent console game developers and publishers post-Transaction irrespective of the foreclosure strategy that the combined entity deployed.

In that regard, Sony submitted that "While [Sony] may continue to partner with third-party game developers and publishers to broaden the appeal of the PlayStation platform post-Transaction, these partnerships are unlikely to drive similar levels of gameplay, engagement, or console purchasing decisions as Call of Duty. Alternative partnerships will therefore not be able to mitigate or offset the losses SIE would incur from total or partial foreclosure strategies with regard to Call of Duty."

However, the Commission considers that given its significant leadership in console game distribution, Sony will be able to offset any losses incurred by Microsoft's foreclosure strategies in the market for distribution of console games. The Commission notes that since 2015, Sony has been making […] towards its co-marketing arrangement with Activision Blizzard.

Sony explained that as a result of Sony's investments, Call of Duty has become an important part of PlayStation's competitive offering and PlayStation is seen as the best console for playing Call of Duty globally. This shows that Sony has sufficient resources to offer the commercial conditions favourable enough to compel most of game developers and publishers to distribute their games on PlayStation and agree to limited forms of exclusivity agreements.

The Commission considers that nothing would prevent Sony from re-directing this investment to intensively invest in associating PlayStation console with the content of other large console game developers and publishers such as for example Epic Games, EA, Ubisoft or TakeTwo in order to maintain its strength on the downstream market. Given its resources and capabilities, Sony can use different marketing and promotion strategies, such as consumer reminders, special deal offerings, and bundles with consoles, that can grow sales of any video game.

The EC's quantitative analysis showed that the switching rate between Playstation and Xbox users in case of a total input foreclosure of COD would be very low (page 103)

As explained in the analysis of incentives in recital (405) above, the Commission's quantitative analysis set out in Annex 1 shows that the switching rate in case of a total input foreclosure would be very low. The rate of gamers who spent at least […] hours on Call of Duty in 2021 and who would switch from PlayStation to Xbox in case of a total input foreclosure would be […]% or less. As explained in recital (405) above, the switching rates of this level would render the input foreclosure strategy unprofitable so that the Parties would not even have an incentive to withhold Call of Duty from Sony PlayStation. In addition, the Commission notes that a consumer survey commissioned by the Notifying Party with respect to users from several EU Member States corroborates the Commission's quantitative analysis showing that the switching rate in case of a total input foreclosure would be very low.

The EC considered that Sony overestimated the effects of the foreclosure strategy and overinflated the levels of engagement of the COD user base with PlayStation (page 104)

However, the Commission considers that Sony's analysis overestimates the effects of the foreclosure strategy. In particular, the Commission considers that Sony's approach to estimating the size of the Call of Duty user base overestimates the share of PlayStation gamers and losses Sony would incur as a result of a foreclosure. Firstly, the Commission considers that this approach risks overinflating the levels of PlayStation users' attachment to Call of Duty because it disregards the absolute level of engagement of a PlayStation user with Call of Duty. Sony's approach therefore captures users who do not engage with Call of Duty in any meaningful way. In addition, when considering for example users who allocate 0-5% (i.e., less than […] hours annually on average) of their total playtime to Call of Duty, it is reasonable to assume that such users are more engaged with other AAA franchises instead, and that they are less likely to switch to Xbox in response to a restricted access to Call of Duty.

As explained further in Annex 1, the Commission considers that the absolute level of engagement is an important variable in assessing the rate of switching resulting from a restricted access to Activision Blizzard's Call of Duty franchise. Secondly, Sony's approach overinflates the levels of the engagement of the Call of Duty user base with the PlayStation platform overall. This in consequence overestimates the loss of revenues associated with the restricted access to Call of Duty, and the impact on Sony's ability and incentive to invest in future partnerships with third-party game developers, development of its own games and its console hardware.

Lowrys · Jul 29, 2023

Idas said:
Snip

Thank you for putting together these two summaries :)

UraMallas · Jul 29, 2023

Deathloop being a top 10 franchise for Xbox with regards to revenue in the EU is crazy. Let's get that sequel going!

People talk about Xbox not having internal successes with new IP in awhile but both Forza (because of Horizon) and Sea of Thieves are top 10 revenue generators for Xbox. That's cool.

killerrin · Jul 29, 2023

Thanks Idas!

UraMallas said:
Deathloop being a top 10 franchise for Xbox with regards to revenue in the EU is crazy. Let's get that sequel going!

People talk about Xbox not having internal successes with new IP in awhile but both Forza (because of Horizon) and Sea of Thieves are top 10 revenue generators for Xbox. That's cool.

No kidding. And yet people wonder why Rare isn't in a hurry to go resurrect old IPs from the vault.

ThereAreFourNaan · Jul 29, 2023

UraMallas said:
Deathloop being a top 10 franchise for Xbox with regards to revenue in the EU is crazy. Let's get that sequel going!

People talk about Xbox not having internal successes with new IP in awhile but both Forza (because of Horizon) and Sea of Thieves are top 10 revenue generators for Xbox. That's cool.

Top 10 in 2021, which was the year it launched. We didn't get any great press about it being a big seller so I think that by the time you hit that low on the list the overall revenue isn't especially high :P

I'd point out that Doom was 2 ranks higher and all it had in 2021 was the 2nd half of a dlc pack.

DoradoWinston · Jul 29, 2023

UraMallas said:
and Sea of Thieves are top 10 revenue generators for Xbox.

Sea of Thieves has been a massive success regardless of what some people say especially when in regards of comments dismissing Rare.
Wouldnt be shocked if their next game gets promoted one way or another as "the team/studio that brought you Sea of Thieves"

HonestAbe · Jul 29, 2023

DoradoWinston said:
Sea of Thieves has been a massive success regardless of what some people say especially when in regards of comments dismissing Rare.
Wouldnt be shocked if their next game gets promoted one way or another as "the team/studio that brought you Sea of Thieves"

I wore my Sea of Thieves T-shirt out and about today. Had 5 or so people comment on it in pretty much all age groups at different places (farmers market, children's museum, movie theater, dog groomer). Not the first time either. And I don't live in a larger city like Chicago or something.

gremlinz1982 · Jul 30, 2023

DoradoWinston said:
Sea of Thieves has been a massive success regardless of what some people say especially when in regards of comments dismissing Rare.
Wouldnt be shocked if their next game gets promoted one way or another as "the team/studio that brought you Sea of Thieves"

Rare replay was also a smash hit. As a studio, they are low key super good at generating income for Microsoft.

Trup1aya · Jul 30, 2023

Idas said:
My highlights from the EC (European Commission) decision (256 pages).

This is PART 1, I'll try to have the rest during the weekend.

MS expects to reach (part) of the famous 3 billion consumers by 2030 (page 9)

Gaming is a highly dynamic industry, and the fastest growing portion of the media and entertainment sector. It is larger than pay-TV, home video (including streaming), cinema, music, books or newspapers & magazines. Today, 3 billion consumers around the world play games, a number that the Notifying Party expects to reach [REDACTED] by 2030. Gamers are able to access and play thousands of highly differentiated games on a variety of devices, including PCs, gaming consoles, and mobile devices.

Originally, it looks like MS thought about releasing xCloud through white-label services (page 11, footnote 18 about white-label services)

Prior to the launch of cloud game streaming, Microsoft considered the possibility of [business secrets concerning business strategy]. This would entail [business secrets concerning Microsoft XCloud strategy]. Microsoft has had preliminary discussions with [business secrets concerning business strategy]. Microsoft offers publishers the option to appear as channels within Game Pass (e.g., EA Play). Further investment would be required in order for Microsoft to be able to offer white-label services to third parties from a technical perspective.

MS is still selling Xbox at a loss (page 13, footnote 24)

From this viewpoint, singling out the sale of console hardware as a standalone activity is not meaningful for the purpose of the present Decision. In this regard, the Notifying Party submitted that "Microsoft's Xbox console is sold at a loss, and to the best of the Parties' knowledge this is the case for other consoles as well. This is because all console vendors expect to recoup (at least some) of this loss from the sale of games and services to the new console owner." As the Transaction at hand does not concern such products, the Commission does not assess the market for the supply of gaming hardware alone, and potential vertical relationships connected to it.

The EC didn't consider cloud gaming a relevant element to asses the market of developing and publishing games (page 15, footnote 41)

The Commission notes that video games can also be distributed via cloud game streaming. However, the Commission does not consider cloud game streaming as a relevant element for the assessment of the market for the development and publishing of video games. This is because cloud game streaming does not provide a different content from what is available for download. In principle, as regards PC and console games, all games available for download can also be played via cloud game streaming without the relevant game developer having to adapt it. As regards the Xbox console, for example, Microsoft explains that [business secrets concerning game development].

The EC concluded that mobile does not belong to the same market as developing and publishing for PC/console; there was no further segmentation by console and PC (pages 17 - 18)

In light of the above, for the purposes of this Decision, the Commission concludes that the development and publishing of mobile games does not belong to the same product market as the development and publishing of PC and console games, respectively.

Moreover, the Commission concludes that the product market definition can be left open with regard to a segmentation based on platform between PC and console, as the outcome of the analysis will be the same regardless of whether the Commission considers an overall market for game development and publishing of PC and console games, or potential separate markets for the development of (i) PC; and (ii) console games, respectively.

The EC's findings indicated that when gamers start playing a newly released game, they spend less time playing other games of the same genre; therefore substitution across genres is uncommon and a segmentation by video game genre is appropriate (pages 18 - 19)

During the Phase II market investigation, the Commission has investigated whether the market for the development and publishing of video games should be segmented by genre and whether such segments constitute separate product markets or should be considered part of one differentiated product market.

In Annex 44 of the Article 6(1)(c) Response, the Notifying Party argues that (i) there is no agreed-upon classification of games into genres in the gaming industry; (ii) most gamers play games in multiple genres; (iii) gamers' playing choices change over time; (iv) when gamers start playing a new game, they decrease game time across games of all genres; and (v) gamers' tastes are heterogeneous. Taken together, according to the Notifying Party, these findings show that there are no clear boundaries between genres and that gamers are likely to substitute between games within and across genres.

The majority of the arguments brought forward in Annex 44 of the Article 6(1)(c) Response are based on the Notifying Party's analysis of "telemetry" data that tracks the game time on Xbox devices of a sample of almost […] gamers.

The Commission considers that the Notifying Party's analysis of the telemetry data that is presented in Annex 44, has several shortcomings. Most importantly, the Notifying Party's submission that when gamers start playing a new game, they spend less time playing other games across all genres, indicating substitution within and across genres, does not hold up under further examination. First, the evidence provided by the Parties is presented in purely visual form. It is therefore difficult to assess whether the Parties' claim actually holds in quantitative terms. Second, new game titles are released on Xbox very frequently, making it difficult to distinguish the impact of one release from another when they are released in close proximity.

(70) The Commission provides an alternative examination of the telemetry data using a more robust methodology that addressees these concerns. Specifically, the Commission uses a so-called 'difference-in-differences' methodology that compares the change in game time between gamers who did and who did not play the newly released title. This approach allows to estimate the causal effect of the new release on game time, while controlling for any other factors that may have affected the outcome. Contrary to the Notifying Party's submissions, the Commission's findings indicate that when gamers start playing a newly released game, they mostly spend less time playing other games of the same genre. That is, substitution mostly takes place within genres while substitution across genres is substantially less frequent. This indicates that at least a segmentation of the market for game development and publishing by genre would be appropriate.

The EC concluded that the relevant product market is the one for the development and publishing of PC and console games, but game development and publishing is highly differentiated by genres; however, the EC left open the possibility of further segmentation by 7 genres due to the nuances of the market (pages 19 - 20)

In its Phase I market investigation, the Commission asked market participants to list the main video games (i.e., the top five particularly representative or popular titles) that belong to each of the following genres: (i) action and adventure; (ii) shooter/battle royale; (iii) role-playing games; (iv) sports (including racing and flying, respectively); (v) fighting; and (vi) strategy. The Commission also asked market participants to indicate a given title under all genres that apply, should they consider that the title belonged to more than one genre.

The replies to those questions confirmed that battle royale is part of the shooter genre and that racing is a genre separate from sports. In its Phase II Market Investigation, the Commission therefore listed seven genres, giving the top 5 games for each genre as listed by market participants in Phase I as an example. It asked market participants whether they considered it appropriate to distinguish between such genres, both for console63, and for PC games.

The answers of market participants to the Phase II market investigation are nuanced. While some market participants submit that they do not consider a segmentation by genre meaningful, for each of the seven genres a clear majority of the respondents which expressed a view indicated it to be appropriate to distinguish the respective genre from the others. Only a few respondents suggested in their answers that certain games should be allocated to other genres or that other games should be mentioned as representative for the suggested genres.

Moreover, the respondents indicated in their answers that most often games within the suggested genres compete with each other, whereas games across genres compete less often. However, based on the replies to the market investigation, a degree of across-genre competition still exists.

Overall, the replies of the market participants indicated that the level of substitution between one genre and another significantly depends on the specific genres examined. The genres "action & adventure" and "role-playing" are considered significantly more substitutable between each other than, for example, "action & adventure" with "sports" or "fighting". Games in the "shooter" genre are considered to a slightly lower degree substitutable with games in the "action & adventure" genre compared to the degree of substitution between "action & adventure" and "roleplaying", but significantly less so with "sports", "fighting" or "strategy" games. Overall, "action & adventure" and "role-playing" games seem to be close substitutes, as occurs with "sports" and "racing" games, whereas "fighting" and "strategy" games each have no other genre that is considered substitutable by a significant number of respondents.

The Commission received mixed evidence also on the feasibility of switching genres for developers. On these topics, the Commission received similar replies for console games and PC games.

Based on the results of the market investigation, the Commission considers that the market for game development and publishing is highly differentiated on the basis of game genres. In this regard, genres constitute an important distinguishing factor between video games that affects to a certain degree the level of competition between them. However, there exists some uncertainty as to whether such differentiation allows to conclude that all or certain game genres form separate product markets from other genres.

In light of this, for the purposes of this Decision, the Commission concludes that the relevant product market is the market for the development and publishing of PC and console video games. The Commission considers that it can be left open whether this market should be further segmented based on game genres, in particular based on the following genres: (i) action and adventure; (ii) shooter (including battle royale); (iii) role-playing games; (iv) sports; (v) racing; (vi) fighting, and (vii) strategy, as this would not change the outcome of the competitive assessment in this case.

The EC concluded that segmentation based on type of game (AAA or non-AAA) could be left open (page 21)

The results of the Phase I market investigation were inconclusive regarding a possible segmentation of the video game publishing product market by type of video game (AAA games vs. non-AAA games).

From the supply-side, the majority of market participants that expressed a view submitted that game developers focusing on AAA can easily switch to developing a non-AAA game in a short period of time and with minimal costs, while the opposite is not necessarily the case.

However, market participants were not entirely aligned on this point. For example, one market participant stated that also switching from developing AAA to developing non-AAA games can be challenging, even if still to a lesser extent than vice-versa: "switching from AAA to a non-AAA development might be challenging as it requires scaling down (plans, team, budget), however it is much easier than the vice-versa situation." On the contrary, a few market participants indicated that both switching from developing AAA games to developing non-AAA games and viceversa is possible in a short period of time and with minimal costs.

For the purposes of this Decision, the Commission concludes that the relevant product market is the market for the development and publishing of PC and console video games. The Commission considers that the question whether this market should be further segmented based on game types can be left open, as this would not change the outcome of the competitive assessment in this case.

The EC concluded that segmentation based on payment model (buy to play or subscription) wasn't appropriate in the case (page 26)

The majority of respondents that expressed a view on this subject during the market investigation submitted that the market for game distribution should not be segmented by payment model (buy-to-play vs subscription services). In particular, from the demand-side, the majority of respondents considered that multi-game subscription services and digital storefronts selling games on a buy-to-play basis compete with each other and belong to the same market for (digital) distribution of games. From the supply-side, market participants provided mixed views as to whether a video games distributor selling games on a buy-to-play basis can switch to offering a viable multi-game subscription service in a short period of time and with minimal costs, and vice-versa.

In light of the above, for the purposes of this Decision, the Commission concludes that the market for game distribution should not be segmented based on payment model.

The EC concluded that segmentation based on type of access to video games (downloading vs cloud gaming) wasn't appropriate in the case (pages 26-27)

During its market investigation, the Commission asked market participants to provide their views with regard to the status quo in the market. The results of the market investigation indicated that the market for game distribution should not be segmented based on the type of access to video games (downloading vs. cloud game streaming).

In particular, from the demand-side, the majority of respondents considered that cloud game streaming services compete with the more traditional access to video games via download, as cloud game streaming constitutes just a different method to access the games.

In light of the above, for the purposes of this Decision, the Commission concludes that the relevant market is an overall market for PC and console video game distribution and that this market should not be segmented based on type of access.

If there was any doubt, MS is moving away from per-game monetization to a flat-fee subscription model (page 29)

The Notifying Party submits that, by acquiring Activision Blizzard, Microsoft enhances the attractiveness of Microsoft's multi-game subscription service Game Pass by adding Activision Blizzard's popular games to its library, as Microsoft undertakes to move from per-game monetization to a flat-fee subscription model. Microsoft expects the Transaction to improve Game Pass' user engagement and increase its subscriber base, allowing Microsoft to continue investing in Game Pass and cloud gaming functionality.

The 3 largest franchises from ABK in 2021 for PC and console (page 30)

Activision Blizzard's three largest franchises in 2021 in terms of revenues on PC and console were World of Warcraft, Call of Duty, and Diablo for PC, and Call of Duty, Crash Bandicoot, and Diablo for consoles.

The EC received complaints regarding Microsoft's supply of physics engines (Havok) but considered that there was no theory of harm specific to the merger (page 34, footnote 139)

The Commission has received complaints also as regards Microsoft's supply of physics engines, a type of software that allows computers to create physics phenomena such as rigid and soft body dynamics and fluid dynamics to reproduce the real-world situation. Such engines are critical for the development of video games with complex 3D physical characteristics. According to such complaints, postTransaction Microsoft would have increased incentives to require developers to use its Havok physics engine, and to degrade Havok's compatibility with competing gaming platforms that currently use Havok, thereby harming competition in the market for the provision of such physics engines. The Commission considers that such possible theory of harm is not merger specific, as Activision Blizzard's games does not carry out any activities that are horizontally or non-horizontally linked to the provision of physics engines. Therefore, the Transaction does not bring about any change in the ability and incentive for Microsoft to foreclose Havok's competitors. In light of this, the Commission has not assessed in this Decision the possible effects of the Transaction in the market for the provision of physics engines.

The EC received complaints regarding Microsoft's Jumpstart programme (a Windows license rebate) but considered that there was no theory of harm specific to the merger (page 35, footnote 140)

The Commission has received complaints also as regards Microsoft's Jumpstart programme. Jumpstart is a programme under which Microsoft grants PC manufacturers a […] Windows license rebate if they fulfil certain requirements (mainly consisting of the pre-installation of certain Microsoft apps, programs, software etc). According to the complaint received, the requirements imposed by the Jumpstart programme make it difficult for Microsoft's competitors offering similar apps and programs to compete fairly vis-à-vis PC manufacturers. Post-Transaction, Microsoft could expand the game related requirements to Jumpstart, especially by adding the Xbox app and Game Pass, thereby reducing the ability of rival gaming platforms to enter into promotional arrangements and to compete with Microsoft's gaming channels. The Commission considers that such possible theory of harm is not merger specific. Not only Microsoft could already implement such strategy, but the Transaction would not bring about any change in Microsoft's ability or incentive to foreclose competitors. Game Pass already allows to download games on Windows PCs only, and Game Pass Ultimate's cloud game streaming feature remains accessible as a web app via browser regardless of its integration into the Jumpstart programme. The Commission has assessed in Section 7.5.3 below Microsoft's ability and incentive to make Game Pass Ultimate's cloud game streaming feature no longer accessible on rival PC OS, as well as the effects of such strategy on competition. In light of this, the Commission has not assessed in this Decision the possible effects of the Transaction in relation to the possible foreclosure of rival distributors of video games due to the Jumpstart programme.

The EC received complaints regarding the provision of cloud gaming services (PlayFab and Azure) but considered that there was no theory of harm specific to the merger (page 35, footnote 141)

The Commission has also received complaints that the Transaction will harm competition on the market for the provision of cloud services. In particular, Microsoft is active in the provision of cloud services through its Azure business, and it also operates PlayFab, a back-end service that allows developers to use Azure to build and operate games, as well as to analyze gaming data. According to the complaints, Activision Blizzard's games will enhance the importance of Microsoft's cloud game streaming service, therefore post-Transaction Microsoft will have increased incentives to require developers to use PlayFab and Azure in order to develop games for cloud game streaming, especially for distribution via Microsoft's Game Pass Ultimate. The Commission considers that such possible theory of harm is not merger specific, as Activision Blizzard is not active in the supply of any cloud-related services that create competitive links with Microsoft's supply of PlayFab, nor that would change Microsoft's offering post-Transaction. In light of this, the Commission has not assessed in this Decision the possible effects of the Transaction in relation to the foreclosure of rival providers of cloud services.

MS is a small player in the market of development and publishing of AAA games (page 39)

The market share information shows that Microsoft is a small player in the market of development and publishing of AAA games, across all platforms and geographical segmentations. Its market shares in 2022 were equal or below [0-5]%, with the exception of console [0-5]% and PC and console [0-5]% worldwide only.

In the EEA, ABK has been losing marketshare in the development and publishing of AAA games on console since 2020 (page 39)

While Activision Blizzard's shares by revenue were consistently below [5-10]% in 2022, with the exception of console worldwide ([10-20]%), the Commission notes that Activision Blizzard has managed to consolidate its position as an important video games' publisher worldwide. In the EEA, Activision Blizzard's share of the market has progressively decreased, going from [10-20]% in 2020 to [5-10]% 2022 on PC and from [5-10]% to [0-5]% in the same period on console. Accordingly, the same trend is observable in the Parties' combined shares across all platforms and for PC and console together.

Tencent and Valve are the largest players in development and publishing on AAA PC video games by revenue (page 40)

Tencent and Valve are the largest players in development and publishing on AAA PC video games by revenue, followed by a wide range of smaller players, with shares around (EA and Embracer in the EEA) or below [10-20]%.

EA and Nintendo are the largest players in development and publishing on AAA console video games by revenue (page 40)

On console, EA is the market leader both globally ([20-30]%) and in the EEA ([20-30]), with Nintendo ranking second. EA's shares have increased since 2020, while Nintendo's have declined both globally and, to a lesser extent, in the EEA. As for console, besides EA and Nintendo, the market is divided between a long tail of small players.

EA and Tencent are the two largest players worldwide by revenue in development and publishing on AAA console and PC video games (page 40)

Finally, when we look at the broader market segmentation of PC and console, EA and Tencent are the two largest players worldwide by revenue ([10-20]% and [10-20]%), closely followed by the Parties, with a combined share in 2022 of [10-20]%. In the EEA, the difference that separates the first player, EA, and the second, Valve is larger, with a share gap of around [0-5]%. The Parties account for [5-10]% of the total market by revenue (with a declining trend over the 2020-2022 time period).

Microsoft is a small player in the development and publishing of AAA games with role playing elements on PC, ABK is Top 3 worldwide; NetEase and Nexon are numbers one and two; Embracer and Tencent are large players in the EEA (pages 40 - 41)

The market shares information shows that Microsoft is a small player in the development and publishing of AAA games with role playing elements on PC, with [0-5]% globally and [0-5]% in EEA in 2022. Moreover, Microsoft's market share has decreased in the period from 2020 to 2022 both globally and in EEA. However, Activision Blizzard is one of the top-3 players worldwide, accounting for [10-20]% of the market total revenues in 2022. Despite a decline from [30-40]% in 2020 to [30-40]% in 2022, Activision Blizzard is the first player in the EEA. The Parties' combined higher share in the EEA, [30-40]% compared to [10-20]% in 2022 worldwide, are due to a lower penetration of publishers like NetEase and Nexon in the EEA, that are the first ([20-30]%) and second ([10-20]%) largest players in the worldwide market. Nevertheless, the Parties in the EEA compete against two large players, Embracer ([30-40]%) and Tencent ([10-20]%). Their rapid growth — Embracer especially in two years has more than doubled its shares — overlaps with the Parties' decrement.

Embracer is the largest player in the market for developing and publishing on PC and console of AAA games with flying and racing elements; MS/ABK would be second worlwide and in the EEA (page 42)

Within the narrow market of AAA games with flying and racing elements, Activision Blizzard's share estimated to be around [0-5]% on PC and, respectively, [0-5]% globally and [0-5]% in the EEA on console in 2022. On the other hand, Microsoft has a market share on PC of [20-30]% worldwide and [10-20]% in the EEA, while on console the shares decrease to [10-20]% and [10-20]%.

Embracer is the largest player in the market for developing and publishing on PC and console of AAA games with flying and racing elements, who has more than doubled its market shares, going from [10-20]% in 2020 to [20-30]% 2022 globally and from [20-30]% to [40-50]% in the EEA. The Parties' combined share amounts to [20- 30]% worldwide and [10-20]% in the EEA in 2022, granting the Parties the role of second biggest player worldwide and EEA-wide.

MS/ABK would lead the market regarding the development and publishing of AAA action and adventure games by revenue; Sony, Nintendo or Epic would be alternatives (page 43)

On the market for development and publishing of AAA games with action and adventure elements on console, Microsoft has a market share by revenue of [0-5]% worldwide and [0-5]% in the EEA in 2022. Activision Blizzard's market shares by revenue have increased from [10-20]% in 2020 to [20-30]% in 2022 worldwide, while they have consistently decreased in the EEA, from [10-15]% in 2020 to [10- 20]% in 2022. On the market for development and publishing of AAA games with action and adventure elements on both console and PC, Microsoft's market share by revenue is below [0-5]% worldwide and below [0-5]% in the EEA. Similarly to the console market, Activision Blizzard's market shares by revenue have increased from [10-20]% in 2020 to [10-20]% in 2022 worldwide, while they have consistently decreased in the EEA, from [10-20]% in 2020 to [5-10]% in 2022.

Other players in the market are Epic Games with market shares by revenue of [5- 10]% and [10-20]% in 2022 worldwide and in the EEA respectively and Sony with market shares by revenue of [5-10]% and [0-5]% in 2022 worldwide and in the EEA. The majority of the market is split between other smaller competitors.

MS/ABK would lead the market regarding the development and publishing of AAA shooter console video games by revenue; Epic or EA would be alternatives (page 43)

In the market for development and publishing of AAA shooter console video games, the Parties' share of the market by revenue was [30-40]% worldwide and [10-20]% in the EEA. Activision Blizzard accounts for [30-40]% and [10-20]% of the market worldwide and EEA-wide, respectively. On the other hand, Microsoft represented only [0-5]% of the total market revenues globally and [0-5]% in the EEA.

Other developers and publishers with notable market shares by revenue are Epic Games and EA with more than [10-20]% market share by revenue worldwide and in the EEA. Other smaller players comprise the remaining [40-50]% of the market in the EEA and [20-30]% worldwide.

In the distribution of PC and console video games: Sony leads on console, Valve is the strongest player, NetEase is big worldwide but inactive in EEA (page 45)

With respect to shares by revenue for overall video games distribution, the market information shows that Microsoft is a small player across PC games both globally and in the EEA, while its shares on console in 2022 were [20-30]% worldwide and [20-30]% in the EEA. In the EEA, Microsoft has increased its shares for console video games from [10-20]% in 2020 to [20-30]% to 2022. In the same time period, Sony has experienced a decline in its EEA shares, from [60-70]% to [60-70]%. Nevertheless, Sony still holds a leading position in the market of overall games distribution on console both globally and in the EEA. The third largest player is Nintendo that has maintained its market share in the last three years and currently accounts for [10-20]% of the total market.

On PC, the Parties' combined shares in 2022 accounted for [10-20]% both in the EEA and worldwide. The two geographical markets differ when it comes to competitors and their presence in the market. Valve Corporation is the strongest player in both but its shares in the EEA are substantially higher ([40-50]%) compared to its share worldwide ([20-30]%). Furthermore, a China-based firm, NetEase, appears to be inactive in the EEA market for overall games distribution, while its shares globally account for [10-20]% of the total market.

Finally, by taking into account both platforms together, the Patties' combined share in 2022 was [20-30]% worldwide and [10-20]% in the EEA. Microsoft contributes to most of it, while Activision Blizzard's shares cover less than [0-5]% of the total market. For what concerns competition, Sony still holds a leader position, with [20- 30]% shares worldwide and [30-40]% in the EEA. Sony is then followed by Microsoft globally ([10-20]%) and by Valve Corporation in the EEA ([20-30]%).

In 2022, MS/ABK combined market share exceeded 20% by revenue (either on a worldwide or EEA-wide level) in 5 markets (page 46) | Those were the markets assessed by the EC in this case

Based on the market shares by revenue in 2022 provided by the Notifying Party, the Commission has identified five product market segments where the Parties' combined market share exceeds 20% by revenue in 2022 either on a worldwide or EEA-wide level:

(a) Development and publishing of AAA Role Playing video games on PC (EEA);

(b) Development and publishing of AAA Racing and Flying video games on: (i) PC and console (worldwide); (ii) PC (worldwide); and (iii) console (worldwide);

(c) Development and publishing of AAA Action and Adventure video games on: (1) PC and console (worldwide); and (ii) console (worldwide);

(d) Development and publishing of AAA Shooter video games on console (worldwide); and

(e) Distribution of video games on PC and console (worldwide).

Thanks for the summaries!

I'm still not fully convinced that segmentation by genre is appropriate, but this is a very compelling argument! They did their homework and used sound data and math to articulate why this novel concept reasonably applies to this market. Other market authorities should take note- they might fair better when defending their rulings in court.

kmfdmpig · Jul 30, 2023

Trup1aya said:
Thanks for the summaries!

I'm still not fully convinced that segmentation by genre is appropriate, but this is a very compelling argument! They did their homework and used sound data and math to articulate why this novel concept reasonably applies to this market. Other market authorities should take note- they might fair better when defending their rulings in court.

One argument against it is that lots of developers change genres. Playground making Fable, Naughty Dog with Uncharted and then Last of Us, Blizzard with Overwatch, etc... Some developers stick with one genre, but when there is an interest or market gap many are capable of switching things up.

Trup1aya · Jul 30, 2023

kmfdmpig said:
One argument against it is that lots of developers change genres. Playground making Fable, Naughty Dog with Uncharted and then Last of Us, Blizzard with Overwatch, etc... Some developers stick with one genre, but when there is an interest or market gap many are capable of switching things up.

Yeah, they mentioned that they looked into the feasibility of devs switching genres and came away with mixed results.

But, I bet they could make some compelling arguments there as well. For example, Playground built a second studio - which ended up making Fable. Presumably it's staffed largely with people with the expertise needed to build AAA RPGs, rather than a shift of all of their Racing experts to Fable. That approach probably isn't "feasible" for most Development houses.

On a side note: I wonder what genres they'd put Uncharted and Last of Us. They might put them both in the same category if I had to guess.

The Microsoft / Activision Blizzard acquisition |OT| Antitrust Simulator (completed; discussing post-merger issues)

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