Wednesday, October 19, 2022

Microsoft plans to "shift consumers away from the Google Play Store and [Apple] App Store" leveraging Activision Blizzard titles while Netflix announces entry into cloud gaming market

Yesterday was another interesting day with a view to Microsoft's acquisition of Activision Blizzard King. Netflix VP of Gaming Mike Verdu announced at the TechCrunch Disrupt event that his company is "seriously exploring a cloud gaming offering" and will open a new gaming studio in Southern California. This shows that there is healthy competition in the cloud gaming market. Nothing is more indicative than major new entries by deep-pocketed and sophisticated players like Netflix that have a huge customer base to build on.

There's an interesting theory now according to which Sony has a long-term agreement in place with Activision Blizzard King concerning Call of Duty, and as a result CoD may be blocked for Xbox Game Pass for years to come. Gaming Intel says this:

"The agreement is also what has kept Call of Duty from appearing on Game Pass for the last few years. It’s likely why Call of Duty has been on PlayStation Plus numerous times, but not for Xbox subscriptions."

There really is no indication that the cloud gaming market will be monopolized anytime soon. Instead, it's a dynamic environment: Netflix in, Google out. As I've said before, Google's decision to abandon its Stadia streaming service was just one of hundreds of similar decisions Google has made. The failure of Stadia was to some extent also due to the fact that other companies can hardly rely on Google when making their investment decisions. This Ars Technica article (“So much screaming inside me”—Google Stadia shutdown stuns indie developers) is instructive. Also, I consider Google's increased focus on hardware--particularly the Pixel phone (I'm a proud new owner of a Pixel 7 pro)--a positive thing for consumers, though it's bad news for high-end Android OEMs. In other words, it's tough to be a Google partner.

Besides Sony--which reportedly even postponed its Showcase event because its exclusive game titles would undermine its opposition to Microsoft's purchase of Activision Blizzard King--Google is the only other known complainant. I said right after Google's opposition to the merger became known that a major part of the reason is that Microsoft wants to open the mobile app distribution market, while Google wants to control Android app distribution to the greatest extent possible. In this context it's also telling that google paid hundreds of millions to developers including Activision Blizzard King to ensure their loyalty to the Google Play Store when Epic first challenged Google's monopoly. That program was called "Project Hug."

A few hours ago I saw that Activision Blizzard wants the United States District Court for the Northern District of California to seal as much as possible of Epic Games' "Project Hug" argument. I played Activision games in my teens, worked for Blizzard in my twens, and played Candy Crush in my forties--but when they're wrong, they're wrong, and in this case I agree with a filing that Cravath's Lauren Moskowitz submitted on Epic's behalf: There is a strong presumption in favor of access to court records in the United States. I want the truth to come out. I have personally had to fight for access in the Federal Patent Court of Germany (and won in each case, even against Samsung). The following passage from Epic's filing shows that some interesting information may come to light if the district court denies Activision Blizzard's overbroad sealing request:

"Epic describes the Project Hug agreement at a high level, and the only facts that are not already public are details about ABK’s plans to develop its own game distribution platform, how those plans changed as a result of its agreement with Google, and the amount of money that Google paid ABK in connection with the agreement. While Epic does not oppose sealing the dollar amount of the deal, these facts about ABK’s plans are central to Epic’s newly-added claims. ABK’s plans to create an alternative game distribution platform, and its changes to those plans as a result of its agreement with Google, are critical to the public’s understanding of how and why Google’s payments not to compete were unlawful, and how Google has been able to monopolize the markets at issue in these cases."

So, the two key complainants against Microsoft-ActivisionBlizzard are companies that have spent huge amonts of money to secure exclusives and pre-empt competitors.

Yesterday the UK Competition & Markets Authority (CMA) released a public redacted version of Microsoft's Initial Phase 2 Submission (PDF). There are many interesting pieces of information on in that one, such as that "several requests {by Microsoft] to provide teach-in sessions for the benefit of the case team" were denied in Phase 1. The CMA's Phase 1 decision is wrong in various ways, and it may all just be attributable to the time constraints in Phase 1.

The part that I'm most interested in--as an app developer who has filed his own complaints over Apple's and Google's app store terms and policies--is where Microsoft talks about its post-acquisition plans that could benefit third-party developers like me:

"Fourth, the Transaction will improve Microsoft’s ability to create a next generation game store which operates across a range of devices, including mobile as a result of the addition of Activision Blizzard’s content. Building on Activision Blizzard’s existing communities of gamers, Xbox will seek to scale the Xbox Store to mobile, attracting gamers to a new Xbox Mobile Platform. Shifting consumers away from the Google Play Store and App Store on mobile devices will, however, require a major shift in consumer behaviour. Microsoft hopes that by offering well-known and popular content, gamers will be more inclined to try something new. The Open App Store Principles announced by Microsoft [the link points to my commentary on that one, which in turn points to the original announcement] will apply to the next generation game store." (emphases added)

It would be a wonderful new mobile app ecosystem if indie game makers had the choice between the platform operator's store (App Store or Play Store), the Xbox Store, and others such as the Epic Games Store. While Epic Games v. Apple is largely regarded as the #FreeFortnite case, Epic actually made it clear at all stages of proceeding that it wants to be enabled to bring its Epic Games Store to iOS (and to Android, which is why there's a parallel case against Google). The Epic v. Apple hearing was scheduled for Friday and will unfortunately (due to a judge's unforeseen unavailability) have to take place at a later time (I hope it will still happen this year, but fear it will be next year).

More competition in game distribution is presumably the good thing for the industry that Take-Two Interactive CEO Strauss Zelnick expects Microsoft's acquisition of Activision Blizzard King to be.

This vision can only materialize, however, if two requirements are simultaneously met:

  • laws and court rulings that force Apple and Google to allow third-party app stores; and

  • companies that have the power--by virtue of huge customer bases and strong brands--to attract many users to such third-party app stores.

Without the former, the door is closed. Without the latter, the Power of Default cannot be overcome, and Apple and Google will still be effectively in control. Epic has Fortnite and has already forged partnerships with other game makers for the Epic Games Store and because of the Unreal Engine. Microsoft still needs to build up some muscle in mobile games, and that's where Activision Blizzard King (all three of those brands) come in.