Tuesday, November 15, 2022

Availability of Call of Duty on Sony PlayStation no dealbreaker for Microsoft-ActivisionBlizzard: The Verge interviewed Microsoft gaming chief

The Verge released the latest episode of its Decoder podcast today. The guest is Phil Spencer, the CEO of Microsoft Gaming, and the recording was made a week ago; more precisely, just "hours before the European Commission announced an in-depth investigation into Microsoft’s proposed $68.7 billion acquisition of Activision Blizzard."

The most interesting part of the interview relates to what Microsoft would be prepared to do in order to address Sony's concerns over Activision's Call of Duty potentially being used to give the Xbox a competitive advantage over the PlayStation (an advantage that wouldn't change anything about Sony's market leadership in gaming consoles anyway). The Verge previously (more than two months ago) reported that Sony called an offer to keep Call of Duty on PlayStation "inadequate on many levels." The term was described as "several more years" beyond an existing marketing agreement between Sony and Activision. Sony, in a statement to GamesIndustry.biz, said it was about three more years, which Sony PlayStation chief Jim Ryan then compared to "almost 20 years" of CoD being available as a PlayStation title by now.

If three more years is not enough for Sony to be satisfied, what more would Microsoft be willing to commit to?

First, Mr. Spencer pointed to Minecraft, and that the reason that game series is available on PlayStation is simply that Microsoft wants to meet customer demand ("the contract we have with our customers"). Then he also says that he's "totally open" to "a contractual commitment to Sony for some number of years that says, 'Okay, we’re going to continue to ship Call of Duty on PlayStation." But it couldn't be a perpetual commitment simply because Microsoft couldn't "give up any ability to do what you need to do and the flexibility with the business in the future," such as if it couldn't resolve issues with Sony over the revenue split. And Mr. Spencer clarified that a previous public statement according to which CoD would remain available on PlayStation "as long as there is a PlayStation" was not an implied threat as The Verge speculated--and he furthermore clarified that he meant a native PlayStation version of Call of Duty as opposed to making it available exclusively via streaming.

So, "forever" can't be in such a contract, but Mr. Spencer said:

"... to make a longer-term commitment that Sony and regulators would be comfortable with, I have no issue with at all."

A long-time staffer of the European Commission's competition enforcement division who was also EU competition chief Margrethe Vestager's spokesman, Ricardo Cardoso, shocked a lot of people (including me) by saying on Twitter last week that the Commission was working to keep Call of Duty on PlayStation. Virtual Legality, a games law YouTube channel run by Richard Hoeg of Hoeg Law, discussed that topic yesterday and to quite some degree concurs with my concern that the tweet suggests the Commission already determined what the remedy should be before even conducting its in-depth investigation (which could reasonably lead to the conclusion that no remedy is needed in the first place):

It now seems that Mr. Cardoso's worries as a PlayStation fan are unfounded. There is no problem in the first place, but even if there was one, it could be easily solved.

What does this mean in practice now?

Microsoft is willing to go beyond just a public statement and prepared to contractualize a commitment, which can be reasonably long-term, but the terms must be reasonable. Sony is probably always going to be unhappy as long as it believes it can cause delay, but that doesn't matter if Microsoft reaches a point at which the relevant competition enforcement authorities--such as DG COMP--feel that Microsoft's offer is reasonably acceptable. It would then make no sense for Sony to refuse it. What Sony and Google would preferably want is to do exclusive deals with an independent Activision Blizzard that Microsoft is not going to be interested in. It's up to regulators to explain to Sony and Google they're not going to get that. What Sony can get is the commitment Microsoft's gaming chief discussed with The Verge in its podcast.

The terms of such an agreement are not going to be negotiated on Twitter or similar channels. It will take discussions between Microsoft and the relevant agencies, which in turn will then find out from Sony whether it accepts the terms or, if not, why it believes the terms are unsatisfactory.

Microsoft wouldn't lose face because it has been saying for a long time that the deal is about mobile games more so than anything else and there is no intent to remove Call of Duty from the PlayStation; Sony could save face, provided that it seizes the opportunity; and competition authorities would not even have to address the scenario of CoD-related vertical foreclosure in great detail in their clearance decisions because it would be a non-issue. Win-win-win.

But that doesn't mean it will be easy. Will Sony be reasonable? Will regulators focus strictly on the legal merits of the case as opposed to feeling they have to do something because Microsoft is such a large company and the deal is so big? As an observer of the various processes, I believe now is the right time to make it work--and for competition enforcers to focus on the real issues facing the digital economy as opposed to the big numbers of an otherwise not only unharmful but potentially very procompetitive transaction.

Whether there is competition in a market is not a question of billions or trillions in whatever currency; it's a question of percentages (i.e., market share), and the gaming industry is undoubtedly fragmented. I generally do believe that regulators are right not to let "Big Tech" buy up everything, and there has been underenforcement in that regard--but at the end of the day, whatever the world's antitrust agencies do can be reviewed by the courts of law, and then they must defend their decisions under certain objective standards. They can't just say "but Microsoft is already so big..."

In order for competition authorities to be able to block deals that would be really bad, they should preserve their credibility for situations in which they have to intervene.