61% of gamers would choose different game if Call of Duty became unavailable, only 20% would switch consoles, and even CoD gamers care more about Grand Theft Auto: survey by Chile's competition authority

Sony has a problem on its hand with surveys conducted by competition authorities in connection with Microsoft's acquisition of Activision Blizzard King (NASDAQ:ATVI).

Last month the UK Competition & Markets Authority published its summary of "views from members of the public", where about 75% of respondents declared themselves in support of the transaction, which is noteworthy considering all the noise Sony has tried to make about what a threat the deal allegedly is for the future of its PlayStation--and the PlayStation has an installed base in the UK that is about twice as large as that of the Xbox.

When the CMA extended its deadline to April 26, 2023, it also made reference to submissions from third parties.

Yesterday, Chile's competition authority named Fiscalía Nacional Económica (FNE; "National Economic Prosecutor") published (PDF) the detailed (38 pages including an important annex) version of its December 28 unconditional clearance decision.

I've read the document in full (though I was interrupted by the news of Microsoft asking a U.S. federal judge to stay a so-called gamers'--in reality, lawyers'--lawsuit over the deal).

No one should underestimate the competition regulators in emerging markets and jurisdictions. Some of them are more sophisticated than others, and sometimes they may get things right that politically motivated enforcers in larger countries get wrong. It's always important to look at the substance of a given decision. For instance, I found the Brazilian CADE's Microsoft-ActivisionBlizzard decision well-structured and persuasive.

The same applies to the FNE's ruling, which arguably even went beyond the proverbial call of duty.

I noticed that the FNE decision references, on a couple of occasions, the FTC's in-house complaint against the deal (to which Microsoft and Activision Blizzard King responded shortly before Christmas). Obviously, the FNE is not the appellate forum to review FTC decisions, but it is, well, interesting that studying the FTC's complaint did not dissuade or discourage the FNE from reaching its own conclusion that unconditional clearance was warranted.

The FNE ruling is very thoughtful with respect to market definition: out of an abundance of caution, different approaches were evaluated, and none of them gave reason for concern. For example, the FNE believes that games are a differentiated market, meaning that a racing game and an action shooter are different genres, but gamers who buy one may also play the other. The FNE looked at the overall gaming market as well as at some key categories (such as the two I just mentioned).

The most interesting part of the FNE decision, however, is where it points to the results of a survey among videogamers, along with the (only) annex to the decision, which explains the methodology of that poll.

• The survey, which focused on Call of Duty (CoD) gamers, showed that 61% of console gamers would opt for a different game if Activision's Call of Duty became unavailable on their device (an unrealistic scenario because Microsoft offers a long-term license and has no incentive to discontinue or degrade CoD's PlayStation version, but it is the one that Sony's opposition to the transaction is built on).

  Only 20% of Call of Duty gamers would elect to switch consoles (i.e., from PlayStation to Microsoft's Xbox or Nintendo's Switch).

• Even Call of Duty gamers deem Take Two's Grand Theft Auto more of a "must have" title than CoD. Here's my translation of footnote 127 of the FNE decision:

  "In the same vein, faced with the question 'From your experience as a videogamer, please categorize from indispensable to easily dispenable, the following content offerings', 65% [of respondents] considered Grand Theft Auto indispensable or hardly dispensable, and [only] 62% expressed that opinion with respect to Call of Duty. It bears highlighting that these results are even more decisive when considering that the surveyed audience consisted of Call of Duty gamers, thus not necessarily of Grand Theft Auto gamers. Therefore, the importance of Grand Theft Auto could be underestimated based on the selection of the surveyed sample."

  What the FNE is reasonably saying here is that if the random sample had been agnostic of whether people play CoD, the gap would have been wider in favor of GTA.

These results should give any skeptic or critic of the deal pause. There's a pattern here between the submissions received by the UK CMA and the poll conducted by the Chilean FNE: even if a sample is skewed, by means of selection criteria (CoD gamers) in the Chilean case and due to the twice as large installed PlayStation base in the UK case, in favor of Sony's theory of harm, the results still support the transaction.

Here's my translation of the FNE's Annex I:

Annex I

Methodology of survey of videogamers (RoI FNE F320-2022)

I. BACKGROUND

1. The purpose of the present document is to describe the key characteristics of the survey of end users that was carried out by [the "FNE"] on the occasion of its investigation no. RoI FNE F320-2022 (the "Investigation") of the acquisition of a controlling interest in Activision Blizzard Inc. ("ABK") by Microsoft Corporation ("Microsoft", and together with ABK, "the Parties"), including a description of its design, objectives, and key methodologies.

2. In accordance with best practice, prior to the implementation of the survey, both the survey methodology and the contemplated questions were shared with the Parties for the purpose of incorporating any technically reasonable observations in order to achieve, in the most efficient and ideal manner, the stated objectives.

3. It bears noting upfront that--on a preliminary basis--the primary hypothetical risk identified by the FNE could stem from the vertical relationship between the digital distribution of videogames--be it through buy-to-play or subscription services--and the platforms on which videogames are played (the "Platforms" [footnote 1: "Platforms" means different devices utilized to play videogames, which can be grouped in three categories: personal computers, consoles, and mobile devices]), focusing primarily on consoles (i.e. PlayStation, Nintendo, and Xbox) and personal computers.

4. The survey sought to determine the preferences of gamers of the Call of Duty franchise and the patterns of substitution between videogames, between videogame platforms, as well as the patterns of substitution between platforms, depending on the available catalog [of games]. The former has the objective of determining the Parties' ability and incentives to carry out a hypothetical foreclosure strategy on the basis of the combined entity's vertical integration, or to rule out such ability and incentives.

5. It bears highlighting that the survey focused, as a preference, on Call of Duty gamers using whichever version of that title, and identified gamers who, besides Call of Duty, also play other ABK games. In that regard it was taken into consideration that Call of Duty is one of the key ABK franchises at a global and a local level.

II. OBJECTIVES

6. The general objective of the survey was to analyze the patterns of demand by Call of Duty gamers, with the intention of determining whether such behavior could affect the Parties' decisions or incentives in the markets for the distribution of video games and for Platforms.

7. The specific objectives of the end-user survey where the following:

   a) To identify characteristics of demand for Call of Duty. For that matter, the survey distinguishes between PC gamers, grouped by a particular operating system, and console gamers, identifying similarities and differences between the patterns of demand for both groups, with the intention of identifying the hypothetical degree of close competition beween these Platforms and their operating systems. On the other hand, taking into consideration that the analyzed theories of harm focus on personal computers and consoles, the survey is not directed at consumers who primarily play videogames on mobile devices.

   b) With respect to users of consoles and personal computers, to identify the prevalence of multihoming, and its patterns.

   c) To identify the importance of crossplay and how it affects gamers' purchasing decisions.

   d) Determine the importance of ABK's videogames, the patterns of players demand for ABK's key franchises, and identifying the reasons or which said group of consumers is distinct.

III. SURVEY METHODOLOGY

A. Data Collection Method

8. The survey was conducted online, using the services of the Zoho Survey platform. The survey form was available from November 24 to December 5, 2022.

9. The design of the survey involved sending a verification email to end users, informing the surveyed persons of the conduct of this survey and identifying those recipients with incorrect email addresses in order to exclude them from the sample.

10. It bears mentioning that, in its conduct of the present survey, the FNE followed the 2018 guidelines of the Competition & Markets Authority of the United Kingdom. [footnote 2 then points to https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/708169/Survey_good_practice.pdf]

B. Objective Population

11. The objective population to be surveyed related to adult gamers of the Call of Duty franchise whose primary gaming devices are consoles or personal computers. The limitation to adult gamers serves the purpose of ensuring that the surveyed persons are also the ones who make purchasing decisions. Furthermore, limiting the survey to console and PC gamers is related to the nature of the [potential] effects analyzed.

C. Sample

12. The objective population of the survey was restricted to gamers who downloaded Call of Duty between July 15 and November 15, 2022 from an Internet Protocol (IP) address located in Chile. In total, ABK provided [>100,000] email addresses in its reply to order no. 169-22 of November 21, 2022.

13. Upon obtaining the contact data, a random sample of 10,014 gamers was selected. It was verified during the conduct of the survey that each gamer was a member of the objective population and had a connection with ABK's videogame.

D. Questionnaire

14. The questionnaire was designed to be filled out during an estimated period of eight minutes and consisted of a maximum of 21 questions, the majority of which were alternative questions, and primarily conditioning certain questions on the previous responses. The questions were centered around the following topics:

    a. In the first place, each respondent was asked whether they use ABK videogames. In the event of a negative reply, the survey was terminated [immediately].

    b. Subsequently, for the purpose of categorizing the gamer, demographic data (such as age, gender, and professional occupation) was requested.

    c. In the third section, the survey sought to identify the primary device or Platform used by each respondent to play videogames, and the distribution channel they use to access videogames. Depending on the answer concerning the primary device, each respondent was then presented with questions for personal computer users or for console users. The survey was [immediately] terminated for those declaring themselves to be primarily mobile device users.

    d. The fourth section contained similar questions for PC and console users. The main difference is in the games that are mentioned, given that certain games are available for only one device category. Those questions sought to discern the patterns of demand and consumer perferences, such as: reasons to buy the device they primarily use; alternative devices that they [also] use and reasons to switch between devices when playing; videogames they play on their primary device and on alternative devices; and others.

    e. The subsequent section included questions for the purpose of determining the reasons for differences. In the first place, questions were asked with respect to the patterns of substitution between Platforms. Thereafter, the cross-patterns of substitution were explored; that is to say that faced with the indefinite unavailability of a videogame there are the options of switching to another Platform or operating system, switching to another videogame, or leaving the market. These questions were asked in light of the totality of ABK's catalog of titles, and later were repeated for the Call of Duty franchise in particular.

    f. In the final section, the survey sought to evaluate the relevance of ABK's catalog of titles in general and of Call of Duty in particular.

E. Results

15. The survey received a total of 667 responses. However, for certain reasons 348 responses were not considered:

    a. Respondents who were not videogamers (42).

    b. Respondents who were not players of ABK games (50).

    c. Minors (134).

    d. Users who primarily used mobile platforms, e.g., a cellular telephone or tablet (117).

    e. Respondents who failed to complete the survey (47).

16. On this basis, a total of 277 responses were considered in the analysis, 132 of which respondents are gamers who primarily use a personal computer to play videogames and 145 of which respondents are [primarily] console gamers.

Share|

Microsoft's acquisition of Activision Blizzard unconditionally cleared by Chile's competition authority FNE: no substantial lessening of competition, no consumer harm

The Federal Trade Commission (FTC) of the United States is--at this point--opposing Microsoft's $68.7 billion purchase of Activision Blizzard King, thereby supporting Sony, which actually isn't even afraid of Microsoft's GamePass subscription service (though it pretends otherwise). I have seen reports according to which the European Commission's Directorate-General for Competition is widely expected to issue a Statement of Objections (SO) next month, though it would be out of character for DG COMP not to work out the equivalent of a U.S. consent decree. And in the UK, the Competition & Markets Authority (CMA) is also conducting an in-depth probe, with consumer responses overwhelmingly favoring the transaction. But things have gone pretty smoothly in a few other jurisdictions:

• In August, Saudi Arabia became the first country to approve the deal.

• Brazil's CADE issued an unconditional decision in October that in my opinion got everything right and was very well structured.

• The following month, Serbia's competition authority, too, concluded that the transaction raised no competition concerns that would counsel against unconditional clearance.

And today a fourth unconditional clearance decision became known: the Fiscalía Nacional Económica (FNE; "National Economic Prosecutor") of Chile announced (in Spanish) that it has approved the deal at the end of a Phase 1 investigation.

Here's my translation of the FNE announcement, as I haven't been able to find an official English translation:

FNE has approved in Phase 1 the concentration consisting in the acquisition of a controlling interest in Activision Blizzard, Inc. (ABK [i.e., Activision Blizzard King] by Microsoft Corporation (Microsoft) after ruling out that the transaction would be capable of substantially reducing competition.

These companies are active in the same market segments: the development, publishing and distribution of video games; and this is the case at different levels, with Microsoft making the Xbox console and other video game platforms, such as GamePass, which is why the companies' activities overlap horizontally as well as vertically.

The FNE has concluded that the transaction is not capable of a substantial lessening of competition in consideration of--among other types of evidence--buyers and consumer preferences for video games in Chile.

In its analysis of horizontal effects, the investigation ruled out risks, given that in the markets in which the parties' activities overlap (development and publishing of video games, distribution of video games for computers and the sale of merchandising items and digital graphical advertisements) the tresholds for the concentration of market share established in the [agency's] 2022 Guidelines for the Analysis of Horizontal Concentrations are not reached and that a large number of relevant competitors as well as a dynamic market have been identified.

In the evaluation of vertical risks, a potential input foreclosure--a scenario of Microsoft ceasing to provide, after the consummation of the transaction, games like Call of Duty to its competitors, was ruled out. Among other arguments, it was taken into consideration that ABK faces competitive constraints from market actors such as Electronic Arts, Take Two, Ubisofot, Epic Games, Sony, and Nintendo, and that the relevance of Call of Duty was deemed relatively smaller in Latin America than in other parts of the world.

It was also part of the consideration that the number of consumers who would elect to switch consoles in response to a foreclosure strategy would also be smaller, which was established by means of a survey of Chilean consumers, and that the substantial revenues that the PlayStation generates for ABK would serve as a disincentive for the adoption of a foreclosure strategy.

In its analysis, the FNE also ruled out the risks of a tipping point in the commercialization of next-generation consoles and subscription services (such as GamePass), as ABK's video games, while important, are not the most relevant ones for Latin American consumers and because the actors in this market offer highly differentiated services.

A tipping occurs when, after a determined scale of a transaction, markets tend to gravitate toward concentration and to eventually close under a single market actor or a single dominant one.

With respect to a hypothetical risk of a foreclosure of customers, the FNE concluded that Microsoft's demand for video games published by third parties would not come to an end, as the market for the distribution of computer games has proven to be very dynamic with the entry of new relevant actors. In that regard it bears highlighting the enduring leadership position of Steam.

Finally, in the market for the distribution of video games for consoles one can observe substantial competitive constraints from Sony and Nintendo, which would discipline the combined entity and serve as substitute demand for competing publishers, which include a diversity of market actors, some of which are particularly relevant.

[skipping the part that describes the two parties to the transaction at a high level]

The report and the respective order will be available on the web in the coming days as soon as any potential requests for confidential treatment that the notifying parties may present have been addressed.

Share|