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Beware Microsoft’s Dominance in the Cloud

The UK Competition and Markets Authority is right to be concerned about the impacts of a Microsoft-Activision merger on the nascent cloud-gaming market

Mar 29, 2023


  • The CMA has said Microsoft’s cloud dominance in the cloud raises serious concerns about the deal’s impact on cloud gaming.
  • These concerns can’t be addressed with a few one-off licensing deals about specific games.
  • Serious structural remedies are necessary to ensure that this merger doesn’t harm consumers and competition.

Microsoft has announced various 10-year deals with Nintendo, NVIDIA, and several other platforms. The deals were announced soon after a closed hearing with EU antitrust regulators, followed by a glitzy press conference where Microsoft's Brad Smith and Phil Spencer defended the merger with Activision. The effort is part of a “nice guy” strategy Smith has deployed to win over regulators.

Soon after the announcement, Microsoft ran full-page ads in The Financial Times and Daily Mail trumpeting the company's plans to bring Call of Duty to more gamers. It’s eerily similar to the playbook the company ran in Washington, DC, assuring regulators that unionizing 0.25% of its US workforce meant they were serious about addressing the history of union-busting at Activision Blizzard.

Bottom line… it’s a distraction. And unfortunately, the EU is rumored to have accepted it—hook, line, and sinker. EU regulators appear okay with a remedy that places significant trust in Microsoft to do the right thing despite a history of doing the opposite.

Microsoft paid $613 million in fines over Windows Media Player and $730 million for failing to comply with commitments to offer users a free choice of web browsers on Windows PCs. That doesn’t even include the potential EU antitrust investigation over its Teams video and messaging service.

What does any of this have to do with cloud gaming? It’s a critically important area of concern that the UK Competition and Markets Authority (CMA) zeroed in on during its inquiry. The CMA’s in-depth independent investigation found that the deal raises serious concerns about cloud gaming.

The CMA provisionally found that being able to offer popular games will be important for cloud gaming providers to attract users as the market continues to grow and develop. The evidence available to the CMA currently indicates that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service (or only available on other services under materially worse conditions). Microsoft already accounts for an estimated 60-70% of global cloud gaming services and also has other important strengths in cloud gaming from owning Xbox, the leading PC operating system (Windows) and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming).

The CMA provisionally found that buying one of the world’s most important game publishers would reinforce this strong position and substantially reduce the competition that Microsoft would otherwise face in the cloud gaming market in the UK. This could alter the future of gaming, potentially harming UK gamers, particularly those who cannot afford or do not want to buy an expensive gaming console or gaming PC.

The findings—summarized above—show how Microsoft could limit its competitor’s access to Activision games like Call of Duty or World of Warcraft to cement its dominance in the nascent market. According to an analysis in Macfarlanes:

The CMA provisionally concluded that Activision's games, including CoD and World of Warcraft, could be particularly important for cloud gaming success in the future, given their popularity among gamers. The CMA found that Microsoft may have an incentive to limit access to these games and make them exclusive to, or released preferentially on, their cloud gaming service, limiting rivals’ ability to compete. The CMA also noted that that there are significant barriers to entry for new competitors in the cloud gaming space, including the cost of cloud infrastructure, the cost of acquiring content and the need for economies of scale to drive down costs. As a result, the CMA provisionally concluded that the merger may result in a substantial lessening of competition in cloud gaming services in the UK.

Is the CMA right to be concerned? Absolutely! There is precedent for Microsoft favoring its own services in the cloud computing context.

Microsoft has admitted that its conduct toward EU cloud service providers has led itself, Google, and Amazon to capture more market share. This admission is contained in Microsoft’s recently announced “European Cloud Principles,” which it drafted to mollify EU regulators regarding its cloud practices.

It wasn’t long ago that Microsoft acquired ZeniMax and almost immediately began making certain titles from ZeniMax’s Bethesda studio exclusive to Xbox. This situation contradicted Microsoft’s arguments to the European Commission that it lacked the incentive to foreclose rival console manufacturers.

Ultimately, buying Activision creates serious competition concerns given that Microsoft’s cloud product, Azure, is already dominant. These concerns can’t be addressed with a few one-off licensing deals about specific games. Without serious structural remedies, consumers lose out on what is undoubtedly the future of the video game industry.

There are countless issues with this merger that continue to go unaddressed. It’s past time regulators held Activision and Microsoft accountable.