Xbox kicked to the cloud - A look into their failed buyout of Activision
When Microsoft announced its intention to purchase Activision-Blizzard for $69 Billion USD, there is no doubt that it shocked everyone. But hours later, once the shock had started to settle, people came out against the deal, with statements that it would remove Activision games from PlayStation, that Xbox needed to invest in new studios, rather than buying others and so on.
Before the deal would be allowed to pass, it had to clear a number of roadblocks, mostly in the form of governments around the world and contrary to popular belief, the CMA, the Competition and Markets Authority out of the UK, advised they would block the deal.
So with the deal dead in the water, at least for now, let us take a look at a few aspects, first up why was it blocked, secondly why can one country block a deal from another and finally, a few additional questions that might be floating around.
So why was the deal blocked?
According to the CMA it was blocked due to the potential for Xbox to gain a dominate share of the cloud gaming space over the next decade, this is the opening line on the reason for its blocking direct from the CMA.
The final decision to prevent the deal comes after Microsoft’s proposed solution failed to effectively address the concerns in the cloud gaming sector.
Back in February 2023, the provisional findings were released and even before the console section, the CMA raised concerns about the impact of the deal on cloud gaming. According to the CMA, Microsoft already accounts for 60-70% of all cloud gamers, which given its connection to Xbox makes sense. Their concern would be that if the deal went ahead, all the Activision-Blizzard games, like Call of Duty, World of Warcraft or Overwatch, could be locked to the Xbox Cloud service, leaving others in the cold.
Because of that potential, they felt the deal was not going to offer the best value for UK gamers in the future, so they closed it down. There are more granular reasons than that, but the end result is that none of the deals Microsoft put forth, seemed to sway the CMA.
Why can one country kill a deal between two companies based in another?
This is the part that is likely confusing to many gamers around the world, more so if you never plan to visit England or even speak English as your primary language. Global companies have to abide by the rules of the countries they operate it, it is the same for people who travel, just because you visit another country, doesn’t mean you can do whatever you want.
In a narrow-minded view of the world, people consider there to be three groups that matter, the United States of America, the European Union and England. I say England, but it is technically the United Kingdom, which consists of England, Scotland, Wales and Northern Ireland, plus a smattering of islands around the place. But for all of those places, plus Australia, New Zealand, Japan, South Korea, South Africa, Chile and more, companies must abide by the rules of all of those, if they wish to work in those countries, so most countries have a standard set of rules in place.
Specific countries like Vietnam, might require a company to offer a localised product for their own citizens, but for the most part, it’s a giant global group and if one country doesn’t want to play ball, there are really only two options, accept the decision or appeal it.
I have seen people already stating that Microsoft should just withdraw their offerings from the UK, which sure that is technically an option, much in the same way that scalping your own head is a way to avoid haircuts in the future. Microsoft could do that, but it is important for folks to know that Xbox is not the money maker for the company that people think it is, it has brand recognition but Windows, Office and Azure are where the money comes in.
Ok, so the UK said no, but what about the other countries that said yes?
Again, in a narrow-minded viewpoint, it is only the three regions/countries listed above that matter, but before this decision came through, we already has yes answers from others. Saudi Arabia, Brazil and Chile were some of the first, with Serbia and Japan all saying yes earlier this year. Recently South Africa was on board with the deal going through, but there are still plenty of countries waiting to deliver their verdict.
New Zealand put forth a timeline in 2022 and are still pending, here in Australia the ACCC (Australian Competition & Consumer Commission) have paused their own investigation, whilst they work with international regulators, like the CMA. Even if our blokes and the ones across the Tasman say yes, things likely won’t progress.
So why does one country of gamers impact the rest of the world?
Again it comes down to the global approach to how companies work, if Microsoft or Activision didn’t have any base in the UK, then it would be a different story. Where things might get confusing though is when you look at the maths of the gaming world.
Let us just assume that 50% of all gamers were on board with this deal, they wanted it to go through. With the last count of gamers being just over 3 billion people, that means there are about 1.5billion gamers globally who want the deal to go through, and lets face it that would be a lot of yes votes.
Current estimates put the population of the UK around 68million folks, with around 57% of those considered a gamer, which means around 38m and again let’s assume half say yes to the deal. Now a gamer is anyone who plays games, that could mean sitting down on a weeknight for a few matches of FIFA or jumping in on a Saturday night to do a raid or two in World of Warcraft. It also means anyone who plays Subway Surfers, Candy Crush or Pokémon Go. What that boils down to is that no matter if you are on a console or PC, mobile phone or cloud direct through a TV, if you play a digital game, you are a gamer.
So if we stick with those numbers 19m gamers in the UK, out of the 1.5billion globally who want the deal to go through are getting told it won’t due to a few people in a government agency saying no, which when you look at it like that can be quite confusing. But numbers are not what the issue is all about, its about the potential of numbers and I hate that word.
If Potential is a flawed metric, why use it?
People love to talk about the potential of things, from their kids potential to be a doctor or a movies potential to break $1b at the box office, the potential is what drives peoples interest. The problem is potential is so dependent on so many outside factors, its more like hope rather than reality. Don’t misunderstand, hoping for success is not a bad thing, but hope alone won’t be enough, hard work and effort will get you headed in the direction. So why is this the wrong direction for the CMA to head towards?
Put simply, they believe the potential for cloud gaming is infinite and if Microsoft gain more titles, they will limit access to those ip by other companies and the deals they signed to provide access seemingly don’t provide enough. What it means is if Microsoft gained the rights to Geometry Wars, and locked it to their platform, anyone subscribed to Amazon’s Luna service would not be able to play it.
There are two issues with that thinking, the first is access, just because a game is one platform, doesn’t mean its out of reach of all players. Look at Nintendo and Mario Kart, that game is on Switch and some 50million copies later, is still selling big. Just because that game is exclusive to the Switch, doesn’t mean that someone who owns a PlayStation can’t play it, they just need to buy a Switch. But what about the cost, I hear you say, not everyone can afford two consoles or more, and that is fine, but that argument, that it needs to be cheaper for everyone is flawed.
Look at video streaming services like Netflix or Disney+, those are available to everyone who wants to pay, but if the cost of Netflix and Disney+ per month is not within your budget, you have to choose one. That of course means you miss out on other shows, then so be it, that is the same way it has been when watching free to air television, if two shows were on at the same time, you can’t watch both, so you had to choose.
Ok, so I have deviated from my main point, the potential of cloud gaming means that for a lower entry fee, more people can game and that is a good thing, but cloud gaming is not the massive tent pole the CMA think it is. The CMA themselves estimate that cloud gaming globally could be worth up to $14 billion USD by 2026, with the gaming market to be some $357 billion USD at the same time, which means roughly 4% of the global market would be for cloud gaming, with the UK’s own portion being one tenth of the amount. So even their own estimates prove its not a big part of the gaming landscape.
What do you mean by that?
Cloud gaming is niche, heck it is beyond niche and even if you are someone who has dived in, there is very little you can do unless you are in the sweet spot. There are 3 well known cloud services globally, they are Xbox Cloud Gaming, NVIDIA GeForce Now and Ubitus. That last one has been powering a number of Nintendo Switch games, bringing titles like Resident Evil 2 or A Plague Tale to gamers on the go. But all three and the various others around, all have two main requirements, a platform to play on and decent internet.
Let us talk platform, a lot of the games for Ubitus are only for Switch and they have worked with Capcom, Sega, 505 Games and more to bring selected titles to the console. The catch is that the service only exists in select countries and even then, sometimes in select portions of said country. For those that don’t know the servers in Australia are located on the east coast, meaning anyone on the west coast, will not be able to stream their games and even if you live on the right coast, but are too far away from the servers, its too bad so sad. That same restriction applies to Xbox Cloud Gaming, it only provides access, without major issues to the east coast of Australia.
So clearly server locations are a big deal, so even if Microsoft let all other cloud companies have access to their games and the Activision library, where applicable, it still may not work. The other aspect is the platform, cloud gaming may negate the need to own a home console, but there are still hardware requirements. If you want to use Xbox Cloud Gaming today and you have an iPhone, then you can only stream via the browser as Apple are restricting apps that let you play non-iOS games. But even with that, you would still need a controller for most games to be playable, something Xbox can simply make a requirement by removing touch screen controls.
What about those on PC, well NVIDIA GeForce Now is a great option, but that still requires a computer, sure it may not need a 4090 graphics card inside, but you still need a decent machine, so likely $1000 to be spent there. How about if you are someone who doesn’t want that, you just want to game on your TV, well Xbox Cloud Gaming is an option for some Samsung TVs, but you still need a controller oh and let’s not forget some of those sets are a few thousand dollars to buy.
Regardless of your method of connecting to your service of choice, you still need hardware to do it from a controller for your existing phone or tablet, to a basic computer or thousand dollar tv. Plus each of those services only work for selected platforms, if you want to stream Xbox and Ubitus, and only have a tv, then you have to choose between Samsung and LG, as each offer support for only one. So even with platforms or services, there isn’t a simple combination that provides access to all.
What about internet connections, isn’t that something you have to consider?
Yes of course internet speed is important because if you have a bad connection, you won’t be able to play the game, no matter the cloud service you are on. According to Speedtest folks Ookla, the UK is ranked 47th in internet speeds, where as Chile is ranked number 8.
Three of the countries to have approved the deal rank higher in that list and one of them ranks lower than the UK, coming in at 49th place. That means if you wanted to have the best cloud gaming experience, you would need to be in Monaco, Singapore or Hong Kong as the top 3 places for broadband speeds or be in Brazil, Chile or Japan for the countries that accepted the deal. Of course, the only platforms that you can have a good experience on is your phone, as no-one wants to take their 65inch TV with them around the world for cloud gaming.
So the country who ranks quite low in internet speeds, sadly still better than Australia, has determined that places where cloud gaming could actually work, have said they won’t get to take full advantage of the buyout.
Is Cloud Gaming really the future?
Honestly, it is hard to judge that. Right now there are only a handful of companies willing to invest into cloud gaming, Microsoft isn’t exactly one of them either. Ubitus and Boosteroid are companies that had signed deals with Microsoft to allow access to their games, for their streaming services and are the only two really pushing things forward, at least in the regions they cover.
Amazon have Luna, but after almost 18 months of being live, is still only in 4 countries and doesn’t seem likely to expand past that anytime soon. NVIDIA GeForce Now is around the world, but there are still some places excluded, the catch with that service is that you need to own your games, so you would need to have a Steam library of content to play, as an example. But there is another layer there, the games are not all available, so if you have a library of 500 games and growing, the only games you can access through GeForce Now are the ones that NVIDIA have signed a deal for with the publisher, which is just over 1000 titles as of today.
Of course we can’t talk about Cloud Gaming and not mention Stadia, the service from Google that spent a year and change, telling everyone the future was streaming games. They believed it so much, they bought studios and signed exclusivity deals with companies and then they shut it all down at the drop of a hat. If one of the worlds richest companies, Alphabet, can’t sustain cloud gaming due to hardware costs on their side, location restrictions on the users side and a lack of content, how can anyone else.
Microsoft didn’t set out to make cloud gaming, because it was something easy to do, but rather they have Azure data centres around the world and Xbox were able to leverage that existing infrastructure. Even with countries that have Azure data centres for business use, they haven’t just rolled out Xbox Cloud Gaming to all of them, because they know some regions have additional issues to deal with.
What can be done from here?
Well, it varies. Microsoft are clearly set to appeal and that will take time, but if the deal doesn’t close in the next few months, there are penalties to consider. The CMA are right to make any decision that they want to, but any ‘hardcore’ gamer will tell you cloud gaming is not anywhere near being truly issue free and most casual gamers are likely just to stick with games on their devices and not worry about streaming them.
The fight is not over and the ball is now back with the CMA to prove their claims, something that they seemed quite unable to do in the rejection release. Each statement was again around potential or framed in a very open manner, it would be like a bank rejecting you for a loan and stating it was the potential that in 10 years you might not be able to pay something back.
Cloud gaming is a wonderful idea, but its more of a bonus than a standalone offering and even if that does change, until the world’s internet catches up with players needs, it won’t go anywhere anytime soon. Microsoft are likely to be very angry at the rejection of the deal, which let’s be honest used a pretty pathetic reason and unless they want to give up, they are going to fight on.
All this is just my own thoughts on the subject, but please sound off in the comments about how you feel about the decision.
