Microsoft's (MSFT) Activision Buyout Under Further UK Scrutiny
Microsoft MSFT is currently seeking approval of every competition regulator in the nations Activision Blizzard ATVI and Microsoft operate at a time when UK’s Competition and Markets Authority (CMA) has voiced reservations.
The watchdog had opened an initial inquiry in July to assess whether the deal would result in a substantial lessening of competition in the United Kingdom further, before the $68.7 billion acquisition deal could go through.
In Phase 2, an impartial panel will investigate Microsoft’s agreement in greater detail and determine if having influence over games like Call of Duty, World of Warcraft and Candy Crush will hurt competitors.
As part of its plans for gaming beyond just Xbox consoles, Microsoft intends to pursue a principled path in its approach to Xbox Game Pass and Call of Duty. Microsoft will make Overwatch, Diablo, and Call of Duty available in Xbox Game Pass but not prevent games like Call of Duty from being available on PlayStation.
While the U.S. Federal Trade Commission continues to investigate the deal in private, foreign regulatory bodies, like that of Brazil and New Zealand, publish filings for public consumption.
In the documents submitted to Brazil’s Administrative Council for Economic Defense, Microsoft claims that a strategy of not releasing Activision Blizzard games on competing consoles would only be profitable if the games could draw a sizable number of players over to the Xbox ecosystem, resulting in revenues to make up for losses from not releasing these titles on competing consoles.
This argument directly addresses the concerns of the CMA and will likely be reiterated by Microsoft before an upcoming 8 Sep, 2022 CMA counter-proposal deadline. The CMA has claimed that without a suitable proposal, a formal deep investigation will begin. This would involve an independent panel scrutinizing the deal and evaluating the results of reduced competition in the market.
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Microsoft’s Tussle With Sony Over Anti-Competitive Stance Continues
Microsoft is one of the world’s largest cloud-computing service providers and the company has been a leader in the cloud-gaming market through its Game Pass subscription service. Sony SONY also offers cloud gaming through its PlayStation Plus subscription.
Sony previously claimed to Brazil's regulatory body that the Activision Blizzard acquisition is anti-competitive as it could influence people to switch from PlayStation to Xbox and said the Call of Duty series is on its own level of popularity and has been overwhelmingly the best-selling game in its genre.
Although Sony has been recently slapped with a lawsuit for allegedly overcharging millions of its PlayStation customers in the United Kingdom by exploiting its market dominance.
Microsoft has alleged that Sony has been paying developers blocking fees to prevent games from appearing on Xbox Game Pass and other competing subscription services.
This Zacks Rank #3 (Hold) company also suggested that Ubisoft, Riot Games, Bandai Namco, and Google have all released competition to Call of Duty, with such titles as Apex Legends, Battlefield, PlayerUnknown Battlegrounds (PUBG) and more. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the three months ended June, Microsoft, Sony and Nintendo NTDOY each posted disappointing results in their respective gaming businesses. In the last reported quarter, gaming revenues declined 7% (down 5% at cc) due to a decrease in Xbox content and services and Xbox hardware.
Nintendo saw a 15% slide in operating profit in the April-June period. The company behind the Super Mario franchise claimed that the weak performance due to the global semiconductor shortage affected the production and sales of Switch consoles.
Nintendo sold 3.43 million units of its portable Switch console in the quarter, down 23% year over year, while software sales declined 8.6% to 41.4 million units.
Sony sold 2.4 million PlayStation 5 consoles in the quarter, slightly higher than the 2.3 million units sold in the same period a year ago.
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