The UK CMA has made a blockbuster revelation in the recent documents they released, in connection with their investigation of the merger between Microsoft and Activision Blizzard King.
Basically, Sony makes a little bit of extra money for each Call of Duty game sold under their PlayStation consoles.
This is the language that the CMA used in their appendices to the third party investigation that the CMA commissioned to DSJ. This text, shared courtesy of IDAS in Resetera, is found in page E6 of the document:
“SIE applied a third-party margin of [REDACTED]% for CoD sales on PlayStation. SIE currently receives a margin of [REDACTED]% on CoD sales on PlayStation. SIE stated that it did not believe that the current discounted margin would remain post-merger, given their main competitor will control ABK’s content. SIE carried out a sensitivity analysis in which it assumed SIE receives a margin of [REDACTED]% on CoD sales. It estimated that the critical switching rate at which it becomes profitable for the Merged Entity to foreclose SIE increases from [REDACTED]% to [REDACTED]%.”
This revelation was part of Sony’s argument to the CMA that Microsoft’s purchase of Activision would “foreclose” or harm competition, based on the assumption that Call of Duty players would switch consoles from PlayStation to Xbox.
In other words, Sony was not compelled to share this information by virtue of the CMA’s authority, or a subpoena by Microsoft. Sony willingly volunteered this information, for the sake of strengthening their own case. This means they have opened themselves up to public scrutiny.
It’s not a secret that Sony paid for this deal with Activision in regards to Call of Duty. We publicly know this deal exists. It’s the reason that Call of Duty players on PlayStation received several advantages over the same players on Xbox, and also PC.
Part of that deal involved Sony players getting exclusive in-game items and in-game currency. Today, the most they have been getting is still a juicy bonus, in that they get first dibs on open beta and free play periods prior to game launch.
If Microsoft buys Activision, and becomes owner of Call of Duty, Sony believes that Microsoft will not agree to such an arrangement anymore. In fact, Microsoft’s case has been to provide parity on every feature and detail for Call of Duty games, on multiple platforms. This includes Nintendo and Valve, two companies whose platforms sometimes had Call of Duty games, or had some Call of Duty games, but never experienced that parity.
There is no doubt that Sony stands to lose money if they no longer receive that favorable third-party margin for Call of Duty. However, protecting competition does not mean literally protecting Microsoft’s competition. The CMA and other regulators need to recognize the proper nature of competition in the video game space, and that that extends to more than console games as well.
Microsoft’s proposal to give all platforms Call Of Duty games, on parity, would neutralize Call Of Duty as a reason to buy a certain platform. Rather than maintain the status quo, it would build a new situation where the platform holders need to compete in other ways, while Call of Duty goes on to compete with other video games.
The CMA may come up with other arrangements they prefer, but they shouldn’t be thinking it is necessary to protect Sony’s profit incentive.
