Sony does not seem interested in the ten year deal that Microsoft offered them for Call of Duty. While we assumed this was only becase Sony was simply trying to block Microsoft’s Activision deal at all costs, there may be something else to it.
In the CMA document titled Sony Interactive Entertainment’s Observations on the CMA’s Remedies Notice, which is dated February 22, 2023, Sony makes new claims that the offer Microsoft makes has provisions in it that will actually harm competition, not help it.
I will run down some of these statements from Sony below, but I need to point out right now that we don’t know what those provisions are. Why?
As reported by Stephen Totilo, Sony has stated that :
“Redacted versions of observations filed by SIE and Microsoft on the CMA’s remedies notice were made public this week. Information regarding the terms of an offer made by Microsoft to provide future Call of Duty releases on PlayStation was redacted at the request of Microsoft. We believe their current offer will irreparably harm competition and innovation in the industry.”
Let’s go through those portions of the document and parse through what Sony actually said about Microsoft’s offer, as best as we can.
On page 5, on a section about distortion risk, Sony states:
“Microsoft’s recent proposal to SIE (Sony) regarding Call of Duty raises this risk as well. The pricing terms Microsoft has proposed for buy-to-play would effectively give Microsoft a lever to raise the prices SIE could charge gamers to play their favorite game.
And for MGS (multi-game subscriptions) services, Microsoft has proposed a licensing arrangement that would [REDACTED]. This would make PlayStation Plus commercially unviable, forcing SIE either to raise its MGS prices or not offer Call of Duty on MGS at all.”
Sony claims the opposite of what Microsoft has claimed on the price terms they offer for Call of Duty. Microsoft says they’re offering Sony to make more money per unit sold than Activision currently is offering. Sony says their offer will give Microsoft leverage to raise those prices if they want.
Sony also makes a claim here about Call of Duty on subscription services like Game Pass and PlayStation Plus. Sony says Microsoft’s offer would make it not make sense to offer PlayStation Plus for their business. It’s so bad that Sony would have to raise prices for PlayStation Plus or just not add it.
While this section is redacted at Microsoft’s request, it certainly looks like the offer is simply to add Call of Duty to PlayStation Plus. If that sort of parity is forced onto Sony, then they may have a point, but they could avoid that situation entirely by just negotiating the terms with Microsoft. If they don’t, any of those regulators could actually make it a requirement.
On pages 8 to 10, Sony provides more details, but again, portions of this are redacted. We’ll try to go through them as briefly as possible as paraphrase key passages below:
“Standard of parity obligation – under its proposal, Microsoft is obliged to use [REDACTED] parity between PlayStation and Xbox and their respective MGS services. This is a vague and weak commitment …”
Sony claims here the kind of parity that Microsoft is offering to them is not a strong enough commitment. So there may be provisions that they think Microsoft can flip around to their advantage later.
“Scope to deviate – Under the proposed terms, Microsoft would [REDACTED]. This is a vague and low bar that would essentially [REDACTED] than Microsoft would be willing to invest.”
Again, Sony is claiming here that the specific provisions of Microsoft’s deal give them room to not live up to their promises. This ties in to Sony’s earlier claim that Microsoft could make an inferior version of Call of Duty on PlayStation, driving players to the Xbox. Microsoft says they are promising feature and content parity in their ten year deals. In short, Sony is saying they won’t live up to that promise, if you read the fine print of their contracts.
“Pricing for buy-to-play – SIE can license Call of Duty from for a price based on [REDACTED]. As a result of this licensing fee, Microsoft effectively has a lever over SIE to fix the PlayStation retail price for Call of Duty and soften competition against Xbox.”
Here, Sony repeats an earlier claim, but adds slight details. So the licensing fee for Call of Duty has a specific basis for its pricing. Would that basis be related to changing market conditions, or something to do with how much content is in a single Call of Duty game? Or is it simply connected to the promises of feature and content parity? Whatever it is, it’s also why Microsoft would have leverage over Sony.
Now, here’s the most interesting part. Please note that MGS here refers to multi-game subscriptions, aka services like PlayStation Plus.
“Pricing for MGS. Microsoft proposes to license [REDACTED] if SIE agrees to pay [REDACTED]. Under the terms of the proposal, that amount [REDACTED].
This would commercially destroy SIE’s MGS business model. A yearly subscription to PlayStation Plus Estra, SIE’s mid-tier MGS service, is priced at around $ 100, and the buy-to-play retail price of Call of Duty today is around $ 70. Under Microsoft’s proposed terms, SIE would therefore be required to pay [REDACTED]. As the chart below shows, this would leave SIE with only [REDACTED] full $ 100 annual subscription.”
In spite of the redacted sections, we can see where Sony is going with these provisions. Sony points out that the annual cost of PlayStation Plus Extra, their mid-tier subscription, is not that far off from the price of an annual Call of Duty game. If those Call of Duty games were on PlayStation Plus, it could severely cut the amount of money Sony makes from everyone who pays for them full price.
But it could also harm Sony, if they pay too much to get Call of Duty on PlayStation Plus, and Sony is implying that that is what Microsoft is offering.
On one end, these are precisely the same risks that Microsoft has been working with on Game Pass for some time. Microsoft themselves admits that Game Pass can harm the sale of full retail games.
On the other hand, whether Sony likes it or not, such an arrangement would be good for all video game consumers, including and especially Sony’s consumers on PlayStation. Most dedicated Call of Duty players are on their platform, and they already have PlayStation Plus for online play, so they could save a lot of money if such a deal goes through.
Sony makes one final notable assertion on page 10:
“Term – Microsoft proposes a [REDACTED] term for buy-to-play and MGS services on consoled and a [REDACTED] for cloud. Neither is a sufficient time period to enable SIE to develop a rival to the industry’s most important franchise…”
Sony tries to shut down a common counterargument to their claims, that they should just try to make their own competition to Call of Duty. Sony states that they won’t have enough time if we go by the terms of the contract Microsoft offered them.
Microsoft stated the ten year term is a mere formality and they would renew these deals with competitors over and over because they can’t make deals for perpetuity legally. But of course, Sony’s point of view is premised on not trusting Microsoft at their word.
While it’s true that Call of Duty took years to build into the juggernaut that it is today, Sony’s assertion doesn’t take into account the unmeasurables that are in the nature of the game industry.
Call of Duty has had many off years, where it hasn’t made as much money as expected. Call of Duty also has plenty of able bodied competition now in terms of revenue, in franchises such as Grand Theft Auto and Destiny, the latter of which happens to now be owned by Sony.
In fact, the games industry in general is subject to the whims of a fickle audience, who may love you one year and hate you the next. Even Sony’s projected market dominance in this console generation was waylaid when consumers flocked towards the Nintendo Switch, a totally unpredictable phenomena for aging hardware.
We don’t know the full context of what Microsoft’s contract to Sony is, but the way Sony has described them here seems to be more about Sony protecting their own interests than what regulators like CMA and the FTC are interested in.
This is, of course, perfectly natural, but Sony doesn’t seem to be doing enough to convince the regulators and the public that they are looking out for consumers’ best interests as much as their own.
Sony again reiterates their claim as well that Call of Duty is an exceptional IP in the video game industry. This claim is at the core of FTC’s lawsuit vs Microsoft. A critic of the FTC’s suit has also referred to this claim as anecdotal.
While it would be amazing if Microsoft escalates things by actually disclosing their ten year contracts to the public, don’t bet on it to happen. Any settlements seem unlikely now, so we’re at the point where statements from all players on this deal are just going to keep escalating until the regulators make their decisions.
