We have an interesting situation when it comes to the CMA decision on the Microsoft Activision deal.
The CMA published their full 415 page report for the public to review and critique at their pleasure. As a result, many folks went ahead and read through the document to learn the finer details of their rejection of the deal.
As covered on Reddit, a provision found on page 352 of the document started spreading the rounds of the internet. This was the exact text, as found in CMA’s report:
“first, the modified Microsoft Cloud Remedy would entitle Microsoft to retain all revenue from sales of Activision games, in-app purchases, and any other future game-related transactional revenues –
as a result, cloud game streaming services would not become rivals to Microsoft’s Game Pass Ultimate, but rather, they would become Microsoft’s customers, with only the ability to stream Activision games and send all the associated revenues to Microsoft.
This third party told us that this would be unattractive for any cloud game streaming service, including BYOG operators like NVIDIA , which are the only operators that would benefit from the modified Microsoft Cloud Remedy should Microsoft decide not to license Activision games;”
As the CMA understands it, the contracts that Microsoft offered to other cloud gaming companies, such as Nvidia, Boosteroid, and Ubitus, allows Microsoft to keep the revenue that they make from Activision games.
This would make it an unattractive prospect for cloud gaming companies, and that includes Nvidia. As Kotaku reporter Ethan Gach has pointed out, most game console companies take a 30 % cut of revenue from game sales.
However, this assumption does not seem to hold up to immediate scrutiny. Nvidia actually released a statement that seems to address this assumption, whether this was the intention or not. On their official Nvidia GeForce Now Twitter account, they stated:
“GeForce NOW and other cloud gaming providers stand to gain an even deeper catalog of games if Microsoft’s acquisition of Activision is completed.
We see this as a benefit to cloud gaming and hope for a positive resolution.”
Florian Mueller has gone on to share his own commentary, to help tie together the CMA statement, and Nvidia’s response to it:
“There’s this fallacy being propagated here that #Microsoft’s 10-year cloud gaming deals–such as the one announced today with @playnware
–allegedly don’t work for cloud gaming providers economically because they don’t get the 30% cut that platforms get when games are distributed by them.
1. It’s implausible that the #CMA’s Inquiry Group, which simply doesn’t understand tech markets at all, would be more sophisticated about this than a major player like #Nvidia, which signed such an agreement and is vocally supporting the acquisition of ABK (still yesterday!). I trust Nvidia–not the CMA–that they can put together a correct cost/benefits calculation.
2. Cloud gaming and particularly streaming is a different business model than that of an app store. There are revenue models for streaming (such as advertising). One of many problems with the CMA decision is that they conflate the two and consider game distribution to be a monetization model for streaming. But in a Bring Your Own Game scenario, it’s obvious that the game is distributed outside the streaming service. Streaming services never had the right to tax game makers! A reasonable competition regulator would focus on access: do the streaming services and the players get to stream? The answer is yes.
3. The 30% app store cut is not a natural right but simply imposed by platforms using their gatekeeper power. It’s even the subject of litigation (such as the UK class action named PlayStation You Owe Us) and regulatory intervention (with respect to mobile app stores so far, not consoles). Anyone suggesting that it is a “natural right” is wrong. #Sony just wants to preserve a business model that allows it to tax game makers to the tune of 30%.
4. What is, however, an indisputable right is intellectual property. There is no reason why Microsoft should pay for ABK’s IP and then have to share it with anyone else. What Microsoft’s deals are about is access.”
So just so we’re clear; the fact that Microsoft did not offer the same licensing deal to cloud game companies that console companies have offered to third parties for their games does not necessarily mean it’s a bad business proposition. It has to be seen as a different business model, and the CMA did not understand this or show an understanding of this in their analysis.
