One of CMA’s key arguments against the Microsoft Activision deal is a real head scratcher, relating to Microsoft’s core business – their operating systems.
Basically, the CMA claims that Microsoft has an overly dominant position in the cloud because they have control over the dominant operating systems used for cloud gaming. In specific, the CMA refers to Microsoft, which is where most cloud gaming services work on, and Xbox OS.
So, let’s break these arguments down. On pages 227 to 228 of the CMA’s final decision, they make these statements:
“We believe that Windows OS and Xbox OS both give Microsoft a wide range of games that readily work without any need for porting or use of a compatibility layer. Further, as both OSs are owned by Microsoft, they can be self-supplied at little or no incremental cost.”
“For providers other than Microsoft, there is a significant cost to using Windows as licensing fees must be paid to Microsoft. This is demonstrated by several third party responses and recognised by Microsoft. As described above, Microsoft acknowledges that this licensing fee is relevant if it results in rivals facing higher costs than Microsoft. Several competitors have submitted that the licensing fee is a significant cost, and consequently the licensing fee in many cases gives Microsoft a cost advantage.”
“Evidence suggests that porting a game to a different OS is expensive, and developers are generally unwilling to develop games for OSs without a large installed user base. Google Stadia, for example, attempted to run its cloud gaming service on Linux and its business failed. Many see the lack of content on Stadia’s Linux-based platform as a major contributor to its failure.
We believe that this shows that porting games to an alternative OS (ie requiring developers to create a new version of the game compatible with that OS) is not a viable alternative to Windows currently and is unlikely to be in the near future.”
So, the CMA’s main argument here is that most cloud gaming happens on Windows gaming machines, and developers aren’t incentivized to bring their cloud gaming to other platforms.
They aren’t referring to the platform or device where the games are being streamed to for the player to play. Rather, they mean they are talking about the source, the server setup where the games are being streamed from.
For Microsoft, they are either using Xboxes that they own, or they have set up a bigger Windows server setup that can run multiple instances that can start running when a Game Pass owner starts cloud gaming.
At first glance, this certainly looks like a fair assessment. It’s certainly true that most PC gaming occurs on Windows. While there was an effort to increase native gaming on Linux, it proved to be an impractical enterprise financially. On the Apple side, they have demonstrated little interest in improving gaming on the Mac side. On the side, Apple also discourages cloud gaming on their platforms, but this is a completely separate issue.
The big exception, of course, would be Sony’s PlayStation Now cloud gaming service. Those games run natively on PlayStation hardware, and are more likely streamed from PlayStation’s facilities using their own PlayStation 3 or PlayStation 4 units.
With all that said, there is some nuance to this situation. While Microsoft’s OS dominates PC gaming, Microsoft itself does not dominate PC gaming. Microsoft failed to really capitalize on their ownership of the Windows platform, and it’s actually Steam that now has the biggest Windows based marketplace for games. Multiple other storefronts, like Epic Games Store and GOG, are definitely also more successful than Window’s built in Microsoft Store.
Microsoft isn’t really forcing gamers to keep gaming on Windows. It’s the gamers themselves that choose to keep playing on the platform, partly because Apple is ambivalent to the market, and partly because Linux’s progenitors can’t catch up to Microsoft’s marketshare lead. The Steam Deck and its SteamOS is Windows’ most successful challenger so far, and as we know, even it hasn’t been designed around cloud gaming.
On page 355 of the document, the CMA describes the feedback developers provided when it comes to having to overcome this situation:
“Third parties also commented on Microsoft’s proposal to make available the PC version of the game (running on Windows OS). Some third parties noted that this may not be sufficient to capture future developments in the market.
For example, one third party noted that while PC hardware is generally used to stream cloud games now, it is not certain that this will always be the case; therefore, it may be the case that different versions of games (eg other than PC versions) become more important in future.
Similarly, another third party told us that it does not think the Windows version of Activision games would be appropriate to remedy the SLC as it forecloses other business models by forcing cloud gaming providers to use Windows OS and making gaming providers reliant on Windows Virtual Machines.
This third party told us that a potential solution could be Microsoft ensuring that it will provide equivalency for game play features and experience through a Windows version of the game that is compatible with Proton (a compatibility layer which allows Windows games to run on non-Windows (eg Linux) OSs) providing support for their open-source review. However, this third party noted that this also raises a number of parity concerns.”
There is no doubt that this is a situation with no simple solutions. However, the CMA definitely made the wrong choice by just flatly rejecting the deal.
In fact, this was an opportunity for the CMA to have Microsoft address the situation themselves, by making it part of the legal remedy to approve the deal.
For example, they could be compelled to aid in development of WiNE and Proton themselves, to provide 100 % compatibility of Windows games to Linux.
Alternately, Microsoft could be compelled to enter new deals so that licensing Windows for cloud gaming competitors would no longer be an issue.
The CMA’s choice, to presumably leave it up to the free market, will only allow Microsoft to continue dominating the cloud gaming market on this aspect.
