INTRODUCTION
As you may have heard, Microsoft is acquiring Activision Blizzard. :p
To do that, they need the legal OK from competition regulators all around the world.
The
FTC or the
European Commission are the big ones, but for the deal to go through it has to be approved by almost 20 regulators (from Japan, UK, Australia, New Zealand, China, South Korea, etc).
One of them is
Brazil, where the review process started on May 20th.
During this review process, the regulator usually asks third parties about the transaction, to see what they think about it and to contrast that info with the data sent by the parties involved (ABK and MS, in this case).
The government of Brazil is so open about the transparency of the Public Administration,
that EVERYTHING from this review process is online,
including the third parties questioned and what they answered.
Obviously there is a lot of redacted information for confidentiality reasons, but there is also a ton of interesting data to check.
I've done a recap of the questions been sent to the third parties and their answers. The original documents are in Portuguese but I'm a native Spanish speaker, so it's easy to understand (Google translator has also been very useful). I'm also a lawyer working on IT Law for almost 14 years, including merger and acquisitions processes (that's why I know about these things). :p
THE QUESTIONS
They are the same for every party (I skipped the ones that where specific for the Brazilian market):
- Does your company agree that
physical distribution and digital distribution of games should be treated as separate markets? Or would physical and digital distribution compete with each other in the same market?
- Should the digital video game distribution market be segmented by hardware/platform type (
PC, consoles and mobile devices) or could it be considered as a single market without segmentation?
- If you consider that the game distribution market should be segmented into more restricted markets, or that it should encompass a broader set of products or services, etc.), present an alternative definition and justify your answer.
- In your company's view, subscription game services (such as
Xbox Game Pass) should only be understood as part of a broader market for digital game distribution, or they could constitute a more restricted/specific market from a competitive perspective?
- From the consumer's perspective, are
subscription services perceived as direct competitors of individually purchased games, in the "buy-to-play" model?
- There are relevant
barriers to the entry of a company in the electronic game distribution market? For the console, PC and mobile markets.
- In the last 5 (five) years, there has been any relevant entry into the distribution market of digital gaming?
- Provide an estimate of the time required to complete a full entry (from the planning phase to the start of the entrant's activities), so that an entrant can be considered an effective rival in the digital game distribution market. For PC, console and mobile.
- An isolated entry into the game distribution market can be considered commercially viable? Or an effective entry into the segment would depend on the concurrent entry or presence in other market(s), such as gaming hardware or the development and publishing of games? For PC, console and mobile.
- The market for physical distribution of games for consoles exerts some competitive pressure on the console game digital distribution market, considering the global and national scenarios?
- Contracts entered into with digital stores usually contain exclusivity clauses, that are limited to a certain period?
- In your experience, the terms of agreements entered into with Microsoft digital stores differ significantly from those practiced by other players in the digital distribution market?
- Does Activision Blizzard publish
any title(s) which, due to its characteristics or specificities, does not have close competitors published by other companies in the games?
- In the event that, in the future, Activision titles Blizzard are no longer available to competing Microsoft/Xbox ecosystems, to what extent would competition in the digital game distribution market be affected?
- Your company thinks it is likely that Microsoft will leave to offer Activision Blizzard games on competing digital stores, even though this practice could result in the loss of revenue from sales of these titles in other channels?
- In your company's view, does Activision Blizzard publish any game that can be considered essential for a gaming hardware vendor to work?
- What is the relevance of the existence of exclusive titles in the competitive dynamics of the gaming hardware (console) market?
- It would be possible to expect a significant reduction in the number of sales of rival Xbox consoles in the event of non-availability of Xbox titles from Activision Blizzard for these platforms?
- What is the position of your company regarding to positive/negative aspects of this Merger in relation to the online advertising market in Brazil?
THE ANSWERS
They include lots of redacted info, so I just did a recap of the most interesting bits from the rest of the info:
SONY: They say that from a development/publication perspective, game development typically involves an early stage that is neutral in relation to the platform, before the game is adapted for one or more specific platforms.
They believe that all games compete for engagement of the player. Players choose their gaming platform based on pricing, technical features, and available game types. The available content is the main factor for the player to choose a platform.
They say that there are few barriers to entry in game development and publishing for PC. That only one developer can create an "indie" game and distribute it online, but creating a high-end AAA game (like Activision's Call of Duty) requires a budget of hundreds of millions of dollars and thousands of employees.
They say that apart from Activision there are few developers/publishers capable of producing AAA games, such as EA (FIFA), Take-Two/Rockstar (Grand Theft Auto) and Epic Games (Fortnite). These games tend to be long-running franchises with big budgets, multi-year development cycles and very supportive followers.
Despite all of that,
Sony believes that none of these developers could create a franchise to rival Activision's Call of Duty, which stands out as a gaming category on its own. That's why they believe that Call of Duty is so popular that it influences users' choice of console. In fact, their network of loyal users is so ingrained that even if a competitor had the budget to develop a similar product, it would not be able to create a rival.
They talk about the time, money, number of employees, millions of followers, sales and other data points related to Call of Duty to show how it's a very unique franchise that cannot be replaced.
They agree that subscription services compete with games purchased for a one-time fee. But they think that the lowest upfront costs of subscription services could be anti competitive in relation to publishers who recoup the significant investments in games by selling them for an upfront fee. They also think that this could harm consumers by reducing the quality of the games.
They say that over the past five years, Game Pass has grown to capture approximately 60-70% of the global subscription services market (that marketshare is even greater in Brazil, where Game Pass represents approximately 70-80% of the PC subscription services market).
They believe that it would take several years for a competitor – even with substantial investments – to create a rival effective for Game Pass.
Call of Duty represents an important revenue stream for the PlayStation (they provided data but it's redacted), and it is one of SIE's biggest sources of revenue from third parties.
WARNER BROS: Developing and publishing PC and console games may require investment in terms of value, time and resources. However, the existence of several companies that develop and publish games for PCs and consoles demonstrates that such barriers are not high enough to prevent entry – especially by companies that operate in somehow related sectors, such as electronics or software – and/or robust competition. Entering the mobile market has even lower barriers.
They don't have specific comments or concerns at this time regarding the transaction.
In any case, lots of redacted answers in this case.
UBISOFT: For them the PC and Console markets are the same, but mobile is totally different.
There is no justification for a market distinction based on their genres and types. Many games cross genres, and players typically are not limited to a single game genre.
They don't think that ABK has unique games because there is no such a video game title that doesn't have close competition. All publishers and games compete for available playtime, and none title stands alone in its own genre.
Battlefield, PUBG, Apex or Rainbow Six are competitors for COD. Candy Crush has multiple similar games and ESO Online or Blade & Soul are alternatives to WoW.
They talk about Ubisoft+ Classics for PS Plus or how they are also releasing their games on Gamepass, beyond Ubisoft+.
They think that subscription services are a constant trend in the sector and its importance it's growing up. However, at least for the time being, it should not be considered a different market as it is just a different way of accessing the content, which remains available through other channels (eg "buy-to-play").
NUUVEM: They are a digital games store for PC, Mac and Linux from LATAM.
They say that there is an obvious difference between physical distribution and digital. it is increasingly common to have independent games that are only distributed digitally.
Yes, subscription gaming services compete directly with individual sale of games, even though they may not be perceived as a complete replacement. Players who subscribe to these services tend to avoid purchasing games available or that could come to these services (even though lots of games are only available for 1 year).
In Brazil it's easier to enter the PC and mobile markets for someone new, specially in comparison to the console market.
All the games from ABK have close competitors in their categories, like Battlefield, Free Fire, Final Fantasy XIV or Bejeweled.
The ABK games we already removed from their platform 1 year ago.
They understand Gamepass as something positive for consumers right now but that in the future it could generate a lot of concentration and exclusive content not being available on other platforms.
BANDAI NAMCO: PC and Console markets are very similar, but the PC market is almost fully digital, so the separation makes sense. Mobile is very different. They don't think the 3 markets should be grouped.
Every game is unique. The are concurrent competitors to Call of Duty, such as Battlefield, Valorant or Destiny. The same in relation to World of Warcraft.
APPLE: They don't answer almost any question, the ones that have an answer are redacted but they say that they are aware of public statements made by Microsoft and Activision regarding its post-operation plans (keeping some games multiplatform).
They also consider Apple Arcade as a relevant entry into the digital distribution market in the last 5 years.
I don't think they spend more than 1 hour answering the questionnaire xD
RIOT GAMES: PC, console and mobile have to be considered different platforms.
They consider Naughty Dog as a potential competitor to ABK - Microsoft for the creation of AAA games. The thing is that they also mention Sony as an option. :p xD
Call of Duty, WoW and Candy Crush have real competitors, according to them. Battlefield, Apex, Counter Strike, Valorant or Rainbow Six for COD; Cookie Jam or Bejeweled in relation to Candy Crush and Rift, Runescape, FF XIV or TERA in relation to WoW.
They also talk about the collaboration with MS.
In Riot Games' view, subscription game services are part of a market for broader distribution of digital games and consumers are unlikely to perceive them as competitors of games bought individually, but as alternatives that can fit better in the preferences of players who don't mind keeping a digital copy of the game and who are happy with the subscription service game library offers.
They also think that MS will honor the public statements made about keeping multiplatform some franchises.
They don't expect any anticompetitive effect on the market post acquisition.
AMAZON: They say that they don’t have enough information to assess the importance of Microsoft and Activision-Blizzard on game publishing.
In any case, the majority of their answers are redacted. They only say that they have published two games and that Luna is only available so far in US.
GOOGLE: They highlight all their different initiatives (mini games, VR, Play Pass, developing exclusive games for Stadia until 2021, etc).
Alternatives to COD could be Battlefield, Counterstrike or Rainbow Six. Alternatives to WoW would be Lost Ark, ESO Online or Guild Wars 2. And alternatives to Candy Crush would be Puzzle Quest or Bejeweled.
They also highlight other important franchises from ABK such as Overwatch, Diablo or Hearthstone, including possible alternatives (according to Google, Fallout is an alternative to Diablo).
They understand that there will be a significant number of game developers/publishers on the market after the acquisition of Activision Blizzard by Microsoft.
META: The only question not redacted is the one where they say that they only offer games through Quest (VR) and Facebook Gaming.
Everything else is redacted. xD
SUMMARY
- Obviously,
Sony is the most negative one. They believe that Call of Duty is its own game category and almost irreplaceable. They also consider that Gamepass can harm consumers and traditional publishers.
- The BigTech (
Google, Meta, Amazon, and Apple) doesn't seem to care too much about it (at least from the public info).
Google is the only one who says that there will still be lots of developers/publishers post transaction.
- The rest of publishers/developers (
Warner Bros, Bandai Namco, Ubisoft and Riot Games) seem pretty OK with it: they don't think that the games from ABK are unique, almost all of them list competitors to the big franchises (COD, WoW and Candy Crush) and don't expect any anti competitive effect post transaction.
-
Nuuvem offers a unique perspective as a digital games store from LATAM.
-
Epic was the usual answer about a distribution market of digital gaming created in the last 5 years.
- I think no one mentions
SEGA as a possible creator a AAA games like the ones created by ABK, what I think is weird.
