Microsoft's Big Day

Tuesday marked one of the most consequential days for gaming in the industry’s history, as some of the most powerful executives atop Microsoft, PlayStation, Activision, Nvidia and others appeared in front of European regulators. The topic: Is Microsoft’s impending acquisition of Activision Blizzard anti-competitive?

The who’s who of the gaming industry comes amid European Union antitrust regulators’ investigation into the acquisition, which, if completed, will be the largest ever in gaming, priced at $68.7 billion. With that acquisition, Microsoft will become one of the largest intellectual property holders in all of gaming—but it will also, more than likely, answer employee concerns as Activision Blizzard remains under fire on various fronts for alleged systemic sexual harassment and union busting.

Prior to the meetings in Brussels on Tuesday, Microsoft announced two new 10-year agreements. The first, with Nintendo, will bring “Call of Duty” to the Nintendo Switch or any other future Nintendo console in the next decade, provided the Microsoft–Activision Blizzard deal go through. (Activision currently owns and publishes “Call of Duty”.) The other, in a similar vein, with Nvidia, will bring the “Call of Duty” franchise to Nvidia’s cloud gaming platform, GeForce Now.

Between the two, Microsoft estimates that “Call of Duty” will be available on roughly 150 million more devices than it is currently, according to a Tuesday tweet from Microsoft president Brad Smith. With those deals, Microsoft hopes to prove that it’s not being anti-competitive and does not intend to remove “Call of Duty” from any consoles should the acquisition go through.

But then there’s the elephant in the room: Sony.

Since the announcement of the Microsoft–Activision Blizzard deal in January 2022, Sony, the creators of the PlayStation, have been a steadfast and strong-willed opponent to Microsoft. It’s repeatedly stated, in public and to regulators in Europe, the U.K. and the U.S., that Microsoft does not live up to its word about how it will handle its IP, and it’s alleged that should the deal go through, Microsoft might cut off PlayStation owners from popular titles in the Activision Blizzard library.

Microsoft has argued otherwise, and again on Tuesday publicly said that it has offered Sony a deal and that it had been met with strong opposition.

“We haven’t yet reached an agreement with Sony. I hope we will,” Smith said in a press conference from Brussels on Tuesday. “I walk around with an envelope that contains the definitive agreement that we sent to Sony two days before Christmas. I’m ready to sign it at any time. And if Sony doesn’t like the words, we’re willing to sit down and pull out a pen.”

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In September, PlayStation president Jim Ryan called Microsoft’s proposed deal “inadequate on many levels” and said that Microsoft was offering only three additional years on PlayStation after an existing deal between Activision and Sony ends (which may be in 2024, according to a Bloomberg report).

Sony alleges that the Activision Blizzard acquisition would make Microsoft a monopoly, but it’s hard to make that argument—at least in good faith—when many other publishers exist outside of those owned by Microsoft, Sony or Nintendo. Sony’s arguments, though, have piqued the interest of regulators both in the U.S. and abroad, as the company is the only comparable competitor to Microsoft in the console space.

On that front, Smith shared numbers on Tuesday that point to Sony, not Microsoft, dominating the console space. He said that globally the PlayStation ecosystem accounts for 70 percent of next-gen systems, with Xbox being only 30 percent. In Europe specifically, PlayStation holds a market share of 80 percent.

But that argument is slightly misleading, because it ignores what Microsoft wants to be in the gaming space: a software company, not a hardware company.

Gone are the days of Microsoft hinging all of its gaming business on people buying Xbox consoles. Over the past five years, Microsoft has made it increasingly clear: It doesn’t care where you play its games, so long as you play them.

It’s why the majority of its Xbox exclusives are now published on Windows on the same day they are released for Xbox. With its IP power—through previous acquisitions like Bethesda, the company behind the “Elder Scrolls” and “Fallout” franchises—Microsoft has created a subscription-based bundle, Game Pass, that allows users to pay a flat monthly fee and have access to hundreds of games, some first-party and some licensed. Sony has followed suit, actually, relaunching PlayStation Plus last summer with a similar offering to Game Pass.

The dynamic between the two console makers is odd. Microsoft, which is worth nearly $2 trillion, is both the powerhouse and the underdog. Its huge market cap and access to capital make it a powerhouse in the mergers and acquisition space, at a crucial time for gaming and technology that are consolidating. But it has struggled over the past decade, in particular, to keep pace with Sony on console exclusives from its first-party developers.

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Sony, which is worth just $107 billion by comparison, dominates the console exclusive space, with titles like “The Last of Us,” “Spider-Man,” “God of War,” “Horizon,” “Ratchet & Clank” and others being among the most popular games in any given release year. Its console exclusive library on PlayStation 5 is not as impressive as its PlayStation 4 predecessor, but there’s hope that Sony will get back on track with both a new “Spider-Man” and an upcoming “Wolverine” title developed by its subsidiary Insomniac Games on the upcoming slate.

Microsoft might finally turn the tide, though, as Bethesda has several highly-anticipated games like “Redfall” and “Starfield” soon to release, and other studios making sequels to popular Microsoft IP like “Fable” and “The Outer Worlds” in development. Smith said on Tuesday that Sony outnumbers Microsoft 286 to 59 in console exclusives. Adding Activision Blizzard to the fold, though, would only help Microsoft play catch up.

But that requires Microsoft to get over the regulators’ objections, first in Europe, then the U.K. and lastly, the U.S., all where there are probes. The European Union has until April 11 to make a formal decision. Where it lands will most likely make or break the deal—and send a ripple through gaming either way.