#195: Blocking high

Yesterday the UK antitrust regulator, the Competition and Markets Authority, formally blocked Microsoft’s proposed $68.7bn acquisition of Activision Blizzard. My initial reaction was one of surprise: it had seemed, after the CMA said it was satisfied with Microsoft’s pledge to keep Call Of Duty multiplatform for ten years, that the winds were blowing in the Xbox maker’s favour. Then I read the ruling and was a bit… confused. It seemed the main justification for blocking the deal was not COD or the wider console sector, nor the mobile-game angle Microsoft had tried to spin this as being all about. Rather, the CMA was upset about the potential impact on the nascent cloud-gaming market. The cloud-gaming market has been ‘nascent’ for as long as I have been writing about games; one has to imagine that, if it was ever going to be a thing — if it was ever going to stop being nascent and become, like, ‘infant’ or something — it would already have happened.

My next emotion (I am just walking you through my feelings now, sorry about that) was one of relief. Hit Points is an anticapitalist at heart, albeit the sort of anticapitalist that still holds faint hope of one day being disgustingly rich, and so I was quite pleased at the suggestion that big money cannot, in fact, run entirely unchecked. I may not have entirely agreed with or even understood the CMA’s reasoning, but I felt like this was one of those rare cases where the end justified the means. Besides, I made what would usually be the terrible mistake of imagining the look on Bobby Kotick’s face, and for once found it quite an enjoyable experience. If you haven’t conducted this exercise for yourself just yet, I can heartily recommend it. Hold that L, Bob!

Then I realised the most direct consequence of the ruling on me, and on Hit Points: I am probably going to have to spend another year writing about this shit. We’re all over it now, I think; this whole business has had a big ‘are we there yet?’ vibe for a while now. Unfortunately the CMA just insisted we all take a big detour that has pushed our ETA right back. Bugger.

The reaction has been much as you’d expect. Microsoft has promised to appeal; Lulu Cheng Meservey has solemnly dragged her ‘epic memes’ folder to the Recycle Bin; the analyst community has either gone ‘I told you so’ or ‘this changes nothing’; stock prices have done stock-price things. Sony hasn’t said anything at all, presumably because Jim Ryan has been in a permanent state of Muttley.gif since the moment the ruling hit his inbox. I will admit I wasn’t entirely prepared for Activision to go full protection-racket and strongly imply that it will take its UK business elsewhere in light of the ruling, but in hindsight I should have expected nothing less from Kotick and his band of C-suite goobers. (Microsoft president Brad Smith has been doing much the same on the interview circuit this morning. Stop negging the UK, you lot. It’s the last thing we’re any good at.)

Having chewed over the news some more, I think perhaps I am starting to understand the CMA’s thinking. There has been a lot of resistance and no little opprobrium towards the idea of cloud-gaming for pretty much as long as the concept has existed. Ah, the latency issue is insurmountable; the hit on visual fidelity will surely be too severe; my ISP has data caps; the infrastructure just isn’t there for it. (In any online discussion of cloud gaming, there will always be one person who lives in a shack at the arse end of nowhere and gets like 138kbps down on a good day, and believes technology must always accommodate them. It is one of life’s guarantees.)

The thing is, most of that resistance has come from within the gaming community. From people like you and I, fully invested in the hobby, who happily buy new hardware at launch and multiple new releases a year, and see cloud gaming as too riven with compromise to ever take native hardware’s place. But what you and I think about cloud gaming doesn’t matter, because it isn’t meant for us.

We already have all the gear, right? We maybe have an edge case where we could make use of it — a holiday rental or a trip to the in-laws or whatever — but it was never going to become our primary way of playing games unless we had no alternative. And it was that fear of having no choice — of platform holders going all-in on cloud stuff instead of making and selling bespoke hardware — that probably made us so resistant to the idea.

But cloud gaming isn’t meant for us, and never has been. It’s for people like my mate Dave.

I suppose I should tell you about Dave, rather than just leave that sentence dangling. Dave’s a good egg. He’s one of the best eggs, in fact. I was at a get-together at his place a few years back and, after what we shall euphemistically call ‘a few beers’, he asked me about the new Doom game. Dave had loved Doom as a kid; he’d love to play the new one too. Could he play it on his PC?

I asked if his PC was up to playing games. He reckoned that, given the amount he’d spent on it, it probably was. I loaded up Steam on my phone, saw there was a sale on, and that the 2016 Doom reboot was only about four quid. I gifted it to him on the spot. He gave me a big hug (remember, ‘a few beers’) and I thought nothing more of it until the next time I saw him, when he walked me through the miserable journey he’d been on trying, and failing, to get the thing to run on what, it turned out, was not a sufficiently capable PC. He’s still never played the game, poor sod.

That’s who cloud gaming is for: my mate Dave, and all those like him, who quite fancy playing the odd game but not so much that they’ll drop hundreds of pounds on the hardware they need to run it. If you told Dave he could play Doom through an app on his smart TV, with a controller I could give him from the teeming Hit Points spares pile, for a few quid a month, he’d be on it like it was ecstasy (oops). You think he’s going to notice, never mind care, that it’s not running in native 4K, or that there are a few extra frames of latency? Don’t be silly. Only dreadful nerds like you and I can play Spot The Difference with that stuff.

If we view cloud gaming in this way then, yes, I think the addressable potential market is significant, bloody enormous even, and a regulator that sees a proposed acquisition as maybe being harmful in this context in years to come is actually being commendably far-sighted. As far as Activision #content is concerned, I don’t know about you, but I know an awful lot of people who over the years have bought a console exclusively to play COD on. They’d probably be well up for cloud-streaming; it would save them a few hundred quid every few years, and free up some space under their TV for… well, for whatever these people put under their TVs. Soundbars? Board games? Drugs? I have no idea. I must ask Dave the next time I see him.

Ah, you say. Ah, Nathan. What about all that stuff you said earlier about cloud gaming’s permanent state of nascency? Why is cloud gaming blocking the biggest acquisition the game industry has ever seen when every company to ever try and make a go of it has failed? Well, let us look at the specifics of those companies. OnLive was simply too early; bandwidth wasn’t up to it. Gaikai was bought by Sony before it really got going, and while the tech formed the bedrock of PlayStation Now and has now been folded into PlayStation Plus, Sony has always treated it as an optional accessory because it would quite like to keep selling you consoles, please and thank you. GeForce Now? Well it’s called GeForce Now for one thing, and besides, it only plays games you own on PC. Luna? Bezos, innit, and no games. Stadia? Phil Harrison.

The only reason cloud gaming hasn’t taken off yet is that no one’s got it right. And when someone finally does, they will make an absolute killing — and probably transform the game industry in the process. If the CMA has reached its conclusion for the reasons I’ve outlined above then you know what? Fair fucking play. They should probably start a newsletter. God knows I’ve had enough of writing about this nonsense.

Hello again! I wrote all that last night after, as you can probably tell, a glass or two of wine. I have since read the relevant cloud-gaming bits from the CMA’s full report, which unfortunately is a) heavily redacted and b) over 400 pages long. (Perhaps they shouldn’t start a newsletter after all; they’ve got no chance of maintaining a twice-weekly cadence with that sort of wordcount.)

The core of the CMA’s argument is that Microsoft already has a lot of potential advantages in cloud gaming, and the report cites a number of redacted internal Microsoft documents as evidence that the company agrees and sees a pretty successful future in it. It is certainly heavy on the speculation — on what Microsoft could do cloud-wise, rather than what it plans to, and the advantages its wider business would offer if it did decide to push more heavily into it.

It even agrees with Hit Points that the reason for cloud gaming’s eternal nascency is that to date no pretender has managed to hit the successful balance of content, technical performance and profitability that real success would require. It reckons that Microsoft — which has content sorted through Game Pass; has the tech in a good place with XCloud today and potentially Azure in the future; and has lower costs because it doesn’t need to pay for Windows licences and already has a large library of software to offer — is uniquely well positioned to corner the market if and when it makes a move. It also notes that cloud gaming is happening, whether we want it or not: in the UK, the number of users of cloud streaming tripled between 2021 and 2022.

I find it surprisingly persuasive, and while there’s been a general vibe of ‘this lot don’t know what they’re talking about’ around the CMA’s previous statements on the acquisition, this section of the report is well-researched, contains the views of multiple relevant parties, and is based on access to internal documentation from Microsoft and Activision, and market data supplied by thirdparties, that you and I will never see. As I said above, while this is a speculative view of the future, it seems like a plausible one, and one that is based on current real-world evidence and testimony. I am sure there are holes to be picked in it, and I have no doubt that a fun/miserable round of discourse on all that is headed our way. It’s worth a read, I reckon, if you’ve an hour or two to spare and a high tolerance for jargon and redactions.

That said, I was less convinced by the CMA’s belief that Microsoft buying Activision would play a defining role in who wins the coming cloud-gaming war. While it successfully establishes that Microsoft is best positioned to corner the market, I did not think it entirely persuasive in its claim that having access to Activision content would cement Microsoft’s dominance. The CMA reckons:

“Cloud gaming exists today and has grown without Activision content and is projected to grow further, but it is still possible that i) it could grow more rapidly if Activision content is widely available across the market absent the Merger, and ii) limiting access to Activision content post-Merger could seriously harm rivals’ competitiveness in circumstances where rivals could have had widespread access to Activision content absent the Merger.”

The crux of the CMA’s position is that Call Of Duty would be highly desirable on cloud services because it is already highly desirable on console and PC, and if cloud gaming does properly take off in the future it can be expected to follow the demand patterns that exist on today’s platforms. I can see the argument, but we really are fully into the realms of speculation here. Really the ruling seems to come down to ‘you’re big enough to dominate this potential space already, and we don’t like the idea of you getting any bigger’ and that’s sort of been Hit Points’ position on consolidation from the start (since #24, in fac!t) so, fine. The end justifies the means, I guess.

However, after a bit of further reading, I wonder whether the means might be justified too. I also think we should probably have expected the CMA to block the deal all along, because it is pretty consistent with its recent conduct.

Back in 2021, the CMA ruled that Facebook’s acquisition of Giphy was anticompetitive. (The deal had already closed when the CMA got involved; after multiple failed appeals, Meta was forced to sell off the company.) This excellent (and pleasantly readable, despite its subject matter) post at The Platform Law Blog, written by former CMA legal director Tom Smith, contains a few things that, in hindsight, are rather revealing.

For one, the CMA chief executive admitted before the Facebook ruling that regulators had been too lax in policing previous Big Tech buyouts. “Of 400 acquisitions made by the largest digital firms between 2008 and 2018, none were blocked by competition authorities,” Andrea Coscelli said in a speech shortly before the CMA blocked Facebook’s Giphy deal. “There is now a general consensus that some of these acquisitions should not have gone ahead, and that they allowed these firms to amass and reinforce their market power.”

Smith goes on to note that the CMA updated its guidelines “specifically to improve the CMA’s ability to analyse mergers in dynamic markets such as this one [referring to Facebook’s Giphy purchase]. Digital platforms are cited as an example of where losses of potential competition are particularly relevant to a merger assessment.” He also points out that, given that the CMA cannot fairly rule on competition in new markets where little precedent exists, it “based its findings almost entirely on the internal documents of the merging parties and of thirdparties, and on its discussions with a wide range of market participants.”

So: the CMA is clamping down on Big Tech; is especially concerned about the potential influence of acquisitions in new, emerging or fast-moving technology markets; and is basing its decisions heavily on internal communications from the merging parties, and expert testimony from competitors and industry participants. This is all sounding quite familiar, isn’t it. Here’s the killer extract that proves we should probably have seen this coming, with a little Hit Points bolding-up for emphasis:

“The new Guidelines have now been employed in earnest, and the CMA will defend its decision to the death. The CMA has made it clear to everyone who will listen that it intends to prevent the accumulation of further market power through acquisition by a company that already has a strong position. Facebook is one of a handful of unusually powerful platforms, but the principles in this decision can readily be applied in other contexts too.”

Fuck about. Wish I’d found this blog post six months ago.

So, what now? Eurogamer spoke to UK analyst Piers Harding-Rolls, who reckons we’re looking at at least nine months for an appeal to be dealt with — and if the appeal succeeds, it’ll then be sent back to the CMA for review. (Harding-Rolls points out, however, that the CMA “wins a significant majority” of appeals.) The EU ruling is due in May, and the FTC’s in August, and it remains to be seen whether they’ll disagree with the CMA’s findings or be persuaded by them. In other words, we are nowhere near done yet, and Hit Points still has plenty of this stuff to write. I suppose I had better read some more law blogs, and try to come up with some new jokes.

MORE!

No, thank you. I think 2,800 words is quite enough for one day. I thought I might treat myself to a day off tomorrow, but maybe we’ll do a big MORE! to catch up.

Phew, there we go. I am going to end today’s missive with one of my infrequent pushes for paid subscriptions. Only you, dear reader, can safeguard the future of my fully independent, ad-free, SEO-ignorant work. Hit Points passed 6,000 readers last week; the free side is doing wonderfully, and I take great pride in the growing success of this thing. But paid subscriptions have flatlined so far in 2023, and I’d be lying if I said I wasn’t worried about the sustainability of a one-man show that is solely reliant on readers for revenue. At some point, unless things change, I am going to have a difficult decision to make.

Sorry if that comes off as a bit desperate. Since launching this thing in the summer of 2021 I have tried to make a point of being honest about how things are going, where they’re heading, and how I feel about it all. I would much rather be open about the state of things than pretend that all is gravy. A problem shared, and all that.

If you like Hit Points as much as my stats page suggests you do, perhaps you’d consider supporting it. A paid sub costs just £4 per month and gets you an extra exclusive post every week, as well as the warm fuzzy feeling of knowing you are contributing to the current and future success of a different sort of videogame coverage: one that isn’t beholden to advertisers or bound by current search trends, that doesn’t have to work to the rule of capricious senior management; one that just wants to tell you about what’s happening in games and why it matters, and crowbar in some half-decent gags along the way.

Anyway. Have a grand weekend, whatever you’re up to, and I’ll see you all next week.