HIGHLIGHTS from the decision in Brazil approving the transaction without restrictions (I've tried to Copy/Paste the most interesting and relevant parts, but there is a lot of interesting info and new data).
This is the last one, PART 3. So, Sony's position post merger, the importance of Nintendo, cloud gaming, Gamepass and alternatives, etc.
Super quick analysis after reading the decision:
- A total win for MS/ABK
- The usual case of facts/numbers Vs opinions/perceptions, but in Law facts and numbers are what matters.
- The cloud gaming side is totally addressed but I think that we'll see more scrutiny from other jurisdictions regarding this (the Windows/Azure combo is briefly mentioned here).
- Horizontal risks are almost non existent (marketshare of less than 20% post merger)
- Vertical risks are thoroughly analysed and although there is a real possibility of making content exclusive, there is no real economic incentive and MS doesn't have enough dominant power to make it worthwhile, if they go ahead.
- Unless we see very different interpretations, I would expect similar decisions from other countries.
SUBSCRIPTION SERVICES
This SG/Cade believes that the considerable market share held by Microsoft in all scenarios portrayed is due not only to the quantity and variety of content available on Game Pass , but also to the company's pioneering spirit in offering this type of service. Indeed, Xbox Game Pass began to be marketed to Xbox console users back in 2017, having been made available to Windows PC users from 2019 onwards . By way of comparison, Sony's PlayStation Plusservice has adopted a model similar to that of Game Passonly in this year 2022, when it began to provide users with a library of downloadable games in some subscription modalities; until then, the service only included the availability of a few rotating games each month, in addition to the possibility of playing online on PlayStation consoles and some additional benefits. In turn, in terms of offering a catalog of downloadable games, Nintendo's Nintendo Switch Online service currently only includes games from older consoles - more specifically, Nintendo Entertainment System (NES), Super Nintendo Entertainment System (SNES), Mega Drive and Nintendo 64 – and some additional content for Switch games, but no recent titles released for the console itself .
Despite this, the fact that Microsoft entered the multi-game subscription segment before its competitors in the console market does not translate into a permanent competitive advantage for Game Pass . Both Sony and Nintendo have a vast catalog of exclusive games in their ecosystems, partnerships with several third-party publishers, and a broad base of captive consumers among their console users. In this sense, it is understood that there is still plenty of room for these companies' subscription services to develop in scope and content in the coming years, in order to become increasingly competitive.
In any case, it is interesting to note that, despite the fact that the PlayStation Plus service is only available on PlayStation consoles and has only recently migrated to a multiple-game subscription model similar to Game Pass , Sony still held a higher market share than by Microsoft in 2021 , both in scenarios referring to services available on consoles (tables 25 and 28) and in those that consider PCs and consoles together (tables 23 and 26).
On PCs, in turn, it is noted that Game Pass is currently the only subscription service that offers a library of games from multiple publishers for download. In fact, services such as EA Play and Ubisoft+ only make available first-party content from their respective publishers to their subscribers, while competitors such as Stadia Pro (Google) and Luna+ (Amazon) only allow access to games from their catalog via streaming .. Bearing this in mind, and considering that the subscription game distribution model is still at an early stage of development on PCs, it seems natural that, in the current scenario, Microsoft holds a substantial share in the segment - especially in Brazil, where competing services like Stadia Pro and Luna+ are not even available.
In the opinion of SG/Cade, however, such a situation would not prevent new players from entering the market. As already noted, Microsoft and Activision Blizzard together represent less than 10% of the PC game publishing market, both globally and nationally. Thus, even if the Operation were consummated, there would still be a considerable universe of game publishers who could create their own services or license their content to other multi-game subscription services. In particular, companies such as Valve and Epic Games, which are relevant game publishers and also operate quite successfully in the digital distribution market – through the Steam stores and Epic Games Store , are not envisaged., respectively – would have greater difficulties in developing and implementing their own subscription services, in a similar way to PC Game Pass , if the demand from players for this type of service continues to grow.
CLOUD GAMING
With regard to cloud gaming services , such as Google Stadia , Amazon Luna and GeForce Now , this SG/Cade considers that, in the current scenario, the possible difficulties faced by such services in competition with Game Pass are more related to the (still) low popularity of the game streaming model than to the game content exclusive to Microsoft's service.
Indeed, although many point to the streaming of games via the Internet as the likely future trend of the video game industry, the fact is that consumer adherence to cloud gaming services is still relatively low. Furthermore, expert projections do not seem to indicate that streaming games across multiple devices will be able to supplant the current " device-centric" model prevalent in the industry, based on the use of dedicated gaming hardware , in the near future. According to estimates by Omdia, a market research firm specializing in technology, the share of cloud gamingservices in consumer spending on games is expected to increase from 2.1% in 2021 to 6.1% in 2026 – a growth that, despite being quite expressive, still seems insufficient to break the current paradigm of the sector.
The technological challenges to the growth of cloud gaming on a global scale and the still low adherence of consumers to the model are possibly factors that motivated Google to close its exclusive game development studios for Stadia in 2021, and they can also have influenced the decision of Microsoft and Sony to stop offering their Xbox Cloud Gaming and PlayStation Now cloud gaming services independently to consumers – these services currently integrate the more complete Game Pass and PlayStation Plus subscription modalities , not being marketed separately.
In any case, considering a possible future scenario in which technological difficulties are overcome and the game streaming model becomes popular worldwide, this SG/Cade does not envisage that the acquisition of Activision Blizzard by Microsoft is an impediment to the development of competitors and the entry of new companies in the segment.
It should also be pondered that, among the companies that offer cloud gaming services, there are extremely sophisticated players such as Google (responsible for Stadia ) and Amazon (responsible for Luna ), both global leaders in their respective core businesses and well positioned among the largest companies in the world. The two companies also have easy access to data and statistics on preferences and consumption patterns of millions of players who use their services and platforms, a factor that can contribute to the development of better targeted and assertive products and services. SG/Cade believes that, as the cloud gaming modelbecome more widespread among gamers - and therefore also more profitable for service providers -, such companies will have full financial and technological conditions to produce (or buy) exclusive content and enter the video game market more competitively. . In fact, if there is interest and incentives, companies like Google and Amazon have more than enough resources to invest in hiring talent, creating their own development studios, in partnerships with successful publishers , or even in the incorporation of large game studios or publishers.
It is recognized that, regardless of the size of the company, entering new markets is usually permeated by many obstacles, especially in the case of markets concentrated in a few well-established players . Nevertheless, the challenges imposed on the entry of new providers of subscription services for games and cloud gaming do not seem, in essence, very different from those faced by Microsoft when it launched the first Xbox in 2001, in a console market dominated by Sony and Nintendo; or those faced by Sony at the launch of the first PlayStation in 1994, when the company entered a market divided between Nintendo and SEGA and, shortly afterwards, became the leader in the segment.
For all the reasons set out above, this SG/Cade understands that the execution of the Transaction in question, by itself, would not have the power to cause the closing of access to the game distribution market for subscription service providers competing with Microsoft.
EXCLUSIVITY
In Consoles
As can be seen, the tables and graphs presented indicate that Sony is the leading company in the console market both worldwide and nationally, holding in 2021 a much higher share than Microsoft in this segment. It is also noted that, specifically in Brazil, the estimates in table 30 suggest that Sony has achieved market shares of over 60% at least since 2019, evidencing a clear preference of the Brazilian consumer for PlayStation consoles.
Sony's leadership in the console market is not restricted to recent times. In fact, according to data from Statista, PlayStation consoles sold more units worldwide than Xbox consoles in all their generations.
Considering that PlayStation and Xbox consoles traditionally have very similar technical specifications and third-party game catalogs in each iteration, one has to consider why Sony has maintained a consistent leadership in the segment over the years.
According to Microsoft's understanding, the reasons behind such favoritism would be the following: [RESTRICTED ACCESS TO CADE AND APPLICANTS].
Based on all the above, it can be inferred that the game catalog of each console (in terms of quantity, quality and variety) and the loyalty of players to established brands are factors that play, in the consumer decision tree , a more important role than the price and technical specifications of each device.
In the case of the dispute between PlayStation and Xbox – and, more specifically, between PlayStation 5 and Xbox Series X – there is a competition between two consoles that have similar technical specifications, similar prices and access to a set of games. from third-party publishers quite similar. Therefore, this SG/Cade believes that the best historical sales performance of Sony's consoles is probably due to other factors, such as: (i) the exclusive games in the ecosystem; and (ii) brand loyalty.
With the acquisition of a publisher such as Activision Blizzard, and considering the (theoretical) risk of the company's content becoming exclusive to Xbox, it is likely that the eventual conclusion of the Transaction will give Microsoft a considerable competitive advantage in the segment. of consoles. Even so, this SG/Cade does not see that such an advantage represents a risk of closing this market for current competitors. As already seen, Nintendo does not currently rely on any content from Activision Blizzard to compete in the market. In turn, Sony has several predicates - strength of the world's leading brand for more than 20 years, extensive experience in the sector, largest user base, largest installed base of consoles, robust catalog of exclusive games, partnerships with multiple publishers.third-party , brand loyal consumers, etc. – which should contribute to maintaining the competitiveness of PlayStation in a possible post-Operation scenario, even in the face of possible loss of access to Activision Blizzard content.
Furthermore, it is important to highlight that the central objective of CADE's activities is the protection of competition as a means of promoting the well-being of the Brazilian consumer, and not the defense of the particular interests of specific competitors . After all, one cannot lose sight of the fact that the holder of the legal assets protected by Law No. 12,529/2011 is the collectivity, and not the competitor/economic agent as an individual entity. In this sense, although it is recognized that part of PlayStation users may decide to migrate to Xbox in the event that Activision Blizzard games - and especially Call of Duty– become exclusive to the Microsoft ecosystem, SG/Cade does not believe that such a possibility represents, in itself, a risk to competition in the console market as a whole.
In Online Advertising
As can be seen, the offer structures presented in this opinion indicate that the shares held by the Parties in the markets under analysis, in all the scenarios examined, are below the minimum percentage considered for the purpose of presumption of the possibility of closing the market, as defined in article 8, IV of CADE Resolution No. 33/2022.
Therefore, and based on articles 6 and 8, IV of the aforementioned Resolution, it is concluded that, with regard to the possibility of vertical effects in the segments of publishing games and online advertising, the Transaction does not raise relevant competition concerns.
NINTENDO
The observation of the table above shows that, while the list of best-selling Nintendo Switch games is dominated by exclusive titles published by Nintendo itself, the lists referring to consoles from Microsoft and Sony are very similar, with most of the games listed appearing simultaneously among the best sellers on Xbox and PlayStation. Exceptions to this rule essentially refer to titles exclusive to each platform, such as the Xbox-exclusive Forza Horizon and Halo series games , and PlayStation-exclusive franchises such as Marvel's Spider Man , Ghost of Tsushima , and Ratchet & Clank.
Indeed, Sony itself claims to consider Xbox as a closer rival to PlayStation than Nintendo's console.
Notwithstanding, although the greater proximity between the hardware manufactured by Sony and Microsoft is recognized in terms of competition, this SG/Cade believes that all game consoles compete with each other in the same market, and that the Nintendo console is capable of exert some competitive pressure on PlayStation and Xbox sales. Despite Sony touting the Switch as " more geared towards kids, family and casual games " than rivals, the fact is that many adults who buy consoles today grew up playing games from popular Nintendo franchises such as Mario , The Legend of Zelda , Pokemon , Donkey Kong and Metroid, so the company's brands and characters appeal strongly to consumers of all ages.
SONY
As noted earlier in this opinion, there are currently very few Activision Blizzard games available for the Nintendo Switch (none of them Call of Duty ), and none of these titles appear to be performing particularly well on the platform. Thus, strictly considering the players that currently operate in the console market, it is noted that Sony would be the only company that could be effectively harmed by an eventual Microsoft exclusivity over the Activision Blizzard catalogue.
In this regard, it is important to note that Phil Spencer, the executive who heads the games division at Microsoft, has already publicly stated that he intends to honor the commitments made by Activision Blizzard with Sony, and even keep the launches of Call of Duty and other titles on the market. PlayStation for "several years" beyond current commitments [SUP][ 187 ][/SUP] . Indeed, [RESTRICTED ACCESS TO CADE AND THE APPLICANTS] [SUP][ 188 ][/SUP] . There is, however, no [RESTRICTED ACCESS TO CADE AND THE APPLICANTS] to date
Despite the above, the fact is that, if the Transaction is concluded, the future of Activision Blizzard content on Sony consoles would be uncertain after the lapse of the "several years" mentioned by the CEO of Microsoft Gaming; and, even before that deadline, one cannot rule out the possibility of Microsoft changing the understanding expressed in the aforementioned "public commitment", starting to adopt a different commercial strategy in relation to its biggest rival. Therefore, conservatively, this SG/Cade understands that the analysis of the competitive effects of the Operation must consider the possibility of all Activision Blizzard games becoming exclusive to the Microsoft ecosystem (Xbox consoles, Windows OS, digital stores and subscription services) , despite any claim by the company to the contrary.
It can be seen, in this sense, that Activision Blizzard and Call of Duty represented a portion of the revenue earned by Sony from the sale of game content on PlayStation in 2021 that should not be disregarded. However, the reported percentages do not seem to reflect values whose loss could effectively limit the market leader's ability to continue to compete in the console segment; furthermore, they are not sufficiently representative to the point of characterizing Activision Blizzard's content as an "essential input" to Sony's business.
If on the one hand Activision Blizzard content proves to be important for PlayStation, there are indications that PlayStation [RESTRICTED ACCESS TO CADE] for Activision Blizzard content.
Considering the huge popularity of Call of Duty , it is reasonable to infer that if Activision Blizzard games were no longer available on Sony consoles, PlayStation users could decide to migrate to Xbox, or even a PC, to continue having access to franchise games. On the other hand, it's also reasonable to assume that if upcoming Call of Duty games became exclusive to the Microsoft ecosystem, players loyal to the PlayStation brand could simply abandon the series, migrating their demand to other games available on their favorite console.
This SG/Cade believes that the fact that Call of Duty has traditionally been a cross-platform game series has a significant influence on the number of users and the sales performance of the franchise. After all, it is a logical inference that the greater the number of hardware platforms on which a given game is playable, the greater the base of potential users and purchasers of that game. Given this context, it is likely that, at least in the short term, Call of Dutywould lose a significant amount of revenue and players if its games were no longer offered to users of the most popular console in the world. In fact, such a hypothetical scenario could not only negatively impact the franchise's numbers, but also favor other multiplatform games similar to Call of Duty that remain on PlayStation, such as competing series such as Battlefield (EA) and Tom Clancy's Rainbow Six (Ubisoft).
Conclusions about exclusivity
Specifically regarding the possibility of closing the game publishing market (upstream), it was found that, despite Microsoft having control of a relevant portion of the console and digital game distribution markets (downstream), the company would not have incentives to make it difficult for publishers competing with Activision Blizzard to access its platforms, as this would necessarily imply a reduction, in quantity and variety, of the catalog of games available in the Xbox ecosystem, making the company's products and services less attractive to consumers
With regard to the possibility of closing downstream markets , the analysis pointed out that, despite their relevance and popularity, Activision Blizzard games – and in particular the Call of Duty series– would not be essential assets to the performance of Microsoft's current and potential competitors in the console and digital game distribution markets (considering, in the latter, both digital stores and multiple game subscription services for PC and consoles). Thus, even if the Activision Blizzard game catalog were to become exclusive to the Microsoft ecosystem after the Transaction, SG/Cade considers that such exclusivity would not result in a substantial reduction in the levels of competition in the downstream markets, even if it could translate into a competitive advantage for Microsoft.
Finally, in relation to the existing complementarity between the activities of Microsoft and Activision Blizzard in the game publishing markets - and especially in the mobile games segment - and online advertising, it was found that the shares held by the Parties in these segments, in all scenarios examined, they are well below the minimum percentage considered for the purpose of presumption of the possibility of closing the market.
