An EU official says the CMA exaggerated Microsoft’s involvement in the cloud gaming market

Following the European Union’s decision to approve Microsoft’s bid to take over Activision Blizzard for $68.7 billion, the UK’s equivalent regulator, the Competition and Markets Authority, wasted no time in voicing its criticism and maintaining its status in a series of tweets.

The CMA blocked the deal in late April largely because it considered Microsoft’s cloud gaming market share already dominant at 60-70%, which could grow even further with the strength of Activision Blizzard’s IPs.

However, this number has been criticized by many analysts and industry members as it is not likely to reflect actual market conditions. In a report penned by the Financial Times yesterday, an EU official was quoted as saying that the CMA overestimated Microsoft’s stake in cloud gaming by including many Game Pass subscribers who don’t actually benefit from cloud services.

To understand this signal, we need to take a step back. In August 2020, Microsoft announced that Game Pass Ultimate subscribers will get access to cloud gaming via the service formerly known as xCloud. It was meant as an added bonus to entice Xbox users to start playing on their mobile devices, such as phones and tablets. Later, it was expanded to PC and even older Xbox consoles, allowing Xbox One gamers to access the Xbox Series S | X exclusive.

However, it is widely believed that a large portion of Game Pass Ultimate subscribers have either tried xCloud once or twice and never looked back or bothered to verify they have access to local PCs or Xbox consoles capable of playing the titles available in Game Pass library. In some countries xCloud is not available yet.

Furthermore, while Game Pass Ultimate includes cloud gaming, the Game Pass base tier does not. Microsoft has never publicly shared Game Pass base numbers versus the Ultimate Split. Last we heard (January 2022), Microsoft announced that the subscription service had more than 25 million subscribers in total.

Another objection that the EU official shares with the Financial Times is that the cloud gaming market is not a separate emerging market as envisioned by the CMA but only a small part of the overall gaming market. This is a belief shared by several industry analysts, including Karol Severin of MiDIA Research, with whom I spoke recently.

The EU regulator has shared the following chart to show that the small cloud gaming market (€300m in the EEA vs. €6bn earned by consoles) would actually benefit from these remedies given that all providers (globally, as confirmed by Microsoft) get a free license for 10 years to stream Activision Blizzard games, which are currently inaccessible on most cloud platforms.

This is why cloud gaming providers like NVIDIA and Boosteroid have announced their support for the deal.

Returning to the first point about Microsoft’s market share in cloud gaming, this wouldn’t be the first time the CMA had committed miscalculations while investigating the Microsoft/Activision Blizzard deal.

It has already happened in regards to the console gaming market. Initially, the Competition and Markets Authority said Microsoft had reason to make Call of Duty exclusive, in part or in whole, to Xbox consoles. A month and a half later, the CMA had to review its financial models and come to a different conclusion: It wouldn’t be appropriate for Microsoft to remove Call of Duty from PlayStation consoles.

However, the CMA doesn’t seem to budge this time around, so Microsoft and Activision Blizzard (which applauded the EU’s decision) will have to appeal to the CA court. Meanwhile, the European Game Developers Federation (EGDF) also welcomed the decision and the remedies requested by the European regulator, believing that the ruling would lead to increased investments in content made in Europe.