The purchase of Activision Blizzard by Microsoft promises to be, in the coming months, one of the most important events in the history of video games and perhaps the most significant of the year. For a total of 69,000 million dollars, Microsoft hopes to acquire Activision Blizzard and its IPs, highlighting Call of Duty, Overwatch and Diablo. Although there is still a month to go before we can know the decision of the European Commission regarding the purchase, a year ago Zenimax went through the same process. And, thanks to the Decision issued by the European Commission at the time, we have been able to observe some important details that the European body takes into account to accept this type of merger.
The 5 keys of the purchase of Activision by Microsoft to be accepted by the European Union:
1.- Exclusive to the competition
One of the aspects that the European Commission takes into account the most, when allowing company mergers, is the impact that it may have on competition. And in this sense, Microsoft still has nothing to do against Sony and Nintendo.
According to the Decision issued in connection with the purchase of Zenimax, Sony and Nintendo own quite a few popular games and exclusive block buster on their respective consoles; as is the case with God of War, Uncharted or The Last of Us for the former and Zelda, Super Mario and Pokémon for the latter. That is, all exclusive games that are in no way available in the Xbox Series X | S catalog.
The Commission understood that the purchase of Zenimax was not going to change these figures, nor was it going to have any impact among the best-selling games in Europe in 2018, as reported:
Exclusive strategies are not uncommon and have already been adopted by rival consoles (Sony and Nintendo), with video games achieving greater success than Zenimax titles. These exclusives have contributed to the success of Nintendo and Sony, which have a stronger market position than Microsoft with Xbox.
In this sense, practically all those affected consider that Microsoft has the least attractive position in terms of exclusives, compared to Sony”, was what the European Commission commented in its Decision regarding the purchase of Zenimax.
2.- Dominant position in the market
As Microsoft argued at the time, the purchase of Zenimax was not going to have any impact on Sony and Nintendo consoles, because these are the ones that have a dominant position in the market (more than the Xbox brand) throughout the world. Sony consoles in particular have garnered significant user loyalty throughout history, so the purchase of Bethesda was not going to change this trend.
This would be the year in which the generation of Xbox Series X and PS5 would end
It is very likely that Microsoft will claim the same with the purchase of Activision Blizzard. Only this time it is possible that the European Commission will change its mind, especially regarding the possibility of Call of Duty being exclusive. However, as the Brazilian CADE has already commented, despite the fact that Call of Duty is important in the market, it is not so big as to mark a change in the trend in sales. Not to mention that it was precisely Sony that, through exclusivity agreements, has been taking advantage of certain “advantages” of the Call of Duty saga, over the years.
3.- The role of third-parties
We cannot forget the role played by third-parties in the video game market. Both veterans and Electronic Arts and Ubisoftt, as more recent players like Tencent, Google or Amazonseek either for their titles to reach the largest number of players on all systems or to occupy, themselves, an increasingly dominant position in the world of video games through their own systems and services.
And this is something that the European Commission will probably remember in the purchase of Activision by Microsoft. This market is not only dominated by the three brands linked to consoles, but also by other platforms and systems that make a monopoly increasingly unfeasible. The Commission itself did not take into account the success of games like Skyrim to allow the purchase of Zenimax, despite its high numbers. So perhaps it follows the same line when valuing the IPs of Activison.
“Despite the commercial success of a number of Zenimax games, the video game market is highly competitive. The Parties face competition from a large number of rival third-parties, which own well-known franchises and are highly attractive to video game distributors.
These competitors include developers such as Electronic Arts (“Fifa”, “Need for Speed”), Nintendo (“Super Mario”, “Zelda”), Activision Blizzard (“Call of Duty”), Take Two (“GTA V”) and Ubisoft (“Assassin’s Creed”)”.
4.- Consumer behavior
Despite Sony’s continued position of believing that Call of Duty can change the behavior of consumers, bringing them closer to Microsoft and a monopoly model, the European Commission could understand otherwise. It is true that once Call of Duty belongs to Microsoft, many users will get an Xbox brand console. But this may not necessarily change the market.
The Commission itself has already recognized that it was quite common for players to have a main console of their preferred brand and one or more secondary ones of another brand. So, in figures, Sony’s market would not be as affected as it may seem. All this without forgetting that Microsoft does not want its users to be limited to Xbox, but to play services such as Xbox Game Pass or xCloud wherever they are available.
“Although some market players believe that players will switch consoles to enjoy exclusive content, this does not seem to be the case at the moment. Although exclusive games are relevant to stimulate demand, changing consoles depends on more factors.
First, the distributors have confirmed that players choose based on criteria such as console design, services, functionality and the brand that their acquaintances have chosen. Second, the change would only occur if given certain circumstances.
Specifically, a distributor stated that the content “must be of extreme quality (…) otherwise, players tend to stick with the brand they are used to.” Third, the speakers have explained that there is a significant difference in the content of the different consoles.
The Commission considers, along the lines of the Notifying Party (Microsoft), that users of rival consoles could buy an Xbox console as a second option, to play Zenimax titles. (…) According to a survey by the NPD Group, 30.6% of PlayStation 4 users also have Xbox One and 28.6% also have a Nintendo Switch. In addition, various market players have also commented that between 20 and 40% of console owners use more than one brand.
5.- Real impact on sales and business figures
Finally, the Commission assessed the real impact on the turnover that the purchase of Zenimax had on the console market, understanding that it was not entirely significant. However, it is possible that his position will vary regarding the purchase of Activision Blizzard; We would still have to wait for the official data provided by Sony, but it is more than likely that the Sales figures for the Call of Duty saga on PlayStation far exceed those obtained from any Zenimax title.
However, the CADE report has given data in this regard. As we can read, the combined shares of Activision and Microsoft in the video game market they do not reach 20% of the total. And that, even in the event that a company is affected by the purchase (as would be the case with Sony), there is no logical reason to understand that it could harm it in the long term. CADE itself gave Nintendo as an example; a company that, despite not having Activision titles in its catalog as a priority, has not stopped growing in recent times.