Sony Reacts to CMA’s Belief That Microsoft-Activision Deal Won’t Hurt Competition: “Surprising, Unprecedented, and Irrational”

The FPS Review may receive a commission if you purchase something after clicking a link in this article.

Image: Microsoft

The UK’s Competition and Markets Authority (CMA) pretty much decided last month that Microsoft’s planned acquisition of Activision Blizzard would not reduce competition in the console space, and one of the parties that seems to be upset is, of course, Sony. In a new response that can be found on GOV.UK, Sony Interactive Entertainment aired its grievances about the CMA’s new and positive attitude over the whole thing, calling its latest position “surprising, unprecedented, and irrational.” Microsoft, on the other hand, has gladly welcomed the CMA’s revised findings, agreeing with the competition regulator that its planned merger, worth $68.7 billion, will “not result in a substantial lessening of competition for the market for the supply of console gaming services in the UK.”

From a Sony Interactive Entertainment response on GOV.UK:

The CMA’s reversal of its position on its consoles theory of harm is surprising, unprecedented, and irrational. The Provisional Findings (“PFs”) assessed a significant body of evidence in the round to support its finding that Microsoft would have the ability and incentive to withhold Activision content, and that this would substantially lessen competition by foreclosing PlayStation. In assessing this body of evidence, the PFs emphasised – consistent with jurisprudence on the CMA’s duty to assess evidence – that it is “particularly important in this case to assess the Merged Entity’s incentive to foreclose by considering all the available evidence in the round,” rather than to focus on a single model (PFs, para. 7.399).

The Addendum takes a diametrically opposite approach and focuses almost exclusively on a single economic model on which it places “significantly more weight” than other available evidence (Addendum, para. 1.2). That model, which is based on the lifetime value (“LTV”) of an average gamer, is used to estimate Microsoft’s incentives to make Call of Duty exclusive to Xbox. The PFs contained a similar analysis based on then available LTV data, which found that Microsoft would have “strong incentives to foreclose” (PFs, para. 7.338). The Addendum reaches a different conclusion based on new assumptions and preliminarily concludes that a revised LTV model suggests that “making Call of Duty exclusive to Xbox would result in a significant financial loss for Microsoft post-Merger” (Addendum, para. 1.2), and, as a result, that Microsoft would not have an incentive to withhold Call of Duty.

The Addendum does not, however, reverse the PFs’ finding that Microsoft would have the ability to foreclose PlayStation or its determination that such foreclosure would substantially lessen competition. Nor does it call into question other evidence establishing Microsoft’s incentives to foreclose, including the “strategic value to Microsoft” of expanding Game Pass (PFs, para. 7.299) and financial modelling considered to be subject to “underestimation” which found that Microsoft’s incentives to foreclose are “broadly neutral” (i.e., not that Microsoft would make “significant losses,” as the Addendum now suggests). As to Microsoft’s past behaviour following acquisitions, the Addendum does not include any new evidence calling into question the PFs’ original assessment. Rather, it notes that the CMA simply places “less weight” on that evidence.

Given that the revised LTV model now assumes paramount significance in the CMA’s assessment, it is essential that it not only be robust, but that it be more robust than other evidence showing Microsoft’s incentive to foreclose. SIE respectfully questions whether this can be the case for any model, in particular given the CMA’s explanation that “quantitative modelling is subject to uncertainties and has to rely on assumptions where information is imperfect,” which “limits the weight we can give this type of evidence” (PFs, para. 7.399). More specifically, reliance on the revised LTV model is unsound because it includes serious conceptual errors that bias the analysis in favour of finding that Microsoft does not have an incentive to foreclose.

Join the discussion in our forums...

Tsing Mui
News poster at The FPS Review.

Recent News