Microsoft’s Activision deal on life support because cloud gaming still sucks

I am not an advocate of fusion. I don’t generally think the world is better off with fewer companies at the helm! But of all the reasons why Microsoft shouldn’t buy Activision Blizzard for $68.7 billion, I never dreamed that “we need to stop Microsoft from taking over cloud gaming” would be the reason.

Yet that’s exactly the door regulators chose to move forward on Wednesday, when the UK’s Competition and Markets Authority decided the deal could “change the future of the fast-growing cloud gaming market, leading to less innovation and fewer choices for UK players over the years.” Next years “. They are denying a deal that was widely expected to be approved, leaving Microsoft and Activision Blizzard to pin their hopes on next month’s EU decision.

I’ve read hundreds of pages of documents, and most of the CMA’s argument boils down to: Microsoft is so dominant in cloud gaming today that it can control its entire future.

And I can’t help but laugh because it means the deal may be dead, no Because cloud games are booming, but because cloud games are still kind of bad! Microsoft is being penalized because Google Stadia failed completely, because Amazon Luna didn’t speed up anywhere, because Sony is distracting, because Nvidia can’t stream your purchased games to you without negotiating with every publisher and developer under the sun.

It might die because EA, Verizon, and AT&T mostly backed off after realizing that the infrastructure costs of doing it right didn’t justify poor demand from gamers and that a phone — 5G or not — isn’t a great replacement for a game console. You might die because Apple was so afraid of becoming a dumb pipe for cloud gaming that it arbitrarily set new App Store rules that lock your iPhone.

With little real competition, xCloud is from Microsoft look Dominant, especially when you consider that Microsoft bundles it with every Xbox Game Pass Ultimate subscription — its subscribers can, as far as we know, try xCloud once and never again. (We asked Microsoft to clarify the monthly active user numbers it provided to the CMA, which they aren’t clear on that.)

Microsoft is a big fish in a small pond. Ironically, the UK’s decision may help keep it that way.

The Activision Blizzard deal could have been the biggest shot in the cloud gaming arm ever because Microsoft promised to sweeten the pot with huge concessions to other players in the market. Did you know that Microsoft promised to put it everyone of their computer games all Qualified cloud service on their releasey For 10 years if the deal goes through? Nintendo could theoretically set up their own servers to get them Call of duty It works on Switch with the blessing of Microsoft. Smaller cloud gaming providers also had access.

Did you know that Microsoft has promised to completely change the business model, giving each game owner the rights to stream their own games to their own devices from the service of their choice, instead of this status quo where Nvidia has to acquire the rights to Games you already own before you can stream it to you? This was a promise for 10 years, too:

Microsoft will grant a unilateral license to any consumer who has purchased or obtained a free license to play a PC game from an authorized third-party PC digital storefront (“Eligible Game”) to stream the game using a generally recognized consumer PC cloud game provider for their hardware (“Eligible Game”). consumer license”). Microsoft will grant a consumer license by posting it on the Microsoft website. A consumer license will be granted for the term.

The head of Nvidia’s GeForce Now told me that the 10-year promise could break the chicken-and-egg cycle by providing enough games to attract enough gamers to convince publishers to make more games available to cloud gaming services, too. “This period is long enough for cloud gaming to establish itself as a service for consumers and for providers to secure a range of popular games,” Microsoft argued.

Keep in mind that Microsoft’s promises are quite self-serving because they feed directly into Microsoft’s core business. If you want to stream PC games to Microsoft’s cloud, you’ll likely end up investing in Windows-based servers and maybe even Microsoft’s Azure cloud platform to handle the load, as Sony has been exploring a bit. You can also shelve any plans to build cloud games for Linux instead. Microsoft was apparently planning to Keep all revenue from game sales and in-app purchases rather than sharing it with competing cloud service providers as well.

The CMA makes some very good points about barriers to entry. There are precious few companies with the technology and know-how to power cloud gaming, and Microsoft is one of the largest, and the only company with a PC platform that game developers actually target en masse. (Google reportedly paid the developers Tens of millions of dollars per game to switch to Stadia’s Linux instead of Microsoft Windows, to give you an idea of ​​the uphill battle.)

For newcomers without an existing game console (including games and OS), we’ve found that this catalog most likely comes from games that are currently available on a PC’s operating system, as they can be streamed from any cloud game service running that OS ( provided that appropriate licensing arrangements are in place). As such, these cloud gaming providers will either need a license for a proprietary PC operating system — such as Windows, which is the operating system most PC games are designed for.

It might be tough for Sony to compete with Microsoft in this area — though, it was Sony, not Microsoft, that bought the IP from OnLive and Gaikai, bringing two of the cloud gaming’s leading patent stacks under one roof.

The Capital Markets Authority says it believes this Call of duty It can make a fundamental difference to the success of a cloud gaming provider Overwatch And World of Warcraft It can help, but here’s why Blocking deal rather than letting it pass.

But if Microsoft can show that cloud gaming is actually a good business by offering a large enough selection of games to attract and retain gamers, it will be a first — and that It may finally spur the investment that technology deserves.

However, it is never a good idea to take the promises of a company merger at face value. One of the biggest reasons the CMA blocked the deal is that it didn’t think it could take Microsoft at its word:

The complexity of the remedy, in the context of a dynamic, evolving market, also meant that it had a high risk of circumvention, and that it was difficult to monitor effectively. In light of these shortcomings, we weren’t confident enough that Microsoft Cloud Remedy would have addressed our concerns, and found that the only effective remedy for SLC was to block merges.

And I agree that it would be very easy for Microsoft to subtly poison its promise if it wanted to.

Microsoft wouldn’t need to do something as dramatic as making Call of duty exclusively to its cloud gaming service, CMA says it fears. There are plenty of technological stumbles waiting to happen.

Cloud gaming Do a job And it can run brilliantly, giving you an experience close to that of a high-end gaming PC when everything is arranged. But it depends, there’s a lot of things to work this way – not just your internet speed but Wi-Fi traffic in your area, the physical distance of the company’s cloud game servers from your home, and the peering arrangements and handshakes that take the bits along the internet and deliver an image to your screen , the virtualization of the game console you’re using, and so on.

I’ve been covering cloud gaming for over a decade, since the days from OnLive And Gaikai, and now I’m telling everyone that the cloud gaming market won’t take off until the friction is gone. But it also means that there are plenty of places where Microsoft could enter friction, or fail to reduce friction, for its cloud gaming competitors over the next 10 years. Even if Microsoft doesn’t intentionally sabotage competing services, there are ways it could accidentally screw things up for those who end up relying on its platforms.

Still, other technical issues stand in the way of the vibrant cloud gaming market, not least of which is how most big games require companies to have a full graphics card waiting in a server room for each individual player. Sony — which previously kept the PlayStation 3 in a server room for every cloud player — is among those looking for a way to fix this. Now, I wonder if Sony would bother now that Microsoft simultaneously seems like less of a chance And Slightly less than a competitor.