Microsoft Downplays Cloud Gaming Importance in Answer to CMA’s Concerns

Alessio Palumbo
Cloud Gaming

As you might be aware if you're a regular Wccfteach reader, the UK's Competition and Markets Authority (CMA) has expressed concerns that Microsoft's potential acquisition of Activision Blizzard might foreclose rivals such as Sony in the growing cloud gaming market. As such, they recommended a deeper investigation into the massive deal worth nearly $70 billion.

In their lengthy reply, Microsoft carefully but strongly counters this point (and others) by somewhat downplaying the importance of cloud gaming in the present and near future.

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Cloud gaming is a new and immature technology which the CMA has recognized faces significant challenges, particularly on mobile devices. While this may grow, particularly on mobile devices, adoption is not expected to be rapid as it requires a significant change in consumer behaviour. Research published by the CMA show that, both worldwide and in the UK, where cloud gaming app users had a choice between a provider’s native or web app on Android, around 99% of users used the native app, with 1% using either the web app or a combination of the web and native app. Microsoft and many industry experts expect that gamers on PC and console will continue to download the vast majority of the games they play.

[...] The Referral Decision rejects Microsoft’s views on the basis that they “fail to recognise the impact of cloud gaming services on demand for consoles, PCs, and games”, arguing that “cloud gaming services can be seen as an alternative for gamers to owning a console or PC”. This vastly overstates the relevance and importance of cloud gaming services in the gaming space at present and over the medium term. Microsoft agree that in future cloud gaming services may mean that hardware distinctions will become less important.

However, the reality is that today cloud gaming remains in its infancy and unproven as a consumer proposition. Evidence from Microsoft’s internal documents, data and third-party reports shows that cloud gaming services are not relevant in any meaningful way to gamers’ “demand for consoles, PCs, and games”, nor is this expected to change in next few years. No evidence is presented in the Decision to suggest otherwise.

Formerly known as Project xCloud, Xbox Cloud Gaming is indeed still in beta, and even the Xbox cloud division admitted that the best way to play is still locally due to latency. While this statement was shared nearly three years ago, the situation hasn't meaningfully improved, given that the 5G rollout is far from ideal.

At the same time, cloud gaming is the only way for Microsoft to get close to the aspirational goal of three billion users stated by CEO Satya Nadella. The PC and console markets are far smaller than that, while mobile has a big growth opportunity once 5G becomes more widespread. According to the latest Newzoo report, the overall cloud gaming market revenue for 2022 will be $2.4 billion, with a projected +51% CAGR (Compound Annual Growth Rate) until 2025's estimated $8.2 billion revenue.

While Microsoft is publically dealing with the concerns of UK regulator CMA, we're still waiting to hear from the United States Federal Trade Commission. Brazil, on the other hand, already approved the Activision Blizzard deal.

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