Microsoft’s Activision acquisition: Implications for the cloud gaming market and industry

Jun, 2023 Microsoft’s Activision acquisition:
Implications for the cloud gaming market and industry
Piers Harding -Rolls
June 2023

© Ampere Analysis 2023
2
• Microsoft announced an agreement to acquire Activision Blizzard in
January 2022 for $68.7bn. The scale of the acquisition has meant that
the deal has been heavily scrutinised by competition authorities all
over the world. While many authorities have approved the deal without
any conditions, the Federal Trade Commission (FTC) in the US is
seeking to block the deal in administrative court, highlighting harm to
the console, multi -game subscription and cloud gaming markets
• Additionally, the Competition and Markets Authority (CMA) in the UK
and the Directorate -General for Competition (DG Comp) in the EU
both concluded that the deal would potentially harm the small, but fast
growing, cloud gaming segment
• In response to this specific concern, Microsoft has committed to a set
of remedies to help redress the segment balance if the acquisition
were to close. Microsoft has stated that these remedies will be applied
worldwide. In DG Comp’s case, the remedies fully addressed the
competition concern as outlined in the Commission’s in -depth market
investigation, and it has therefore gone on to approve the deal. In the
CMA’s case, the proposed remedies were not considered acceptable
due to a combination of factors. These included a concern that the
remedies would help Microsoft set the agenda for the cloud gaming
segment to a greater extent and that they would need continual
monitoring by the CMA to ensure compliance. Microsoft has appealed
the CMA’s decision via the Competition Appeal Tribunal (CAT)
Consumer
remedy
Games licenses updated
to allow streaming of
Activision PC games on
any cloud gaming service
(if support available)
Licenses can be acquired
via premium sales, multi –
game subscriptions or, if a
free -to -play game, simply
by signing up and
agreeing to terms
Service provider
remedy
Free service provider
license for 10 years to
stream Activision PC
games to those gamers
that have the required
license
Free license is available to
all types of cloud gaming
company, but wouldn’t
extend to general
inclusion in third -party
multi -game catalogues
Source: Microsoft, Ampere Analysis
Background: Microsoft has committed to a set of remedies focused on the cloud gaming business
Note: Following the release of more detailed information in relation to the remedies proposed to DG Comp, this report has bee n u pdated in June 2023

© Ampere Analysis 2023
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• Ampere’s own definition of a market for cloud gaming services remains a
tiny slither of the overall games market. Ampere sized the market – a
combination of streaming -only multi -game subscription services, cloud
gaming PC services and premium sales of streamed games – at $446m in
2022. This represented less than 0.3% of global consumer spending on
games content and services. While the technology for games streaming has
been commercialised since the early 2000s, the market for services that
wholly rely on streaming distribution remains comparatively small
• Where streaming distribution is being increasingly exposed to more gamers
is across platforms and services that mostly offer games via download
distribution, but that also support streaming distribution of games to add
value to their offer. For example, Microsoft offers streaming of games
through Game Pass Ultimate with one of the most popular use cases being
the ability to play games right away to try them out before downloading. The
company has also laid out a grander vision to reach millions of new gaming
customers using streaming technology
• The commercial challenges of streaming games mean that companies that
have preferential access to cloud infrastructure, deep pockets and a strong
portfolio of games, are best placed to build a successful position in the cloud
gaming space. Microsoft’s end -to-end capability in the streaming supply
chain means it is well placed when this form of distribution becomes more
important to the sector
Source: Ampere Games – Markets
Context: Pure -play cloud gaming services remain a very small part of the overall games market
Note: Download & streaming services include Xbox Game Pass Ultimate, PlayStation Now, PlayStation Plus Premium
2020 2021 2022 2023F 2024F 2025F
Global games content & cloud gaming subscription
service market share by distribution type
Download -only
Download and streaming
Streaming -only

© Ampere Analysis 2023
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Activision
games
Microsoft Store
Xbox Game Pass
Battle.net Steam
Other storefronts and services
Source: Ampere Analysis
Supply chain: Consumer & service provider license combined would shake up current market
Share of game license revenue
would flow to Microsoft
3rd-party service providers would charge
for access; no share to Microsoft
Consumer rights to streaming would expect to
be tied to the platform version of a game
where it was licensed. The remedies currently
extend to Activision PC games -conditions for
console games remain unknown
Services that offer multi -game subscription
catalogues would face a more complex
challenge of incorporating ‘ad -hoc’ Activision
games that use a different licensing regime
into their offerings
In -game transactions are a key revenue
stream for AAA games. ‘Bring -your -own -game’
service providers and smaller multi -game
players would support transactions via
Microsoft Store or others such as Steam
1. PC game license acquired by consumer & would
include right to stream from a service of their choice
2. 10 -year license with permission to stream PC
games made available to services providers Market complexities

© Ampere Analysis 2023
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Consumers would see increased access points for Activision games and choice of service to access
Consumers would gain the right to stream an Activision PC game when they buy a premium version
of the game, when it is included in a multi -game subscription service they subscribe to or when they
signup to play a free -to -play title. It is very unlikely that new Activision releases would enter third -party
multi -game subscription services as they would be license cost prohibitive
Example storefronts & services: Steam, Microsoft Store, Game Pass (PC & Ultimate), Battle.net
For premium games, the cheapest license acquisition point would generally be via Microsoft’s own
Game Pass subscription service, especially for the latest releases. Licenses to include the streaming
use case would likely be offered via the cheaper PC version of Game Pass as well as Ultimate. The
‘Play Anywhere’ portability of Microsoft’s game licenses could mean streaming also extends to games
with PC SKUs that reside within the console version of Xbox Game Pass
Ampere expects users would need to sign into the platforms where they have acquired the Activision
games to validate the entitlement before they can stream a game: for example, a Steam account for
games bought on Steam, or a Microsoft account for those on Game Pass
Consumers would gain access to future streamed Activision games beyond the current Xbox Game
Pass Ultimate service and its geographical footprint
Consumers would have to pay two access fees for premium Activision games: the game purchase cost
or multi -game service subscription fee and a payment (unless ad -supported) to the cloud gaming service
provider. However, free -to -play games will likely only require the service provider access fee
Key implications:
1. More Activision PC game
streaming access points
2. More streaming service
provider choice
3. Xbox Game Pass remains
cheapest way for gamer
to access/license
Activision PC games for
streaming
4. Would result in Game
Pass reach being
extended through third –
party cloud gaming
providers Source: Ampere Analysis

© Ampere Analysis 2023
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• Would allow Microsoft to piggy -back on third -party service provider reach
based on their existing GPU -based server infrastructure
• As stated, reach would not necessarily rely on Microsoft’s Azure GPU –
instances for streaming PC games (note: this is distinct from the xCloud
infrastructure) but may prompt wider adoption of public Azure services
Remedies would be positive for some service providers; complexities remain for direct competitors
Source: Ampere Analysis
Cloud gaming BYOG
services
• Would improve value and appeal of ‘bring -your -own -game’ service providers
• Service providers would have same terms making it harder to differentiate on
access to Activision PC games; could result in routine adoption of streaming
Activision PC games to ensure competitiveness
• May prompt change in licensing behaviour by other publishers
Key implications:
1. Would support existing ‘bring -your –
own -game’ (BYOG) service
providers and may prompt market
entry of new competitors
2. Would extend reach of Microsoft
account system, Microsoft Store and
Xbox Game Pass
3. This added reach would come
without further investment in cloud
infrastructure
4. May prompt change in licensing
behaviour from other publishers
Key implications:
1. The benefits to multi -game
subscription service providers would
be less defined
2. Activision content would need to be
managed differently from the existing
catalogue of games unless licensed
separately into that catalogue
3. Ampere believes this would prompt
some multi -game subscription
service providers to support a ‘bring –
your -own -game -model’
Cloud multi -game
subscription services
• Adding Activision games to multi -game subscription catalogues would require
separate license agreement with Microsoft; more relevant to older games
rather than new releases
• Remedies cover PC games at present, so no agreed commitment to Sony or
Nintendo in relation to streaming PlayStation or Switch versions of games
• Would provide less clear route to improve value and increase appeal of cloud
gaming multi -game subscription services; multi -game subscription services
represent the majority of cloud gaming consumer services
• Service providers would need to carve out Activision titles licensed elsewhere
or manage two levels of licensing within a single catalogue; would make the
offer potentially more complex for users

© Ampere Analysis 2023
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Source: Ampere Games
Varied cloud gaming service provider landscape means product alignment would differ significantly
Amazon Luna
Amazon Luna+
(multi -game)
Amazon Luna
Prime Gaming
titles
Ubisoft+ (third –
party multi -game)
Jackbox Games
(third -party multi –
game)
Ubisoft PC
storefront and
BYOG support
Activision BYOG
PC game support
Consumer
license via PC
game
storefronts,
Game Pass or
Luna+ (but only
if licensed and
added)
Nvidia GeForce
NOW
GeForce NOW
free tier (cloud
gaming PC)
GeForce NOW
Ultimate tier
(cloud gaming
PC)
GeForce NOW
Priority tier (cloud
gaming PC)
Activision BYOG
PC game support
Sony
PlayStation
Plus
PlayStation Plus
Premium (multi –
game)
Activision BYOG
PC game support
Remedies only
cover PC games
at present. If
extended to
console titles,
consumer
license via
PlayStation
storefront or PS
Plus (but only if
licensed and
added)
Potentially neutral alignment Potentially strong alignment Potentially weak alignment
Current offering
Potential offering
Consumer license
via PC game
storefronts or
Game Pass

© Ampere Analysis 2023
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Summary: Benefit to consumers and some service providers, while Microsoft extends its influence
The remedies would be less clearly positive
for cloud -based multi -game subscription
service operators. This may prompt some
companies to support more business models
beyond multi -game subscriptions
Under the 10 -year free license, streaming of
Activision PC games would become
increasingly pervasive from BYOG service
providers; companies may feel compelled to
offer these games to remain competitive
Ampere expects the cheapest license
acquisition point for Activision games to be
through Xbox Game Pass. These remedies
should help Microsoft extend the reach of
Game Pass to new audiences and territories
Microsoft’s cloud gaming -related remedies,
proposed as a re -balancing of the market
post its intended Activision merger, would
significantly impact and alter the cloud
gaming market and industry
The remedies would enable more consumer
access points to stream Activision PC games
and give consumers more choice over which
services they can use to stream the games
The commitments would support third -party
cloud gaming companies that offer ‘bring -you –
own -game’ services and, as such, promote
streaming distribution to a wider audience
Source: Ampere Games -Markets

@ampereanalysis @ampereanalysis
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