Microsoft’s disputed deal with Activision Blizzard underscores the value of gaming, and raises debate over the future of subscription and cloud-based models.

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The gaming industry is expected to earn over $170 billion in revenues this year globally. Activision Blizzard’s “Call of Duty” franchise is a perennial bestseller, generating hundreds of millions a year. Console gaming remains popular, and the global console market is dominated by Nintendo, Sony and Microsoft, maker of the Xbox. If the $69 billion acquisition plays out in Microsoft’s favour, it would be the biggest acquisition ever, both for the company and for the gaming industry. Microsoft Gaming would become the third-largest gaming company in the world, after Tencent and Sony.

Since the deal was announced in January, it has drawn scrutiny from regulators in the US, UK and EU. On December 8, the U.S. Federal Trade Commission (FTC) filed a legal challenge, arguing that the acquisition would “enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud gaming business.” On behalf of the tech giant, Microsoft Vice Chairman and President Brad Smith said, “We continue to believe that this deal will expand competition and create more opportunities for gamers and game developers.”

One point of contention is the potential impact on the console market. Sony and Nintendo have long been the top contenders in the “console wars”. Still, Sony is concerned that Microsoft could make “Call of Duty” available exclusively on Xbox. This could cause customers to migrate away from PlayStation. However Microsoft insists that it intends to keep the game on PlayStation, and even offered Sony a 10-year deal to do so, The Economist reports. Phil Spencer, CEO of Microsoft Gaming, has said PlayStation would get not just “the next game [in the series, but] the next, next, next, next, next”.

Doubt has been cast on these reassurances due in part to changes in the regulatory climate. From Microsoft’s perspective, the obstacles facing this deal are owed to trustbusters taking a more combative stance towards big tech in recent years. Additionally, the gaming market is changing. Newer business models such as game subscriptions and cloud gaming have emerged, and Microsoft enjoys a strong position in both. It holds 41% of the subscription market versus Sony’s 30% and Nintendo’s 10%, according to Ampere Analysis. With “Call of Duty” in its library, Microsoft’s share could grow even more.

Britain’s Competition and Markets Authority (CMA) argues that a shift towards subscriptions and cloud gaming, also known as game streaming, could “reshape the competitive landscape”, in which case a merger with Activision would “tip…the market in Microsoft’s favour before future rivals have a chance to develop”. However this shift has yet to happen. Ampere estimates that in five years, subscription gaming will still represent less than 10% of game spending. Cloud streaming services are growing even more slowly, comprising well below 1% of game spending.

Given that the future of gaming is not written in stone, it might prove insufficient as grounds for blocking the Activision deal. While “the CMA is more focused on the potential and the longer-term implications,” says Piers Harding-Rolls of Ampere, “Microsoft’s argument is positioned in the present.”

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