Inside the Microsoft vs. Sony 'unfair competition' feud

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[The GameDiscoverCo game discovery newsletter is written by ‘how people find your game’ expert & company founder Simon Carless, and is a regular look at how people discover and buy video games in the 2020s.]

Happy new week, crew! We’re back with a special new GameDiscoverCo newsletter looking into one of our favorite things - boring, boring legal documents. Except this time, they’re way less boring than normal. Huzzah!

Otherwise, we’re really into *flex* sports, so we spent the weekend watching the Financial Modeling World Cup, of course. It’s, uhh, Excel as eSports, and Ars Technica just did a fun write-up of it (with embedded videos). Anyhow, onwards..

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The rumble in Brazil: Sony, MS clash on biz models!

So, you may have seen stories about dueling filings in Brazil between Microsoft & Sony. This pertains to Microsoft’s intended acquisition of Activision Blizzard for $68.7 billion - and in Brazil, CADE is the gov agency set up to “ensure free competition”.

What’s interesting about CADE’s process is that - unlike the U.S. Federal Trade Commission, whose antitrust investigations with affected parties happen behind closed doors and confidentially - statements & replies are all public.

Thus, you get a public webpage showing the statements of all of the companies weighing in on the deal - including Ubisoft, Apple, Riot, Google, Bandai Namco, Sony and more - as well as Microsoft’s replies to their statements. It’s been Microsoft’s reply - posted on August 10th - which has caused a lot of the kerfuffle.

There’s been a lot of approximate and incomplete translation of the contents, so GameDiscoverCo reached out to Dodgeball Academia PT-BR translator Tiago Rech, and got him to translate all of the pertinent bits of Microsoft’s reply.

We’re making the document - which includes translated text in blue - available for all interested parties to peruse. There’s far too much detailed argument to feature here. But big-picture, here’s some of the headlines:

• Microsoft ‘admits’ it lost the last-gen console war: as part of its arguments, the document specifically says: “Sony has surpassed Microsoft in console sales and user base, [the PS4] having sold more than double the hardware units of Xbox [One] in the last generation.” This was largely understood to be the case, but interesting to have confirmation.

• Game Pass in part exists as a response to that head-to-head battle: the lawyers say: “the Xbox Game Pass… was launched as a competitive response by Microsoft due to Xbox’s lack of success in the ‘console war’” Bear in mind this is a legal filing trying to make MS look like ‘the little guy’. But there’s elements of truth in this.

• Microsoft says Sony is a big outlier in its worries: Sony’s filing said that Call Of Duty “would have no rivals and would be essential to their PlayStation console”, and “the inclusion of Activision Blizzard in the Xbox Game Pass catalog would present a ‘inflection point’ in the market”. But Microsoft says this is: “entirely isolated in relation to the public responses of the other third parties”, as well as counterfactual.

• It’s claimed that Xbox is being a ‘fair’ disruptor to a market leader:“Sony does not want attractive subscription services to threaten their dominance of the digital distribution of console games. In other words, Sony rebels against the introduction of new monetization models capable of challenging their business model.”

So far, so obvious. Much of the questioning of the Activision Blizzard acquisition seems to center around how important the Call Of Duty franchise is. It’s obviously important to the PlayStation, and Sony is worried about a rival getting its hands on it.

It’s worth noting that Microsoft again goes on the record re: Call Of Duty as saying “it is not part of Microsoft’s strategy to remove content from players”. And it also adds: “it is improbable that a significant number of PlayStation and Nintendo users would migrate to Xbox as a result of a hypothetical exclusivity strategy regarding Activision Blizzard games.”

(BTW, there’s quite a lot of juicy market-share information in the document that is - sadly - redacted, although general trends are hinted at. I suspect the ‘Xbox selling half’ comment was one that snuck by the lawyers’ red pens, actually.)

Who benefits from Game Pass’ aggressive sub strategy?

While it’s easy to get stuck in legal minutiae, there’s a bigger battle here - the one for subscription services becoming the normal in the console (and even PC?) game biz over time. That fight exists separately of whether Xbox buys ActiBlizz or not.

But one part of the document stood out to me. Sony claimed that “the lower immediate costs of subscription services to consumers may cause publishers who recoup significant investments in games by selling them for an upfront fee to become uncompetitive.”

Microsoft’s response? “Such a subjective critique of the Game Pass business model also reveals Sony's real concern: the fear that an innovative business model that gives consumers access to high quality content and lower immediate costs – something that should be praised rather than criticized – threatens its leading position in the gaming industry.” Hot tamale!

Well - I think there may be a lot of game publishers reading this newsletter who are hurting right now on ROI, and might question Xbox on whether the move to ‘lower immediate costs’ from a player perspective should always be praised. (I’ve written on the current supply/demand issues largely not being Game Pass-impelled, though.)

But wait, Microsoft went further, and decided to tell Sony how to conduct its business: “Sony could further increase the high quality of its first-party games by making them available on PlayStation Plus on launch day, a strategy that (i) could rapidly accelerate the growth of the service's user base in response to competitive pressure of Game Pass (or any other service) and (ii) that Sony does not currently adopt, even with respect to the new and updated PlayStation Plus. Such a move on Sony’s part could make PlayStation Plus even more attractive, rivaling any strategies of competitor game distributors - to the benefit of players.”

Just to remind everyone, that $68.7 billion that Microsoft is spending to pick up Activision Blizzard - that’s all money they generated from Game Pass, right? Oh… it’s windfall profits from the market dominance of Windows, Office and the rise of Azure that gives Xbox the financial backing to make this deal, you say?

There’s some obvious ‘level playing field’ issues here. These are a degree separated from whether the actual transaction is anticompetitive, though. But it’s pretty clear to me that Sony couldn’t move its first-party games to Day 1 on PS+ and retain ‘acceptable’ corporate profits in the short or medium-term. Which gets us to…

Conclusion: personas, motivations, & corporations

This is an incredibly complex subject. And I have to admit I’m much amused by the messaging dissonance between the borderline evangelical public personas of Xbox’s Phil Spencer & Sarah Bond and these sharp lawyering words. (“Pay no attention to the box of spiders under the desk”, as they say.)

So when Sony says - “we really think people should be paying upfront for new games”, are they a) valiantly defending the ‘direct’ market (from the move to F2P/IAP ‘everything’, or third party bundlers), or b) trying to maintain the profitability of their previous, staid and slightly backward hardware biz model, while building the plane in mid-air to craft their own multiplatform GaaS hits?

And when Microsoft says “we want to unite the world of players with Game Pass” - are they a) creating a genuinely great new platform which is offering indies and AAAs legit amazing reach & monetization, or b) pivoting from a previous-gen failure, contributing to standalone game pricing pressures, and partially usurping the direct player/dev relationship too?

It’s a little from column A, and a little from column B, dawg. There’s no clean answer. But look - corporations want to swallow the world. Maybe I’m sensitive to this because I spent a long time helping to run GDC, where the issue of corporate vs. community motivations were writ large - and I was ‘stuck in the middle with you’.

But yes, I do think the ‘big getting bigger’ isn’t always a great dynamic. And if government regulation can’t solve for that - which frankly, it may not - we have to trust the platform middlemen to do the right thing for themselves, the players & the publishers and developers - all at the same time. Easy, right?

The game discovery news round-up..

Well, that was a lot. But we still have some more goodness for you, thanks to GameDiscoverCo’s latest game discovery and platform round-up. Let’s chunk it up and spit it out for you:

• The newest Pew Research study on U.S. teens (graph above) reveals just how much TikTok - and Instagram and Snapchat - have taken over for 13 to 17 year olds, as social media programs. And then there’s YouTube - not surveyed for in 2014-2015 - with 95% (!) using. Plus: “19% [of U.S. teens] say they use YouTube almost constantly, 16% say this about TikTok, and 15% about Snapchat.”

• That rival Unity offer from AppLovin? Unity isn’t ‘lovin’ it (ha ha!): “its Board of Directors… has completed a thorough financial and strategic evaluation of the unsolicited proposal… and has unanimously determined that it is not in the best interests of Unity shareholders.” So the ironSource merger will continue…

• Sony published its PlayStation most-downloaded on PS4 and PS5 for July, and Stray unsurprisingly does great on both. (Unclear if this included PS+ ‘Game Catalog’ downloads, tho.) F1 22 and The Quarry performed well - but there’s a lot of evergreen games (GTA, Minecraft, NBA) also crowding the top slots.

• There’s a useful deep-dive on V Rising’s value prop, dev & marketing over on HowToMarketAGame. (Sure, we all know ‘build a great game’ is a lot of it, but some good points about other things: “Run multiple betas - both open and closed. Do not hold back thinking fans will get tired of you.”)

• Steam devs who have F2P games or free DLC - here’s a tiny Steam update you may like: “The new update adds a blue “Add to Library” button to free games and DLC next to the usual green “Install Game,” “Play Game,” or “Download” buttons that appeared previously.” (This was much-requested by players.)

• We hear about game platforms restricting content, but I wasn’t expecting the SideQuest ‘unofficial’ Quest 2 app store to be one of them: it “will no longer be accepting games that imitate multiplayer hit, Gorilla Tag.” Twitter comments from SideQuest: “We are usually pretty open, we tend to take it on a case by case basis when it comes to things like this situation because it warrants unique consideration. Hundreds of clones are already published, and we wont remove them.”

• There are more hints in Spider-Man’s PC source code that PSN logons on PC are likely coming: “While neither Marvel’s Spider-Man nor any other PlayStation Studios PC game currently allows connectivity with PSN accounts, Spider-Man’s files contain multiple references to ‘PSNAccountLinked’ and ‘PSNLinkingEntitlements’.”

• Some good analysis on Call Of Duty’s struggles as a franchise, just as Microsoft is trying to buy its parent. Stakes are high: “‘Through the end of 2021, Call of Duty has been the bestselling video game franchise in premium game sales… for 13 consecutive years,’ NPD game director Mat Piscatella told Protocol.” But how to find “the [FIFA] Ultimate Team answer for Call of Duty”, as Joost van Dreunen asks?

• Set your calendars to stun, everyone: “The technology industry's most important private antitrust lawsuit in history - Epic Games v. Apple - will be heard by the United States Court of Appeals for the Ninth Circuit on Friday, October 21, 2022.. Either side will get 20 minutes of oral argument time at the appellate hearing.” *popcorn*

• Microlinks: Stadia is testing a new game trial system tied to achievements; Chinese gov restrictions on teen game playing has big effects - 77% play fewer hours per week; sales of PlayStation physical products have migrated along with the U.S. population, out of large metro areas to smaller cities.

Finally, I ran into an amazing Facebook ad earlier this week, and asked on Twitter: “Is a Zelda fan just paying to promote the game on Facebook because they love it so much?”

Turns out this is a known Facebook campaign that has been spending someone’s money since 2019 - though nobody has any idea whose. (We love the Internet.)

[We’re GameDiscoverCo, an agency based around one simple issue: how do players find, buy and enjoy your premium PC or console game? We run the newsletter you’re reading, and provide consulting services for publishers, funds, and other smart game industry folks.]