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What you Missed This Week in Video Games

Posted May 3, 2023 at 10:00 am

Sam Martinelli
The Fly

 Microsoft-Activision deal blocked in U.K.

“Game On” is The Fly’s weekly recap of the stories powering up or beating down video game stocks.

NEW RELEASES: 

This week’s most notable release is Microsoft’s (MSFT) “Redfall,” which launches exclusively for PC and Xbox Series X/S on May 2. The title was developed by Arkane, the studio behind “Dishonored” and “Deathloop.”

CMA BLOCKS ACTIVISION DEAL: 

In a surprise twist last week, the U.K.’s Competition and Markets Authority said it will block Microsoft’s proposed acquisition of Activision Blizzard (ATVI). “The decision to prohibit the Microsoft/Activision merger should be viewed in that context,” the CMA said. “Gaming is the UK’s largest form of entertainment, and cloud gaming is the fastest growing gaming market. Microsoft already has important advantages in this market: it owns Windows, by far the leading PC operating system on which most PC games run; it has a global cloud infrastructure; and it has a strong gaming console and collection of games. No other cloud gaming operator has this combination of advantages, which partly explains Microsoft’s current UK market share of between 60-70%. A CMA independent inquiry group found that Microsoft would have the incentive to withhold Activision’s portfolio of leading games from competitors after the merger, and that this would substantially weaken the competitive dynamics in cloud gaming.”

“Whilst the inquiry group considered carefully a remedy proposed by Microsoft to constrain its behaviour, it found that the remedy would have been ineffective in remedying the loss of competition,” the CMA continued. “Moreover, implementing the ineffective remedy would have replaced market forces with ongoing regulatory obligations overseen by the CMA, when competitive forces in a free market are much better placed to achieve the right outcome for competition and consumers. As such, they concluded that prohibiting the transaction was the only effective and proportionate way to protect competition. Other authorities have investigated similar concerns, and the US Federal Trade Commission has issued an administrative complaint seeking to block this merger.”

In response to the news, Microsoft president Brad Smith tweeted that the company remains “fully committed” to the Activision deal and will appeal the decision by the CMA. Meanwhile, Activision Blizzard CEO Bobby Kotick noted that the determination was “far from the final word” on the deal, with Kotick saying he is “confident” in the transaction ultimately closing. “What gives me confidence is that, whether on our own or united with another company, we are one of the strongest companies in our industry, poised for continued growth, and building on our incredible IP,” the Activision CEO said.

A day after the CMA released its decision on the grounds of cloud competition risks, Nvidia (NVDA) said that GeForce Now and other cloud gaming providers would stand to gain an even deeper catalog of games if Microsoft’s acquisition of Activision is completed. “We see this as a benefit to cloud gaming and hope for a positive resolution,” the company said. Additionally, Microsoft announced that it signed a 10-year agreement with European cloud gaming platform Nware to stream PC games built by Xbox on its platform, as well as Activision titles once the deal closes.

EARNINGS: 

Following the CMA decision, Activision Blizzard released its first quarter report early, reporting better-than-expected first quarter adjusted earnings and net bookings. Along with the report, Kotick said the company is still “performing exceptionally well” and called the CMA determination “irrational and inconsistent with the evidence.”

Meanwhile, Microsoft also reported quarterly results last week, beating Wall Street estimates for the third quarter on the top and bottom line. Of note, Xbox content and services revenue increased 3% year-over-year during the period, or 5% in constant currency, while devices revenue decreased 30%, or 26% in constant currency.

Additionally, Sony (SONY) reported full year 2022 results late last week, with the company attributing a 33% year-over-year increase in FY22 Game & Network Services revenue to the impact of foreign exchange rates and increased sales of PlayStation 5 hardware. Sony also noted an increase in sales of first-party software on PlayStation platforms, but noted a year-over-year decrease in sales of non-first-party titles, including add-on content.

Click here to check out recent Media Buzz Sentiment on Sony as measured by TipRanks.

  • Comcast (CMCSA) and Nintendo’s (NTDOY) “The Super Mario Bros. Movie” has crossed the $1B box office threshold [read more]
  • EA’s (EA) “Star Wars Jedi: Survivor was the top-selling physical game in the U.K. this past week, Gamesindustry.biz reports [read more]
  • Tencent (TCEHY) is boosting investment in overseas gaming studios, FT reports [read more]

Originally Posted May 2, 2023 – What you Missed This Week in Video Games

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