FTC’s conflict with Microsoft puts cloud gaming in the spotlight

The business model being developed alongside cloud gaming is a subscription service, where consumers can play their catalog of games for a fixed monthly or annual fee. With cloud gaming, gamers can avoid downloading games to their devices, which take up memory space, and they don’t need to invest in hardware like a console or high-end computer.

Video game industry participants and the Federal Trade Commission expect cloud gaming to become a much larger portion of the market in the coming years. with her suitThe FTC says it is protecting the video game distribution market – as it stands today and how it is expected to develop – starting with It is dominated by a few companies.

Microsoft is a leader in cloud gaming with its Xbox Game Pass subscription service. The company’s $75 billion deal for Activision It would enhance its content librarywith the addition of several blockbuster franchises including “Call of Duty,” “World of Warcraft,” and “Candy Crush Saga.”

Microsoft, which has vowed to fight the FTC lawsuit, said it is an underdog in the current console market, with Xbox Center slipping.

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switch. The company does not disclose Xbox sales by volume.

The tech giant also said it has no meaningful presence in mobile, which is the largest corner of the overall video game industry in terms of revenue.

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Google, makers of mainstream smartphone operating systems, plays an important role in how people access mobile games, and they also take a cut from developers’ in-app sales and subscriptions.

Xbox Game Pass, launched by Microsoft in 2017, provides a library of hundreds of games for subscribers to play starting at $9.99 per month. The Basic plan allows subscribers to download individual games to Xbox or PC to play whenever they want. For $14.99 a month, subscribers can play some Cloud gaming, all part of Microsoft Ambitions to build a “Netflix of Games”. The company said in January that Game Pass had 25 million subscribers.

Global consumer spending on cloud gaming services and cloud streaming games will reach $2.4 billion by the end of this year, according to an estimate from Newzoo BV. And that’s a tiny fraction — 1.4% — of the $184.4 billion in total spending on video game software.

Sony, which has lobbied governments around the world to oppose the Microsoft-Activision tie-up, and others have tried to develop their own cloud game subscription services. Microsoft, at the moment, is the dominant player, accounting for 60% of the total cloud gaming business last year, according to an estimate by research firm Omdia.

Paul Swanson, an antitrust attorney at Holland & Hart LLP in Denver, said the FTC seems concerned that it “can’t see unintended consequences even a few years down a path to a takeover like this.” “What they are saying here is that we will err on the side of keeping as many independent competitors as possible.”

Over the past decade, Microsoft has poured billions into its cloud operations primarily to sell software and infrastructure to enterprise customers. It is now building a separate cloud infrastructure to support its video game ambitions, which have been in development since it launched the first Xbox console in 2001.

Cloud gaming has never been an easy business to navigate. It is difficult for companies to implement the technology smoothly because games need to support multiple players with minimal lag no matter where the players are located. Earlier this year, Google Turn off the game streaming serviceStadia, after it struggled to gain traction with users.

Microsoft is still investing heavily in its Xbox hardware, but cloud gaming gives it a chance to reach more gamers. It wants to build its own mobile app store, a move it says will create more competition in mobile video games, not less. The Redmond, Washington, company argued that Apple and Google’s app markets have policies that create technical and financial barriers to their goals.

Representatives for Apple and Google did not respond to requests for comment. Apple said that it does not prevent cloud gaming apps from appearing in the App Store and that it does not attempt to prevent them from appearing.

Industry researcher and academic Joost van Drunen said Microsoft’s move to mobile phones is likely to benefit the video game ecosystem by reducing the grip of Apple and Google.

“It breaks the so-called walled garden strategy that has dominated the gaming industry for 20 years,” he said.

Since Microsoft announced its deal for Activision, which is valued at about $69 billion after adjusting for developer net worth, some video game players have been concerned about what that means for industry competition.

Steve Schweitzer, of State College, Pennsylvania, is concerned that Microsoft will raise the price of Game Pass over time. It’s affordable now but in a few years, he said, if Microsoft becomes more dominant it could drive up the price and start lowering the quality. Schweitzer, 55, said he remembers the 1990s when Microsoft was able to use its market power to grab market share in the browser wars. He said, “I’ve seen this game before.”

Before filing the lawsuit, the Federal Trade Commission He was reviewing the deal for months. regulators in other jurisdictions, including the European Union and the United Kingdom, They do the same. The company got approval for the deal in smaller markets like Brazil and Saudi Arabia.

Write to Sarah E. Needleman at [email protected] and Aaron Tiley at [email protected]