Dispute between FTC and Microsoft puts cloud gaming in the spotlight

Cloud gaming is an emerging technology that allows people to stream video games to almost any internet-connected device, much like watching movies and shows on Netflix,

Hulu and other streaming platforms.

Developed alongside cloud gaming, the business model is a subscription service that allows consumers to play a catalog of games for a flat monthly or yearly fee. With cloud gaming, gamers can avoid downloading games to their devices, which takes up storage space, and they don’t have to invest in hardware like a console or high-end computer.

The FTC and video game industry participants anticipate that cloud gaming will become a much larger part of the market in the years to come. With its lawsuit, the FTC protects the video game distribution market – as it is today and as it is expected to develop – from being dominated by a few companies.

Microsoft is an early leader in cloud gaming with its Xbox Game Pass subscription service. The company’s $75 billion deal for Activision would expand its content library and add several blockbuster franchises, including Call of Duty, World of Warcraft, and Candy Crush Saga.

Microsoft, which has pledged to fight the FTC’s lawsuit, has said it is an outsider in the existing console market, with Xbox’s position lagging behind Sony Group corps

PlayStation and Nintendo co

‘s switch. The company doesn’t report Xbox sales by volume.

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The tech giant has also said it doesn’t have a significant presence in mobile, which is the highest-grossing area of ​​the entire video game industry. Apple inc

and alphabet inc

Google, maker of the dominant smartphone operating systems, plays a crucial role in how people access mobile games and they take a share of developers’ in-app and subscription sales.

Xbox Game Pass, which Microsoft launched in 2017, offers a library of hundreds of games that subscribers can play from $9.99 a month. The basic plan allows subscribers to download individual games to their Xbox or PC to play whenever they want. For $14.99 per month, subscribers can play some of them Games via the cloud, all part of Microsoft’s ambitions to build a “Netflix of games”. The company said in January Game Pass had 25 million subscribers.

According to an estimate by Newzoo BV, global consumer spending on cloud gaming services and cloud-streamed games will collectively reach $2.4 billion by the end of this year. That’s a tiny fraction — 1.4% — of the $184.4 billion in total video game software spending.

Sony, which has aggressively lobbied governments around the world to oppose the Microsoft Activision connection, and others have tried to expand their own cloud gaming subscription services. Microsoft is the dominant player for now, accounting for 60% of the entire cloud gaming business last year, according to an estimate by research firm Omdia.

Microsoft is an early leader in cloud gaming with its Xbox Game Pass subscription service.


Photo:

Etienne Laurent/Shutterstock

The FTC seems concerned that it “won’t be able to see the unintended consequences of a takeover like this in even a few years,” said Paul Swanson, a Denver-based antitrust attorney at Holland & Hart LLP. “What they’re saying here is that we’re going to side with getting as many independent competitors as possible.”

Over the past decade, Microsoft has poured billions into its cloud operations, primarily selling software and infrastructure to enterprise customers. It is now building a separate cloud infrastructure to further its video gaming ambitions, which have been in development since the launch of its first Xbox console in 2001.

Cloud gaming has not been an easy business. The technology is difficult for businesses to run smoothly because games need to support multiple players with minimal lag, regardless of where players are located. Earlier this year, Google shut down its game streaming service Stadia after it struggled to gain a foothold with users.

Microsoft continues to invest heavily in its Xbox hardware, but cloud gaming offers an opportunity to reach more gamers. It wants to build its own mobile app store, a move it says would create more competition in mobile video games, not less. The Redmond, Washington-based company has argued that Apple’s and Google’s app marketplaces have policies that pose technical and financial barriers to its goals.

Apple and Google officials did not respond to requests for comment. Apple has said it doesn’t prevent cloud gaming apps from appearing in the App Store and doesn’t try to block their appearance.

Industry researcher and academic Joost van Dreunen said Microsoft’s mobile move would likely benefit the video game ecosystem by reducing the impact of Apple and Google.

Microsoft has said it’s an outsider in the console market, with Xbox lagging behind consoles like Nintendo’s Switch.


Photo:

Guillaume Payen/Zuma Press

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

Ever since Microsoft announced its deal for Activision, which is valued at nearly $69 billion after accounting for the developers’ net worth, some video game players have been concerned about what it means for competition in the industry.

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

Before her lawsuit, the FTC had been reviewing the deal for months. Regulators in other jurisdictions, including the European Union and the United Kingdom, do the same. The company has received approval for the deal in smaller markets like Brazil and Saudi Arabia.

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

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