CMA: Microsoft Has Reason to Make Call of Duty Partially or Totally Xbox Exclusive

UK regulator CMA has provisionally concluded that Microsoft has reason to make the Call of Duty franchise either partially or totally exclusive to Xbox.

Coming in hot via an official press release, the UK regular has reached the tentative conclusion that the planned Microsoft-Activision-Blizzard merger could harm gamers due to less innovation, fewer choices, and higher prices. According to the CMA, the highly-debated megadeal could weaken the important rivalry between Xbox and PlayStation, thereby harming UK gamers.

Interestingly, despite Microsoft saying that it has offered a long-term Call of Duty licensing deal to Sony, the UK regulator believes that Microsoft would find it commercially beneficial to make Activision’s games exclusive to Xbox.

“The evidence available to the CMA, including data on how Microsoft measures the value of customers in the ordinary course of business, currently indicates that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own consoles (or only available on PlayStation under materially worse conditions).”, the press release reads.  “The CMA’s provisional findings note that this strategy, of buying gaming studios and making their content exclusive to Microsoft’s platforms, has been used by Microsoft following several previous acquisitions of games studios.”

The published summary of provisional findings provides more details on this provisional conclusion.

Microsoft has acquired a range of gaming studios over the past few years and, with very few exceptions, has made their future releases of games exclusive or redirected the efforts of those studios to produce exclusive Xbox games. Although we recognise that Activision is a bigger studio than any acquired by Microsoft before, this pattern of behaviour seems to be consistent with Microsoft’s commercial strategy.

In its summary, the CMA also mentions that evidence suggests that making CoD partially or totally exclusive could bring Microsoft longer-term strategic benefits. In addition, the UK regulator provisionally believes that making Call of Duty Xbox exclusive could be profitable for the company.

Although it is difficult to quantify Microsoft’s financial gains and losses from making CoD partially or totally exclusive to Xbox, we 11 have tried to approximate these by using two different financial models. One model measured the direct financial gains over the course of one year of making CoD exclusive to Xbox. It is a straightforward comparison of the income that Microsoft would lose from not selling CoD on PlayStation against the additional income that it would earn from selling CoD, additional Xbox consoles, and other games to new customers who would switch—as estimated from our survey results—from PlayStation to Xbox. We provisionally found that this calculation on its own was broadly neutral in terms of profitability. The other model considered data used by Xbox in the ordinary course of business on the ‘lifetime value’ of new customers. This has the benefit of accounting for five years of spend on the Xbox platform and on CoD. This model, which we currently believe is a better way to estimate long-term financial incentives, suggests that making CoD exclusive to Xbox would be profitable for Microsoft.

Some interesting stuff in the CMA’s provisional conclusion.  What are your thoughts on this matter? Will Microsoft be able to offer a good-enough solution? Hit the comments.