Microsoft's Profitability At Risk With 'Call of Duty' Exclusivity, UK Regulator Focuses On Cloud Gaming Monopoly

In the 400-page report that blocked Microsoft Corp's MSFT proposed acquisition of Activision Blizzard ATVI, the U.K.'s Competition and Markets Authority also concluded that Microsoft would suffer significant financial losses if it attempted to make "Call of Duty" an exclusive Xbox game.

As first reported by IGN, the report analyzed two theoretical scenarios where Microsoft could remove "Call of Duty" from PlayStation platforms. The "critical diversion ratio," or the rate at which PlayStation "Call of Duty" players would need to switch to Xbox to make it financially viable for Microsoft, was one of the factors considered.

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The analysis took into account factors such as Microsoft's potential reputational damage if it went back on its public statements about "Call of Duty" exclusivity, as well as the benefits of Microsoft's Game Pass subscription and its history of keeping popular franchises multiplatform.

"Overall, our model suggests that it would not be financially profitable for the Merged Entity [Microsoft] to engage in a total foreclosure strategy," the report concluded.

Although concerns regarding Call of Duty exclusivity have been allayed, the regulator ultimately decided to block the merger due to its worries over cloud gaming monopolies. The British regulatory body cited concerns the deal would have a negative impact on the fast-growing cloud gaming market, stating Microsoft had not addressed these concerns effectively.

“Microsoft has a strong position in cloud gaming services and the evidence available to the CMA showed that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service,” the CMA said in a press release.

Specifically, the CMA raised concerns about how adding Activision Blizzard's library of games, including Call of Duty, to Microsoft's Xbox Game Pass service could lead to a potential price increase.

Even a small raise, according to the CMA's findings, could significantly reduce or eliminate any benefits to consumers.

The report highlighted that the post-merger expanded Game Pass would give Xbox a significant competitive advantage over rivals Sony Group Corp SONY and Nintendo ADR NTDOY which don't have services as extensive as Microsoft's Game Pass.

Read Next: Microsoft/Activision Deal Questioned By UK's CMA Over Potential Price Increase For Xbox Game Pass

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