Friday, 23 June 2023 16:04

Microsoft’s Cloud Feature Runs at a Loss According to Testimony to FTC

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So, it seems that under direct questioning Microsoft has been forced to admit that cloud gaming is not as big of a deal as they have been saying it is. We have long held that their generous 10-year cloud licensing deal for cloud gaming was not an honest attempt at competition. After all cloud gaming represents a little less than 1% of the total gaming market. Now Sarah Bond has admitted that it is not a popular option and that it is most commonly used as a feature for Microsoft consoles.

According to Bond, the feature allows a player to begin playing the game while it is downloading in the background. It is not widely used to stream console games to PC or other devices. In fact, the service is operating at a loss. Microsoft can do this as the loss incurred by this one component of Game Pass Ultimate is not enough to present a general loss for the entire Game Pass service. To me, this means that Microsoft was well aware of the small share cloud gaming would have when they and Activision made the promises of licensing deals. Bond even admitted that the games streams are not always the best experience specifically because they are designed to run on a console. “The games that are being streamed are games built for the console, but they’re being streamed to a different device, so it’s not always the best player experience.”

As we had said in multiple articles, the issue here is not about the miniscule cloud gaming segment. It is not a fast-growing environment as was stated in some regulator’s approval and even in the UK’s CMA decision to block. It is a small niche market that is not quite ready for prime time. It is certainly not a large enough market to approve or disapprove this deal over. Instead, the focus should be on the direct impact on the console market. This is where Microsoft would stand to have the largest advantage. PC gamers are still going to be able to buy the games developed for PC, but Sony and Nintendo could potentially be shut out.

I know that some of you might look at Sony and Nintendo’s actions to restrict games to their platforms, but two wrongs do not make a right so to me that is a false equivalency. If Sony’s, Nintendo, or Microsoft’s own internal game studio creates something and they want to make is specific to their platform, I actually have no real issue with that. It is their team, their development money, so they should be allowed to profit from it. However, that is not what we are talking about here. Microsoft is looking to artificially buy their way to market dominance and then have the option to impact the competition. They have multiple paths for this and have a history of abusing their market position in very anti-competitive ways.

This might not be a very popular opinion, but it is a realistic one. If you take a look at Microsoft’s past and how they have treated their competition and their customers, it is not hard to envision them using the increase game IP they get with Activism in a very negative way. They could simply make all titles Xbox and (Windows) PC exclusives, or deny competing platforms features and/or optimizations. This latter is more likely as Nintendo and Sony are not likely to send Microsoft the next generation or even current hardware to ensure new titles run smoothly. We know that this has happened in the past with other Microsoft only titles, so it is very likely to happen if this deal goes through.

In the end, other than giving Microsoft a huge advantage in the general gaming market, I cannot see any upside to approving this deal.

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