Microsoft is working to warm lawmakers up to its plans to bring a collection of the world’s most popular video games under its wing. The company announced its intention to buy Activision Blizzard last month in a deal that would be worth $68.7 billion — the largest gaming acquisition of all time, if the deal goes through.
The acquisition isn’t exactly ill-fated, but it’s a risky time for Microsoft to attract attention from regulators. In the U.S., lawmakers and regulatory agencies have largely focused on some of the tech giant’s peers, particularly Meta (formerly Facebook), Google, Apple and Amazon. Microsoft’s name doesn’t come up in contentious conversations about social networks, advertising or online marketplaces, so the massive company has managed to mostly fly under the radar in recent years in spite of its size.
With the Activision Blizzard deal on the table, that’s unlikely to last. Earlier this month, Bloomberg reported that the proposed acquisition will be reviewed by the FTC, an agency now chaired by Lina Khan, an antitrust scholar keen to disrupt escalating consolidation in the tech industry.
Microsoft President Brad Smith addressed regulators directly in a new blog post Wednesday, striking a cooperative tone and outlining a set of “Open App Store Principles” that the company will adopt in light of proposed regulation and its own plans to buy a cluster of the world’s most popular gaming titles.
Microsoft framed the new ideology as a preemptive effort to accommodate regulatory changes, but it’s also clearly an appeal to the federal government to sign off on the acquisition:
… We recognize that the emerging new era of tech regulation brings with it both benefits and risks, not just for a single company but for our entire industry. As others have pointed out, there are risks with any new regulation, and these deserve a fair hearing and thorough consideration. But as a company, we continue to be more focused on adapting to regulation than fighting against it. In part this is because we have been adapting for two decades to antitrust rules, and we’ve learned from our experience. While change is not easy, we believe it’s possible to adapt to new rules and innovate successfully.
The principles Smith lays out here touch on a handful of issues of interest to regulators, including a promise to not leverage app store data to compete against developers and a commitment against self-preferencing. The company also committed to not forcing developers to use its payments system or disallowing them from communicating with customers about better deals to be had on other platforms.
Microsoft says that the set of open principles is adapted from guidelines it created for Windows, but it plans to institute them for the Xbox “beginning today.” Notably, the company stops short of making those promises for the key bits about opening up payments in the Xbox store, though claims it will work to “close the gap” by implementing the remaining principles in the future:
We will not require developers in our app store to use our payment system to process in-app payments.
We will not require developers in our app store to provide more favorable terms in our app store than in other app stores.
We will not disadvantage developers if they choose to use a payment processing system other than ours or if they offer different terms and conditions in other app stores.
We will not prevent developers from communicating directly with their customers through their apps for legitimate business purposes, such as pricing terms and product or service offerings.
Smith also addressed some specific concerns around the deal directly. He confirmed that if the deal goes through, Call of Duty will still be available through Sony’s PlayStation “beyond the existing agreement and into the future” so Sony console owners won’t be left out in the cold.
“We are also interested in taking similar steps to support Nintendo’s successful platform,” Smith wrote. “We believe this is the right thing for the industry, for gamers and for our business.”
Smith notes that “other popular Activision Blizzard titles” will also get the same treatment rather than immediately becoming Microsoft exclusives. Beyond Call of Duty, the Activision Blizzard deal includes a deep roster of hit games like Overwatch, World of Warcraft, Diablo, Starcraft, Hearthstone and Candy Crush.
The console wars enter a new era
It’s hard to imagine that Microsoft wouldn’t leverage the massive deal to draw gamers toward the Xbox side of the gaming equation, but the console wars aren’t as relevant as they used to be — at least, not in the way that we’re used to thinking about them.
During the Epic v. Apple trial, Microsoft admitted that the company subsidizes hardware sales and doesn’t make a profit off of Xbox consoles. Game sales and game subscription services are how console makers actually make money, but hardware isn’t totally irrelevant: Much like the app model, gaming is all about getting customers into your software store and keeping them there. Making hardware people want to buy is one of the main ways to pull that off.
If customers are playing your game on someone else’s console, your competitor can take a cut of that cash — the standard 30 percent — but you’re still making money. For Microsoft, deciding how open its gaming ecosystem should remain is all about doing that math and balancing it against the expanded customer base it’ll maintain if hit titles — particularly those with subscriptions and in-game purchases — remain playable across platforms.
Smith acknowledged this reality explicitly in the blog post, noting that app stores are both the future and present of the game industry. “Just as Windows has evolved to an open and broadly used platform, we see the future of gaming following a similar path,” Smith wrote. “… Our vision is to enable gamers to play any game on any device anywhere, including by streaming from the cloud.”
Of course, the way app stores work right now is subject to change. One antitrust bill wending its way through Congress, the American Innovation and Choice Online Act, would explicitly prevent companies from self-preferencing and putting competitors at a disadvantage on their platforms. Another bill, the Open App Markets Act, would similarly tear down the walled gardens that software platforms have been tending for the last decade. Both bills made it out of committee in the last month and are likely looming large for companies like Microsoft, even if gaming platforms won’t be subject to all of the changes that could sweep over the App Store and other software marketplaces.
“We want to enable world-class content to reach every gamer more easily across every platform,” Smith wrote. “We want to encourage more innovation and investment in content creation and fewer constraints on distribution. Put simply, the world needs open app markets, and this requires open app stores.”