Microsoft/Sony: US defeat may force PlayStation into a costly retreat

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Fans of first-person shooter Call of Duty are hardcore gamers even if their battle scars are only virtual. Many play the Activision Blizzard game for more than 10 hours a day on the PlayStation console. Heavy in-game spending by about 100mn active players in 2022 has made the soldiering blockbuster one of the most profitable games in history. 

So it is no surprise shares in Sony Group, maker of the PlayStation, were soft after a US federal court ruled in favour of Microsoft’s $69bn takeover of Activision Blizzard.

The judge said the combination would not harm competition for gaming. This forced the UK’s competition regulator into retreat. The Competition and Marketing Authority was relying on covering fire from the Federal Trade Commission of the US. Now it says it could reconsider its opposition to the deal.

Sony’s alarm is understandable given the sheer sales and user loyalty the game generates. Call of Duty players are estimated to have spent an average of $16bn a year in the three years to 2021.

To make the takeover process go smoothly, Microsoft signed a binding 10-year contract to bring the Call of Duty franchise and other Xbox titles to Nintendo’s consoles earlier this year.

For many gamers, Call of Duty is the only reason to buy a PlayStation. An estimated 1mn owners of the console use it solely to play the game. If Microsoft makes Call of Duty free on its Xbox Game Pass service, Sony would inevitably lose console sales. Nintendo’s Switch and Microsoft’s Xbox consoles are the PlayStation’s main competitors to Sony’s gaming business.

Sony shares are down more than a tenth in the past month. At 17 times forward earnings, they are trading at about half their levels of three years ago.

The Japanese electronics group already expects its profit to slip in the current fiscal year on weaker performance in its financial services business. A hit to sales in Sony’s gaming division, the largest contributor to group revenue, would offset gains in its music and films businesses. The profits outlook would weaken further.