How a Game Pass Dominated Market Would Look

The UK's Competition and Markets Authority (CMA) has released documents about Microsoft's attempt to acquire Activision Blizzard, revealing that Game Pass negatively impacts game sales for at least a year. This information is crucial in understanding the $70 billion proposed deal and its effects on the industry. The news may not be surprising, as it was expected that a popular subscription service would have a negative impact on sales elsewhere. However, it contradicts Microsoft's previous statements on the matter. The company initially claimed that Game Pass would boost sales by driving visibility and word-of-mouth, but now admits that it cannibalizes paid sales. This admission has led to a range of reactions, with some seeing it as a disaster for the industry and others shrugging it off as irrelevant. The fact that Game Pass depresses paid sales is not a problem for Microsoft, as it is a natural consequence of the service's design. The company's goal is to shift revenues from one business model to another, and a negative impact on paid sales means Game Pass is doing its job. From a third-party perspective, the situation is more complex. While some may be upset by the admission, many have been realistic about the cannibalization of paid sales by subscription models. The transition to a subscription-based model is another step away from direct relationships with consumers, and publishers risk becoming background players. The customer relationship is now with Microsoft, and publishers serve as content providers, taking a cut of the revenue. This business model is similar to companies like AirBnB, Uber, and Amazon, which have disrupted their markets. The real point of Game Pass is to create an inaccessible consumer audience and lock in publishers, making healthy competition in this space crucial to protect publishers and developers from monopsony. The impact of Game Pass on paid sales is a serious concern, as it could lead to a scenario where being on the service is the only way to reach consumers. This is a more significant issue than the dominance of Steam in the PC digital distribution space, as Game Pass is a paid subscription service with a clear barrier to entry. The expectation that games will eventually appear in a subscription library is depressing software sales across the board. While some may see this as a disaster for the industry, others recognize the opportunities it presents, particularly for small publishers and self-publishing developers. The major publishers, however, face a potential squeeze from this new business model, and it is unclear what they would have to offer in a world dominated by subscription services. As Game Pass continues to grow and set new expectations for consumers, it may already be too late to turn back the clock.