Microsoft has invested huge amounts of capital and time into making cloud gaming a core part of its gaming offering.
Peter Summers | Getty Images
When Microsoft announced its offer to buy Activision Blizzard for $68.7 billion, it marked one of the biggest acquisitions in video game history — and the largest-ever deal for the Redmond, Washington-based technology giant.
There were lots of reasons for the U.S. tech giant to buy Activision. Activision owns a multitude of popular game franchises — Call of Duty, World of Warcraft, and Candy Crush Saga.
related investing news
Microsoft would gain a host of content to add to its Xbox gaming division. And it would add a slew of talent to its in-house game studios that could help with developing new games.
But the key one, and the thing Microsoft is betting its gaming future on, was cloud gaming — and that’s what ultimately threw a spanner in the works for the company’s multibillion-dollar bid to swallow Activision when U.K. regulators chose to block the deal Wednesday.
What is cloud gaming?
Cloud gaming is a technology that lets people play games from any device with an internet connection – a console, PC, smart TV, or a mobile phone — from a far-flung data center.
Traditionally, you’d need some dedicated hardware to play a game, like an expensive console or PC.
Things have gotten better over time with advances in smartphones, and there are now even major studio-quality games that can be played on phones, like Call of Duty Mobile.
But what cloud gaming offers — that makes it a differentiator — is a service on which you can stream a selection of titles in real time from a company’s remote data centers, just like you would a movie or TV show on Netflix.
Microsoft has invested huge amounts of capital and time into making cloud gaming a core part of its gaming offering. The company added cloud gaming as a free perk within its Xbox Game Pass subscription product, which offers people access to a multitude of titles for a monthly fee.
Cloud gaming could benefit consumers in developing markets where consoles and PCs are too expensive to own.
Microsoft has lost ground to console rivals — particularly Sony — over the years. In the last generation of consoles, Sony won the infamous “console wars” with its PlayStation 4 machine, which topped Microsoft’s Xbox One in terms of lifetime sales.
With the current generation of consoles, which were launched in November 2020, it has been more of the same. The PS5 has sold 32 million units to date, according to its latest quarterly numbers.
Microsoft doesn’t publish unit sales in its results, however an estimate from the video game data website VGC places lifetime sales of its Xbox Series X and S consoles just north of 20 million units.
Microsoft CEO Satya Nadella outlined the vision the company has for cloud gaming and its incorporation of Activision Blizzard in an interview with CNBC’s Tanvir Gill in November.
“We want people to be able to enjoy the games they love on platforms they are playing in. And that’s our goal,” Nadella said.
“We love the console, the Xbox, we love the PC, we love mobile. We love xCloud, which is the streaming service, so that you can even play on your television and what have you.”
“Activision is a fantastic partner of ours today that we want to be able to sort of take all the content and make sure it’s available on every platform,” he added.
Why the CMA is concerned
In its merger review published Wednesday, the CMA said that it was concerned Microsoft’s dominance of cloud gaming could hurt competition in that particular market.
“Allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities,” the CMA said in a press release Wednesday.
Microsoft takes up 60-70% of the overall cloud gaming market, according to the regulator.
The CMA — in addition to other regulators and rivals like Sony — fear that Microsoft could in future withhold its blockbuster Call of Duty, Warcraft and Diablo titles from other cloud gaming platforms.
Call of Duty is Activision Blizzard’s crown jewel, selling huge numbers every year. Its Warzone battle royale multiplayer mode alone was played by more than 6 million people in the first 24 hours of its release.
That makes it an extremely attractive asset for a company like Microsoft. Think of it like Nintendo announcing it was going to buy Electronic Arts, and it had a subscription service you could pay $10 a month for to play every new FIFA soccer game the day it came out.
In addition to Xbox, Microsoft also owns Azure, the cloud computing platform, which is used by thousands of companies for their data storage and computing power needs.
“While Microsoft has formed partnerships with third party cloud gaming providers to bring select ABK titles to their services, this does not necessarily mean these companies will be receiving unrestricted access to those games by default,” analyst firm Omdia said in emailed comments to CNBC.
“There will still be licensing terms, fees and conditions that operators have to pay – fees which Microsoft will have absorbed in a different way as part of the acquisition itself.”
“Microsoft also owns the Azure infrastructure that powers Xbox Cloud Gaming and other third party cloud services, who will be paying for every minute and every user provided by the Azure backend,” Omdia added.
“This should ensure that ten years down the line – when cloud gaming has a much larger addressable market – Microsoft will face lower operating costs than competing services.”
Cloud gaming isn’t perfect
Ultimately though, cloud gaming is still in its infancy. The technology requires a strong internet connection to function well, otherwise gamers face drops in performance and latency issues.
Shooters and fighting games are particularly demanding in terms of responsiveness.
Google notably killed its cloud gaming service, Google Stadia, in September only three years after launching it following struggles to find the right product-market fit for the platform.
Cloud gaming also isn’t a huge market. Cloud-enabled gaming services generated $5.1 billion of revenue in 2022, according to data from Omdia, less than 15% of the $35 billion made by console game sales.
But the CMA’s worry is that Microsoft could throttle the industry going forward as it becomes a more mass market technology. Cloud gaming revenues tripled in 2022 year-on-year, according to the CMA.
“What the CMA is doing is taking a forward-looking view on the matter, taking into account concerns of where cloud gaming lands in the future, relative to its small size today,” Omdia said.
“Our projection is that cloud gaming is growing rapidly, with revenue more than doubling by 2026.”
Apple is losing market share in China due to declining iPhone shipments, supply chain analyst Ming-Chi Kuo wrote in a report on Friday. The stock slid 2.4%.
“Apple has adopted a cautious stance when discussing 2025 iPhone production plans with key suppliers,” Kuo, an analyst at TF Securities, wrote in the post. He added that despite the expected launch of the new iPhone SE 4, shipments are expected to decline 6% year over year for the first half of 2025.
Kuo expects Apple’s market share to continue to slide, as two of the coming iPhones are so thin that they likely will only support eSIM, which the Chinese market currently does not promote.
“These two models could face shipping momentum challenges unless their design is modified,” he wrote.
Kuo wrote that in December, overall smartphone shipments in China were flat from a year earlier, but iPhone shipments dropped 10% to 12%.
There is also “no evidence” that Apple Intelligence, the company’s on-device artificial intelligence offering, is driving hardware upgrades or services revenue, according to Kuo. He wrote that the feature “has not boosted iPhone replacement demand,” according to a supply chain survey he conducted, and added that in his view, the feature’s appeal “has significantly declined compared to cloud-based AI services, which have advanced rapidly in subsequent months.”
Apple’s estimated iPhone shipments total about 220 million units for 2024 and between about 220 million and 225 million for this year, Kuo wrote. That is “below the market consensus of 240 million or more,” he wrote.
Apple did not immediately respond to CNBC’s request for comment.
Amazon said it is halting some of its diversity and inclusion initiatives, joining a growing list of major corporations that have made similar moves in the face of increasing public and legal scrutiny.
In a Dec. 16 internal note to staffers that was obtained by CNBC, Candi Castleberry, Amazon’s VP of inclusive experiences and technology, said the company was in the process of “winding down outdated programs and materials” as part of a broader review of hundreds of initiatives.
“Rather than have individual groups build programs, we are focusing on programs with proven outcomes — and we also aim to foster a more truly inclusive culture,” Castleberry wrote in the note, which was first reported by Bloomberg.
Castleberry’s memo doesn’t say which programs the company is dropping as a result of its review. The company typically releases annual data on the racial and gender makeup of its workforce, and it also operates Black, LGBTQ+, indigenous and veteran employee resource groups, among others.
In 2020, Amazon set a goal of doubling the number of Black employees in vice president and director roles. It announced the same goal in 2021 and also pledged to hire 30% more Black employees for product manager, engineer and other corporate roles.
Meta on Friday made a similar retreat from its diversity, equity and inclusion initiatives. The social media company said it’s ending its approach of considering qualified candidates from underrepresented groups for open roles and its equity and inclusion training programs. The decision drew backlash from Meta employees, including one staffer who wrote, “If you don’t stand by your principles when things get difficult, they aren’t values. They’re hobbies.”
Amazon, which is the nation’s second-largest private employer behind Walmart, also recently made changes to its “Our Positions” webpage, which lays out the company’s stance on a variety of policy issues. Previously, there were separate sections dedicated to “Equity for Black people,” “Diversity, equity and inclusion” and “LGBTQ+ rights,” according to records from the Internet Archive’s Wayback Machine.
The current webpage has streamlined those sections into a single paragraph. The section says that Amazon believes in creating a diverse and inclusive company and that inequitable treatment of anyone is unacceptable. The Information earlier reported the changes.
Amazon spokesperson Kelly Nantel told CNBC in a statement: “We update this page from time to time to ensure that it reflects updates we’ve made to various programs and positions.”
Read the full memo from Amazon’s Castleberry:
Team,
As we head toward the end of the year, I want to give another update on the work we’ve been doing around representation and inclusion.
As a large, global company that operates in different countries and industries, we serve hundreds of millions of customers from a range of backgrounds and globally diverse communities. To serve them effectively, we need millions of employees and partners that reflect our customers and communities. We strive to be representative of those customers and build a culture that’s inclusive for everyone.
In the last few years we took a new approach, reviewing hundreds of programs across the company, using science to evaluate their effectiveness, impact, and ROI — identifying the ones we believed should continue. Each one of these addresses a specific disparity, and is designed to end when that disparity is eliminated. In parallel, we worked to unify employee groups together under one umbrella, and build programs that are open to all. Rather than have individual groups build programs, we are focusing on programs with proven outcomes — and we also aim to foster a more truly inclusive culture. You can read more about this on our Together at Amazon page on A to Z.
This approach — where we move away from programs that were separate from our existing processes, and instead integrating our work into existing processes so they become durable — is the evolution to “built in” and “born inclusive,” instead of “bolted on.” As part of this evolution, we’ve been winding down outdated programs and materials, and we’re aiming to complete that by the end of 2024. We also know there will always be individuals or teams who continue to do well-intentioned things that don’t align with our company-wide approach, and we might not always see those right away. But we’ll keep at it.
We’ll continue to share ongoing updates, and appreciate your hard work in driving this progress. We believe this is important work, so we’ll keep investing in programs that help us reflect those audiences, help employees grow, thrive, and connect, and we remain dedicated to delivering inclusive experiences for customers, employees, and communities around the world.
New Tesla Model 3 vehicles on a truck at a logistics drop zone in Seattle, Washington, on Aug. 22, 2024.
M. Scott Brauer | Bloomberg | Getty Images
Tesla is voluntarily recalling about 239,000 of its electric vehicles in the U.S. to fix an issue that can cause its rearview cameras to fail, the company disclosed in filings posted Friday to the National Highway Traffic Safety Administration’s website.
“A rearview camera that does not display an image reduces the driver’s rear view, increasing the risk of a crash,” Tesla wrote in a letter to the regulator. The recall applies to Tesla’s 2024-2025 Model 3 and Model S sedans, and to its 2023-2025 Model X and Model Y SUVs.
The company also said in the acknowledgement letter that it has already “released an over-the-air (OTA) software update, free of charge” that can fix some of the vehicles’ camera issues.
In 2024, Tesla issued 16 recalls in the U.S. that applied to 5.14 million of its EVs, according to NHTSA data. The recall remedies included a mix of over-the-air software updates and parts replacements. More than 40% of last year’s recalls pertained to issues with the newest vehicle in the company’s lineup, the Cybertruck, an angular steel pickup that Tesla began delivering to customers in late 2023.
Regarding the latest recall, the company said it had received 887 warranty claims and dozens of field reports but told the NHTSA that it was not aware of any injurious, fatal or other collisions resulting from the rearview camera failures.
Other customers with vehicles that “experienced a circuit board failure or stress that may lead to a circuit board failure,” which cause the backup camera failures, can have their vehicles’ computers replaced by Tesla, free of charge, the company said.
Tesla did not immediately respond to CNBC’s request for comment.