By Reuters | Updated: 10 August 2023

Shares in Japan’s Sony fell 6 percent in Tokyo trade after first-quarter profit tumbled, with the entertainment conglomerate reporting lacklustre performances by its movie and financial divisions.

Operating profit slid 31 percent and comments by Sony executives over demand for its games and image sensors units also sparked concern.

The PlayStation 5 console launched in late 2020 but supply was badly affected by supply chain problems during the COVID-19 pandemic. Despite an easing of those snarls, Sony said sales were below expectations in the April-June quarter. It is targeting sales of 25 million units for the full year.

Sony sold 3.3 million PS5 units in quarter. By comparison, Nintendo’s Switch console, which is in its seventh year on the market, sold 3.9 million units in the same period as consumers rushed to play the latest “Zelda” title.

Sony said promotions that began are July are improving sales momentum for the PS5.

“Sony started discounting the PS5 in the West, which is never a good sign,” said Serkan Toto, founder of the Kantan Games consultancy.

“The company has a lot of work to do, first and foremost to make sure those blockbuster first-party games come out quicker.”

“Marvel’s Spider-Man 2” is due for release in October ahead of the key year-end shopping season. Its predecessor has sold more than 13 million units.

Sony, a leading maker of image sensors used in cameras, also revised down its expectations for a gradual recovery in the smartphone market, saying it now does not expect one until 2024 at the earliest due to weak demand in major markets.

The company trimmed cut its annual operating profit forecast for the unit by 10 percent, citing the impact of lower sales.

Adjustment to procurement by smartphone manufacturers is having a large impact in the second quarter, Sony said.

The current financial year “will be tough” for the sensors division, Jefferies analyst Atul Goyal wrote in a client note, adding that higher margins are expected in the following year.

© Thomson Reuters 2023

By Reuters | Updated: 22 July 2023

Microsoft’s Activision Blizzard deal is back in the hands of Britain’s antitrust regulator after an appeals court granted an adjournment, and the grounds for why the UK should reconsider its block on the US software giant’s takeover were published.

The Competition and Markets Authority (CMA) set out on Friday Microsoft’s arguments for the reconsideration, as the US battles to win UK approval to buy Call of Duty maker Activision.

Having initially blocked the $69 billion (roughly Rs. 5,65,480 crore) deal in April over concerns about its impact on competition in the cloud gaming market, the CMA has since reopened the file, after it was left increasingly isolated amongst world regulators in its opposition.

The CMA said it is likely to be able to reach a new provisional view on the restructured deal in the week beginning August 7.

Explaining why the deal should now be given the green light, Microsoft argued that the binding commitments accepted by the European Union shortly after Britain had blocked the deal changed matters, court documents published showed.

The software company gave legally-binding commitments to European authorities that Activision games can be streamed for a decade after the merger, and has entered into agreements with Nvidia, Boosteroid and Ubitus.

As part of that a monitoring and enforcement regime will be established, which Microsoft said should ease some of the CMA’s concerns.

Microsoft also argued that the terms of the CMA’s proposed block reached further than necessary to tackle its cloud gaming concerns, for example in covering Activision Blizzard’s King unit, which makes mobile device games like Candy Crush Saga.

The CMA said it understood that Microsoft considered the recent licensing deal it agreed with Sony constituted a further material change of circumstance or special reason.

For its part, the CMA dismissed as “irrelevant and immaterial” to its decision to look again at the deal the failure by US authorities to get it blocked in the courts there.

Britain’s Competition Appeal Tribunal provisionally approved the adjournment on Monday subject to further submissions from the parties. It formally granted it on Friday.

© Thomson Reuters 2023

By Reuters | Updated: 18 July 2023

Microsoft is in talks about an extension of its acquisition contract with video game maker Activision Blizzard, which is set to expire on Tuesday, so the parties can overcome the remaining regulatory hurdles to their $69 billion (nearly Rs. 5,66,100 crore) deal, a person familiar with the matter said on Monday.

The expiration of the contract would not automatically lead to the collapse of the deal, as it simply affords either company the right to walk away from the transaction.

Nonetheless, Microsoft, which makes the Xbox gaming console, has been seeking the contract extension to ensure that Activision is not wooed by another potential acquirer or has a change of heart, the source said.

The terms of the extension under negotiation and whether it would come with more financially advantageous terms for Activision could not immediately be learned.

The companies will continue to negotiate the extension if they do not have an agreement by the end of Tuesday, according to the source, who requested anonymity because the matter is confidential.

Microsoft and Activision did not immediately respond to requests for comment.

An extension would give the companies more time to find a regulatory solution in Britain, the only major jurisdiction that stands in the way of them completing what would be the largest acquisition in the gaming sector.

Microsoft and Activision are negotiating potential remedies with the Competition and Markets Authority (CMA) which they hope will appease its antitrust concerns.

The country’s antitrust regulator has argued that Microsoft’s commitment to offering access to Activision’s multi-billion dollar “Call of Duty” franchise to rival cloud gaming platforms would not effectively protect competition in the market. The CMA has agreed to extend its probe to Aug. 29 to allow for more negotiations with the companies.

Last week, Microsoft signed a pact to keep “Call of Duty” on Sony Group’s PlayStation console. Sony had been one of the deal’s toughest critics, arguing that it could stifle consumer choice.

On Friday, a US appeals court rejected the US Federal Trade Commission’s request to pause Microsoft’s acquisition of “Call of Duty” maker Activision. The decision removed one of the last obstacles to the acquisition closing.

Activision’s shares closed at $93.2 on Monday, a small discount to the $95-per-share deal price, indicating that most investors now viewed the completion of the deal as likely.

© Thomson Reuters 2023

By Reuters | Updated: 16 July 2023

India’s new 28 percent tax on online gaming companies will stifle foreign investment and put $2.5 billion (roughly Rs. 20,500 crore) already invested in the sector at risk, more than 100 gaming firms have said in a letter to India’s finance ministry.

India this week announced the tax on the funds that online gaming companies collect from their customers. Games such as fantasy cricket have became increasingly popular in recent years, but have also raised concerns about addiction among players.

Top investors including Tiger Global and Peak XV, previously known as Sequoia Capital India, have invested in Indian gaming companies such as Dream11 and Mobile Premier League.

In the letter dated July 14, gaming companies including MPL urged the finance minister to rethink the move, highlighting the impact on jobs and investment.

The tax would deter potential investors, both domestic and foreign, from considering the online gaming sector in India as a viable investment destination, the letter said, and added that the current $2.5 billion (roughly Rs. 20,500 crore) plus in investments is at stake based on this decision.

India’s finance ministry did not respond to an email request for comment, sent outside usual business hours. Federal Revenue Secretary Sanjay Malhotra told Reuters in an interview this week that the government believes social as well as economic purposes will be served by the tax.

Many Indian ministers view bets on online gaming platforms as a “social evil”, Malhotra had said.

Revenues of fantasy gaming platforms rose 24 percent during the Indian Premier League cricket season from a year earlier to more than $342 million (roughly Rs. 2,800 crore), with over 61 million users participating, Redseer consultancy said this month.

Users can create a fantasy cricket team for as little as Rs. 8.

© Thomson Reuters 2023

By Reuters | Updated: 14 July 2023

A US federal court on Thursday rejected the Federal Trade Commission’s (FTC) request that it order Microsoft to temporarily hold off on closing its $69 billion (roughly Rs. 5,65,480 crore) purchase of Call of Duty maker Activision Blizzard, a court filing showed.

A federal judge had previously ruled for Microsoft on Tuesday, saying the agency had failed to show the deal would be illegal under antitrust law. The FTC appealed that loss late on Wednesday, and Microsoft said it would fight that appeal.

Earlier on Thursday, the FTC asked for an order preventing the deal from closing until after the 9th US Circuit Court of Appeals ruled on a separate stay request filed with that court.

Any outstanding regulatory hurdle makes it more likely the agreement between Microsoft and Activision will expire on July 18 without the deal having been completed. After July 18, either company will be free to walk away unless they negotiate an extension.

The FTC had asked for the court to decide on the pause as soon as possible, noting that an existing temporary restraining order on the deal was meant to end just before midnight on Friday.

“We’re disappointed that the FTC is continuing to pursue what has become a demonstrably weak case, and we will oppose further efforts to delay the ability to move forward,” Microsoft President Brad Smith said earlier in an emailed statement.

In its motion for the pause to Judge Jacqueline Scott Corley, the FTC argued her denial of a preliminary injunction to halt the deal “raises serious, substantial issues for the Court of Appeals to resolve.”

“The FTC asks this Court to enjoin the merger at issue pending resolution of the FTC’s appeal to the Ninth Circuit Court of Appeals. The motion is denied,” the judge said in the order late on Thursday.

The FTC had said it was seeking a preliminary injunction to temporarily stop the deal until an internal FTC judge could assess it. But Corley applied the standard needed to permanently stop the deal instead, which the agency argued was inappropriate.

The FTC had also said the judge erred in assessing the deal’s effect on multi-game subscriptions and in how much credit she gave Microsoft for striking deals with rivals in order to save the proposed transaction.

To address the agency’s concerns, Microsoft had agreed to license Call of Duty to rivals, including a 10-year contract with Nintendo, contingent on the merger closing.

The deal, the largest in the history of the video game industry, was also struggling in Britain until this week. After the ruling in California, Britain’s Competition and Markets Authority, which had opposed the transaction, said a restructured deal between Microsoft and Activision Blizzard could satisfy its concerns, subject to a new investigation.

It is rare for a merger fight to go to an appeals court. That said, the FTC appealed a ruling more than 10 years ago when it lost its fight against Whole Foods’ purchase of Wild Oats. The agency settled with the companies before the appeals court made a decision.

© Thomson Reuters 2023

By Reuters | Updated: 14 July 2023

Indian online gaming firms planning to relocate overseas to avoid a new 28 percent tax on the sector run the risk of violating the country’s foreign exchange laws, Vivek Johri, head of the indirect taxes’ department, said on Thursday.

New Delhi does not plan to implement the tax retrospectively, he said, in response to speculation it could do so.

The government on Tuesday announced the levy on the $1.5 billion (nearly Rs. 12,300 crore) online gaming industry, which has surged in popularity in recent years, attracting foreign investment.

The industry has warned of job losses and reduced earnings, while analysts have said some may explore relocating to other countries.

Online gaming companies relocating to avoid paying tax on the revenues they collect from customers is not going be easy, Johri, chairman of Central Board of Indirect Taxes and Customs (CBIC), said.

“It is going to be a risky proposition,” he said. “It’s actually not legal to remit money (to a foreign country) in the name of online gaming, so they are going to use some other (way) and that will further expose them to legal action.”

Overseas online gaming companies providing services in India will also have to abide by the regulations being formulated by India’s electronics ministry, which may mandate local registration, he said.

Despite the impact of the higher tax on playing costs, gamers who can afford to pay more and are hooked on such games will continue to participate, Johri said.

He said the new tax would come into force after India’s parliament ratifies the changes in coming weeks.

© Thomson Reuters 2023