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Microsoft (MSFT) Says Sony is Blocking Games on Xbox Game Pass

Microsoft MSFT has alleged that Sony SONY has been paying developers blocking fees to prevent games from appearing on Xbox Game Pass and other competing subscription services.

In a filing to Brazil’s Administrative Council for Economic Defense (CADE), Microsoft also claims that Sony is deliberately trying to inhibit the growth of Game Pass by implementing anti-competitive practices with regard to the Xbox Game Pass subscription service.

Microsoft has hit back at Sony’s recent claim that the company’s upcoming acquisition of Activision Blizzard ATVI is anti-competitive and that the Call of Duty franchise influences users' console choices and lacks a proper rival.

However, Microsoft previously claimed that the title would remain multiplatform despite its ownership. A strategy of not distributing Activision Blizzard games on rival consoles would only be profitable if the games could attract a high number of players over to the Xbox ecosystem, resulting in revenues to compensate for losses from not selling these titles on rival consoles.

This Zacks Rank #3 (Hold) company also suggested that Ubisoft, Riot Games, Bandai Namco, and Google have all released competition to Call of Duty, with such titles as Apex Legends, Battlefield, PlayerUnknown Battlegrounds (PUBG), and more. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While the U.S. Federal Trade Commission continues to investigate the deal in private, foreign regulatory bodies, like Brazil's and New Zealand's, publish filings for public consumption.

In June, Sony launched a revamped version of its subscription service, PlayStation Plus, in an attempt to better compete with Game Pass. Sony might be attempting to prevent Microsoft’s attractive subscription services to threaten its dominance in the digital distribution market for console games.

Dull Consumer Spending on Video Games Dampens Prospects

For first-quarter fiscal 2023, Microsoft expects gaming revenues to decline in the low to mid-single digits due to declines in first-party gaming content on Xbox consoles.

As for games that might be coming to Xbox Game Pass, ads for titles such as Elden Ring, Soul Hackers, and GTA V have been spotted on the Xbox storefront. All of these titles also appear to have recently been made xCloud compatible.

The numbers reflect a broader contraction in consumer spending on video games. Americans spent $12.4 billion on video gaming in the second quarter, according to market research firm NPD, down 13% year on year.

In the three months ended June, Microsoft, Sony and Nintendo NTDOY each posted disappointing results in their respective gaming businesses. In the last reported quarter, gaming revenues decreased 7% (down 5% at cc) due to a decrease in Xbox content and services and Xbox hardware.

Nintendo saw a 15% slide in operating profit in the April-June period. The company behind the Super Mario franchise claimed that the weak performance, due to the global semiconductor shortage, affected production and sales of Switch consoles.

Nintendo sold 3.43 million units of its portable Switch console in the quarter, down 23% year over year, while software sales declined 8.6%, to 41.4 million units.

Sony sold 2.4 million PlayStation 5 consoles in the quarter, slightly higher than the 2.3 million units sold in the same period a year ago.

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