UK Watchdog Finds Microsoft’s Activision Deal Could Hurt Gamers

The British competition regulator, the Competition and Markets Authority (CMA) has become the first regulator to conclude its investigation of a multi billion dollar tech acquisition.

The CMA announced it has provisionally concluded on Wednesday that Microsoft’s $68.7 billion acquisition of Activision Blizzard, announced in January 2022, raises competition concerns.

The CMA was the first competition agency to signal its concerns about the deal in July 2022. It was followed months in November later by European competition regulators.

Provisional conclusion

In December 2022 the US Federal Trade Commission (FTC), which enforces antitrust law in America, announced it was also seeking to block the deal.

The UK’s CMA first showed its willingness to take-on big tech in 2021 when it successfully blocked Facebook-owner Meta’s acquisition of Giphy – despite both firms being headquartered in the United States.

Meta accepted the ruling and promised to divest itself of Giphy.

Now despite Microsoft recently offering Sony and Nintendo a 10-year contract for the same ‘Call Of Duty’ release dates on their respective platforms, as on its Xbox platform, the CMA has concluded the Activision Blizzard acquisition could harm UK gamers.

Indeed, the CMA investigation has provisionally concluded that Microsoft’s proposed acquisition of Activision could result in higher prices, fewer choices, or less innovation for UK gamers.

In-depth investigation

The provisional findings follows a wide-ranging investigation conducted over the last five months to understand the market and potential impact of the deal.

This included site visits and hearings to hear directly from business leaders at Microsoft and Activision; analysing over 3 million internal documents from the two businesses to understand their views on the market; commissioning an independent survey of UK gamers; and gathering evidence from a range of other gaming console providers, game publishers, and cloud gaming service providers.

Following this, the CMA provisionally found that being able to offer popular games will be important for cloud gaming providers to attract users as the market continues to grow and develop.

The evidence available to the CMA currently indicates that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service (or only available on other services under materially worse conditions).

Harms competition

The CMA found that Microsoft already accounts for an estimated 60-70 percent of global cloud gaming services and also has other important strengths in cloud gaming from owning Xbox, the leading PC operating system (Windows) and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming).

The CMA provisionally found that buying one of the world’s most important game publishers would reinforce this strong position and substantially reduce the competition that Microsoft would otherwise face in the cloud gaming market in the UK.

This could alter the future of gaming, potentially harming UK gamers, particularly those who cannot afford or do not want to buy an expensive gaming console or gaming PC, the CMA found.

The CMA provisionally found that a small number of key games, including Call of Duty (CoD), play an important role in driving competition between consoles. The evidence available to the CMA, including data on how Microsoft measures the value of customers in the ordinary course of business, currently indicates that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own consoles (or only available on PlayStation under materially worse conditions).

The CMA’s provisional findings note that this strategy, of buying gaming studios and making their content exclusive to Microsoft’s platforms, has been used by Microsoft following several previous acquisitions of games studios.

The CMA provisionally found that weakening competition by restricting the access that other platforms have to Activision’s games could substantially reduce the competition between Xbox and PlayStation in the UK, in turn harming UK gamers.

Awaiting responses

“It’s been estimated that there are around 45 million gamers in the UK, and people in the UK spend more on gaming than any other form of entertainment including music, movies, TV, and books,” noted Martin Coleman, chair of the independent panel of experts conducting this Phase 2 investigation.

“Strong competition between Xbox and PlayStation has defined the console gaming market over the last 20 years,” said Coleman. “Exciting new developments in cloud gaming are giving gamers even more choice.”

“Our job is to make sure that UK gamers are not caught in the crossfire of global deals that, over time, could damage competition and result in higher prices, fewer choices, or less innovation,” said Coleman. “We have provisionally found that this may be the case here.”

“We have also today sent the companies an explanation of how our concerns might be resolved, inviting their views and any alternative proposals they wish to submit,” Coleman concluded.

The CMA is awaiting responses from interested parties to its provisional findings by 1 March 2023 and its notice of possible remedies, by 22 February 2023.

These will be considered ahead of the CMA issuing its final report, which is due by 26 April 2023.