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February 8, 2023

CMA fears over Microsoft’s $69bn Activision Blizzard deal add to Big Tech antitrust woe

Competition and innovation concerns could see the regulator block the deal amid opposition from the industry's other big players.

By Sophia Waterfield

UK competition regulator the Competition and Markets Authority (CMA) has provisionally concluded today that Microsoft’s proposed acquisition of game developer Activision could result in less choice and innovation for UK gamers. The regulator could block the $69bn deal, which would be a huge blow for the Big Tech company. An analyst told Tech Monitor that the decision was unsurprising given the myriad antitrust investigations currently underway against tech giants around the world.

Microsoft’s acquisition of Call of Duty publisher Activision Blizzard could fail if the company doesn’t make remedies that please CMA. Photo by Shutterstock/Diego Thomazini

In its announcement today, the CMA stated that the deal could also result in higher prices and fewer choices for consumers. It said that it conducted a “wide-ranging investigation” over five months to understand the market and the potential impact of the deal. This included on-site visits and hearings to hear from Microsoft and Activision and analysing more than three million internal documents from the two businesses.

Other gaming console providers, game publishers and cloud gaming service providers also gave evidence to the CMA, including Sony Interactive Entertainment, which makes the PlayStation console. It argued that Microsoft would make popular Activision titles such as the Call of Duty series exclusive to its Xbox consoles, reducing choice for gamers.

The CMA also conducted an independent survey of UK gamers to establish future buying behaviours and impact on competition if the deal went through.

Regulators in the EU and US are also looking at the deal and its implications.

The ‘largest video game acquisition in history’ could go up in smoke

The ‘Phase 2’ investigation by CMA was announced in September 2022 after it identified a realistic prospect of “significant lessening of competition” in consoles, multi-game subscription services and cloud gaming services markets. Initial investigations began when Microsoft announced the deal in January last year. The CMA says it’s the largest video game acquisition in history as well as the largest acquisition that the tech giant has ever made.

During its evidence gathering, it found that Microsoft would find it “commercially beneficial to make Activision’s games exclusive to its own cloud gaming service”. The tech giant accounts for an estimated 60-70% of the global cloud gaming services as well as having “other important strengths” in the industry from owning Xbox, Windows and global cloud computing infrastructure such as Azure and Xbox Cloud Gaming.

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“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,” the government body said. “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.”

Is Microsoft’s metaverse future-proofing off the cards?

Speaking to Tech Monitor when the deal was announced in January 2022, Mike Proulx, VP research director, Forrester, said that the tech giant buying Activision would not only expand its gaming footprint for cloud and mobile gaming but would also round off its metaverse strategy. The company published its plan to provide a metaverse tech stack for customers using Azure cloud.

“When it comes to infrastructure component [of the metaverse], Microsoft already has the systems which provide an entry point to metaverse-type experience, Proulx said. “But you need the actual experience layer too, and because gaming platforms have set themselves up as the first to offer this, this deal gives Microsoft a strong foothold.”

Access to Activision’s user base would also be desirable for Microsoft’s other business units, said Martin Coleman, chair of the independent panel of experts conducting the CMA Phase 2 investigation. “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,” he said.

Global probes into Big Tech could be influencing CMA’s decision

The decision comes against a backdrop of Big Tech companies such as Microsoft and its rivals Apple, Meta and Amazon facing significant opposition from regulators over their dominance of the digital economy.

In March 2022, the CMA announced it was investigating Google and Meta over ad tech concerns and whether they “hampered competition” in markets for online display advertising services. Other antitrust probes have been launched by the EU into Amazon, Apple, Google and Facebook around competition in digital markets.

So was the CMA’s decision in this case inevitable? Paolo Pescatore thinks so. “[The acquisition] would significantly strengthen Microsoft’s integrated games offering as one of the largest game console providers along with a growing number of games titles,” says the tech, media and telco analyst at PP Foresight. “This is further compounded by the ongoing probing of Big Tech companies given their increasing dominance. While it does not reduce the number of players in each segment, its control and influence will grow which will raise concerns over pricing and choice.”

Can Microsoft Activision deal be saved?

As part of its investigations, the CMA identified remedies Microsoft could take for the deal to go ahead. These are predominantly structural, requiring a partial divestiture of Activision Blizzard.

Microsoft would have to spin off the part of the business associated with Call of Duty, and the ‘Blizzard’ part of the business which publishes another popular series, World of Warcraft. The CMA identified Call of Duty as Activision’s flagship game, saying it has 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 announcement said. “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.”

This strategy could harm UK gamers, pushing up prices and reducing service quality in gaming consoles over time, CMA states. This conclusion was also put forward by Sony Entertainment Interactive as part of the evidence gathering.

“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.

Microsoft has disputed the CMA’s concerns throughout the investigation, and told Tech Monitor it would provide “effective and easily enforceable solutions” to satisfy the regulator’s concerns.

“Our commitment to grant long-term 100% equal access to Call of Duty to Sony, Nintendo, Steam and others preserves the deal’s benefits to gamers and developers and increases competition in the market,” said Rima Alaily, Microsoft’s corporate vice president and deputy general counsel. “Seventy-five per cent of respondents to the CMA‘s public consultation agree that this deal is good for competition in UK gaming.”

The CMA has welcomed further responses from “interested parties” to its findings by 1 March. Its notice of possible remedies will be delivered by 22 February, with the final report due on April 26.

Read more: Amazon agrees EU antitrust deal, but questions remain

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