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September 1, 2022updated 02 Sep 2022 4:17am

Microsoft faces further CMA probe over $69m Activision Blizzard acquisition

The regulator believes the blockbuster gaming deal could harm competition in the market.

By Sophia Waterfield

Microsoft’s acquisition of games company Activision Blizzard could face further scrutiny by the UK competition regulator. The Competition and Markets Authority (CMA) has deemed the blockbuster $69bn deal could harm rival businesses and damage competition in the cloud gaming service market. It will begin a full “Phase 2” investigation if it is not satisfied by the response from both companies to its concerns.

A Phase 1 investigation into the deal, which began earlier this year and has now concluded, identified a realistic prospect of “significant lessening of competition” in the games consoles, multi-game subscription services and cloud gaming services markets, the CMA said today. It has given Microsoft and Activision Blizzard five working days to respond to its concerns.

Playful couple, Gamers enjoying Playing Video Games indoors sitting on the sofa, holding Console Gamepad in hands. Resting At Home, have a great Weekend. Microsoft X-BOX - stock photo
Microsoft and Activision Blizzard’s merger is being investigated by CMA due to concerns of damaging the cloud gaming market. (Photo by BONDART/iStock).

The deal was announced in January, and in July the CMA confirmed that it was considering whether the merger would result in “substantial lessening of competition within any market of markets in the UK for goods and services”. Under the merger provisions of the Enterprise Act 2022, a relevant merger situation is when two or more enterprises cease to be distinct, or will cease to be distinct, as a result of being brought under common ownership or control.

Sorcha O’Carroll, senior director of mergers, CMA, said today: “Following our Phase 1 investigation, we are concerned that Microsoft could use its control over popular games like Call of Duty and World of Warcraft post-merger to harm rivals, including recent and future rivals in multi-game subscription services and cloud gaming.”

Why is CMA investigating Microsoft’s buy-out of Activision Blizzard?

Activision Blizzard is the company behind high-profile gaming franchisees such as Call of Duty and World of Warcraft which can be played on consoles such as PC, Xbox and Playstation, while Microsoft makes the Xbox console and is making moves in cloud gaming through its Xbox Live network.

A Phase 2 investigation by CMA allows an independent panel of experts to probe the risks in more depth. The panel would have the power to request information including internal documents from Microsoft and Activision Blizzard about how they view competition and the market.

Microsoft and Activision Blizzard now have five working days to submit proposals to address the CMA’s concerns. If suitable proposals are not submitted, the deal will be referred for a Phase 2 investigation. Tech Monitor has contacted Microsoft for comment.

What has Microsoft said about the deal?

In a blog post on the Microsoft Official Blog, Gaming CEO Phil Spencer said that Microsoft and Activision Blizzard would make the same version of Call of Duty, for example, available on rival console Playstation on the same day it launches on Xbox Game Pass.  

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“We will continue to enable people to play with each other across platforms and across devices. We know players benefit from this approach because we’ve done it with Minecraft, which continues to be available on multiple platforms and has expanded to even more since Mojang joined Microsoft in 2014,” he wrote.

“We will continue to engage with regulators with a spirit of transparency and openness as they review this acquisition,” Spencer continues. “We respect and welcome the hard questions that are being asked.”

Acquiring Activision Blizzard could also give Microsoft a foot up in the metaverse, virtual worlds where it is anticipated many social and business interactions will take place in future. Gaming companies have been at the forefront of developing these environments.

Speaking to Tech Monitor in January, Mike Proulx, VP research director at Forrester, said: “When it comes to infrastructure component [of the metaverse], Microsoft already has systems which provide an entry point to metaverse-type experiences.”

But he added: “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.”

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Read more: Metaverse M&A – big business invests in virtual worlds

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