UK regulator says Microsoft’s proposed $68.7 billion Activision merger could create ‘higher prices, fewer choices’

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Seven months after the UK’s Competition and Markets Authority (CMA) confirmed it was launching an antitrust investigation into Microsoft’s $68.7 billion bid for video game giant Activision Blizzard, the UK’s regulator UK has tentatively concluded that the merger “could harm UK players” through higher prices, fewer choices or less innovation.

Microsoft first revealed plans for its mega-dollar acquisition of Activision last January, a deal that would make Microsoft the world’s third-largest games company by revenue behind Tencent and Sony. More importantly, it would also give Microsoft direct control over popular franchises like Call of Duty and World of Warcraft.

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The deal has garnered significant scrutiny since its inception, with various bodies around the world noting that Microsoft may be using its clout to restrict the distribution of Activision Blizzard games to rival distributors and platforms. The European Union (EU) is currently engaged in a thorough investigation and reportedly issued a formal warning to Microsoft last week, while the Federal Trade Commission (FTC) in the US is suing to block the agreement. The UK, meanwhile, announced its in-depth investigation in September, noting at the time that the merger could result in a “substantial decrease in competition” in the UK gaming market.

Now, the UK has pretty much cemented that assumption in stone, saying that if the deal passes, it could bolster Microsoft’s cloud gaming credentials and stifle competition, leading to higher prices if Microsoft drives the companies out of business. of rival game.

Specifically, the CMA said the deal could weaken Microsoft’s rivalry with Sony, which operates the competing PlayStation console. Call of Duty, for example, is currently available on Microsoft’s Xbox and Sony’s PlayStation, among other platforms. World of Warcraft, meanwhile, is currently only available on PC and Mac. In a world where Microsoft is pulling the strings, things might look very different.

The CMA report said:

The evidence available to the CMA, including data on how Microsoft measures customer value in the normal course of business, currently indicates that Microsoft would find it commercially advantageous to make Activision’s games exclusive to its consoles (or available only on PlayStation under materially worse conditions).

The CMA’s interim findings note that this strategy, of buying game studios and making their content exclusive to Microsoft platforms, has been employed by Microsoft following several previous game studio acquisitions.

Rima Alaily, corporate vice president and deputy general counsel at Microsoft, said the company is committed to providing “easily enforceable solutions” that address the CMA’s competition concerns.

“Our commitment to providing Sony, Nintendo, Steam and others with 100% equal long-term access to Call of Duty preserves the benefits of the agreement for players and developers and increases competition in the marketplace,” he said.

However, in defining what “100%” means, the company clarified that it means parity in content, pricing, features, quality, and playability, but only over a 10-year period. This is in line with the company’s recently announced commitments to its competitors.

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The UK’s antitrust authority has raised a number of cases against “big tech” M&A activity in recent times, perhaps most notably against Facebook’s parent company Meta, which has been ordered to sell GIF platform Giphy. Facebook had acquired Giphy for $400 million in 2020, but the CMA said the deal will limit choice for UK-based social media users and reduce innovation in display advertising. Despite many protests, Meta later agreed to trade Giphy.

In terms of what happens next in the world of Microsoft and Activision, today’s announcement is essentially to solicit one last round of “stakeholder” feedback. This will obviously include both Microsoft and Activision Blizzard as well as competitors. The various parties have until March 1, 2023 to respond, with the CMA sending the two companies a separate report explaining how its concerns could be addressed.

The CMA said it expects to submit its final report by April 26, 2023.

An Activision spokesperson hinted that the CMA may not have fully understood the gaming industry, something it hopes to address in the coming months.

“These are interim findings, which means the CMA sets out its concerns in writing and both sides have a chance to respond,” the spokesperson said. “We hope that between now and April we will be able to help the CMA better understand our industry to ensure they can achieve their stated mandate of fostering an environment where people can be confident they are getting great choices and fair deals, where competitive , fair- business can innovate and thrive and where the whole of the UK economy can grow productively and sustainably”.

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