Microsoft’s $68.7 billion cash deal with bag game giant Activision Blizzard is coming under greater antitrust scrutiny in the UK, where the country’s market watchdog has just been released. ‘ announce that he will move on to a full investigation – unless the pair submit suitable proposals to address his concerns in the next few days.
The Competition and Markets Authority (CMA) opened a formal investigation into the acquisition in July, seeking comments on whether or not to move to a more in-depth so-called phase 2 investigation. It is now decided that the deal deserves special attention, given that it could significantly reduce competition in games consoles, multi-game subscription services and cloud gaming services.
Microsoft and Activision have five business days to submit remedies to the CMA to avoid this further investigation (which would involve appointing a panel of independent experts to further investigate concerns uncovered during the Phase 1 investigation. ).
Commenting in a statement, Sorcha O’Carroll, Senior Director of Mergers at CMA, said:
“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 gaming services. multi-game subscription and cloud games.
“If our current concerns are not resolved, we plan to explore this deal in a full Phase 2 investigation to reach a decision that works in the interests of UK players and businesses.”
The CMA said it’s concerned that if Microsoft, owner of the Xbox brand, buys Activision Blizzard, a maker of wildly popular console, PC and mobile games, it could hurt its console rivals (“including recent entrants and future”) – denying them access to Activision’s games or offering access on much worse terms.
Popular franchises developed by Activision include Call of Duty and World of Warcraft. It also owns the Candy Crush mobile game, among other highly rated titles.
“CMA believes merger could allow Microsoft to manufacture ABK [Activision Blizzard] content, including Call of Duty, exclusive to Xbox or Game Pass, or otherwise degrade rivals’ access to ABK content, such as by delaying releases or imposing license price increases,” writes the regulator in a summary of its decision, noting this is known as an “input foreclosure” concern (i.e. when a company uses its control of a significant input to harm its competitors) .
The CMA goes on to include its assessment that Sony would be Microsoft’s main rival likely to be affected in the short to medium term.
Additionally, the regulator said it has received evidence of the potential impact of Activision Blizzard’s combination with Microsoft’s broader ecosystem. “Microsoft already has a leading game console (Xbox), a leading cloud platform (Azure), and the leading PC operating system (Windows OS), all of which could be important to its success in cloud gaming,” writes he in a press. Release. “The CMA is concerned that Microsoft is leveraging Activision Blizzard’s games with Microsoft’s strength on console, cloud and PC operating systems to harm competition in the nascent market for cloud gaming services. “
On cloud gaming, the CMA summarizes its concerns as follows:
“Microsoft already has a mix of assets that is difficult for other cloud gaming service providers to match. By having a large and well-distributed cloud infrastructure, Microsoft will be able to host games on its servers on preferential terms and reach gamers around the world without having to pay fees to third-party cloud platforms.By having Windows, the operating system on which the vast majority of PC games are played, Microsoft can stream games to Windows PCs without having to pay high Windows licensing fees and may be able to design and test games designed for Windows more efficiently than competitors.And by having an existing console ecosystem, Microsoft has an existing user base of gamers to which it can may promote its cloud gaming services, as well as a range of popular games it may offer.
“The merger would therefore put the company in a particularly strong position to offer cloud gaming services with one of the strongest game catalogs in the industry. The CMA is concerned that by leveraging ABK’s content and the broader Microsoft ecosystem, Microsoft has an unprecedented advantage over current and potential cloud gaming service providers. This could lead to increased concentration in cloud gaming services or the “switchover” of the market to Microsoft, and ultimately deprive consumers of the benefits of competition between new and emerging vendors vying for success in cloud gaming. The CMA recognizes that if Microsoft were to significantly increase its market power in cloud gaming services, This could impact independent game developers and publishers who compete with Microsoft’s games portfolio and could be disadvantaged. ntages in several ways. , such as having to pay higher fees or being demoted on Microsoft’s gaming ecosystem.
“The CMA considers these concerns warrant a full Phase 2 investigation. Microsoft and Activision Blizzard now have 5 business 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,” the regulator adds in the press release.
Microsoft has been contacted for development comment.
A spokesperson sent this statement, attributed to Brad Smith, President and Vice President of Microsoft:
“We are ready to work with the CMA on the next steps and address all of their concerns. Sony, as an industry leader, says it’s worried about Call of Duty, but we said we’re committed to making the same game available the same day on Xbox and PlayStation. We want people to have more access to games, not less.
The tech giant also pointed to a blog post that Microsoft Gaming CEO Phil Spencer posted today – so he’s wasting no time pulling out the big PR guns – in which he lays out a vision “play for everyone, everywhere”; touting a “choice” strategy that he says will see Microsoft make popular Activision titles available through its Game Pass “to grow those gaming communities.”
“We’ve heard that this deal could drive franchises like Call of Duty away from where people are playing them right now. That’s why, as we’ve said before, we’re committed to making the same version of Call of Duty available on PlayStation the same day the game launches elsewhere,” Spencer continues.
“We will continue to allow people to play with each other across all platforms and devices. We know gamers 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. While we expand our games storefront to new devices and platforms, we will ensure that we do so in a way that protects the ability of developers to choose how to distribute their games.
Also today, Activision CEO Bobby Kotick released an open letter to employees in which he reiterates that the company’s management team expects regulatory oversight of the acquisition to be a “long process” – but also suggests a “likely” closing date for the mid-2023 deal.
“With the number of government approvals required, we still believe the deal is most likely to close during Microsoft’s fiscal year ending June next year. We are fortunate to have already received approvals from a few countries, and the process with all regulators is generally going as planned,” he wrote. “This week we heard about the UK, where we have more staff than we currently have. anywhere except North America. We have entered the second phase of our review there, and we will continue to cooperate fully with regulators there, and wherever approvals are required.
“As our industry continues to see many companies aggressively investing in gaming, including many of the world’s largest technology and media companies, government regulators are taking appropriate and deliberate steps to better understand our industry and the competition. growing all over the world,” adds Kotick. .