The UK competition regulator said Microsoft’s $75bn acquisition of video game maker Activision Blizzard would harm competition for UK gamers, and proposed the sell-off of the blockbuster Call of Duty franchise in provisional findings that jeopardise the landmark deal.
The Competition and Markets Authority on Wednesday said the deal could “result in higher prices, fewer choices, or less innovation for UK gamers” and weaken the “important rivalry between Xbox and PlayStation gaming consoles”. It could also stifle competition in the nascent market of cloud gaming.
The findings are a blow to Microsoft, and put the company under pressure to persuade the UK regulator to accept solutions short of sell-offs before it makes a final decision in April.
The CMA said blocking the deal was the only sure-fire way to get around the competition issues it had uncovered. But it said another option was for Microsoft to sell Call of Duty, which has generated $30bn in lifetime sales for Activision.
Microsoft is also battling regulatory probes in Brussels and the US to push through its biggest-ever deal and become the third-largest gaming company in terms of revenues, behind China’s Tencent and Japan’s Sony. In December, the US Federal Trade Commission sued to halt Microsoft’s Activision acquisition.
The CMA said evidence it had analysed indicated Microsoft would be commercially motivated to make Call of Duty exclusive to its Xbox, or on materially better terms, hurting rival console makers such as Sony. It added that Microsoft had previously bought gaming studios and made their content exclusive to its platforms.
The CMA’s findings come a day after Activision’s chief Bobby Kotick criticised the CMA for “not really using independent thought, or thinking about how this transaction would positively impact the UK”.
Speaking to the Financial Times, Kotick said the CMA “seem like they’ve been co-opted by the FTC ideology”. He added that regulators in the EU had shown “a lot more insight and recognition of what the risks are in the economy from a macro perspective”.
Rival Sony has accused Microsoft of misleading regulators about its commitments to keep Call of Duty on PlayStation consoles following its Activision acquisition.
Microsoft has always argued that it would not reduce rivals’ access to the game and has also promised that any online games stores it runs would remain open, giving rival game markers an equal chance of finding an audience.
Martin Coleman, chair of the CMA’s independent panel of experts conducting the phase-two investigation, said: “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. We have provisionally found that this may be the case here.”
Microsoft is now expected to try to persuade the UK regulator to accept a behavioural solution in the form of licensing deals, like the agreements it has signed with Nintendo and offered to Sony, according to people familiar with the matter.
In December, Microsoft signed a 10-year agreement with Nintendo to bring Call of Duty back to its platforms for the first time in almost a decade. It has made a similar overture to Sony to offer the game on console, subscription service and cloud game streaming, as well as a better revenue split than it currently receives from Activision.
But the US tech giant faces a battle to persuade the CMA to accept such a solution, because of the regulator’s general reluctance to accept behavioural remedies over structural solutions such as sell-offs.
A lawyer with knowledge of the deal said there remained a slim chance that the company could successfully argue that licensing deals would be effective.
Rima Alaily, Microsoft’s deputy general counsel, said the company was “committed to offering effective and easily enforceable solutions that address the CMA’s concerns. Our commitment to grant long-term 100 per cent 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.”
Activision said it hoped that it would be able to help the CMA “better understand our industry” between “now and April” so that the “whole UK economy can grow productively and sustainably”.
Additional reporting by Andrew Edgecliffe-Johnson and Patrick Temple-West in New York