Microsoft’s acquisition of Activision disallowed by UK’s Competition and Markets Authority

Gaming is the largest entertainment sector in the United Kingdom which generated about £5 billion revenue in the year 2022 (surpassing other sectors such as TV streaming, music streaming, films and books). A similar trend could be seen in other jurisdictions as well which are witnessing a boom in the online gaming arena. The recent technological developments in gaming landscape have drastically changed how people access and play games. The concept of cloud gaming has evolved significantly and is being considered the next frontier in the gaming ecosystem. Cloud gaming allows gamers to stream and play games which is stored and rendered in the data centres (i.e. cloud) via internet connection on devices including laptops, consoles, ordinary PCs, smart TVs, tablets, mobile phones and other devices. Until recently, to play graphically complex games, gamers had to purchase either a dedicated gaming console or a powerful gaming PC, however with the emergence of cloud gaming, there is no need to download and install games on PCs or console. The most popular gaming consoles are produced by Microsoft (Xbox), Sony (PlayStation) and Nintendo (Switch and others).

Microsoft Corporation, which is a global technology company which offers a wide range of products and services, with a global turnover of around £150 billion in the year 2002. Microsoft owns one of the three main console platforms, the leading PC operating system, and one of the world’s largest cloud computing platforms. Activision Blizzard Inc. is a leading games publisher and produces a number of complex games such as Call of Duty, Overwatch and World of Warcraft. Microsoft recently announced (in January 2022) that it had agreed to acquire Activision for a purchase price of USD 68.7 billion. The Merger was conditional on receiving merger control clearance from several global competition agencies, including the UK’s Competition and Markets Authority (‘CMA’). The main issue before the CMA was to decide whether the proposed merger between Microsoft and Activision would have an adverse impact on competition in the UK.

The CMA while investigating the issue held hearings from senior executives of the businesses and other key industry players and received many detailed submissions from them. The CMA also engaged an independent market research company and conducted an online survey and further consulted various competition authorities including in the EU and US. Microsoft and Activision (to be refereed as ‘Parties’) contented that the proposed merger would not substantially lessen the competition in either the console market or the cloud gaming market in UK. The Parties also suggested behaviour remedy in the form of a set of obligations that would regulate Microsoft’s behaviour and would also protect customer benefits. The remedy proposed by Microsoft set out requirements governing the kind of games that will be offered, the nature of platforms and the conditions under which the games will be offered to consumers over a period of ten years.

CMA decision on the proposed merger

The CMA held that if the proposed merger is allowed, it could incur damage to its closest competitor ‘Sony’ by withholding Activision’s most popular game, Call of Duty, from Playstation. The Authority said that Playstation accounts for a large and profitable customer base that regularly buys Call of Duty and if Microsoft exclusively offered Call of Duty on Xbox, the customers would start choosing Xbox over Playstation (which would considerably reduce Playstation gamers). Further, on deciding the issue on competition in relation to cloud gaming, CMA observed that Activision has a strong portfolio of games and Microsoft too has multiple cloud gaming strengths and if the proposed merger happens then it would certainly harm the emerging cloud gaming competitors by withholding Activision games from other market players.

The CMA pointed out that the proposed remedy suggested by Microsoft would not be effective for the following reasons:

1. The remedy was limited in its scope, and it was confined to a model wherein it gave the right to gamers to stream Activison games on certain cloud gaming services only if they choose to purchase/subscribe the said games on certain stores or certain services.
2. The proposed remedy was restrictive in nature as it was not open to providers who wish to offer different version games on PC operating systems other than Windows.
3. The terms and conditions on which the games are available would tend to get standardised if the merger would be allowed.

The CMA blocked Microsoft’s takeover of Activision Blizzard, stating that the merger would give rise to major, permanent and structural change in the market. The CMA opined that the merger would likely to incur substantial harm to consumers and would significantly reduce customer benefits. Further, the remedy proposed by Microsoft in the form of ten-year regulatory obligations would replace the competition in the market. Microsoft has publicly announced that it would be appealing against the decision of the CMA.