UK regulators approve Microsoft’s $75bn Activision contract

UK competition regulator, Activision Blizzard’s acquisition of Microsoft for $75bn would hurt competition in the UK. In provisional findings, the regulator recommended the sale of the blockbuster Call of Duty franchise to endanger the landmark deal.

Wednesday’s Competition and Markets Authority said that the deal could lead to “higher prices, fewer options, or less innovation” for UK gamers and weaken “important rivalry between Xbox and PlayStation gaming platforms.” It could also reduce competition in the emerging market for cloud gaming.

These findings are a blow for Microsoft and have put pressure on the company to convince the UK regulator to accept solutions other than sell-offs, before making a final decision in April.

CMA stated that blocking the deal was the only way to avoid the competition problems it found. It suggested that Microsoft could sell Call of Duty to Activision, which has generated $30bn annually in lifetime sales.

Microsoft is also fighting regulatory probes in Brussels, the US, to push through its largest-ever deal. It has become the third-largest video gaming company in terms revenue, behind Tencent in China and Sony in Japan. The US Federal Trade Commission sued Microsoft in December to stop the Activision acquisition.

According to the CMA, evidence that it had analysed showed Microsoft would be motivated commercially to make Call of Duty exclusively for its Xbox or on substantially better terms, thereby hurting other console makers like Sony. The CMA stated that Microsoft had already purchased gaming studios, and made their content exclusive for its platforms.

The CMA’s conclusions come just days after Activision’s chief Bobby Kotick criticized the CMA for “not really utilizing independent thought, nor thinking about how this transaction could positively impact the UK”.

Kotick stated that the CMA “seems like they’ve been coopted by the FTC ideology”. Kotick said that EU regulators had demonstrated “a lot more insight into and recognition of the economic risks from a macro perspective”

Rival Sony accused Microsoft of lying to regulators about its promises to keep Call of Duty available on PlayStation consoles after Activision’s acquisition.

Microsoft has maintained that it will not restrict rivals’ access and has promised that all online game stores it operates would be open. This would give rival game makers an equal chance to find an audience.

Martin Coleman, the chair of the CMA’s independent panel, of experts who conducted the phase-two investigation said that: “Our job it to ensure that UK gamers don’t get caught in the crossfire global deals that could damage competition and result, over time, in higher prices, fewer options, or less innovation. This may be the case, according to our preliminary findings.

According to sources familiar with the matter, Microsoft is expected to attempt to convince the UK regulator to accept a behavioral solution in the form licensing agreements, similar to the ones it signed with Nintendo and offered Sony.

Microsoft and Nintendo signed a 10-year deal in December to bring Call of Duty to their platforms for the first-time in nearly a decade. It made the same offer to Sony to provide the game on console, subscription, and cloud gaming streaming. This will also give it a higher revenue share than Activision currently receives.

The CMA’s general reluctance in accepting behavioural solutions over structural ones like sell-offs means that the tech giant from the US will have to fight to convince it.

According to a lawyer familiar with the matter, there is little chance that the company can successfully argue that licensing agreements are effective.

Rima Alaily was Microsoft’s deputy general attorney. She stated that the company was committed to providing effective and easily enforceable solutions to address concerns raised by the CMA. Our commitment to provide long-term 100% equal access to Call of Duty for Sony, Nintendo and Steam, among others, preserves the deal’s benefits for gamers and developers, and increases competition in this market.

Activision stated that it hopes to be able help the CMA “better comprehend our industry” between now and April so that the whole UK economy can grow productively.