The UK Competition and Markets Authority has concluded that Microsoft’s purchase of Activision Blizzard will not result in a substantial decrease in competition for console gaming in the UK. UK CMA goes on to explain that while previously submitted evidence indicated that Microsoft might make the Call of Duty franchise an exclusive for its Xbox consoles it now believes that prospect to be unlikely as it would, in fact, hurt Microsoft financially. CoD exclusivity has been a hot topic with Sony as the PlayStation manufacturer has made numerous claims against Microsoft regarding the proposed deal. Sony has even gone so far as to suggest that Microsoft could release “buggy” versions of future CoD games in order to incentivize players to get it on Xbox instead.
The UK Competition and Markets Authority does also state that it is still investigating the proposed deal and these provisional findings only relate to competition in the supply of gaming consoles. These findings do not address any impact the merger deal could have on cloud gaming which it is still looking into. The UK CMA expects to complete its investigation by the end of April.
“In February, the Competition and Markets Authority (CMA) published provisional findings setting out that the deal raises competition concerns in relation to both console gaming and cloud gaming services in the UK. The publication of the provisional findings initiated a period of consultation in which the CMA invited responses to those findings from interested parties and continued to gather further information.
The CMA has received a significant amount of new evidence in response to its original provisional findings. Having considered this new evidence carefully, together with the wide range of information gathered before those provisional findings were issued, the CMA inquiry group has updated its provisional findings and reached the provisional conclusion that, overall, the transaction will not result in a substantial lessening of competition in relation to console gaming in the UK.
The most significant new evidence provided to the CMA relates to Microsoft’s financial incentives to make Activision’s games, including Call of Duty (CoD), exclusive to its own consoles. While the CMA’s original analysis indicated that this strategy would be profitable under most scenarios, new data (which provides better insight into the actual purchasing behaviour of CoD gamers) indicates that this strategy would be significantly loss-making under any plausible scenario. On this basis, the updated analysis now shows that it would not be commercially beneficial to Microsoft to make CoD exclusive to Xbox following the deal, but that Microsoft will instead still have the incentive to continue to make the game available on PlayStation.
The CMA’s addendum to its provisional findings today relates only to competition in the supply of consoles and not to competition in the supply of cloud gaming services, where the CMA is continuing to carefully consider the responses provided in relation to the original provisional findings. The CMA’s merger investigation continues, and it remains due to issue its final report by 26 April 2023.
Martin Coleman, chair of the independent panel of experts conducting this investigation, said:
Provisional findings are a key aspect of the merger process and are explicitly designed to give the businesses involved, and any interested third parties, the chance to respond with new evidence before we make a final decision.
Having considered the additional evidence provided, we have now provisionally concluded that the merger will not result in a substantial lessening of competition in console gaming services because the cost to Microsoft of withholding Call of Duty from PlayStation would outweigh any gains from taking such action.
Our provisional view that this deal raises concerns in the cloud gaming market is not affected by today’s announcement. Our investigation remains on course for completion by the end of April.“
As the pendulum swings
Piers Harding-Rolls (Ampere Analysis) told Eurogamer the following in regard to the new decision.
“However, the provisional Phase 2 findings of the CMA did give me pause for thought considering the structural remedies proposed. Today’s updated findings swings the pendulum back in favour of the deal completing.”
“Importantly, the change in stance on lessening of competition in the UK console market means that the requirement for structural remedies are substantially less relevant in my view. It now just remains to be seen how Microsoft and the CMA deal with the concern around cloud gaming services.
“The recent deals that Microsoft has signed are partially relevant, but I don’t think these completely satisfy concerns around the inherent advantages that Microsoft holds when it comes to its cloud infrastructure. Overall though, this is clearly positive news for Microsoft and Activision Blizzard.”