CMA investigates new restructured deal by Microsoft to buy Activision

August 29, 2023

The CMA is investigating a revised deal for Microsoft to buy Activision following its rejection of the previous proposed deal.

Microsoft has proposed a new structure to the deal under which it will not acquire the cloud streaming rights to all current and future Activision games released during the next 15 years (excluding in the EEA).

The new deal follows the CMA’s confirmation that it will block the original deal to protect innovation and choice in cloud gaming. In what the CMA calls an unusual step, Microsoft had sought to revisit the CMA’s original prohibition decision, arguing that blocking the original deal was no longer appropriate in light of developments since the CMA issued its Final Report in April, including the acceptance of binding commitments by the European Commission and a licensing deal agreed between Sony and Microsoft.

The independent group which took the original decision reviewed these submissions and decided that they did not provide any basis for a change to the original prohibition decision. To give final legal effect to that decision, the CMA has now imposed a Final Order which prohibits the original deal on a worldwide basis.

Separately, Microsoft and Activision have agreed a new, restructured deal, which has been submitted to the CMA to review in a new investigation.

This new investigation will be carried out in line with the CMA’s usual Phase 1 processes and the statutory deadline for a decision is 18 October 2023.

Under the restructured deal, Microsoft will not acquire cloud rights for existing Activision PC and console games, or for new games released by Activision during the next 15 years (this excludes the EEA). Instead, these rights will be divested to Ubisoft Entertainment SA before Microsoft’s acquisition of Activision.

Microsoft has stated that the restructured deal is intended to address the concerns set out in the CMA’s Final Report in April. In particular, the transaction is intended to provide an independent third-party content supplier, Ubisoft, with the ability to supply Activision’s gaming content to all cloud gaming service providers (including Microsoft itself). Ubisoft will be able to licence out Activision’s content under different business models, including subscription services. The deal also proposes that Ubisoft would have the ability to require Microsoft to provide versions of games on operating systems other than Windows.

The CMA is inviting comments from any interested party on the impact that the newly structured merger could have on competition in the UK by 1 September 2023.

In a separate development, the CMA has cleared Broadcom’s $69 billion purchase of VMWare following an in-depth Phase 2 investigation. Broadcom, a global technology company, makes and sells hardware components used in computer servers. VMware sells software products and services which enable servers to work more efficiently.

Following its initial Phase 1 investigation, the CMA identified competition concerns warranting in-depth review and referred the deal to a Phase 2 inquiry. An independent panel then conducted an in-depth investigation, considering new evidence and stakeholder feedback, and provisionally found that Broadcom’s proposed purchase of VMware would not substantially reduce competition in the supply of server hardware components in the UK.

The panel explored concerns that the deal could harm the ability of Broadcom’s rivals to compete if the merged company were to make their products work less well (or not at all) with VMware’s server virtualisation software. However, it has found that the potential financial benefit to Broadcom and VMware of making rival products work less well with VMware’s software would not outweigh the potential financial cost in terms of lost business.

The panel also considered whether the deal could harm innovation. The panel looked at whether Broadcom’s rivals need to share commercially sensitive information with VMware to ensure their hardware and VMware’s software work together in computer servers, and whether there could be concerns about Broadcom potentially having access to such information following the deal.

Following a consultation on its provisional findings, and having considered the feedback, the panel has confirmed its final decision is that the deal does not substantially reduce competition – clearing it to proceed in the UK.