Microsoft entered into a $68.7 billion deal to buy Activision, a video games publishers, in January 2022. The CMA launched an in-depth review of the deal in September 2022, and in February 2023 provisionally found that the merger could make Microsoft grow str4onger in cloud gaming, stifling competition in a growing market. In an update to its provisional findings, the CMA said in March that it provisionally had no concerns about the impact of a deal on the console gaming market. This followed analysis which found that Microsoft would not have a financial incentive to make Call of Duty exclusive to Xbox. It has now concluded that the deal may not be expected to result in a significant lessening of competition in console gaming services in the UK but it will affect the cloud gaming market.
The CMA says that the UK cloud gaming market is growing fast. Microsoft has a strong position in cloud gaming services and the evidence available to the CMA should that Microsoft would find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service.
Microsoft already accounts for an estimated 60-70% of global cloud gaming services and has other important strengths in cloud gaming from owning Xbox, the leading PC operating system (Windows) and a global cloud computing infrastructure (Azure and Xbox Cloud Gaming).
The deal would reinforce Microsoft’s advantage in the market by giving it control over important gaming content such as Call of Duty, Overwatch, and World of Warcraft. The evidence available to the CMA indicates that, without the merger, Activision would start providing games via cloud platforms in the foreseeable future.
The cloud allows UK gamers to avoid buying expensive gaming consoles and PCs and gives them much more flexibility and choice as to how they play. The CMA says that allowing Microsoft to take such a strong position in the cloud gaming market just as it begins to grow rapidly would risk undermining the innovation that is crucial to the development of these opportunities.
Microsoft submitted a proposal to address some of these concerns which the CMA examined in considerable depth. The proposed remedy set out requirements governing what games must be offered by Microsoft to what platforms and on what conditions over a ten-year period.
The CMA considered whether Microsoft’s proposed benefit of having Activision’s content available on Game Pass outweighed the harm that the merger would cause competition in cloud gaming in the UK. The CMA found that this new payment option, while beneficial to some customers, would not outweigh the overall harm to competition (and, ultimately, UK gamers) arising from this merger, particularly given the incentive for Microsoft to increase the cost of a Game Pass subscription post-merger to reflect the addition of Activision’s valuable games.
Microsoft and Activision have said they would appeal the CMA’s decision. In an interview with the BBC Radio 5 Today programme, Brad Smith, Microsoft Vice-chair and president, said the company was “very disappointed” about the CMA’s decision, “but more than that, unfortunately, I think it’s bad for Britain. There’s a clear message here – the European Union is a more attractive place to start a business than the United Kingdom.” However, other authorities have investigated similar concerns, including the European Commission, which is yet to report. The US Federal Trade Commission has issued an administrative complaint seeking to block the merger.
