The UK’s Competition and Markets Authority (CMA) came down squarely against Microsoft’s proposed $69 billion acquisition of Activision Wednesday morning. In a sprawling provisional report summary, the government regulator said the merger could hurt consumers by “weakening the important rivalry between Xbox and PlayStation gaming consoles” and “could result in higher prices, fewer choices, or less innovation for UK gamers.”
The CMA’s provisional findings focus on cloud gaming, where the CMA says Microsoft already accounts for 60 to 70 percent of the global market. After the merger, Microsoft would “find it commercially beneficial to make Activision’s games exclusive to its own cloud gaming service (or only available on other services under materially worse conditions),” the CMA said.
The CMA also expressed particular worry about “a small number of key games, including Call of Duty” being potentially locked to the Xbox and Windows PCs. While Microsoft has repeatedly promised that Call of Duty would remain fully available on other platforms for at least 10 years after the merger, the CMA notes that Microsoft has previously purchased other game studios and then “[made] their content exclusive to Microsoft’s platforms.”
The loss of Call of Duty on PlayStation platforms in particular could reduce competition and “result in all gamers seeing higher prices, reduced range, lower quality, and worse service in gaming consoles over time,” the CMA argued.
In a statement provided to Ars Technica, Microsoft Corporate Vice President and Deputy General Rima Alaily said the company’s “commitment to grant long term 100% equal access to Call of Duty to Sony, Nintendo, Steam and others preserves the deal’s benefits to gamers and developers and increases competition in the market.” That means “10 years of parity. On content. On pricing. On features. On quality. On playability,” the statement continued.
In a separate report on potential remedies, the CMA suggested its approval of the merger might depend on Microsoft divesting large parts of Activision Blizzard King. That could mean Microsoft splitting off Activision or its Call of Duty business or making Activision and Blizzard into a separate entity (the last option leaving only mobile-focused King as part of the deal).
Just a temporary speed bump?
Today’s release is not a final decision, and both Microsoft and Activision will have a chance to respond in writing before an April deadline for the CMA’s ultimate decision on the merger. Still, the provisional report is the largest setback yet for a deal that has faced increasing scrutiny from governments worldwide.
Despite this, Activision struck a hopeful tone in a statement shared with Ars Technica:
We hope between now and April we will be able to help the CMA better understand our industry to ensure they can achieve their stated mandate to promote an environment where people can be confident they are getting great choices and fair deals, where competitive, fair-dealing business can innovate and thrive, and where the whole UK economy can grow productively and sustainably.
In a note sent to Activision employees (and shared with Ars Technica), CEO Bobby Kotick said the company is “confident that the law—and the facts—are on our side” and that the merger would “bring more competition” by allowing Microsoft to compete with “giants” like Sony, Tencent, NetEase, Apple, Amazon, and Facebook.
In a less polite interview with the Financial Times, though, Kotick accused Sony of “trying to sabotage” the merger deal, in part by refusing to talk with Microsoft about it. Kotick added that the CMA is “not really using independent thought” in evaluating how the deal “would positively impact the UK.” And Kotick also went after the government of UK Prime Minister Rishi Sunak, which he said doesn’t have “any real vision in the leadership for pursuing these kinds of opportunities… It seems like a bit of a fragile government. Where’s the leadership?”
In an interview with CNBC Tuesday, Microsoft CEO Satya Nadella echoed that the merger would “only bring more competitiveness to the gaming industry.” He pointed in particular to Microsoft’s meager share of the console market in Japan as a place where regulators might look and say that Microsoft “should start competing more.”
Earlier this week, The New York Times reported that Microsoft’s legal team expects the CMA to ultimately come down against the merger deal. In response, Microsoft said that “it believes it has a strong case in Britain and it has not predetermined, nor been advised by its lawyers, that the merger will be blocked.”