Microsoft’s Activision Blizzard acquisition will harm UK gamers, says watchdog

The UK's competition regulator has ruled that Microsoft's $68.7bn (£59.6bn) deal to buy Activision Blizzard, the video game publisher behind hits including Call of Duty, will result in higher prices and less competition for UK gamers.

The Competition and Markets Authority (CMA), which launched an in-depth investigation in September after raising a host of concerns about the biggest takeover in tech history, said the deal would weaken the global rivalry between Microsoft's Xbox and Sony's PlayStation consoles.

"Our job is to make sure that UK gamers are not caught in the crossfire of global deals that, over time, could damage competition and result in higher prices, fewer choices, or less innovation," said Martin Coleman, the chair of the independent panel of experts conducting the investigation. "We have provisionally found that this may be the case here."

The CMA said possible remedies to address competition issues included selling or spinning off the business that makes Call of Duty, or the entire Activision arm of the combined Activision Blizzard.

However, the watchdog acknowledged that a spin-off into a standalone operation would mean the new business "may not have sufficient assets and resources to operate as an independent entity".

While the CMA did not completely rule out measures short of a divestiture - for example a "behavioural remedy" such as an iron-clad licence to guarantee distribution of Call of Duty to Sony - it said a structural solution such as a partial sale, spin-off or completely blocking the deal was its preferred option.

"We are of the initial view that any behavioural remedy in this case is likely to present material effectiveness risks," it said. "At this stage, the CMA considers that certain divestitures and/or prohibition are, in principle, feasible remedies in this case."

The CMA said there was a risk under the deal that Microsoft could try to make Call of Duty, Activision's flagship game and one of the most popular and profitable global franchises of all time, exclusively available to Xbox console owners.

Last year, Microsoft attempted to allay competition concerns, saying it would offer its rival Sony a 10-year licence to ensure the title stayed on its PlayStation consoles. However, after Microsoft's $7.5bn acquisition of ZeniMax in 2020, the parent of studios behind games including The Elder Scrolls, Fallout and Doom, Microsoft moved to make some titles exclusive to its own devices.

"Microsoft would find it commercially beneficial to make Activision's games exclusive to its own consoles, or only available on PlayStation under materially worse conditions," the CMA said. "This strategy, of buying gaming studios and making their content exclusive to Microsoft's platforms, has been used by Microsoft following several previous acquisitions of games studios."

The CMA said the end result could be that gamers would face "higher prices, reduced range, lower quality, and worse service in gaming consoles over time".

Microsoft said it believed its 10-year guarantee to continue to offer Call of Duty to rivals on equal terms would be enough to allay competition concerns. "We are committed to offering effective and easily enforceable solutions that address the CMA's concerns," said Rima Alaily, the corporate vice-president and deputy general counsel at Microsoft.

The CMA's ruling is of critical importance as it comes before the publication of official findings of investigations conducted by the European Commission and the US Federal Trade Commission, which in December launched legal action to block the deal.

Anne Witt, a professor of antitrust law at EDHEC Business School, said a full block by the CMA would force Microsoft to abandon the deal worldwide, unless it managed to get the decision overturned on appeal; while if Microsoft agreed to sell Call of Duty, such a move would probably satisfy other regulators.

"If the CMA gets Microsoft to sell Call of Duty it would probably meet the concerns of the FTC and the EU," said Witt.

She added that regulators were less likely to accept behavioural remedies because they could be circumvented and were expensive to monitor. "If they don't hammer out some kind of compromise and Microsoft does not accept the structural remedies, the CMA will have no other option than to prohibit the deal," she said.

Activision Blizzard said it would attempt to change the CMA's mind, "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".

Microsoft's all-cash offer for Activision Blizzard, which also publishes global hits such as World of Warcraft and Candy Crush, dwarfs its previous biggest deal, the $26bn takeover of LinkedIn in 2016.

The purchase would result in the Xbox maker becoming the world's third-biggest gaming company by revenue behind China's Tencent and Japan's Sony.