REG - Competition and Mkts - Merger Update Microsoft / Activision

Activision BlizzardAnnouncement

26/04/2023 13:15

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RNS Number : 5631X  Competition and Markets Authority  26 April 2023

FOR IMMEDIATE RELEASE - WEDNESDAY 26 APRIL

Microsoft / Activision deal prevented to protect innovation and choice in
cloud gaming

·    Microsoft's solution had significant shortcomings and would require
regulatory oversight by CMA

·    Panel Chair: "Cloud gaming needs a free, competitive market to drive
innovation and choice"

The CMA has prevented Microsoft's proposed purchase of Activision over
concerns the deal would alter the future of the fast-growing cloud gaming
market, leading to reduced innovation and less choice for UK gamers over the
years to come.

The final decision to prevent the deal comes after Microsoft's proposed
solution failed to effectively address the concerns in the cloud gaming
sector, outlined in the Competition and Markets Authority's (CMA) provisional
findings published in February.

Microsoft entered into a $68.7 billion deal to buy Activision, one of the most
popular video games publishers in the world, 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 even stronger in
cloud gaming, stifling competition in this growing market.

Cloud gaming concerns

The UK cloud gaming market is growing fast. Monthly active users in the UK
more than tripled from the start of 2021 to the end of 2022. It is forecast to
be worth up to £11 billion globally and £1 billion in the UK by 2026. By way
of comparison, sales of recorded music in the UK in 2021 amounted to
£1.1billion.

Microsoft has a strong position in cloud gaming services and the evidence
available to the CMA showed 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, absent
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. 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.

The remedy

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.

Such remedies are described as 'behavioural' because they seek to regulate the
behaviour of the businesses involved in a merger, requiring them to behave in
a way which may be contrary to their commercial incentives. This therefore
takes the form of a type of ongoing regulation of the sector, replacing market
forces in a growing and dynamic market with mandated regulatory obligations
ultimately overseen, and enforced by, the CMA - in this case at a global
level.

Microsoft's proposal contained a number of significant shortcomings connected
with the growing and fast-moving nature of cloud gaming services:

·    It did not sufficiently cover different cloud gaming service business
models, including multigame subscription services.

·    It was not sufficiently open to providers who might wish to offer
versions of games on PC operating systems other than Windows.

·    It would standardise the terms and conditions on which games are
available, as opposed to them being determined by the dynamism and creativity
of competition in the market, as would be expected in the absence of the
merger.

Given the remedy applies only to a defined set of Activision games, which can
be streamed only in a defined set of cloud gaming services, provided they are
purchased in a defined set of online stores, there are significant risks of
disagreement and conflict between Microsoft and cloud gaming service
providers, particularly over a ten-year period in a rapidly changing market.

Accepting Microsoft's remedy would inevitably require some degree of
regulatory oversight by the CMA. By contrast, preventing the merger would
effectively allow market forces to continue to operate and shape the
development of cloud gaming without this regulatory intervention.

Considering the potential benefits of the merger

The CMA carefully considered whether the benefit of having Activision's
content available on Game Pass outweighed the harm that the merger would cause
to 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.

Martin Coleman, chair of the independent panel of experts conducting this
investigation, said:

"Gaming is the UK's largest entertainment sector. Cloud gaming is growing fast
with the potential to change gaming by altering the way games are played,
freeing people from the need to rely on expensive consoles and gaming PCs and
giving them more choice over how and where they play games. This means that it
is vital that we protect competition in this emerging and exciting market.

"Microsoft already enjoys a powerful position and head start over other
competitors in cloud gaming and this deal would strengthen that advantage
giving it the ability to undermine new and innovative competitors.

"Microsoft engaged constructively with us to try to address these issues and
we are grateful for that, but their proposals were not effective to remedy our
concerns and would have replaced competition with ineffective regulation in a
new and dynamic market.

"Cloud gaming needs a free, competitive market to drive innovation and choice.
That is best achieved by allowing the current competitive dynamics in cloud
gaming to continue to do their job."

 Notes to editors

1.   For media enquiries, contact the CMA press office on 020 3738 6460 or
press@cma.gov.uk (mailto:press@cma.gov.uk) .

2.   Microsoft is a global technology company offering a wide range of
products and services, with a global turnover of nearly £125 billion the
financial year 2021. Since 2001, it has sold various generations of Xbox
gaming consoles. Gamers typically download digital copies of the games they
want to play on Xbox from Microsoft's Xbox Store. Microsoft also offers a
multigame subscription service, Xbox Game Pass, where gamers pay a monthly fee
to gain access to a library of games.

3.   Activision Blizzard is a game developer and publisher with global
turnover of £6.3 billion in the financial year 2021, with over £700 million
of this in the UK. It develops popular gaming content for consoles, PC, and
mobile, which includes titles such as Call of Duty, World of Warcraft, and
Candy Crush.

4.   In an update to its provisional findings, the CMA said in March that it
provisionally had no concerns about the impact of the 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. The CMA has
today concluded that the deal may not be expected to result in a significant
lessening of competition in console gaming services in the UK.

5.   For more information, visit the Microsoft / Activision inquiry page
(https://www.gov.uk/cma-cases/microsoft-slash-activision-blizzard-merger-inquiry)
.

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