The UK Competition and Markets Authority has broken ranks with the European Commission in blocking the proposed acquisition of Activision Blizzard by Microsoft, with the remedies offered by Microsoft being deemed insufficient by the CMA. 

The CMA is, however, not alone in taking this step, with the US Federal Trade Commission also seeking to block the acquisition. 

Much has been said of the FTC using the CMA to do its heavy lifting in the blocking of this acquisition; however this would be an entirely erroneous assessment. The CMA has shown its intention to be a global authority and a regulatory leader by not shying away from taking on the heavyweights: it showed its hand in its recent investigations into Amazon, Apple and Meta.

Whilst PlayStation maker Sony will no doubt be ecstatic with the CMA’s decision, critically the CMA decided that the acquisition is unlikely to cause a substantial lessening of competition in the console market, owing to Sony’s already extensive game library, market position and that AAA titles such as Call of Duty would not be made titles exclusive to Microsoft’s Xbox console post-merger.

The CMA’s decision in blocking this acquisition stems from it differentiating cloud-based gaming services as a separate market within the gaming industry, with the CMA finding that Microsoft’s ownership of both the Windows OS and a console ecosystem pose a particular challenge to the proposed acquisition. Noting the dominant market position held by Microsoft in the cloud gaming service – 60-70%, according to the CMA – and considering the substantial barriers to entry in this market, the CMA’s concerns were that Activision would not have sufficient incentive to continue to make titles available on other cloud gaming platforms.

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Microsoft’s appeal against the CMA’s decision is fivefold:

  • firstly, Microsoft argue that the CMA made fundamental errors in assessing Microsoft’s position in cloud based gaming and failed to consider constraints of native (i.e. where a physical disc rather than streaming is used) gaming. Here Microsoft seeks to dispute the market analysis undertaken by the CMA as well as its analysis on the vertical foreclosure effects;
  • secondly, Microsoft argue that the CMA has failed to take into account the effect on long term commercial agreements with cloud gaming providers, some of these being entered recently and, arguably, to allay concerns;
  • thirdly, Microsoft argue that the CMA made an irrational finding that Activision would likely make its content available to other cloud gaming providers but for the acquisition, a finding that is rather presumptive;
  • fourthly, Microsoft argue that the CMA has erred in its finding that Activision would withhold its game titles, in particular AAA (top tier) games from other cloud gaming providers and thus lead to shutdown of rival services, contending that neither Activision nor Microsoft would have the financial incentive to do so and disputing importance of AAA game titles to cloud based gaming in any event, both arguments that are unlikely to have much traction;
  • and finally, Microsoft argue that the CMA has erred in law in rejecting Microsoft’s proposed remedy and breached the common law duty of fairness as well as its own guidance.

It is difficult to predict the outcome of the upcoming appeal, particularly because the CMA may have overreached in its determination that it can impose a comprehensive remedy to competition concerns in rejecting Microsoft’s proposed remedies, and its assumptions as to what Activision may or may not have done but for the merger. Microsoft’s arguments in this respect may have traction.

In addition, the CMA’s attempt to effectively regulate the unregulated emerging market of cloud based gaming does appear to cater to post-Brexit promises of de-regulation, such deregulation still being fiction rather than fact, albeit this should not be a consideration for the Competition Appeal Tribunal. Whilst Microsoft are lobbying the UK government, one would hope that such lobbying would have no effect on the outcome as it is a principle of the UK legal system to be independent of such influence.

There are however steps that the UK government can take, such as engaging with the CMA as to the potential regulation of cloud based gaming, as the CMA’s decision to reject Microsoft remedies is in part based in the fact that this is an unregulated market. This, however, is not a quick solution which would be needed given the proximity of the appeal’s hearing. 

Whilst the CMA may wish to be the global leader in anti-trust regulation, it must balance this desire with ensuring the UK is open for business. It’s with hope that a resolution which is suitable to all should be found on this occasion, whether this involves stronger safeguards to competition in Microsoft’s proposed remedies or various regulatory controls of the market.

We will soon know whether the CMA has overplayed its hand.

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