UK watchdog’s block on Microsoft-Activision deal had an eye on the future
It is rare for a decision by the UK’s competition regulator to make waves globally.
The Competition & Markets Authority (CMA) has traditionally not been as significant a force in preventing corporate deals as the European Commission or the US Federal Trade Commission.
So the CMA’s decision to block Microsoft’s $75bn takeover of the games publisher Activision Blizzard is one of its most far-reaching decisions in years.
It is also huge for a sector – video gaming – that is of more importance to the UK and to the global economy than is widely appreciated.
This was the biggest acquisition in Microsoft‘s history – and the CMA’s intervention may yet scupper the deal.
It has sent Activision shares down more than 11% in pre-market trading.
The decision has come as a surprise for a couple of reasons. The first is that the CMA has not blocked the decision due to concerns over the competition in the supply of games consoles.
Microsoft had pledged to make Call of Duty available on other platforms for at least a decade to satisfy regulators’ early concerns
This was of particular importance in the UK. Elsewhere around the world, in particular the US, playing games on large PCs is commonplace.
The UK, by contrast, is not a nation of PC players but one of console players. This reflects the fact that UK housing is smaller, typically, than in the US and so British gamers are more likely to play on consoles that can easily be fitted under a TV set and take up less space.
Consoles like Microsoft’s Xbox and Sony’s PlayStation are therefore a more important factor in the UK gaming market than in the US one.
The concern was that armed with Activision’s big money-spinning titles, chiefly Call of Duty, World of Warcraft and Overwatch, Microsoft would have had plenty of scope to hurt PlayStation sales were it to make games exclusive only to the Xbox.
It was seen as particularly significant for the CMA in view of the fact that in the UK, more gamers own a PlayStation 5 than own an Xbox series X or its cheaper sister product, the Xbox series S.
But the CMA said last month it had provisionally concluded that the merger would not result in a substantial lessening of competition in console gaming services “because the cost to Microsoft of withholding Call of Duty from PlayStation would outweigh any gains from taking such action”.
Accordingly, as this was the main area in which the CMA was expected to have competition concerns, it is surprising that the regulator has decided to block the takeover.
The other big surprise is that the ground on which the CMA wants to block the proposed deal is that it would potentially reduce competition in the cloud gaming sector.
This is because the cloud is at present a relatively small part of the way in which video games are played currently.
But it is already a field in which Microsoft has established a lead over Sony and that may well be of concern to the CMA – particularly given Microsoft’s wider market dominance in cloud services (another market the CMA is investigating separately) and given the work Microsoft is doing to deliver many of the services available through Gamepass, its subscription service, through the cloud.
The CMA has clearly made this decision with an eye to the future.
The CMA’s intervention may not be enough to kill this deal.
Microsoft and Activision may find a way of offering remedies to satisfy it, but the size and the complexity of the global gaming market would probably make it too complicated for Microsoft and Activision to unpick it in a way that the UK remained excluded from a tie-up elsewhere around the world.
But there are also competition hurdles elsewhere, particularly the US, where the FTC has said it will sue to block the deal.
And, in other jurisdictions, concerns over competition in consoles may well be a factor. Microsoft has insisted throughout that it has no intention of making Activision’s games exclusive to Xbox, Gamepass and to PCs.
But other watchdogs may choose to consider an interview given last month by Harvey Smith, the director of a game called Redfall, which is published by Bethesda Softworks, a company bought by Microsoft in 2021. The development of Redfall was interrupted by the pandemic, during which, Microsoft bought Bethesda.
Mr Smith told the US video game and entertainment website IGN that, originally, Redfall was to be released on all platforms but that there was a “huge change” once Microsoft bought Bethesda.
He told IGN that, even though work had been started to make a PlayStation version of Redfall, Microsoft had cancelled that work in order to make it exclusive to Xbox.
He said: “We were acquired by Microsoft and it was a capital C change. They came in and said, ‘No PlayStation 5, we’re focusing on Xbox, PC and Game Pass’.”
That interview has already been flagged by Sony in some of its representations to competition watchdogs.
The CMA’s ruling will be music to Sony’s ears. Pic: AP
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A key point to bear in mind is that Microsoft is doing well enough – last night’s quarterly results showed a business firing on all cylinders – for it not to need Activision.
That may not be true for the latter which, shortly before the takeover was announced, was beset by allegations of sexual assault and mistreatment of women at the company in recent years.
That may explain the vituperative response of Bobby Kotick, Activision’s chief executive, to today’s decision. Mr Kotick, who stands to make millions from a sale of the company, has previously accused the CMA of being “co-opted by FTC ideology”.
Bobby Kotick has reacted angrily to the CMA’s decision
He has, though, been careful to praise Rishi Sunak, telling the Financial Times in February this year that the PM was “smart” and understands business, adding: “If I look at our hiring plans, we’re more likely to find the next 3,000 to 5,000 people that we need in the UK than almost any other country.”
That was very much at odds with his assertion today that “the UK is clearly closed for business”.
Some will dismiss that as a man lashing out in disappointment.
Others will view it as a threat.
Business
FCA considering compensation scheme over car finance scandal – raising hopes of payouts for motorists
Thousands of motorists who bought cars on finance before 2021 could be set for payouts as the Financial Conduct Authority (FCA) has said it will consult on a compensation scheme.
In a statement released on Sunday, the FCA said its review of the past use of motor finance “has shown that many firms were not complying with the law or our disclosure rules that were in force when they sold loans to consumers”.
“Where consumers have lost out, they should be appropriately compensated in an orderly, consistent and efficient way,” the statement continued.
Read more: How to tell if you’ve been mis-sold car finance
The FCA said it estimates the cost of any scheme, including compensation and administrative costs, to be no lower than £9bn – adding that a total cost of £13.5bn is “more plausible”.
It is unclear how many people could be eligible for a pay-out. The authority estimates most individuals will probably receive less than £950 in compensation.
The consultation will be published by early October and any scheme will be finalised in time for people to start receiving compensation next year.
The announcement comes after the Supreme Court ruled on a separate, but similar, case on Friday.
The court overturned a ruling that would have meant millions of motorists could have been due compensation over “secret” commission payments made to car dealers as part of finance arrangements.
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Car finance scandal explained
The FCA’s case concerns discretionary commission arrangements (DCAs) – a practice banned in 2021.
Under these arrangements, brokers and dealers increased the amount of interest they earned without telling buyers and received more commission for it. This is said to have then incentivised sellers to maximise interest rates.
In light of the Supreme Court’s judgment, any compensation scheme could also cover non-discretionary commission arrangements, the FCA has said. These arrangements are ones where the buyer’s interest rate did not impact the dealer’s commission.
This is because part of the court’s ruling “makes clear that non-disclosure of other facts relating to the commission can make the relationship [between a salesperson and buyer] unfair,” it said.
It was previously estimated that about 40% of car finance deals included DCAs while 99% involved a commission payment to a broker.
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Nikhil Rathi, chief executive of the FCA, said: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.
“We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.”
Some of the world’s leading tech companies are betting big on very small innovations.
Last week, Samsung released its Galaxy Z Fold 7 which – when open – has a thickness of just 4.2mm, one of the slimmest folding phones ever to hit the market.
And Honor, a spin-off from Chinese smartphone company Huawei, will soon ship its latest foldable – the slimmest in the world. Its new Honor Magic V5 model is only 8.8mm thick when folded, and a mere 4.1mm when open.
Apple is also expected to release a foldable in the second half of next year, according to a note by analysts at JPMorgan published this week.
The race to miniaturise technology is speeding up, the ultimate prize being the next evolution in consumer devices.
Whether it be wearable devices, such as smartglasses, watches, rings or foldables – there is enormous market potential for any manufacturer that can make its products small enough.
Despite being thinner than its predecessor, Honor claims its Magic V5 also offers significant improvements to battery life, processing power, and camera capabilities.
Hope Cao, a product expert at Honor told Sky News the progress was “due largely to our silicon carbon battery technology”. These batteries are a next-generation breakthrough that offers higher energy density compared to traditional lithium-ion batteries, and are becoming more common in consumer devices.
The Magic V5. Pic: Honor
Honor also told Sky News it had used its own AI model “to precisely test and find the optimum design, which was both the slimmest, as well as, the most durable.”
However, research and development into miniaturisation goes well beyond just folding phones.
A company that’s been at the forefront of developing augmented reality (AR) glasses, Xreal, was one of the first to release a viable pair to the consumer market.
Xreal’s Ralph Jodice told Sky News “one of our biggest engineering challenges is shrinking powerful augmented reality technology into a form factor that looks and feels like everyday sunglasses”.
Xreal’s specs can display images on the lenses like something out of a sci-fi movie – allowing the wearer to connect most USB-C compatible devices such as phones, laptops and handheld consoles to an IMAX-sized screen anywhere they go.
Pic: Xreal
Experts at The Metaverse Society suggest prices of these wearable devices could be lowered by shifting the burden of computing from the headset to a mobile phone or computer, whose battery and processor would power the glasses via a cable.
However, despite the daunting challenge, companies are doubling down on research and making leaps in the area.
Social media giant Meta is also vying for dominance in the miniature market.
Ray-Ban Meta AI glasses are shown off at the annual British Educational Training and Technology conference. Pic: PA
Meta’s Ray-Ban sunglasses (to which they recently added an Oakley range), cannot project images on the lenses like the pair from Xreal – instead they can capture photos, footage and sound. When connected to a smartphone they can even use your phone’s 5G connection to ask Meta’s AI what you’re looking at, and ask how to save a particular type of houseplant for example.
Gareth Sutcliffe, a tech and media analyst at Enders Analysis, tells Sky News wearables “are a green field opportunity for Meta and Google” to capture a market of “hundreds of millions of users if these devices sell at similar rates to mobile phones”.
Li-Chen Miller, Meta’s vice president of product and wearables, recently said: “You’d be hard-pressed to find a more interesting engineering problem in the company than the one that’s at the intersection of these two dynamics, building glasses [with onboard technology] that people are comfortable wearing on their faces for extended periods of time … and willing to wear them around friends, family, and others nearby.”
Mr Sutcliffe points out that “Meta’s R&D spend on wearables looks extraordinary in the context of limited sales now, but should the category explode in popularity, it will be seen as a great strategic bet.”
Facebook founder Mark Zuckerberg’s long-term aim is to combine the abilities of both Xreal and the Ray-Bans into a fully functioning pair of smartglasses, capable of capturing content, as well as display graphics onscreen.
However, despite recently showcasing a prototype model, the company was at pains to point out that it was still far from ready for the consumer market.
This race is a marathon not a sprint – or as Sutcliffe tells Sky News “a decade-long slog” – but 17 years after the release of the first iPhone, people are beginning to wonder what will replace it – and it could well be a pair of glasses.
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