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.
Four people have been arrested by police investigating cyber attacks targeting M&S, Co-op and Harrods.
A 20-year-old woman and two males, both aged 19, and a male aged 17, were detained in London and the West Midlands this morning as part of a National Crime Agency (NCA) operation.
They were arrested at their homes on suspicion of Computer Misuse Act offences, blackmail, money laundering and participating in the activities of an organised crime group.
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Electronic devices were seized from the suspects and are currently being analysed by forensic experts.
M&S halted online orders, and shelves were empty in shops after the cyber attack on the retailer earlier this year.
The initial hack into the retailer’s systems took place in April through “sophisticated impersonation” involving a third party.
Disruption is expected to continue at the retailer until the end of this month.
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Mickey Carroll in May answered why M&S cyber attack was so bad.
The Co-op and Harrods were also subsequently targeted by hackers.
Paul Foster, head of the NCA’s National cybercrime unit described the arrests as a “significant step” in their investigation, which remains “one of the Agency’s highest priorities”.
He added: “…our work continues, alongside partners in the UK and overseas, to ensure those responsible are identified and brought to justice.”
The National Crime Agency is keen to “signal” to “future victims” the “importance of seeking support and engaging with law enforcement”, stating that “the NCA and policing are here to help”.
The NCA has also thanked M&S, Co-op and Harrods for their support in their investigations.
The arrests, which took place early on Thursday morning, were supported by officers from the West Midlands Regional Organised Crime Unit and the East Midlands Special Operations Unit.
Earlier this week, the chairman of M&S told MPs that the hack had been “traumatic” and like an “out-of-body experience”.
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Archie Norman, however, refused to be drawn on whether the retailer had paid any ransom.
“We are not discussing any of the details of our interaction with the threat actor, including this subject, but that subject is fully shared with the NCA,” he said.
It is estimated that the cyber attack will cost M&S up to £300m this year.
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Days after M&S was attacked, the Co-op was targeted and forced to shut down some internal systems.
Harrods was then hacked, and also had to shut some systems despite its website and shops continuing to operate.
Of those arrested, a 17-year-old British male and a 19-year-old Latvian male were from the West Midlands.
A 19-year-old man was from London and a 20-year-old woman from Staffordshire.
Royal Mail is to be allowed to scrap Saturday second-class stamp deliveries, under a series of reforms proposed by the communications regulator.
From 28 July, Royal Mail will also be allowed to deliver second-class letters on alternate weekdays, Ofcom said.
The post will still be delivered within three working days of collection from Monday to Friday.
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The proposals had already been raised by Ofcom after a consultation was announced in 2024, and the scale back was proposed early this year.
Royal Mail had repeatedly failed to meet the so-called universal service obligation to deliver post within set periods of time.
Those delivery targets are now being revised downwards.
Rather than having to have 93% of first-class mail delivered the next day, 90% will be legally allowed.
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The sale of Royal Mail was approved in December
The target for second-class mail deliveries will be lowered from 98.5% to arrive within three working days to 95%.
A review of stamp prices has also been announced by Ofcom amid concerns over affordability, with a consultation set to be launched next year.
It’s good news for Royal Mail and its new owner, the Czech billionaire Daniel Kretinsky. Ofcom estimates the changes will bring savings of between £250m and £425m.
A welcome change?
Unsurprisingly, the company welcomed the announcement.
“It is good news for customers across the UK as it supports the delivery of a reliable, efficient and financially sustainable universal service,” said Martin Seidenberg, the group chief executive of Royal Mail’s parent company, International Distribution Services.
“It follows extensive consultation with thousands of people and businesses to ensure that the postal service better reflects their needs and the realities of how customers send and receive mail today.”
Citizens Advice, however, doubted whether services would improve as a result of the changes.
“Today, Ofcom missed a major opportunity to bring about meaningful change,” said Tom MacInnes, the director of policy at Citizens Advice.
“Pushing ahead with plans to slash services and relax delivery targets in the name of savings won’t automatically make letter deliveries more reliable or improve standards.”
Acknowledging long delays “where letters have taken weeks to arrive”, Ofcom said it set Royal Mail new enforceable targets so 99% of mail has to be delivered no more than two days late.
Changing habits
Less than a third of letters are sent now than 20 years ago, and it is forecast to fall to about a fifth of the letters previously sent.
According to Ofcom research, people want reliability and affordability more than speedy delivery.
Royal Mail has been loss-making in recent years as revenues fell.
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In response to Ofcom’s changes, a government spokesperson said: “The public expects a well-run postal service, with letters arriving on time across the country without it costing the earth. With the way people use postal services having changed, it’s right the regulator has looked at this.
“We now need Royal Mail to work with unions and posties to deliver a service that people expect, and this includes maintaining the principle of one price to send a letter anywhere in the UK”.
Ofcom said it has told Royal Mail to hold regular meetings with consumer bodies and industry groups to hear their experiences implementing the changes.
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